Patrick Industries
Annual Report 2020

Plain-text annual report

ANNUAL REPORT 2020 SELECTED FINANCIAL DATATT As of or for the Year Ended December 31, (cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:3)(cid:6) (cid:22)(cid:23)(cid:24)(cid:6)(cid:6)(cid:5)(cid:25)(cid:23)(cid:24)(cid:26)(cid:27)(cid:4) (cid:28)(cid:7)(cid:23)(cid:3)(cid:29)(cid:24)(cid:30)(cid:6)(cid:3)(cid:5)(cid:31)(cid:5) (cid:3)(cid:8)(cid:27)!(cid:3)(cid:23)"(cid:5)(cid:3)#(cid:25)(cid:3)(cid:2)(cid:6)(cid:3)(cid:6) (cid:6)(cid:3)(cid:8)(cid:8)(cid:27)(cid:2)(cid:22)(cid:2)(cid:5)(cid:22)(cid:3)(cid:2)(cid:3)(cid:23)(cid:7)(cid:8)(cid:5)(cid:31)(cid:5)(cid:7) $(cid:27)(cid:2)(cid:27)(cid:6)(cid:4)(cid:23)(cid:7)(cid:4)(cid:27)!(cid:3)(cid:5)(cid:3)#(cid:25)(cid:3)(cid:2)(cid:6)(cid:3)(cid:6) (cid:24)(cid:25)(cid:3)(cid:23)(cid:7)(cid:4)(cid:27)(cid:2)(cid:22)(cid:5)(cid:27)(cid:2)%(cid:24)$(cid:3) (cid:2)(cid:3)(cid:4)(cid:5)(cid:27)(cid:2)%(cid:24)$(cid:3) (cid:27)(cid:8)(cid:30)(cid:4)(cid:3) (cid:5)(cid:2)(cid:3)(cid:4)(cid:5)(cid:27)(cid:2)%(cid:24)$(cid:3)(cid:5)(cid:25)(cid:3)(cid:23)(cid:5)%(cid:24)$$(cid:24)(cid:2)(cid:5)(cid:6)(cid:29)(cid:7)(cid:23)(cid:3) (cid:28)(cid:3)(cid:27)(cid:22)(cid:29)(cid:4)(cid:3) (cid:5)(cid:7)!(cid:3)(cid:23)(cid:7)(cid:22)(cid:3)(cid:5)(cid:6)(cid:29)(cid:7)(cid:23)(cid:3)(cid:6)(cid:5)(cid:24)(cid:30)(cid:4)(cid:6)(cid:4)(cid:7)(cid:2) (cid:27)(cid:2)(cid:22)(cid:5)&(cid:5) (cid:27)(cid:8)(cid:30)(cid:4)(cid:3) (cid:4)(cid:24)(cid:4)(cid:7)(cid:8)(cid:5)(cid:7)(cid:6)(cid:6)(cid:3)(cid:4)(cid:6) (cid:4)(cid:24)(cid:4)(cid:7)(cid:8)(cid:5) (cid:3)’(cid:4) (cid:6)(cid:29)(cid:7)(cid:23)(cid:3)(cid:29)(cid:24)(cid:8) (cid:3)(cid:23)(cid:6)((cid:5)(cid:3))(cid:30)(cid:27)(cid:4)" (cid:2)(cid:3)(cid:4)(cid:5)%(cid:7)(cid:6)(cid:29)(cid:5)(cid:25)(cid:23)(cid:24)!(cid:27) (cid:3) (cid:5)’"(cid:5)(cid:24)(cid:25)(cid:3)(cid:23)(cid:7)(cid:4)(cid:27)(cid:2)(cid:22)(cid:5)(cid:7)%(cid:4)(cid:27)!(cid:27)(cid:4)(cid:27)(cid:3)(cid:6) (cid:2)(cid:30)$’(cid:3)(cid:23)(cid:5)(cid:24)(cid:26)(cid:5)(cid:3)$(cid:25)(cid:8)(cid:24)"(cid:3)(cid:3)(cid:6) (thousands except per share and employees amounts) 2020 2019 2018 (cid:9)(cid:10)(cid:11)(cid:12)(cid:13)(cid:14)(cid:11)(cid:15)(cid:16)(cid:17) (cid:5)(cid:9)(cid:10)(cid:11)(cid:20)(cid:20)(cid:17)(cid:11)(cid:18)(cid:13)(cid:10)(cid:5) (cid:5)(cid:9)(cid:10)(cid:11)(cid:10)(cid:14)(cid:20)(cid:11)(cid:18)(cid:14)(cid:19) (cid:5)(cid:12)(cid:15)(cid:16)(cid:11)(cid:18)(cid:19)(cid:17)(cid:5) (cid:5)(cid:5)(cid:12)(cid:10)(cid:10)(cid:11)(cid:13)(cid:17)(cid:19)(cid:5) (cid:5)(cid:12)(cid:19)(cid:15)(cid:11)(cid:13)(cid:14)(cid:14)(cid:5) (cid:16)(cid:13)(cid:11)(cid:12)(cid:18)(cid:18)(cid:5) (cid:16)(cid:13)(cid:11)(cid:18)(cid:15)(cid:15)(cid:5) (cid:17)(cid:12)(cid:11)(cid:16)(cid:16)(cid:14)(cid:5) (cid:5)(cid:19)(cid:12)(cid:14)(cid:11)(cid:20)(cid:17)(cid:14)(cid:5) (cid:5)(cid:19)(cid:20)(cid:12)(cid:11)(cid:12)(cid:14)(cid:14)(cid:5) 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(cid:19)(cid:11)(cid:10)(cid:20)(cid:19)(cid:11)(cid:10)(cid:20)(cid:19) (cid:5)(cid:13)(cid:12)(cid:18)(cid:11)(cid:18)(cid:18)(cid:18)(cid:5) (cid:5)(cid:17)(cid:18)(cid:15)(cid:11)(cid:18)(cid:18)(cid:18)(cid:5) (cid:5)(cid:14)(cid:14)(cid:19)(cid:11)(cid:18)(cid:13)(cid:10)(cid:5) (cid:5)(cid:15)(cid:15)(cid:16)(cid:11)(cid:12)(cid:12)(cid:19)(cid:5) (cid:5)(cid:12)(cid:16)(cid:17)(cid:11)(cid:12)(cid:13)(cid:19)(cid:5) (cid:5)(cid:12)(cid:18)(cid:13)(cid:11)(cid:17)(cid:15)(cid:12)(cid:5) (cid:5)(cid:19)(cid:14)(cid:18)(cid:11)(cid:19)(cid:15)(cid:20)(cid:5) (cid:5)(cid:19)(cid:16)(cid:10)(cid:11)(cid:12)(cid:19)(cid:18)(cid:5) (cid:5)(cid:10)(cid:18)(cid:18)(cid:11)(cid:18)(cid:19)(cid:20)(cid:5) (cid:5)(cid:13)(cid:11)(cid:17)(cid:18)(cid:18)(cid:5) (cid:17)(cid:11)(cid:15)(cid:18)(cid:18)(cid:5) (cid:5)(cid:13)(cid:11)(cid:19)(cid:19)(cid:20)(cid:5) INVESTOR INFORMATION Net Sales ($ Millions) Net Income ($ Millions) Diluted Net Income Per Common Share $2,487 $97 $4.20 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Operating Cash Flows ($ Millions) $160 Working Capital ($ Millions) At December 31st $294 Stock Price At December 31st $68.35 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 PATRICK INDUSTRIES, INC 2020 ANNUAL REPORT LETTER TO SHAREHOLDERS 2020 was a year in which the values, strengths, and flexibility of despite the shutdowns, allowed our team to meet the needs of our organization shined in many different ways in the midst of our customer base while accelerating production. both challenges and opportunities. Our team’s health and safety were paramount, and their dedication and outstanding performance during this past year strengthened our commitment to the highest level of internal and external customer service. At the same time, our nimble and resilient operating platform allowed us to navigate both significant headwinds and tailwinds, and we emerged in the second half of 2020 well-positioned to serve our customers and execute our growth strategies as our markets recovered. The third chapter highlighted our ability to be flexible and nimble as we again quickly pivoted, this time from a defensive position to a strategic position. We focused on investment in our team members, infrastructure, and capacity needs to help ensure we could support expected strong demand. We also reignited our acquisition strategy, using our strong financial position, liquidity, and cash flows to add valuable companies to our platforms with the acquisitions of Inland Plywood, Synergy Transport, Front Range Stone, Geremarie and Taco Metals. This past year can be generally divided into three chapters. The first began with increasing momentum through most of the first Fiscal 2020 Highlights: quarter as planned, following the dealer inventory recalibration (cid:2) Despite COVID-19-related operating disruptions late in the that had negatively impacted our leisure lifestyle markets for first quarter and during the second quarter of 2020, sales of the previous 18 months. In the recreational vehicle (“RV”) $2.5 billion for the full year 2020 increased 6% from 2019 market, dealers decreased wholesale purchases and inventory with strong organic growth. levels to the point of balance, if not beyond, between OEM production, dealer demand and retail demand, while the marine industry was expected at that time to be fully rebalanced by mid-2020. Low interest rates further bolstered (cid:2) Full year 2020 operating income of $173 million increased 12%, with operating margin improving 40 basis points. Net income of $97 million increased 8%. demand in our core markets, and our manufactured housing (cid:2) Diluted net income per share of $4.20 increased 9%. (“MH”) and industrial markets were poised to benefit from high demand with low inventories. The second chapter was the navigation through the unprecedented COVID-19 pandemic hitting full force at the end of the first quarter, where our primary concern pivoted to ensuring the health and safety of the Patrick team, their families, and our communities. We paused operations early in the second quarter in a number of our RV and marine businesses for five weeks in alignment with OEM production shutdowns, while implementing new safety protocols based on CDC, state and local guidelines. During the industry-wide OEM production shutdown in RV and partial production shutdown in marine, OEMs continued to ship finished units to dealers but at a lower rate than retail sales, depleting channel inventories to historic lows. The latter half of the second quarter saw a sharp recovery in OEM production resulting from a snap-back in (cid:2) Full year 2020 operating cash flow of $160 million. (cid:2) Acquisitions in the RV, marine and industrial markets totaled $306 million. (cid:2) We returned $24 million to shareholders in the form of dividends and $23 million in the form of share repurchases. Our RV revenues, which represented 56% of 2020 sales, increased 8% over 2019 despite an approximate five-week operations shutdown in certain of our RV facilities in alignment with COVID-19 related production shutdowns by certain OEM customers. In the second half of 2020, our sales to RV OEMs increased in tandem with a sharp rebound in OEM production, reflecting a strong increase in retail and wholesale demand for RVs. Dealer inventories, which were already at historically low levels entering 2020, declined by more than 80,000 units in 2020, resulting in inventories being at their lowest levels in the demand within our leisure lifestyle markets. Moreover, certain consumers directed their spending towards housing and repair last decade. and remodel, lifting our end markets in those categories. The Our marine revenues were 14% of sales in 2020 and increased health and safety protocols we established in the second 3% compared to 2019. Marine wholesale powerboat unit quarter, in addition to our efforts to strategically deploy capital shipments, which were impacted by OEM COVID-19 production shutdowns late in the first quarter and early in the second Environmental, social and governance-related initiatives quarter of 2020, began to improve in the second half of 2020 as continue to be a priority for us as well. Our teams are focused retail demand increased. As a result, full year wholesale on sustainability in the way we use resources through powerboat unit shipments decreased 14% while corresponding innovative programs to reduce and reuse materials and reclaim marine retail powerboat unit sales increased 15% in 2020, production byproducts where they have a valuable use in other driving dealer inventory levels to their lowest since 2014. industries. We also continue to invest in human capital Our MH revenues, which represented 17% of sales in 2020, decreased 1% compared to 2019, with MH wholesale unit shipments flat in 2020. MH sales were impacted by temporary OEM production shutdowns as a result of COVID-19 late in the first quarter and early in the second quarter of 2020, slowly recovering in the second half of 2020 as MH OEMs worked through labor and supply constraints. Our industrial revenues, which are primarily tied to housing, home improvement, and renovation and remodel, represented 13% of our 2020 revenues and increased 14% compared to 2019, with tight housing markets and home improvement activity providing strong tailwinds. Housing was declared an essential industry in many parts of the country during the pandemic-related shutdowns and our industrial teams adapted incredibly well to support the needs of our customers and team members in a highly volatile time period. With the strength of our balance sheet and operating cash flows, we had no need to draw down on our revolver for defensive purposes during the year, while continuing to be positioned to capitalize on strategic growth opportunities, return capital to our shareholders, and maintain our disciplined capital allocation strategy and dividend policy. We invested $306 million in strategic acquisitions in 2020, expanding our penetration particularly in the marine end market as we invested in cutting-edge platform automation and integration and unique OEM and aftermarket solutions. In addition, we invested $32 million in capital expenditures primarily to support capacity expansion and automation in response to growing end market demand. We returned $24 million to shareholders in the form of quarterly dividends and $23 million in the form of opportunistic share repurchases. management initiatives, which are a reflection of our core values to provide a safe, inclusive and tolerant environment in which everyone is empowered to pursue their professional and personal development goals. Future Outlook We are extremely proud of our team’s performance in 2020 and are very excited about the prospects for fiscal 2021 and beyond. Our culture, core values, and the dedication and commitment of our more than 8,800 team members, who have worked tirelessly to strive to exceed our customers’ expectations, are both energizing and motivating as we drive the execution of our strategic plan. Our financial flexibility, liquidity, and balance sheet strength help enable us to pursue strategic acquisitions to expand the portfolio of brands we offer our customers and invest in automation and other capital spending to further drive capacity, efficiency, and continuous improvement initiatives. As we look ahead to 2021, we believe demographic, macroeconomic and secular tailwinds will lead to continued strong demand in our end markets which provide tremendous quality of life benefits in both a COVID and post-COVID environment. Finally, the ongoing support we receive from our customers, suppliers, banking partners, Board of Directors and shareholders will help us on our never-ending journey to deliver exceptional customer service, increase long-term shareholder value, support our local communities, and achieve superior operating and financial performance in the years to come. Todd M. Cleveland Executive Chairman of the Board Andy L. Nemeth President & Chief Executive Officer UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 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) Indiana (State or other jurisdiction of incorporation or organization) 35-1057796 (I.R.S. Employer Identification No.) 107 W. FRANKLIN STREET, P.O. BOX 638 ELKHART, Indiana (Address of principal executive offices) 46515 (Zip Code) Registrant’s telephone number, including area code: (574) 294-7511 Securities registered pursuant to Section 12(b) of the Act: Common stock, without par value PATK Nasdaq Stock Market LLC (Title of each class) (Trading Symbol) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ As of June 26, 2020, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the common stock of the registrant held by non-affiliates was $1.2 billion. As of February 12, 2021, there were 23,544,041 shares of the registrant’s common stock outstanding. Portions of the registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held on May 13, 2021 are incorporated by reference into Part III of this Form 10-K. DOCUMENTS INCORPORATED BY REFERENCE PATRICK INDUSTRIES, INC. FORM 10-K FISCAL YEAR ENDED DECEMBER 31, 2020 Table of Contents PART I ITEM 1. BUSINESS ITEM 1A. RISK FACTORS ITEM 1B. UNRESOLVED STAFF COMMENTS ITEM 2. PROPERTIES ITEM 3. LEGAL PROCEEDINGS ITEM 4. MINE SAFETY DISCLOSURES PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES ITEM 6. SELECTED FINANCIAL DATA ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS FINANCIAL DISCLOSURE UU ON ACCOUNTING AND ITEM 9A. CONTROLS AND PROCEDURES ITEM 9B. OTHER INFORMATION PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ITEM 11. EXECUTIVE COMPENSATION ITEM 12. ITEM 13. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ITEM 16. FORM 10-K SUMMARY SIGNATURES FINANCIAL SECTION Index to Financial Statements and Financial Statement Schedules Report of Independent Registered Public Accounting Firm, Deloitte & Touche LLP Report of Independent Registered Public Accounting Firm, Crowe LLP Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Statements of Financial Position Consolidated Statements of Cash Flows Consolidated Statements of Shareholders’ Equity Notes to Consolidated Financial Statements Exhibits 2 4 4 13 23 23 23 23 24 24 26 26 34 35 35 35 36 36 36 37 37 37 37 38 38 40 41 F-1 F-2 F-5 F-6 F-7 F-8 F-9 F-10 F-11 INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, industry growth and projections, growth opportunities for existing products, plans and objectives of management, markets for the common stock of Patrick Industries, Inc. (the “Company” or “Patrick”) and other matters. Statements in this Form 10-K as well as other statements contained in the annual report and statements contained in future filings with the Securities and Exchange Commission (“SEC”) and publicly disseminated press releases, and statements which may be made from time to time in the futuret looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. by management of the Company in presentations, which are not historical facts, are forward- m There are a number of factors, many of which are beyond the control of the Company, which could cause actual results and events to differ materially from those described in the forward-looking statements. Many, but not all, of these factors are identified in the “Risk Factors” section of this Form 10-K as set forth in Part I, Item 1A, and include, without limitation, the impact of any economic downturns especially in the residential housing market, a decline in discretionary consumer spending, pricing pressures due to competition, costs and availabila materials and commodities, the imposition of restrictions and taxes on imports used in our products, information technology performance and cyber-related risks, the availabila credit, the availability of retail and wholesale financing for recreational vehicles, watercraft, and residential and manufactured homes, the availabila condition of our customers, retention and concentration of material customers, the ability to generate cash flow or obtain financing to fund growth, future growth rates in the Company's core businesses, the seasonality and cyclicality in the industries to which our products are sold, realization and impact of efficff cost reductions, the successful integration of acquisitions and other growth initiatives, increases in interest rates and oil and gasoline prices, the ability to retain key management personnel, adverse weather conditions impacm ting retail sales, our ability to remain in compliance with our credit agreement covenants, the impact of the COVID-19 pandemic on the economy, our end markets and our operations, and national and regional economic, market and political conditions. You should consider forward-looking statements, therefore, in light of various important factors, including those set forth in the reports and documents that the Company files with the SEC, including this Annual Report on Form 10-K for the year ended December 31, 2020. of raw materials and components ity of commercial inventory levels of retailers and manufacturers, iency improvements and ity and costs of labor, ity of raw a t the financial 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 materially different from that set forth in such forward-looking statement. The Company does not undertake to publicly update or revise any forward-looking statements. See Part I, Item 1A “Risk Factors” below for further discussion. 3 ITEM 1. BUSINESS PART I Unless the contextee otherwise requires, the terms “Company, Industries, Inc. and itstt subsidiaries. m ” “Patrick,kk ” “we,” “our,” or “us” refee r to Patrick Company Overview p y Patrick is a majora manufacturer equipment manufacturers (“MH”) and industrial markets. t and distributor of component and building products and materials serving original t (“OEMs”) primarily in the recreational vehicle (“RV”), marine, manufactured housing through a nati kwork hthat iincl dludes, as of Dece bmber 31, 2020, 141 manufac ionwide net id The Compa yny operates through plaplants andd 58 wa hrehouse andd didist ibributiion fa icilili ities llocat ded iin 23 states, hChiina, Can dada Company operates within two reportable segments, Manufacturing and Distribution, through a nationwide network of manufacturing and distribution centers for its products, thereby reducing in-transit delivery time and cost to the regional manufacturing footprint of its customers. The Manufacturing and Distribution segments accounted for 70% and 30% of the Company’s consolidated net sales for 2020, respectively. Financial information about these operating segments is included in Note 18 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K (the "Form 10-K") and incorporated herein by reference. turi gng i dand hthe Netherlands. The al allocation strategy is to optimally manage and utilize its resources and leverage The Company’s strategic and capita its platform of operating brands to continue to grow and reinvest in its business. Through strategic acquisitions, expansion both geographically and into new product lines and investment in infrastructuret t al expenditures, Patrick seeks to ensure that its operating network contains capacity, technology and innovative thought processes to support anticipated growth needs, effectively respond to changes in market conditions, inventory and sales levels, and successfully integrate manufacturing, distribution and administrative functions. and capita t Over the last three years, we have executed on a number of new product initiatives and invested approximately $705 million in acquisitions that directly complement our core competencies and existing product lines as well as expand our presence in our primary end markets. The Company’s principal executive and administrative offices are located at 107 West Franklin Street, Elkhart, Indiana 46515 and the telephone number is (574) 294-7511; Internet website address: www.patrickind.com information on Patrick's website is not incorporated by reference into this Form 10-K. The Company makes available free of charge through the website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed with the SEC as soon as reasonably practicablea after such material is electronically filed with or furnished to the SEC. . The p 4 Majoa r Product Lines j Patrick manufactures and distributes a variety of products within its reportablea segments including: Manufacturing Laminated products for furniture, countertops t shelving, walls and Distribution Pre-finished wall and ceiling panels Decorative vinyl, wrapped vinyl, paper laminated panels and vinyl printing Drywall and drywall finff ishing products Solid surface, granite and quartz countertops Interior and exterior lighting products Fabricated aluminum products Wiring, electrical and plumbing products and hardwood profile mouldings Transportation and logistics services a vinyl, paper a Wrapped Electrical systems components including instrument and dash panels Slide-out trim and fascia Cabinet products, doors, components and custom a cabine try Electronics and audio systems components Cement siding Raw and processed lumber Hardwood furniture Fiber reinforced polyester (“FRP”) products Fiberglass bath fixtures and tile systems Interior passage doors Specialty bath and closet building products Roofing products Boat covers, towers, tops, and framff es Laminate and ceramic flooring Shower doors Fireplaces and surrounds Appliances Tile Other miscellaneous products Softwoods lumber Interior passage doors Wiring and wire harnesses CNC molds and composite m parts Aluminum and plastic fuel tanks s Slotwall panels and component m RV painting Thermoformed shower surrounds Fiberglass and plastic components including front and rear caps and marine helms Polymer-based flooring Air handling products Marine hardware Treated, untreated and laminated plywood y Primary Markets t Patrick manufactures and distributes its products in four primary end markets. Operating facilities that supply our Company’s products generally are strategically located in proximity to the customers they serve. The Company’s sales by market are as follows: RV Marine MH Industrial Total 2020 2019 56 % 14 % 17 % 13 % 100 % 55 % 14 % 19 % 12 % 100 % 5 Recreational Vehicles The Company’s RV products are sold primarily to majoa r manufacturers of RVs, smaller OEMs, and to a lesser extent, manufacturers in adjacent industries. The principal types of recreational vehicles include (1) towablea s: conventional travel trailers, fifth wheels, folding camping trailers, and truck campers; and (2) motorized: class A (large motor homes), class B (van campers), and class C (small-to-mid size motor homes). The RV market is primarily dominated by Thor Industries, Inc. (“Thor”), Forest River, Inc. (“Forest River”) and Winnebago Industries, Inc. ("Winnebago") which combined held 91% of retail market share for towablea units for 2020 as reported per Statistical Surveys, Inc. ("SSI"). s andd 86% for motorized In the late first quarter and early second quarter of 2020, we temporarily curtailed production at certain of our facilities in alignment with the temporary production shutdowns by our RV OEM customers in response to the COVID-19 pandemic. In the second half of 2020, OEM production improved sharply in response to a strong increase in retail and wholesale demand for RV units, and our sales to our RV OEM customers correspondingly improved. According to the Recreational Vehicle Industry Association (the “RVIA” shipments increased 6% in 2020, while RV retail unit sales, according to SSI, increased by 12%. With RV retail sales outpacing wholesale unit shipments in 2020, dealer inventories, which were already at historically low levels entering 2020, declined by more than 80,000 units in 2020, resulting in dealer inventories at their lowest levels in the last decade. ), wholesale industry unit RR We es itimate hthat our dproductiion RV i dindust yry approximatelyly 91% andd 9%, respec iti i increased 8% in the towablea imix of RV revenues imix. In 2020, ac lrelatedd to towablblea iunits andd mot ioriz ded ionsistent i hwith thhe overallll di cordi gng to hthe RVIA, towablblea iunit hishipments represent ded ale unit shipments sector in 2020 compared to the prior year and decreased 13% in the motorized sector. lvelyy, of tot lal RV i dindust yry h lwholes lale hishipments andd wholes dand mo w iunits iis c torizedd i Recreatiionall vehihiclle hiwhi hch causes concerns belbeliieves hthat iindustry- dustry- overallll str gengthh of hthe ec iinve ntories, hthe lle i purchases are ggenerallllyy consumer didiscretiiona yry iincome h purchases, andd htherefore, h yany isituatiion lrelat ded to didiscretiiona yry iincome can hhave a neggatiive iimpact on hthiis ma krket. hThe Compa yny lrelat ded idwide ret iaill salles andd hthe fi confiddence llevells, eq iuityy se onomy, consumer hother ddemographi lvel of didispos blable iincome, andd iwillll contiinue to bbe ddepe dndent on hthe t icuri ities ma krket tre dnds, flfluctuat ographic tr dends. iions iin dde laler dproduc ition lle lvels of RVs y a gmogra hiphic shift towa drd dand ownershihip tr dends contiinue to doutdoor, nature b-bas ded to iurism ac iti ivitiies, ipoint to favorablblea ma krket ggrowthh iin hthe llo gng term iin hthe recrea iti De hivehi lcle ma krket, as hthere iis a hif popula popula ition’s “millillen ini lals” wellll as an iincreasinging percentagge of new campers from more didiverse ggroups. At hthe same itime, hthe COVID-19 intribbutedd to iincreas ded consumer iinterest iin hthe RV lilifestyltyle. According pande pande imic hhas co 2020 KOA Northh impi gng Reports, bbas ded on sur yveys of Northh dand roadd itrips are iview ded as hthe safest forms of travell ac iti ivi ities iin hthe current COVID-19 enviironment, lvelers itime i hwith famililyy iis hthe lle dadinging mo itivatinging factor to return to tra dand "Gen Xers" embbra ici gng hithis American lleiisure travellers, ca lvelinging am gong lleiisure tra rding to hthe Mayy doutdoor lilifestyl gsegment of hthe American Ca i style andd ent dand Octobber iwi hth a lla grge doutdoors i impi gng triips dand spe dindi gng dand campers. ieri gng iinto hthe RV ma krke ltplace as lonal Detailed narrative information about the Company’s sales to the RV industryrr Discussion and Analysis of Financial Condition and Results of Operations” (the "MD&A") of this Form 10-K. is included in Item 7. “Management’s Marineii The marine industry reflects the active, outdoor leisure-based, family-oriented lifestyle that characterizes the RV industry and the Company has increased its focus and expanded its presence in this market through recent acquisitions, particularly within the last three years. Consumer demand in the marine market is generally driven by the popularity of the recreational and leisure lifestyle and by economic conditions. Similar to our RV market, the marine industry was impacm ted by COVID-19 disruptions in 2020 with our plants experiencing temporary shutdowns in the late first quarter and early second quarter of 2020, which were then followed by sharp increases in marine demand in the second half of 2020, which we believe is driven in part by an increased interest in outdoor activities, including marine activities, as a result of the COVID-19 pandemic and its impacm t on leisure preferences. 6 b"Abstract")), iit iis es itimatedd hthat hthere were ap iNationall Ma irine Manufacturers Associia ition (("NMMA")), per iits 2019 U.S. Recre iation lal Boatinging imilllliion registegiste dred bboats iin hthe approximatelyly i proximat lelyy 3% from 2018 as stat ded iin hthe bAbstract. hThe averagge gage of bboats currentlyly on bboats, enginegines, accesso iries, andd lrelat ded costs totalledd proximat lelyy 12 i di cordi gng to hthe isticall bAbstract ( h(the Ac Sta iti U.S. iin 2019. Tot lal U.S. retailil expe dinditures $$43.1 bilbillilion iin 2019, up ap iin use iis ap bebe re iti dred over hthe next four yyears iis t i i proximat lelyy 25 yyears compa dred to an averagge us f leful lilife of 30 yyears, approximatelyly one imilllliion, according rding to NMMA. i dand hthe expectedd number of bboats to b i hrough Dece bmber 2020, The Company’s sales to the marine industry are primarily focused on the powerboat sector of the market which is comprised of four main categories: fiberglass, aluminum fishing, pontoon and ski & wake. Basedd on current availil blable ddata per SSI through approximatelyly 38% of retailil available data per SSI through December 2020, marine powerboat retail unit shipments increasedd 15% iin 2020 compared to 2019, while marine wholesale unit shipments decreased approximatelyy 14% in 2020 compared to 2019, resulting in historically low marine dealer inventories. Additional information about the Company’s sales to the marine industry is included in the MD&A of this Form 10-K. lalumiinum 27%, pontoon 29% andd kiski & wakke 6%. Based on current i hwithiin hthe pow berboat sector for 2020, fibfiberglarglass iunits accountedd for iunit salles, Manufactured Housingii hThe Com ypany’s manufacturedd housing dproducts are housing hother OEMs, andd to a llesser extent, to manufacturers manufacturers t proximat lelyy 77% of MH ma krket retailil lsoldd iin dadjajadd cent iind produced ap d d i i dustries. In hthe ggaggreggate, hthe top hthree iunit hishipments iin 2020 per SSI. t iprima ilrilyy to majojoa r manufacturers of manufact dured hhomes, though h lwholes lale iunits iin 2020, htheyy are iunit hishipments hhave iincreas ded iin hthe MH iindustry nding istillll trending lAlthough 2009 to 94,000 upside potential for this market in the long term driven by pent-up demand, multi-family housing capac improving consumer credit and financing conditions, residential housing market conditions, higher consumer confidence levels, increased affordabila to-suburban trends, new home pricing, and improved consumer savings levels. i lvels. The Company believes there is ity and quality, demographic approximatelyly 49,800 dustry from a llow of llwell bbellow hihist trends such as first time home buyers and urban- ioric lal lle iunits iin ity, a a impact production levels further in this industry include improving quality credit Factors that may favorablya standards in the residential housing market, new jobs growth, consumer confidence, favorable changes in financing regulations, a narrowing in the difference between interest rates on MH loans and mortgages on traditional residential "stick-built" housing, and any improvement in conditions in the asset-backed securities markets for manufactured housing loans. The MH industry was impacted by disruptions related to the COVID-19 pandemic in 2020, which resulted in plant shutdowns in the late first quarter and early second quarter of 2020, followed by a recovery that, compared to our RV and marine end markets, emerged more slowly as a result of MH OEM labor and supply disruptions that did not begin to subside until late 2020. In addition, MH loan program initiatives by Fannie Mae are expected to increase MH loan availabila the total cost of MH borrowing, with a potential resulting increase in MH demand. ity and reduce Additional information about the Company’s sales to the MH industry is included in the MD&A of this Form 10-K. Industrial tt Markets We estimate that approximately 60% of our industrial net sales in 2020 were associated with the U.S. residential housing market. We believe that there is a direct correlation between the demand for our products in this market and new residential housing construction and remodeling activities. Patrick's sales to the industrial market generally lag new housing starts by four to six months as our industrial products are generally among the last components installed in new unit construction and will vary based on differences in regional economic prospects. Many of Patrick's core manufacturing household furniture, hospitality, and fixtures t t products are also utilized in the kitchen cabine a t, high-rise, office and and commercial furnishings markets. These markets are generally 7 its customer base. Additionally, other residential and commercial segments have been less vulnerable to categorized by a more performance-than-price driven customer base, and provide an opportunit diversifyff import competition, and therefore, provide opportunit Over the past three years, the residential housing market in particular has benefited from a low interest rate environment and tight housing market conditions across the country, and that trend is expected to continue in 2021. ies for increased sales penetration and market share gains. y for the Company to t t Additional information about the Company’s sales to the industrial markets is included in the MD&A of this Form 10-K. Strategic Acquisitions q g The Company is focused on driving growth in its primary markets through the acquisition of companies with strong management teams having a strategic fit with Patrick’s core values, business model and customer presence, as well as additional product lines, facilities, or other assets to complement or expand its existing businesses. The Company may explore strategic acquisition opportunities that are not directly tied to the four primary markets it serves in order to further leverage its core competencies in manufacturing and presence. and distribution and to diversify its end market exposure t In 2020, the Company invested approximately $307 million in acquisitions and over the last three years has completed approximately $703 million of acquisitions. See Note 4 of the Notes to Consolidated Financial Statements for further discussion of acquisitions complem ted by the Company in 2020, 2019 and 2018. p Competition The RV, MH, marine and industrial markets are highly competitive, both among manufacturers and the suppliers of various components. The barriers to entry for each industry are generally low and include compliance with industry standards, codes and safety requirements, and the initial capita operations. In addition, the Company competes with manufacturers integrated operations. Across the Company’s range of products and services, competition exists primarily on price, product features and innovation, timely and reliablea compete with Patrick in each product line on a regional and local basis. However, in order for a competitor to compete with Patrick on a national basis, the Company believes that a substantial capia tal commitment and investment in personnel and facilities would be required. t of manufactured homes with vertically al investment required to establia t delivery, quality and customer service. Several competitors sh manufacturing Capacity and Plant Expansions p p y Patrick has the ability to fulfill demand for certain products in excess of capaa production to other facilities. Capia tal expenditures for 2020 consisted of $32.1 million of investments primarily to replace and upgrade production equipment, expand facilities outside of core Midwest markets to align with OEM expansions, increase capac monitors capac alize on commercial and industrial synergies in key regions to support throughout all of its operations and capita profitable growth, grow its customer base, and expand its geographical product reach outside its core Midwest market. ity at its facilities and reallocates existing resources where needed to maintain production efficiencies ity, and provide more advanced manufacturing automation. Management regularly city at certain facilities by shifting u a a t Brandingg to changing market conditions, and proactively address customer demand. The Company has expanded its New product development is a key component of the Company’s efforts adapta product and service offerings with the integration of new and innovative product lines into its operations that bring additional value to customers and create additional scale advantages. to grow its market share and revenue base, ff 8 The Studiodd The Company's Design/Innovation Center and Showroom, The Studio, is located in Elkhart, Indiana. The Studio presents the latest design trends and products in the markets served by Patrick, and provides a creative environment for customers to design products and enhance their brand. The 45,000 square foot facility includes a 25,000 square foot showroom devoted to the display of products, capaa bila ities and services offered by each of Patrick’s business units, in addition to offices and conference rooms. The Company’s specialized team of designers, engineers and graphic artists works with RV, MH, marine and industrial customers to meet their creative design and product needs, including creating new styles and utilizing new colors, patterns, products, and materials for panels and mouldings, cabine a development, 3D CAD illustration, 3D printing, photography and marketing. lighting and other products. Other services provided at The Studio include product t doors, furniture, t Marineii Studio The Company's Marine Studio, which was opened in February 2020 and is located in Sarasota, Florida, is a comprehensive marine studio showroom, design and engineering center, which provides engineering and integrated design solutions for our marine customers. The 14,000 square foot facility includes a showroom that displays the ities and services offered by our Company's marine products as well as the marine design and engineering capaa bila marine businesses. Operatingtt Brands Through its operating brands, the Company provides customers with specific product knowledge, expertise and support that are tailored to their needs. The Company strives to be the supplier of choice for its customers by elevating the customer purchasing experience with expert product line managers, and support staff and strategic partnerships for each operating brand, which help drive efficff iency and maximize value for its customers. Patrick has no material licenses, franchises, or concessions and does not conduct material research and development activities. Marketing and Distribution g As of December 31, 2020, the Company had over 3,300 active customers. Its revenues from the RV market include sales to two major manufacturers of RVs that each account for over 10% of the Company's net sales, Forest River and Thor. Both Forest River and Thor have multiple businesses and brands that operate independently under the parent company and these multiple businesses and brands generally purchase our products independently from one another. The Company’s sales to the various businesses of Forest River and Thor, on a combined basis, accounted for 39%, 40% and 49% of our consolidated net sales, for the years ended December 31, 2020, 2019 and 2018, respectively. i The Company generally maintains supplies of various commodity products in its warehouses to ensure that it has ty of its distribution product on hand at all times for its distribution customers. The Company purchases a majori segment products in railcar, container, or truckl iprior to hth ieir salle tot customers. i Approximatelyl 12%, 2%, from hthe sup lipliers to Pa itri kck customers iin 2020, 2019, 2018, respectiively.ly. yTy ipic lallyly hthere iis a one to two-we kek periperi dod betb ween Patrick receiving a purchase order and the delivery of products to its warehouses or customers and, as a result, the Company has no material backlog of orders. In periods of declining market conditions, customer order rates can decline, resulting in less efficff due to increased numbers of shipments with fewer products in each shipment. ient logistics planning and fulfillment and thus increasing delivery costs distrib ibution seggment’s salles were from oad quantities, hiwhichh are wa hrehous ded 15% of hthe Com ypany's di shipped didirec ltlyy d dproducts hi 1 a r Raw Materials Patrick has arrangements with certain suppliers that specify exclusivity in certain geographic t structures and rebate agreements among other terms. a areas, pricing 9 Raw materials are primarily commodity products, such as lauan, gypsum, particleboard and other softff wood and hardwood lumber products, aluminum, copper, plastic resin, fiberglass and overlays, among others which are available from many suppliers. Our customers do not maintain long-term supply contracts, and therefore, the Company bears the risk of accurate forecasting of customer orders. Our sales in the short-term could be negatively impacted in the event any unforeseen negative circumstances were to affect our majora changes in certain market sectors can result in fluctuating costs of certain more commodity-oriented raw materials and other products that are utilized and distributed. suppliers. In addition, demand The Company continually explores alternative sources of raw materials and components, both domestically and from outside the U.S. Alternate sources of supply are available for all of its material purchases. y Regulation and Environmental Quality Q g The Company’s operations are subjecb t to environmental laws and regulations administered by federal, state, and local regulatory authorities including requirements relating to air, water and noise pollution. Additionally, these requirements regulate the Company's use, storage, discharge and disposal of hazardous chemicals used or generated during specific manufacturing processes. t Select products are subjeu ct to various legally binding or voluntary standards. For example, the composite wood substrate materials that Patrick utilizes in the production process in the RV marketplace have been certified as to compliance with applicable emission standards developed by the California Air Resources Board (“CARB”). All suppliers and manufacturers of composite wood materials are required to comply with the current CARB regulations. The Company is certified to sell Forestry Stewardship Council (“FSC”) materials to its customers at certain of its manufacturing branches. The FSC certification provides a link between responsible production and consumption of materials from the world’s forests and assists the Company’s customers in making socially and environmentally responsible buying decisions on the products they purchase. Upholstered products and mattresses provided by the Company for RVs must complym with Federal Motor Vehicle Safety Standards regulated by the National Highway Traffic Safetyt Administration regarding flammability. The Company also produces and provides products for manufactured construction regulations promulgated by the U.S. Department of Housing and Urban Development (“HUD”). homes that must complym with performance and t Seasonalityy Manufacturing operations 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 second quarter and lowest in the fourth quarter. Seasonal industry trends in the past several years have included the impact related to the addition of majoa r RV manufacturer open houses for dealers in the August-September t timeframe and marine open houses in the December-February timeframe, resulting in dealers delaying certain restocking purchases until new product lines are introduced at these shows. In addition, recent seasonal industry trends have been, and future trends may be, different than in prior years due to the impact of COVID-19, volatile economic conditions, interest rates, access to financing, cost of fuel, national and regional economic conditions and consumer confidence on retail sales of RVs and marine units and other products for which the Company sells its components, as well as fluctuations in RV and marine dealer inventories, increased volatility in demand from RV and marine dealers, the timing of dealer orders, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments. 10 Human Capital Management p g Our people are the heart of our business, and we allocate substantial resources to foster the well-being, success and growth of our team members in an inclusive and diverse environment which we believe is fundamental to our values and our service to our customers. At December 31, 2020, our team members totaled 8,700, of which 85% are hourly team members who serve our OEM customers by producing and distributing products in our RV, marine, MH and industrial end markets, and 15% who are salaried employees who manage the resources, capita decisions, and customer relationships of our end markets. al allocations, business a ty of our team members work in our facilities to produce or distribute products for our customers. Our The majori investment in human capita primary commitment to our team members in the production environment is to their safety,t well-being and progress, and in this regard our human capia tal management programs focus on the following, in addition to our health care insurance and other employment benefits: al resources focuses on this environment to ensure their well-being and success. Our • • • • • • Free assistance programs available to all team members and their families to address mental health and others matters which arise, which we believe are essential during the unique pressures and uncertainties during the COVID-19 pandemic; Tuition reimbursement programs available to all team members as they pursue educational opportunit t ies; Leadership programs availablea skills to advance team members to the next stage of their careers; to all employees that are designed to foster leadership and communication Job safetyt analysis, which identifies risks unique to each production environment, training and empowering our team members to mitigate risks and develop workplace best practices; OSHA preparedness, which involves site specific training development to educad members to work safely and effecff tively; te and enable our team Industrial hygiene audits and testing, ensuring that our team members work in healthy environments with respect to air quality and noise reduction; • Machine guarding and work area audits, which identify mechanical and non-mechanical improvements in the safetyt and well-being of the production environment; • • • Train-the-trainer programs, which foster best-practice operational techniques for our team members to advance their capaa bila ities to operate our facilities in the safest and most effecff tive manner; Site-specificff the production environment; and training development, which tailors customized training and consulting to the unique needs of Ergonomic assessments for all team members, which accommodate each individual to work in the most effective and comfortable manner. Our success is dependent on our ability to hire, retain, and engage highly qualified team members who serve our customers. In this regard, we aspire to be a merit-based organization that is inclusive and diverse, building a culturet where our team members feel they belong. Our leadership development programs bring a diverse and energetic source of talent to lead the future of our organization, and our recruitment efforts strive to foster an inclusive culturet that we believe strengthens our organization and our ability to serve our customers. 11 Executive Officff ers of the Companyp y The following tablea sets forth our executive officers as of January 1, 2021: Officer Todd M. Cleveland Andy L. Nemeth Jeffrey M. Rodino Kip B. Ellis Position Executive Chairman of the Board President and Chief Executive Officff er Executive Vice President-Sales and Chief Sales Officer Executive Vice President-Operations and Chief Operating Offiff cer Jacob R. Petkovich Courtney A. Blosser Executive Vice President-Human Resources and Chief Human Resources Officer Executive Vice President-Finance, Chief Financial Officer, and Treasurer Age 52 51 50 46 47 54 a ed Executive Chairman of the Board of the Company in January 2020. Prior to that, Todd M. Cleveland was appoint Mr. Cleveland was Chairman of the Board from May 2018 to December 2019 and Chief Executive Officer fromff February 2009 until December 2019. Mr. Cleveland was President of the Company from May 2008 to December 2015, and Chief Operating Officer from May 2008 to March 2013. Prior to that, Mr. Cleveland served as Executive Vice President of Operations and Sales and Chief Operating Officer from August 2007 to May 2008 following the acquisition of Adorn Holdings, Inc. by Patrick in May 2007. Mr. Cleveland has over 30 years of manufactured housing, recreational vehicle, marine and industrial experience in various leadership capac ities. a t y a was appoint ed Chief Executive Officer of the Company in January 2020. In addition to this role, Andy L. Nemeth Mr. Nemeth serves as President of the Company, a position he has held since January 2016. Mr. Nemeth was the Executive Vice President of Finance and Chief Financial Officer fromff Treasurer from 2002 to 2015. Mr. Nemeth has over 29 years of manufactured and industrial experience in various financial and managerial capacities. May 2004 to December 2015, and Secretary- housing, recreational vehicle, marine t y a was appoint ed Chief Sales Offiff cer of the Company in September 2016. In addition to this role, Jeffrey M. Rodino Mr. Rodino serves as the Executive Vice President of Sales, a position he has held since December 2011. Prior to that, he was the Chief Operating Officer of the Company from March 2013 to September 2016, and Vice President of Sales forff serving the recreational vehicle, marine, manufactured housing and industrial markets. August 2009 to December 2011. Mr. Rodino has over 27 years of experience in the Midwest fromff p a was appoint ed Executive Vice President of Operations and Chief Operating Offiff cer of the Company in Kip B. Ellis September 2016. He was elected an officer in September 2016. Mr. Ellis joined the Company as Vice President of Market Development in April 2016. Prior to his role at Patrick, Mr. Ellis served as Vice President of Aftermarket Sales forff the Dometic Group from 2015 to 2016. Prior to his tenure at Dometic, Mr. Ellis served as Vice President of Global Sales and Marketing from 2007 to 2015 at Atwood Mobile Products. Mr. Ellis has over 24 years of experience serving the recreational vehicle, marine, manufactured housing, industrial and automotive markets. a ed as Executive Vice President of Finance, Chief Financial Officer, and Treasurer Jacob R. Petkovich was appoint of the Company in November 2020. Prior to joining Patrick, Mr. Petkovich served as Managing Director in the Leveraged Finance Group of Wells Fargo Securities and predecessor Wachovia Securities from 2004 to 2020, performing in various senior leadership roles responsible for leading, underwriting, structuring and arranging financing solutions to support issuers’ access to the capita refinancings and restructurings. acquisition financings, recapita al markets forff alizations, t y a was a ppoint i Courtneyy A. Blosser ffiOfficer of thhe Compa yny iin Mayy 2016. Oc btober 2009 to Mayy 2016. l Resources of resource expe irience iin va irious i dindust iries. Mr. iPrior to hihis hiWhi l ded Executiive iVice Pr iPrior to hthat, Mr. iesiddent of Human Resources lBlosser was hthe lrole at Pat iri kck, Mr. lBlosser s dand iVice Pr erved as hthe Corporat hiChief Human Resources iesiddent of Human Resources fromff e Diirector-Human dand hhuman d r rlpool Corporatiion from 2008 to 2009. Mr. lBlosse hr has over 32 yyears of opera itions lBlosser re iti dred from hthe Com ypany on Janua yry 29, 2021. 12 p y Web isite Access to Company Company Reports p practicable afteff free of charge through our website, www.patrickind.com We make availablea quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonablya Audit, Compensation, and Corporate Governance and Nominations Committees, our Corporate Governance Guidelines and our Code of Ethics and Business Conduct are also availablea of our website. Our website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K. r such material is electronically filed with or furnished to the SEC. The charters of our , our Annual Report on Form 10-K, on the “Corporate Governance” portion p ITEM 1A. RISK FACTORS r In addition to the other information couldll materially affecff described below are not the only riskskk we face. Additional factors not presentlyll known to us or that we currentlyll deem to be immaterial also may materially adversely affecff periods. you should carefully consider the following factors which ii t our business, cash flows,ww financial condition or results of operations in future t our business, financial condition or results of operations. The risks set forth in thisii report, e COVID-19 Risks The global spread of the COVID-19 ii continue II to have, a material adverse effect on our business. ii ii virus and measures implem mented to combat it have had,dd and are expectedtt to The global spread of the novel coronavirus (COVID-19) in 2020 and 2021 has negatively impacted the global economy, disrupted global supply chains and created material volatility and disruption in financial markets. The impact of this pandemic has created material uncertainty in the global economy. The impact of COVID-19 on our end markets was experienced primarily in the last two weeks of the first quarter of 2020 and in the first six weeks of the second quarter of 2020 as certain of our OEM customers implem mented plant shutdowns in response to the COVID-19 pandemic. While our end markets appear to have resumed business operations that are similar to pre- COVID activities in the second half of 2020, our OEM customers continue to experience labor and supply chain disruptions related to the pandemic. Uncertainties related to the impact of COVID-19 could in the future have a t on our business, employees, suppliers, OEM customers and our end markets in general. The material adverse effecff of the impact of the COVID-19 pandemic cannot be precisely estimated at this time, as each duration and magnitude 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 futuret pandemic outbreaks, we face material risks including, but not limited to: a t • • • • Decreases in consumer confidence and disposablea demand for our products by our customers in all of our end markets. income and increases in unemployment could reduce 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 material 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. ons in our manufacturing and supply arrangements caused by the loss or disruption of essential r Disrupti manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce, or other manufacturing and distribution capaa bila to meet our end market customer needs and achieve cost targets. ities could result in our inabila ity • Material 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 13 having access to our products, or otherwise prevent our suppliers or customers from sufficff operations, could adversely impact operations necessary for the production, distribution, sale, and support of our products. iently staffing 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 material 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 material financial difficulties, they may be unable to pay amounts due to us fully, partially, or timely. Further, we may have to negotiate material discounts and/or extended financing terms with these customers in such a situat to as they come due, our financial condition, results of operations and cash collect our accounts receivablea flows may be materially and adversely affected. ion. If we are unablea t If we are unable to maintain normal operations, or subsequently are unablea a timely fashion, our cash flows could be adversely affecff 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. ted, making it difficult to maintain adequate to resume normal operations in ons to our operations related to COVID-19 as a result of absenteeism by infected or ill members of r Disrupti management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecff ting 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 capita ability to access the capia tal 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. al markets, which could increase our cost of capita al and adversely affect our t 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 receivablea , 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 t our continued impact on our business as a result of the COVID-19 pandemic could materially adversely affecff business, results of operations, financial condition, cash flows, prospects and the trading prices of our securities in 2021 and beyond. Risks Related to our Business Economic and busines industries it sellsll products, could lead to fluctuations in and negati k's control, includingn cyclicll alityii and seasonalitll ytt vely impactm s condidd tioii ns beyond Patrictt operatingii ll results. e ii in the The RV, MH, marine and industrial markets in which we operate are subject to cycles of growth and contraction in consumer demand, and volatility in production levels, shipments, sales and operating results, due to external factors such as general economic conditions, consumer confidence, employment rates, financing availabila ity, interest rates, inflation, fuel prices, and other economic conditions affecting consumer demand and discretionary spending. Periods of economic recession and downturns have adversely affecff have potential to adversely impact our futuret indicative of results for any futuret results. Consequently, the results for any prior period may not be ted our business and operating results in the past, and ion in demand could adversely affect our period. In addition, fluctuat t 14 management of inventory, which could lead to an inability to meet customer needs or a charge for obsolete inventory. Manufacturing operations 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 second quarter and lowest in the fourth quarter. Seasonal industry trends in the past several years have included the impact related to the addition of majoa r RV manufacturer open houses for dealers in the August-September t timeframe and marine open houses in the December-February timeframe, resulting in dealers delaying certain restocking purchases until new product lines are introduced at these shows. In addition, recent seasonal industry trends have been, and future trends may be, different than in prior years due to the impact of COVID-19, volatile economic conditions, interest rates, access to financing, cost of fuel, national and regional economic conditions and consumer confidence on retail sales of RVs and marine units and other products for which the Company sells its components, as well as fluctuations in RV and marine dealer inventories, increased volatility in demand from RV and marine dealers, the timing of dealer orders, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments. If the financial conditiontt suffer. of our custome tt rs and suppliell rs deteriorates, tt our business ii and operatingn resultsll could The markets we serve have been highly sensitive to changes in the economic environment. Weakening conditions in the economy, or the lack of available financing in the credit market, could cause the financial condition of our customers and suppli inabila ity to meet our commitments. Many of our customers participate in highly competitive markets and their financial condition may deteriorate as a result. In addition, a decline in the financial condition of our customers could hinder our ability to collect amounts owed by customers. ers to deteriorate, which could negatively affecff t our business through the loss of sales or the u Our salesll adverse impactm tt are material lyll tt concentratedtt withii ial condition. on our operatingn resultsll and financ two custome ii tt rs, the loss of eithii er of which could have a material tt Two customers in the RV market accounted for a combined 39% of our consolidated net sales in 2020. The loss of either of these customers could have a material adverse impacm t on our operating results and financial condition. We do not have long-term agreements with our customers and cannot predict that we will maintain our current relationships with these customers or that we will continue to supply them at current levels. Changes in consumer preferen ll results. operatingii e ces relatingtt to our products could adversely impactm our salesll levels and our ity to anticipate changes in consumer preferences for RVs, marine Changes in consumer preferences, or our inabila models or manufactured homes, or for the products we make could reduce demand for our products and adversely affect our operating results and financial condition. percentage of the Company’s sales are concentratedtt tt A material RV unit shipments or reductions in indii ustryr growth could reduce demand for our productstt and adversely impactm our operatingn resultsll and financ in the RV industry, in the level of ial condition. and declines ii tt ll tt In 2020 and 2019, the Company's net sales to the RV industry were approximately 56% and 55%, respectively, of consolidated net sales. While the Company measures its RV segment sales against industry-wide wholesale shipment statistics, the underlying health of the RV industry is determined by retail demand. Retail sales of RVs historically have been closely tied to general economic conditions and consumer confiddence, hiwhi hch expe iriencedd bsubstantiiall owth h dreduc itions iin iindustry mate iriall dadverse iimpact on iits operatinging re lsults iin 2021 andd lvolatililiityy iin 2020 as a res lult of hthe COVID-19 l dreduce hthe Compa yny’s revenue from hthe RV ii dndustryyrr dpandemiic. De lcliines iin RV iunit hishipment llevells or couldd mate iriallllyy hother future dand hhave a dustry ggr iperi dods. fi 15 The RV, MH,HH marineii greater resources than we do. and industrial tt industries are highly competm ittt ivtt e and some of our competitors ii maya have ity to maintain or increase prices, changes in regional demand or product mix, or the decision of our customers We operate in a highly competitive business environment and our sales could be negatively impacted by our inabila to purchase our competitors’ products or to produce in-house products that we currently produce. We compete not only with other suppliers to the RV, MH, marine and industrial producers, but also with suppliers to traditional site- built homebuilders and suppliers of cabinetry and countertops. Sales could also be affecff ted by pricing, purchasing, financing, advertising, operational, promotional, or other decisions made by purchasers of our products. Additionally, we cannot control the decisions made by suppliers of our distributed and manufactured products and therefore, our ability to maintain our distribution arrangements may be adversely impacted. them to commit larger amounts of capita Some of our competitors have greater financial resources or lower levels of debt or financial leverage and this may enablea may develop innovative new products that could put the Company at a competitive disadvantage. If we are unable to compete successfully against other manufacturers and suppliers to the RV, marine and MH industries as well as to the industrial markets we serve, we could lose customers and sales could decline, or we may not be able to improve or maintain profit margins on sales to customers or be able to continue to compete successfully in our core markets. al in response to changing market conditions. Further, competitors Conditidd ons in the creditii market could limi wholesale financing for RVs,VV manufactured homes,s and marineii products. ii tii the abilitll ytt of consumers and wholesale custome tt products, resultill ngii rs to obtainii in reduced demand for our retailii and Restrictions on the availability of consumer and wholesale financing for RVs, manufactured products and increases in the costs of such financing have in the past limited, and could again limit, the ability of consumers and wholesale customers to purchase such products, which would result in reduced production by our customers, and therefore reduce demand for our products. homes and marine t Loans used to finance the purchase of manufactured are more difficult to obtain, than mortgages for site-built homes. Historically, lenders required a higher down payment, higher credit scores and other criteria for these loans. Current lending criteria are more stringent than historical criteria, and many potential buyers of manufactured homes may not qualify. homes usually have shorter terms and higher interest rates, and t t housing loans are also dependent on economic conditions, The availability, cost, and terms of these manufactured lending practices of financial institutions, government policies, and other factors, all of which are beyond our control. Reductions in the availability of financing for manufactured homes and increases in the costs of this financing have limited, and could continue to limit, the ability of consumers and wholesale customers to purchase manufactured homes, resulting in reduced production of manufactured reduced demand for our products. In addition, certain provisions of the Dodd-Frank Act, which regulate financial transactions, could make certain types of loans more difficult to obtain, including those historically used to finance the purchase of manufactured homes. homes by our customers, and therefore t t The manufactured housingii reduced demand for our products. industrytt has experie xx nced a material long-termrr declinell ii in shipme nts, which has led to The MH industry, which accounted for 17% and 19% of the Company's consolidated net sales for 2020 and 2019, respectively, has experienced a material decline in production of new homes compared to the last peak production level in 1998. The downturn was caused, in part, by limited availabila homes and was exacerbated by economic and political conditions during the 2008 financial crisis. Although industry-wide wholesale production of manufactured homes has improved somewhat in recent years, annual production remains well below historical averages and a worsening of conditions in the MH market could have a material adverse impact on our operating results. ity and high cost of financing for manufactured t 16 Fuel shortages or high prices for fuel could have an adverse impactm on our operations. The products produced by the RV and marine industries typically require gasoline or diesel fuel for their operation, or the use of a vehicle requiring gasoline or diesel fuel for their operation. There can be no assurance that the supply of gasoline and diesel fuel will continue uninterrupted or that the price or tax on fuel will not materially increase in the future. Shortages of gasoline and diesel fuel, and substantial increases in the price of fuel, have had a material adverse effect on our business and the RV and marine industries as a whole in the past and could have a material adverse effect on our business in the future. If we cannot effectivtt elyll manage the challenges and risks revenues and profitabi liii tyii may suffer. ii ii associatedtt withii doing business ii internation rr ally,ll our t t t u ers located in Indonesia, China, property rights, compliance burdens associated with a wide variety of international and U.S. import laws, ions in foreign currencies, changes in the economic obligations and We purchase a material portion of our raw materials and other supplies from suppli Malaysia and Canada. As a result, our ability to obtain raw materials and supplies on favorable terms and in a timely fashion are subject to a variety of risks, including fluctuat strength of the foreign countries in which we do business, difficulties in enforcing contractual intellectual and social, political, and economic instability. Our business with our international suppliers could be adversely affected by restrictions on travel to and from any of the countries in which we do business due to a health epidemic or outbreak, such as the COVID-19 pandemic, or other event. Additional risks associated with our foreign business include restrictive trade policies, imposition of duties, taxes, or government royalties by foreign governments, and compliance with the Foreign Corrupt Practices Act and local anti-bribery laws. Any measures, or proposals to implement such measures, could negatively impact our relations with our international suppliers and the volume of shipments to the U.S. from these countries, which could have a materially adverse effect on our business and operating results. We maintain limited operations in Canada, the Netherlands and China but are nevertheless exposed to risks of operating in those countries associated with: (i) the difficulties and costs of complyim ng with a wide variety of complex laws, treaties and regulations; (ii) unexpected changes in political or regulatory environments; (iii) earnings and cash flows that may be subject to tax withholding requirements or the imposition of tariffs, exchange controls, or other restrictions; (iv) political, economic, and social instabila ity; (v) import and export restrictions and other trade barriers; (vi) responding to disruptions in existing trade agreements or increased trade tensions between countries or political or economic unions; (vii) maintaining overseas subsidiaries and managing international operations; and (viii) fluctuations in foreign currency exchange rates. We are dependent on third-part tt certain raw material ii ytt suppliell rs and manufacture u rs and any increased cost and limi teii d availabil itll ytt of ii ll sll may have a material tt adverse effect on our business ii and resultsll of operations. ity is dependent upon weather conditions, seasonal and religious holidays, political Prices of certain materials, including gypsum, lauan, particleboard, MDF, aluminum and other commodity products, can be volatile and change dramatically with changes in supply and demand. Certain products are purchased from overseas and their availabila unrest, economic conditions overseas, tariffs or other cross-border taxes, natural and port availability. Further, our commodity product suppliers sometimes operate at or near capac some products having the potential of being put on allocation. We generally have been able to maintain adequate supplies of materials and to pass higher material costs on to our customers in the form of surcharges and base price increases where needed. However, it is not certain futuret price increases can be passed on to our customers without affecting demand or that limited availabila and operating results could be negatively impacted by changes in any of these items. ity of materials will not impact our production capaa bila disasters, vessel shipping schedules ity, resulting in ities. Our sales levels a t Generally, our raw materials, supplies and energy requirements are obtained from various sources and in the quantities desired. While alternative sources are availablea periodic delays in delivery. Fluctuations in prices may be driven by the supply/demand relationship for that commodity, governmental regulation, tariffs or other cross-border taxes, economic conditions in other countries, religious holidays, natural otherwise cannot continue their business as anticipated, the availabila adversely affect disasters, and other events. In addition, if any of our suppliers seek bankruptcy relief or , our business is subject to the risk of price increases and ity or price of these requirements could be ed. ff t 17 If we are unable to manage our inventory,r our operatingii resultsll could be matertt iallyll and adverserr ly affected. We generally do not have long-term supply contracts with our customers and, therefore, we must bear the risk of certain inventory commitments, based on our projections of future customer orders. We maintain an inventory to support these customers’ needs. Changes in demand, market conditions and/or product specifications could result in material obsolescence and a lack of alternative markets for certain of our customer specific products and could negatively impact operating results. in the fair value of those assets or a declinell in expected profitabiliii tyii of the Company or individual t of assets, including goodwillll and other long-lin ved assets, due to potenti alii tt We could incur charges for impaim rmen declines ii reportingtt unitsii of the Company. ii Approximately 70% of our total assets as of December 31, 2020 were comprised of goodwill, intangible assets, operating lease right-of-use assets and property, plant and equipment. Under generally accepted accounting principles, each of these assets is subject to periodic review and testing to determine whether the asset is recoverable or realizablea . The events or changes that could require us to test these assets for impairment include changes in our estimated future cash flows, changes in rates of growth in our industry or in any of our businesses, and decreases in our stock price and market capia talization. In the future, if sales demand or market conditions change from those projected by management, asset write-downs may be required. Material impairment charges, although not always affecff t on our operating results and financial position. material effecff ting current cash flow, could have a Increases in demand for our products could make it more difficult for us to obtainii additional skillii edll may adversely impactm our operatingn efficiencies. labor, which In certain geographic regions in which we have operating facilities, we have experienced shortages of qualified employees in the past, which negatively impacted our costs. While we are taking certain steps to automate aspects of our production and distribution, labor lqualifiifi ded em lpl yoyees mayy iincrease hthe cost of our llabbor itimes, as em lpl yoyees provi gng ec i sily. knowledgedge andd expe irience hhave hthe biabilili yty to hcha gnge em lpl yoyers more easily. andd create em lpl yoyee retentiion andd rec iruitment hch lallle gnges, especiiallllyy during dnued compe iti ition for during iim shortagges dand co inti onomic i i hwith k a a l If demand for employees continues to increase, we may not be able to increase production to timely satisfy demand, and production costs, which could adversely impact our financial condition and and may initially incur higher labor operating results. a We may incur material charges or be adversely impactm manufacturingii ii or distribution .yy faciliii tyii edtt by the consolidat iontt ll and/or closure ll of all or part of a of our operating facilities to distribute and/or manufacturet ient manner. We may make capia tal investments to move, discontinue manufacturing lities, or products and product lines, sell or close all or part of additional manufacturing We periodically assess the cost structuret most efficff a capabi facilities in the future. These changes could result in material future charges or disruptions in our operations, and we may not achieve the expected benefits from these changes, which could result in an adverse impact on our operating results, cash flows, and financial condition. and/or distribution and/or distribution products in the t t We are subject to governmental and environmental regulati such laws and regulati individually,ll or in the aggregate,tt would have a material adverse effect on our financial conditiontt operations. ons, and failure in our compliance ons or eventstt beyond our control could resultll in damages,s expenses or liabiliii tiii es that e e ll ll and resultsll of efforts,s changes to Some of our manufacturing hazardous or toxic substances or wastes. Accordingly, we are subject to various governmental and environmental es, as well as environmental requirements relating to air, water and laws and regulations regarding these substanc processes involve the use, handling, storage and contracting for recycling or disposal of u t 18 noise pollution. The implementation of new laws and regulations or amendments to existing regulations could materially increase the cost of the Company’s products. We cannot presently determine what, if any, legislation may be adopted by federal, state or local governing bodies, or the effect any such legislation may have on our customers or us. Failure to comply with present or future regulations could result in fines or potential civil or criminal liability. Both scenarios could negatively impact our results of operations or financial condition. subject to fede We are subj on taxes paid, exposure xx fede lral, state, lloc lal dand ce irtainii to liabiliii tiii es,s and ffinanciali l iinternati tt ional fof the Co resultsll tax regulat tt iion. e gulat ympany.yy ChCh ganges htheretott can hhave iimpacm ts hiWhille we se kek to ensure hthe Compa yny rem iains co juri disdictiions iin hwhiichh we lmpliiant operate, new llegislgislatiion or hch ganges iin exiistinging llegigi lsla ition mayy res lult iin hch ganges to amounts owedd for iincome, ppers dand ca hsh flflows or iincrease hthe Compa yny's effecff dand re lal propertyy taxes. hThese hcha gnges mayy lvelyy affect our res lults of operatiions, fifina iwi hth tax regulagula itions iin lalll juri gnega iti itive tax rate. inci lal lonal condi ition, di subject to hthe exa iminatiion of our tax returns andd We are lalso subjec states iin hiwhi hch we lultiimate ddete condi ition, opera iti gng res lults andd ca hsh flflows co lduld bbe dadverselyly affecff dconduct b ibusiness, andd rminatiion of our taxes owedd iis for an amount iin excess of amounts hother tax auth ihoritiies. If our effecff tedd. di i hother tax matters byby hthe U.S. Internall Revenue Service, i itive tax rates were to iincrease, or ifif hthe inci lal previouslyy accruedd, our fifina l i The inabiliii tyii operations. tt to attrac t and retainii qualifiei d executivtt e officers and key personnel maya adverserr ly affect our While we include succession planning as part of our ongoing talent development and management process to help ensure the continuity of our business model, the loss of any of our executive officers or other key personnel could reduce our ability to manage our business and strategic plan in the short-term and could cause our sales and operating results to decline. In addition, our futuret and retain executive management, key employees, and other qualified personnel. success will depend on, among other factors, our ability to attract Our abilityii to integrate acquired businesse ii s may adversely affect operations. t As part of our business and strategic plan, we look for strategic acquisitions to provide shareholder value. Any acquisition will require the effective integration of an existing business and certain of its administrative, financial, sales and marketing, manufacturing, distribution and other functions to maximize synergies. Acquired businesses involve a number of risks that may affect our financial performance, including increased leverage, diversion of management resources, assumptim on of liabilities of the acquired businesses, financial reporting systems which do not integrate with the Company's existing financial reporting systems and possible corporate culture conflicts. If we are unable to successfully integrate these acquisitions, we may not realize the benefits identified in our due diligence process, and our financial results may be negatively impacted. Additionally, material unexpected liabilities could arise from these acquisitions. Risks Related to Indebtedness Our level of indebtedness couldll operations. ii limi ii tii our operational flexi bil itll ytt and harmrr ll our financiali conditiontt and resultsll of As of December 31, 2020, we had $840.0 million of total long-term debt, including current maturities and exclusive of deferred financing costs and debt discount, outstanding under our 2019 Credit Facility, Senior Notes and Convertible Senior Notes (all as defined herein). Our level of indebtedness could have adverse consequences on our future operations, including making it more difficult for us to meet our payments on outstanding debt, and we may not be able to find alternative financing sources to replace our indebtedness in such an event. Our level of indebtedness could: (i) reduce the availability of our cash flow to fund working capita acquisitions and other general corporate purposes, and limit our ability to obtain additional financing for these purposes; (ii) limit our flexibility in planning for, or reacting al expenditures, al, capita t 19 ity to, changes in our business and the industry in which we operate; (iii) place us at a to, and increase our vulnerabila competitive disadvantage compared to our competitors that have less debt or are less leveraged; and (iv) create concerns about our credit quality which could result in the loss of supplier contracts and/or customers. Our ability to satisfy our debt obligations will depend on our future operating performance which may be affecff beyond our control. ted by factors Our 2019 Credit Agreement contains various financial performance and other covenants.tt complim ance i thereunder couldll become immediateltt yll due and payable.ll these covenants,tt our 2019 Credit Agreement could be terminated withii ii If we do not remain in and the amountstt outstandingii The agreements governing our indebtedness contain financial and non-financial covenants with which we must comply that place restrictions on us. There can be no assurance that we will maintain compliance with the financial covenants under our 2019 Credit Agreement (as defined herein). These covenants require that we complym with a maximum level of a consolidated total leverage ratio and a minimum level of a consolidated fixed charge coverage ratio (both covenants as described in Note 8 of the Notes to Consolidated Financial Statements). If we fail to comply with the covenants contained in our 2019 Credit Agreement, the lenders could cause our debt to become due and payablea terms. If prior to maturity or it could result in our having to refinance the indebtedness under unfavorablea our debt were accelerated, our assets might not be sufficient to repay our debt in full and there can be no assurance that we would be able to refinance any or all of this indebtedness. Due to industrytt tt conditions access to sources of capital to maintainii or expand xx ii our business. ii and our operatingn results, .ll If we are unable to locate suitabl there have been times in the past when we have had limitedtt ii when needed, we maya be unablell ell sources of capital ll ii We depend on our cash balances, our cash flows from operations, and our 2019 Credit Facility to finance our operating requirements, capital expenditures and other needs. If a material economic recession occurred, such as the recession that impacted the economy in 2007-2010, production of RVs, marine units and manufactured homes could decline materially, resulting in reduced demand for our products. A decline in our operating results could negatively impact our liquidity. If our cash balances, cash flows from operations, and availability under our 2019 Credit Facility are insufficient to finance our operations and alternative capia tal is not available, we may not be able to expand our business and make acquisitions, or we may need to curtail or limit our existing operations. t We have letters of credit representing collateral for our casualtyt purposes that have been issued under our 2019 Credit Agreement. The inability to retain our current letters of credit, to obtain alternative letter of credit sources, or to retain our 2019 Credit Agreement to support these programs could require us to post cash collateral, reduce the amount of cash availablea limit existing operations. insurance programs and for general operating for our operations, or cause us to curtail or The conditional conversion feature of the Convertibleii adversely affect our financ ial conditiontt and operatingn results. ii ll Notes that we issued in January 2018, if triggered, maya of the Convertible Senior Notes due 2023 (the "Convertible Notes") In the event the conditional conversion featuret is triggered, holders of Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicablea accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability. See Notes 8 and 9 of the Notes to Consolidated Financial Statements for additional details. 20 The convertibtt common stock. le note hedgedd and warrant transactions maya affect the value of the Convertibleii Notes and our In connection with the pricing of the Convertible Notes, we entered into convertible note hedge transactions with certain of the initial purchasers and/or their respective affiliates (the “option counterparties”). At the same time, we entered into warrant transactions with the option counterparties. The convertible note hedge transactions are expected generally to reduce the potential dilution upon conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be. However, the warrant transactions could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the strike price of the warrants. In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the Convertible Notes and prior to the maturity of the Convertible Notes (and are likely to do so during any observation period related to a conversion of Convertible Notes). This activity could cause or avoid an increase or a decrease in the market price of t a holder's ability to convert the Convertible Notes our common stock or the Convertible Notes, which could affecff and, to the extent the activity occurs during any observation period related to a conversion of Convertible Notes, it could affect the number of shares and value of the consideration that a holder will receive upon conversion of the Convertible Notes. Risks Related to Ownership of our Common Stock p A variety of fact tt ors, our common stock. ff many of which are beyond our control tt ,ll couldll n influen ce fluctuations tt in the market price for The stock market, in general, experiences volatility that has often been unrelated to the underlying operating performance of companies. If this volatility continues, the trading price of our common stock could decline materially, independent of our actual operating performance. The market price of our common stock could fluctuate materially in response to a number of factors, many of which are beyond our control, including the following: • • • • • • • • • • • • t or capita al commitments; variations in our, our customers' and our competitors’ operating results; high concentration of shares held by instituti onal investors; announcements by us or our competitors of material contracts, acquisitions, strategic partnerships, joint ventures t announcements by us or our competitors of technological improvements or new products; the gain or loss of material customers; additions or departures of key personnel; events affecting other companies that the market deems comparable to us; changes in investor perception of our business and/or management; changes in global economic conditions or general market conditions in the industries in which we operate; sales of our common stock held by certain equity investors or members of management; issuance of our common stock or debt securities by the Company; and the occurrence of other events that are described in these risk factors. 21 y Risks Related to Information Security, Cybersecurity and Data Privacy y, y y If our informati n adversely affect our business, on technology systeyy ms failii to performff ee reputat iontt ii and resultsll of operations. adequately,yy our operations couldll be disrupted and could We are increasingly dependent on digital technology, including information systems and related infrastructure, to process and record financial and operating data, manage inventory and communicate with our employees and business partners. We rely on our information technology systems to effectively manage our business data, inventory, supply chain, order entry and fulfillment, manufacturing, collection of payments, and other business processes. Our systems are subjeu outages, telecommunications or internet failures, computer viruses and malicious attacks, security breaches and catastrophic events. If our systems are damaged or fail to function properly or reliably, we may incur substantial repair or replacement costs or experience data loss or theft and impediments to our ability to manage our business, which could adversely affect our results of operations. Any such events could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to our reputation, which could adversely affecff distribution, warranty administration, invoicing, ct to damage or interruption from power t our business. a t In addition, we may be required to make material technology investments to maintain and update our existing information technology systems. Implementing material system changes increases the risk of computer system disruption. The potential problems and interruptions associated with implementing technology initiatives could disrupt or reduce our operational efficiency. A cyber incident financial loss. i or data breach couldll resultll in information theft,e datatt corruption, tt operational disruption, tt and/or// to anticipate these techniques or implement adequate preventive measures. Unauthorized Our technologies, systems, networks, and those of our business partners have in the past been, and may in the futuret become, the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of proprietary and other information, or other disruption of our business operations. A cyber-attack could include gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption or destruction due to ransom attacks or malware or result in denial of service on websites. We have programs in place to detect, contain and respond to data security incidents. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unablea parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud, trickery, or other forms of deceiving our team members, contractors, vendors, and temporary staff. In addition, hardware, software, or applications we develop or procure from third parties may contain defects in design or manufacturet security. Any cyber-attack on our business could materially harm our business and operating results. The Company currently carries insurance to cover exposure to this type of incident, but this coverage may not be sufficient to cover all potential losses. As cyber threats continue to evolve, we may be required to expend material additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. If we or our suppliers experience additional material data security breaches or fail to detect and appropria a actions and private litigation and our business and operating results could suffer. tely respond to material data security breaches, we could be exposed to costly government enforcement or other problems that could unexpectedly compromise information Other Risks Certainii provisions in our Articles tt prevent a change in control that our shareholders might of Incorporationtt and Amended and Restated By-laws may delay, consider to be in their best interest. i ll defere or Our Articles of Incorporation and Amended and Restated By-laws contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids. These provisions may delay, defer or prevent a change in control that our shareholders might consider to be in their best interest. 22 Conditiodd various liabil ns withintt itll y ctt i the insurance markets could impacm t our abilitll y t i overage and could potenti all esult in uninsuii tt o ntt red losses. y rll tt egotiateii favorable terms and conditions for We generally negotiate our insurance contracts annually for property, casualty, workers compensation, general ity coverage. Due to conditions within these insurance liability, health insurance, and directors and officers liabila markets and other facff coverage limits, terms and conditions and the amount of the related premiums could have a negative impact on our operating results. While we continually measure the risk/ reward of policy limits and coverage, the lack of coverage in certain circumstances could result in potential uninsured losses. tors beyond our control, future ff ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES In 2020, the Company operated in 23 states in the U.S., China, Canada and the Netherlands. At December 31, 2020, the Company leased approximately 7.6 million square feet of manufacturing, distribution and corporate facilities and owned approximately 2.8 million square feet, as listed below. t Purpose / Nature Manufacturing Distribution Manufacturing & Distribution (shared space) Corporate & Other Leased Owned # of Properties 105 42 3 16 Square Footage 5,623,000 1,302,000 567,000 102,000 # of Properties 31 13 1 2 Square Footage 1,950,000 521,000 94,000 210,000 Pursuant to the terms of the Company’s 2019 Credit Agreement, all owned real property subjeb ct to the existing security documents is subject to a security interest. The Company's leased properties have lease expiration dates ranging from 2021 to 2030, with the exception of one property with a lease term expiring in 2039. Patrick believes the facilities occupied as of December 31, 2020 are adequate forff part of its strategic operating plan, further consolidate and/or close certain owned facilities and may not renew leases on property with near-term lease expirations. Use of our manufacturing and distribution facilities may vary with seasonal, economic, and other business conditions. the purposes for which they are currently being used and are well-maintained. The Company may, as ITEM 3. LEGAL PROCEEDINGS We are subject to claims and lawsuits in the ordinary course of business. In management's opinion, currently pending legal proceedings and claims against the Company will not, individually or in the aggregate, have a material adverse effect on its financ ial condition, results of operations, or cash flows. ff ff further didisc f h iussion of llegalgal matters iin rella ition to See Note 16 of hthe Notes to Co inge com imitments a dnd continge incies. nsoliddat ded iFinanciiall Statements forff li ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 23 ITEM 5. MARKET FOR REGISTRANRR T’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES PART II Market Information The Company's common stock is listed on The NASDAQ Global Stock MarketSM under the symbol PATK. Holders of Common Stock As of February names on behalf of beneficial owners. rr 12, 2021, there were 253 shareholders of record. A number of shares are held in broker and nominee Dividends In December 2019, the Company's Board of Directors (the "Board") adopted a dividend policy under which it plans to declare regular quarterly cash dividends. The Company paid cash dividends of $1.03 and $0.25 per share, or $23.6 and $5.8 million in the aggregate, in 2020 and 2019, respectively. Any future determination to pay cash dividends will be made by the Board in light of the Company’s earnings, financial position, capia tal requirements, and restrictions under the Company’s 2019 Credit Agreement, and such other facff tors as the Board deems relevant. Purchases of Equity Securities by the Issuer (c) Issuer Purchases of Equity Securities forff the three months ended December 31, 2020. Total Number of Shares Purchased (1) — $ 50,700 11,844 62,544 Average Price Paid Per Share (1) — 55.60 70.11 Total Number of Shares Purchased as cly Part of Publiu Announced Plans or Programs (2) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) — $ 50,700 — 50,700 38,779,489 35,960,557 35,960,557 Period Sep. 28 - Oct. 25, 2020 Oct. 26 - Nov. 29, 2020 Nov. 30 - Dec. 31, 2020 Total (1) Amount includes 11,844 shares common stock purchased by the Company in December 2020 for the sole purpose of satisfying the minimum tax withholding obligations of employe awards and stock appre ciation rights held by the employees. m a es upon the vesting of stock (2) See Note 13 of the Notes to Consolidated Financial Statements for additional information about the Company's stock repurchase program. Stock Performance Graph The following graph compares the cumulative 5-year total returnt relative to the cumulative total returns t includes Brunswick Corporation, Cavco Industries, Inc., LCI Industries, Malibu Boats, Inc., Thor Industries, Inc., Winnebago Industries, Inc., and Wabaa sh National Corporation. This graph assumes an initial investment of $100 (with reinvestment of all dividends) was made in our common stock, in the index and in the peer group on December 31, 2015 and its relative performance is tracked through December 31, 2020. to shareholders of the Company’s common stock of the Russell 2000 index and a customized peer group of companies, which 24 Comparison of 5-Year Cumulative Total Return* $250 $200 $150 $100 $50 5 1 / 1 2 / 3 1 6 1 / 1 2 / 3 1 7 1 / 1 2 / 3 1 8 1 / 1 2 / 3 1 9 1 / 1 2 / 3 1 0 1 / 2 2 / 3 1 PATK Peer Group Russell 2000 ($) 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 Patrick Industries, Inc. Peer Group Russell 2000 100.00 100.00 100.00 175.40 143.24 119.48 239.48 206.88 135.18 102.10 131.29 118.72 180.79 191.50 146.89 235.69 230.53 173.86 *The stock price performance included in this grapha is not necessarily indicative of futuret stock price performance. 25 ITEM 6. SELECTED FINANCIAL DATA As of or for the Year Ended December 31 2020 2019 2018 2017 2016 (thousands except per share amounts) $ 2,486,597 $ 2,337,082 $ 2,263,061 $ 1,635,653 $ 1,221,887 459,017 173,373 97,061 422,871 154,442 89,566 415,866 178,415 119,832 278,915 121,900 85,718 202,469 90,837 55,577 2.47 2.43 — Basic net income per common share Diluted net income per common share $ $ Cash dividends paid per common share $ 4.27 $ 4.20 $ 1.03 $ 3.88 $ 3.85 $ 0.25 $ 4.99 $ 4.93 $ — $ 3.54 $ 3.48 $ — $ Operating Data: Net sales (1) Gross profit Operating income (1) Net income Financial Data: Total assets (1) (2) $ 1,753,435 $ 1,470,993 $ 1,231,231 $ 866,644 $ 534,950 Cash and cash equivalents Total short-term and long-term debt (3) Shareholders' equity Cash flows from operating activities 44,767 840,000 559,441 160,153 139,390 705,000 497,481 192,410 6,895 661,082 408,754 200,013 2,767 354,357 370,685 99,901 6,449 273,153 185,448 97,147 (1) See Note 4 of the Notes to Consolidated Financial Statements for information regarding revenues, operating income and net assets of businesses acquired in fiscal years 2020, 2019 and 2018. (2) See Note 15 of the Notes to the Consolidated Financial Statements for information regarding operating lease right-of-use assets reflected on the Company's balance sheet with the adoption of a new lease accounting standard in 2019. (3) Total short-term and long-term debt for each of the periods presented in the table above is not presented net of deferred financing costs or debt discount. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATRR IONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in Item 8 results that are forward-looking of this Report. In addition, this MD&A contains certain statements relating to futuret statements as that term is defined in the Private Securities Litigation Reform Act of 1995. See “Information Concerning Forward-Looking Statements” on page 3 of this Report. EXECUTIVE SUMMARY Overview of Markets and Related Industry Performance tt Recreational Vehicle ("RV") I" ndust II rytt rr ncreased 8% in 2020 compared to 2019. This increase in sales occurred despite an The RV industry is our primary market and comprised 56% of the Company’s consolidated net sales in 2020. Sales frff om the RV iRR ndustry i approximate 6-week operations shutdown in the late firff st quarter and early second quarter of 2020 in certain of our RV facilities in alignment with production shutdowns by certain OEM customers in response to the COVID-19 pandemic. In the second half of 2020, OEM production improved sharplrr y in response to a strong increase in retail and wholesale demand for RVs, and our sales to RV ORR EMs also improved. 26 di cordi gng to hthe Recrea ition Vehihiclle Ac iunits iin 2020, an iincrease of 6% comparedd to 406,000 t 2020 ac storicallllyy llow llevells enteringring 2020, dde lcliinedd byby more hthan i dindust yry ddealler iinve 80,000 cordi gng to Statiistiic lal Surveyys, Inc ( i ntories at hth ieir llowest llevells iin hthe llast ddecadde. dustry hishipments tot lal ded 430,000 iunit salles iincreasedd 12% iin iunits iin 2020, res lultinging iin ddealler iinve ("SSI"), outpac ) i ntories, hiwhichh were lalreadyady at hihi iunits iin 2019. RV i dindust yry ret iaill iunit hishipments. As a res lult, RV dIndustryyrr Associia ition ((“RVIA” inging h lwholes lale iinddustryyrr )), h lwholes lale iindustry di RR i Marineii Industrytt Sales to the marine industry, which represented approximately 14% of the Company's consolidated net sales in 2020, increased 3% in 2020 compared to 2019. Our marine revenue is generally correlated to marine wholesale powerboat unit shipments, which were impacted by marine OEM COVID-19 production shutdowns late in the first quarter and early in the second quarter of 2020. While marine wholesale powerboat unit shipments began to improve in the second half of 2020, total 2020 marine wholesale powerboat unit shipments decreased an estimated 14% according to the National Marine Manufacturers Association. At the same time, marine retail powerboat shipments increased 15% for 2020, benefiting from increased demand for powerboats, resulting in marine dealer inventory levels that are at their lowest since 2014 as retail sales outpaced marine wholesale unit shipments in 2020. t Manufactured Housingii ("MH") Industrytt Sales to the MH industry, which represented 17% of the Company’s consolidated sales in 2020, decreased 1% in 2020 compared to 2019. MH sales are correlated to MH industry wholesale unit shipments, which were impacted by temporary MH OEM production shutdowns as a result of COVID-19 in the late first quarter and early second quarter of 2020, slowly recovering in the second half of 2020 as MH OEMs worked through labor Basedd on i dindust yry ddata from hthe Manufacturedd Institute, MH h lwholes lale iinddustryyrr 2020. and supply constraints. iunit hishipments were flflat iin iHousi gng a i Industrial tt Market t dand hhous h l market, office The industrial market is comprised primarily of the kitchen cabia net industry, high-rise, hospitality, retail and commercial fixtures represented 13% of our consolidated net sales in 2020, increasing 14% in 2020 compared to 2019. 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 approxim busine business iis ddiirectlyly iti ded to hthe re idside inti lal housing dand commerciiall ma krkets. eholdd furnituret market and regional distributors. Sales to this market approximat lelyy 60% of our i d iwi hth hthe remai iini gng 40% didirectlyly iti ded to hthe non-re idsidentiiall housing ma krket, industri lal i Combibinedd new housing housing starts iincreasedd 7% iin 2020 compa dred to 2019, 12% dand mulltififa imilyly re idside inti lal starts ddecre iasi gng 3% for hthe same pe i driod. Our i dindust iriall am gong hthe llast components iinstallll ded iin new iunit construc ition housing starts byby four to isix monthhs. housing dand as suchh our iwithh singl lrelat ded single fa imilyly h housi gng starts iincreasingsing i dproducts are ggenerallllyy lsales typiypicallllyy trailil new 27 CONSOLIDATED OPERATRR ING RESULTS The following tablea consolidated statements of income forff sets forth the percentage relationship to net sales of certain items on the Company’s the years ended December 31, 2020, 2019 and 2018. (thousands) Net sales Cost of goods sold Gross profit Warehouse and delivery expenses Selling, general and administrative expenses Amortization of intangible assets Operating income Interest expense, net Income taxes Net income Year Ended December 31, 2020 2019 2018 2,486,597 100.0 % 2,337,082 100.0 % 2,263,061 100.0 % 2,027,580 459,017 98,400 146,376 40,868 173,373 43,001 33,311 97,061 81.5 18.5 4.0 5.9 1.6 7.0 1.7 1.3 3.9 1,914,211 422,871 98,055 134,466 35,908 154,442 36,616 28,260 89,566 81.9 18.1 4.2 5.8 1.5 6.6 1.6 1.2 3.8 1,847,195 415,866 74,996 128,242 34,213 178,415 26,436 32,147 119,832 81.6 18.4 3.3 5.7 1.5 7.9 1.2 1.4 5.3 Year Ended December 31, 2020 Compared to 2019 Net Sales. Net sales in 2020 increased approximately $149.5 million, or 6%, to $2.49 billion from $2.34 billion in 2019. The increase was attributable to an 8% increase in sales from the RV industry, a 14% increase in the Company’s sales fromff a 1% decrease in sales fromff the industrial markets and a 3% increase in sales from the marine industry, partially offset by the MH industry. dand 2019, net s lales at In 2020 imilllliion, respectiively.ly. itribbut blable to acq i iuisi itions com lpleted id in eachh of thhose yyears wa $s $81.9 imilllliion and $d $8.3 hThe Com ypany’s RV content per hwhollesalle ppowe brboat content per hwhollesalle content per hwhollesalle iunit for 2020 iincreasedd 2% t $o $3,235 from $$3,170 iin 2019. Ma irine iunit for 2020 iincreasedd 24% to an es itimated $d $2,098 from $$1,696 iin 2019. MH iunit for 2020 ddecreasedd 1% t $o $4,580 iin 2020 from $$4,616 iin 2019. Cost of Goods Sold. Cost of goods sold increased $113.4 million, or 6%, to $2.03 billion in 2020 from $1.91 billion in 2019. As a percentage of net sales, cost of goods sold decreased during 2020 to 81.5% from 81.9% in 2019. hThe ddecrease iin cost of goods ldsold as a percent gage of net goods gagaiinst hthe overallll iincrease iin net s lales iin 2020, pa irti lallyly offse bt byy a in increase iin llabbor net salles. In ggenerall, hthe Compa yny's cost o gf g doods ma krket sectors hthat can re lsult iin flfluctuat iutililized id in thhe hverhe dad components as an overallll percent gage of a ldsold percentagge ca bn b ie impacted bd by dy dem dand hch gange is in cert iain inging costs of certaiin raw materiialls andd com dimodity-ba itribbutedd to cert iain fiixeff t dproducts. dproduc ition of our ty-basedd components thhat are lsales iis at dd o Gross Profit. Gross profit increased $36.1 million or 9%, to $459.0 million in 2020 from $422.9 million in 2019. As a percentage of net sales, gross profit increased to 18.5% in 2020 from 18.1% in 2019. The increase in gross profit as a percentage of net sales in 2020 compared to 2019 reflects the impact of the factors discussed above of Goods Sold”. under “Cost a 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, the competitive environment and the impact of differe fluctuate from quarter-to-quarter and year-to-year. nt gross margin profiles of acquired companies, all of which can cause gross margins to ff 28 Warehouse and Delivery Expenses. Warehouse and delivery expenses increased $0.3 million, or 0.4%, to $98.4 million in 2020 from $98.1 million in 2019. As a percentage of net sales, warehouse and delivery expenses were 4.0% in 2020 and 4.2% in 2019. The decrease as a percentage of net sales in 2020 compared to 2019 was primarily attributablea warehousing and delivery costs as a percentage of net sales. to the lower proportion of MH industry net sales in 2020 comparem d to 2019, which have higher Selling, General and Administrative ("SG&A") Expenses. SG&A expenses increased $11.9 million, or 9%, to $146.4 million in 2020 from $134.5 million in 2019. As a percentage of net sales, SG&A expenses were 5.9% in 2020 and 5.8% in 2019. The increase in SG&A expenses as a percentage of net sales in 2020 is primarily due to an expansion of general and administrative resources to support end market demand. Amortization of Intangible Assets. Amortization of intangible assets increased $5.0 million, or 13.8%, in 2020 compared to 2019. The increase in 2020 compared to 2019 primarily reflects the impact of an increase in intangible assets from businesses acquired in 2019 and 2020. Operating Income. Operating income increased $19.0 million, or 12%, to $173.4 million in 2020 from $154.4 million in 2019. Operating income in 2020 and 2019 included $10.7 million and $0.9 million, respectively, from the businesses acquired in each year. Operating income as a percentage of net sales was 7.0% in 2020 and 6.6% in 2019. The increase in operating income is primarily attributablea margin profiles of businesses acquired in 2020. to the items discussed above as well as the operating Interest Expense, Net. Interest expense, net, increased $6.4 million, or 17%, to $43.0 million in 2020 from $36.6 million in 2019. The increase in net interest expense reflects increased borrowings related to 2020 acquisitions, partly offset by decreases in the average interest rate on the variablea rate portion of the Company's debt, which reflects a lower weighted average LIBOR in 2020 compared to 2019. Income Taxes. Income tax expense increased $5.0 million, or 18%, to $33.3 million in 2020 from $28.3 million in tive tax rate was 25.6% compared to 24.0% in 2019. The increase in the effective tax rate 2019. For 2020, the effecff in 2020 was mostly attributablea to a change in the mix of state taxes and decreased benefits from stock-based compensation. See our Form 10-K for hthe yyear hthe yyear dendedd Dece bmber 31, 2019 comparedd to 2018. dendedd Dece bmber 31, 2019 for a didisc iussion of our cons lioliddat ded operatinging re lsults for 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 industry volume metrics. 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. These metrics should not be considered in isolation or as substitutet s for an analysis of our results as reported under U.S. GAAP. 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. BUSINESS SEGMENTS The Company's reportablea The Company regularly evaluates the performance of the manufacturing resources to them based on a variety of indicators including net sales and operating income. The Company does not measure profitabila and distribution, are based on its method of internal reporting. ity at the end market (RV,RR marine, MH and industrial) level. and distribution segments and allocates segments, manufacturing t t • Manufacturing – This segment includes the following products: laminated products that are utilized to produce furniture, t shelving, walls, countertops and cabia net products; cabia net doors; fiberglass bath fixtures 29 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; fiberglass bath fixtures and tile systems; softwoods try; 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 component harnesses; boat covers, towers, tops and framff molds and composite s products; treated, untreated and laminated plywood; wiring and wire es; marine hardware; aluminum and plastic fuel tanks; CNC parts; slotwall panels and component lumber; custom cabine s; and other products. m m m a ff • Distribution – The Company distributes pre-finished wall 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 ceramic floff oring; tile; shower doors; furniture; surrounds; interior and exterior lighting products; and other miscellaneous products in addition to providing transportation and logistics services. fireplaces and t Net sales pertaining to the manufacturing and distribution segments as stated in the tablea discussions include intersegment sales. Gross profit includes the impact of intersegment operating activity. below and in the folff lowing below presents information about the net sales, gross profit, and operating income of the Company’s The tablea segments. Reconciliations of the amounts below to consolidated totals are presented in Note 18 to Consolidated Financial Statements. (thousands) Sales Manufacturing Distribution Gross Profit Manufacturing Distribution Operating Income Manufacturing Distribution Year Ended December 31, 2020 2019 2018 $1,765,818 $1,673,486 $1,779,048 762,472 699,159 521,235 324,938 133,291 307,362 110,957 337,451 81,016 190,518 54,376 174,913 38,953 215,246 31,491 Year Ended December 31, 2020 Compared to 2019 Manufacturing Net Sales. Sales increased $92.3 million, or 6%, to $1.77 billion from $1.67 billion in 2019. This segment accounted for approximately 70% of the Company’s consolidated net sales in 2020 and 2019. The sales increase reflected increased net sales across all of our end markets. In 2020 and 2019, net sales attributable to acquisitions completed in each of those periods was $52.5 million and $8.3 million, respectively. Gross Profit. Gross profit increased $17.5 million, or 6%, to $324.9 million in 2020 from $307.4 million in 2019. As a percentage of net sales, gross profit was 18.4% in 2020 and 2019. 30 Operating Income. Operating income increased $15.6 million, or 9%, to $190.5 million in 2020 from $174.9 million in 2019. Operating income attributable to acquisitions completed in 2020 and 2019 was $7.0 million and $0.9 million, respectively. The increase in operating income primarily reflects the increase in gross profit mentioned above. tt Distributi on Net Sales. Sales increased $63.3 million, or 9%, to $762.5 million in 2020 from $699.2 million in 2019. This segment accounted for approximately 30% of the Company’s consolidated net sales for 2020 and 2019. The increase in net sales in 2020 is primarily attributed to an increase in RV, industrial and marine end market net sales, partially offset by a decrease in net sales to the MH market. Revenue attributable to acquisitions complem ted in 2020 was $29.4 million. Gross Profit. Gross profit increased $22.3 million, or 20%, to $133.3 million in 2020 from $111.0 million in 2019. As a percentage of net sales, gross profit was 17.5% in 2020 compared to 15.9% in 2019. The increase in gross profit as a percentage of net sales for 2020 reflected the contribution of increased net sales in our higher margin transportation business and the positive impact of leveraging fixed costs on higher sales volumes in our other distribution businesses. Operating Income. Operating income in 2020 increased $15.4 million, or 40%, to $54.4 million from $39.0 million in 2019. The businesses acquired in 2020 contributed approximately $3.7 million to operating income in the Distribution segment in 2020. The overall improvement in operating income in 2020 primarily reflects the items discussed above. Unallocll s ated Corporatett Expense xx As presented in Note 18 to the Consolidated Financial Statements, unallocated corporate expenses in 2020 increased $7.2 million, or 30%, to $30.7 million from $23.5 million in 2019. The increase in 2020 was mostly attributed to an increase in professional fees, administrative wages and incentive compensation. LIQUIDITY AND CAPITAL RESOURCES Q The Company's primary sources of liquidity are cash flow from operations, which includes selling its products and under the 2019 Credit Facility (as collecting receivablea defined below). Principal uses of cash are to support working capia tal demands, meet debt service requirements and support the Company's capia tal allocation strategy, which includes acquisitions, capia tal expenditures, dividends and repurchases of the Company’s common stock, among others. cash reserves and borrowing capaa city availablea s, availablea Cash Flows Year Ended December 31, 2020 Compared to 2019 Operating Activitiii es 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. id providedd byby opera iti gng ac iti ivitiies ddecreasedd $$32.2 iprim iarilyly ddue to: (i)(i) an iincrease iin ca hsh usedd byby iinve NNet ca hsh 2019 iories iincrease iin iinvent (ii(ii)) an iincrease iin ca hsh usedd byby tradde andd salles as wellll as hthe iti opera iti gng ca hsh flflows were: (i)(i) an iincrease iin ca hsh from pre purchas ded at yyear endd to support a st imi gng of h imilllliion to $$160.2 ntories of $$54.2 i imilllliion iin 2020 from $$192.4 imilllliion iin imilllliion, hiwhi hch iis iprima ilrilyy ddue to an g rong iincrease iin endd ma krket ddem dand for our dproducts iprima ilrilyy ddue to an iincrease iin yyear tially offsettinging hthe babove iincrease iin hthe use of imilllliion, dand dend ipaidd expenses, accounts payablyable, accr duedr lili babililiitiies andd lcolllectiion of tr dade rec iei blvables. Partially hother rec iei blvables of $$35.0 31 hother of $f $30.1 opera iti gng iitems of $f $8.8 imilllliion; (ii(ii)) a in increas ie i dn depre iciatiion andd amo irtiza ition of $$10.5 imilllliion; (ii(iii)i) an iincrease iin othher ilmillilion dand (i(i )v) an iincreas ie in net iincome of $$7.5 imilllliion. Investingii Activtt itiett s in inves iti gng ac iti ivitiie is increased $d $258.7 NNet cashh used id i primprim iarilyly ddue to (i(i)) a in increas ie in cashh used id i bn b iusiness a expe dinditures equipment andd o hthe ir inve isti gng ac iti ivitiies of $f $4.1 imilllliion and (d (iiiii)i) da decrease iin ca hsh imilllliion. of $$4.4 i t imilllliion to $$337.9 imilllliion iin 2020 from $$79.2 imilllliio in in 2019 cqui isitiions of $$250.0 provided bd byy proce deds from lsale of prope yrty, imilllliion; an iincrease iin ca ipia tall lplant dand i id Financ ii ing Activitiii es id fff iprima ilrily dy dued NNet cash fh fllows iin 2019 borrowi borrowi gngs of $$43.9 busine business dand othher of $$9.9 di idivid ddends paipaid fd forff i provided bd byy fiinaff inci gng ac iti ivitiie is increa dsed $$63.7 to (: (i)i) an iincreas ie in net b borrowi gngs of $$135.0 i iprima ilrilyy to our use of hthe 2019 Re ff d fd fiinafff imilllliion t $o $83.0 imilllliio in in 2020 from $$19.3 imilllliion imilllliion iin 2020 comparedd to a in increase iin net fund 2020 d lvolve (r (as d fidefi dned hhe irei )n) to f inci gng, d bdebt iissuance, co inti gngent considideratiion fifinancinging ac iti ivi ities were pa irti lallyly offset byby iincrease is in cashh imilllliion iin 2019, ddue acqui isitiions and (d (iiii) d) a decreas ie in p yayments of df deferre imilllliion. hThese iincrease is in cash fh fromff dand stockk repurchhases dunder our buyba buyba kck gprogram of $f $37.1 imilllliion. See our Form 10-K for the year ended December 31, 2019 for a discussion of cash flows December 31, 2019 compared to 2018. ff for the year ended Summary of Liquidity and Capital Resources The Company believes that existing cash and cash equivalents, cash generated from operations, and available borrowings under its 2019 Credit Facility will be sufficient to meet anticipated cash needs for working capita capita budgets and forecast of short-term and long-term liquidity needs. for at least the next 12 months, exclusive of any acquisitions, based on its current cash flow al expenditures t al and a The ability to access unused borrowing capac on maintaining compliance with the finff ancial covenants as specified under the terms of the credit agreement that establia its financ ff consolidated total leverage ratio and the required minimum consolidated fixed charge coverage ratio compared to the actual amounts as of December 31, 2020 and for the fisff cal year then ended are as follows: shed the 2019 Credit Facility (the "2019 Credit Agreement"). In 2020, the Company was in compliance with ial debt covenants as required under the terms of the 2019 Credit Agreement. The required maximum ity under the 2019 Credit Facility as a source of liquidity is dependent Consolidated total leverage ratio (12-month period) Consolidated fixed charge coverage ratio (12-month period) Required 4.50 1.50 Actual 2.44 4.81 rr romff al requirements vary f period to period depending on manufacturing Working capita 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 al resources were to become unavailable, the Company would seek to revise its operating strategies capita accordingly. The Company will continue to assess its liquidity position and potential sources of supplemental liquidity in view of operating performance, current economic and capia tal market conditions, and other relevant circumstances. volumes primarily related to t Borrowings under the revolving credit loan (the "2019 Revolver") and the term loan (the "2019 Term Loan" and, together with the 2019 Revolver, the "2019 Credit Facility") established under the 2019 Credit Agreement, 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 8 of the Notes to the Consolidated Financial Statements for further information. See Note 9 of the Notes to Consolidated Financial Statements for information on interest rate swapsa hedge variable interest rates under the 2019 Revolver and 2019 Term Loan. The unused availabila Credit Facility as of December 31, 2020 was $314.6 million. used to partially ity under the 2019 32 Off-ff Balance Sheet Arrangements None. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabia lities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The SEC has defined a company’s critical accounting policies as those that are most important to the portrayal of its financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made. Actual results may differ materially from these estimates under different assumptim ons or conditions. Other material accounting policies are described in Notes 1, 3 and 15 of the Notes to Consolidated Financial Statements. The Company has identified the following critical accounting policies and estimates: Goodwill and Other Intangible Assets. The Company’s acquisitions include purchased goodwill and other intangible assets. Goodwill represents the excess of cost over the fair value of the net assets acquired. Other intangible assets acquired are classified as customer relationships, non-compete agreements, patents and trademarks. Goodwill and indefinite-lived intangible assets, representing acquired trademarks, are not amortized but are subject to an annual (or under certain circumstances more frequent) impairment test in the fourth quarter based on their estimated fair value. We test more frequently, if there are indicators of impairment, or whenever such circumstances suggest that the carrying value of goodwill or trademarks may not be recoverable. These indicators include a sustained material decline in our share price and market capia talization, a decline in expected future cash flows, or a material adverse change in the business climate. A material adverse change in the business climate could result in a material loss of market share or the inabila ity to achieve previously projected revenue growth. Impairment reviews of goodwill are performed at the reporting unit level. The Company’s reporting units are defined as one level below our operating segments, Manufacturing and Distribution, which are the same as our reportable segments. In evaluating goodwill for impairment, either a qualitative or quantitative assessment is performed. If the qualitative assessment indicates it is more likely than not that the fair value of the reporting unit is less than its carrying value, the Company performs a quantitative assessment. When estimating reporting unit fair value with the quantitative assessment, the Company uses a combination of market and income-based methodologies. The market approach includes a comparim son of multiples of earnings before interest, taxes, depreciation and amortization for the reporting units to similar businesses or guideline companies whose securities are actively traded in public markets. When calculating the present value of future cash flows under the income approach, the Company takes into consideration multiple variablea operating income, current industry and economic conditions, and historical results. The income approach fair value estimate also includes estimates of long-term growth rates and discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and internally-developed forecasts. s, including forecasted sales volumes and Impairment reviews of indefinite-lived intangible assets (trademarks) consist of a comparism trademark to its carrying value. Fair value is measured using a relief-from-royalty approach, a form of discounted cash flow method. Estimated royalty rates applied to projected revenues are based on comparam industryrr studies and consideration of operating margins. Discount rates are derived in a manner similar to what is done in testing goodwill for impairment. on of the fair value of the blea Based on the results of the Company's analyses, the estimated fair value of each of the Company's reporting units and trademarks was determined to exceed the carrying value for each of the years ended December 31, 2020, 2019 and 2018 and so no impairments were recognized. Further, based on the results of the impairment analyses, none of 33 the Company’s reporting units or trademarks were at risk of failing the impairment assessments discussed above that would have a material effect on the Company’s Consolidated Financial Statements for any period presented. See Note 7 of the Notes to Consolidated Financial Statements for information regarding immaterial impairments recorded in 2020 unrelated to the annual goodwill and trademark tests. Finite-lived intangible assets that meet certain criteria continue to be amortized over their useful lives and are also subject to an impairment test based on estimated undiscounted cash flows when impairment indicators exist. assets acquired and the liabilities assumed at their fair values as of the date of acquisition. We measure Business Combinations. From time to time, we may enter into business combinations. We recognize the identifiablea goodwill as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiablea accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of property, plant and equipment, identifiablea and assumptions include subjective and/or complex judgments regarding items such as discount rates, customer attrition rates, royalty rates, economic lives and other factors, including estimated futuret generate from the acquired assets. intangible assets, contingent consideration and other financial assets and liabilities. Significant estimates assets acquired and liabilities assumed. The acquisition method of cash flows that we expect to The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustmd ents could have a material impact on our financial condition and results of operations. No changes in fiscal 2020 to provisional fair value estimates of assets and liabilities assumed in acquisitions were material. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptim ons and projections used to develop the acquisition date fair value estimates, we could record future impairment charges. In addition, we estimate the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired assets could be impaired. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Debt Obligations At December 31, 2020, our total debt obligations under our 2019 Credit Agreement were under LIBOR-based interest rates. A 100 basis point increase in the underlying LIBOR rates would result in additional annual interest cost of approximately $$1.7 million, assuming average borrowings, including the Term Loan, subject to variablea of $167.5 million, which was the amount of such borrowings outstanding at December 31, 2020 subjecb t to variablea rates after taking into consideration interest rate swapsa with a combined notional principal amount of $200 million. rates Inflation The prices of key raw materials, consisting primarily of lauan, gypsum, particleboard, fiberglass, copper and aluminum, 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 affecff ted by inflationary pressures. Prices of certain commodities have historically been volatile and continued to fluctuate in 2020. During periods of rising commodity prices, we have generally been able to pass the increased costs to our customers in the form of surcharges and price increases. However, there can be no assurance future cost increases, if any, can be partially or fully passed on to customers, or that the timing of such sales price increases will match raw material cost increases. We do not believe that inflation had a material effecff t on results of operations for the periods presented. 34 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is set forth in Item 15(a)(1) of Part IV of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES ll Disclosure Controlsll 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 effecff tiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this 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 effecff tive such that the information relating to the Company, including consolidated subsidiaries, required 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 Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal tt Control tt Over Financ ii ial Reportingii shing and maintaining adequate internal control over financial reporting, as defined in We are responsible for establia Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the fair and reliablea preparation and presentation of our published financial statements. We continually evaluate our system of internal control over financial reporting to determine if changes are appropriate based upon changes in our operations or the business environment in which we operate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This assessment included a review of the documentation of controls, an assessment of the design effecff effectiveness of controls, and a conclusion on this evaluation. As permitted under SEC guidance, management’s tiveness of controls, testing of the operating 35 assessment of and conclusion regarding the design and effectiveness of internal control over financial reporting excluded the internal control over financial reporting of the operations of businesses acquired in 2020, which are described in Note 4 of the Notes to Consolidated Financial Statements. Businesses acquired in 2020 represented less than 3% of consolidated net sales for the year ended December 31, 2020 and approximately 19% of consolidated total assets as of December 31, 2020. Based on our assessment, we have concluded that our internal control over financial reporting was effective as of December 31, 2020. The Company’s independent registered public accounting firm, Deloitte & Touche LLP, audited our internal control over financial reporting as of December 31, 2020, as stated in their report in the section entitled “Report of Independent Registered Public Accounting Firm” included elsewhere in this Form 10-K, which expresses an unqualified opinion on the effecff December 31, 2020. tiveness of the Company’s internal control over financial reporting as of Changes in internal tt control over financial reportingtt There have been no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2020 or subsequent to the date the Company completed its evaluation, that have materially affected, or are reasonably likely to materially affecff t, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE PART III Directors of the Companyp y The information required by this item with respect to directors is set forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021, under the capta ions “Election of Directors” and “Delinquent Section 16(a) Reports,” which information is hereby incorporated herein by reference. Executive Officers of the Registrant g The information required by this item is set forth under the captia this Annual Report on Form 10-K. on “Executive Offiff cers of the Company” in Part I of Audit Committee Information on our Audit Committee is contained under the capta ion “Audit Committee” in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021 and is incorporated herein by reference. Code of Ethics and Business Conduct We have adopted a Code of Ethics and Business Conduct Policy applicablea and Business Conduct Policy is availablea Relations”. We intend to post on our web site any substu and Business Conduct Policy as well as our Corporat rr copy of these policies without charge upon written request directed to the Company’s Corporat Company’s address. r antive amendments to, or waivers from, our Code of Ethics e Governance Guidelines. We will provide shareholders with a on the Company’s web site at www.patrickind.com under “Investor to all employees. Our Code of Ethics e Secretary at the 36 Corporate Governance p Information on our corporate governance practices is contained under the captia on “Corporate Governance” in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021 and incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021, under the capta ion “Executive Compensation," "Compensation Committee Interlocks and Director Participation," and "Compensation Committee Report," and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item is set forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021, under the captia ons “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACT RR IONS, AND DIRECTOR INDEPENDENCE The information required by this item is set forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021, under the captia ons “Related Partyt Transactions” and “Corporate Governance and Related Matters,” and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item is set forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2021, under the heading “Independent Public Accountants,” and is incorporated herein by reference. 37 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES PART IV (a) (1) The financial statements listed in the accompanying Index to the Financial Statements on page F-1 of the separate financial section of this Report are incorporated herein by reference. (3) The exhibits required to be filff ed as part of this Annual Report on Form 10-K are listed under (c) below. (c) Exhibits Exhibit Number Exhibits 3.1 3.2 3.3 4.1 4.2 4.3** 10.1 10.2* 10.3* 10.4* 10.5* 10.6* 10.7* 10.8* 10.9 Articles of Incorporation of Patrick Industries, Inc. (filed as Exhibit 3.1 to the Company’s Form 10-K filed on March 30, 2010 and incorporated herein by reference). Amendment to the Articles of Incorporation of Patrick Industries, Inc. dated June 5, 2018 (filed as Exhibit 3.2 to the Company's Form 10-K filed on February 28, 2019 and incorporated herein by reference). Amended and Restated By-laws of Patrick Industries, Inc. (filed as Exhibit 3.1 to the Company's Form 8-K filed on May 8, 2020 and incorporated herein by reference). (including Form of Note) with respect to the Company's 1.00% Convertible Senior 2023, dated as of January 22, 2018, between Patrick Industries, Inc. and U.S. Bank Indenturet Notes dued National Association, as trustee (filed as Exhibit 4.1 to the Company's Form 8-K filed on January 24, 2018 and incorporated herein by reference). (including Form of Note), dated as of September 17, 2019, among Patrick Industries, Indenturet Inc., the guarantors from time to time party thereto and U.S. Bank, National Association, as Trustee (filed as Exhibit 4.1 to the Company's Form 8-K filed on September 18, 2019 and incorporated herein by reference). Description of the Company’s common stock. Patrick Industries, Inc. 2009 Omnibus Incentive Plan (filed as Appendix A to the Company’s revised Defini incorporated herein by reference). tive Proxy Statement on Schedule 14A filed on October 20, 2009 and ff Form of Employment Agreements with Executive Officers (filed as Exhibit 10.2 to the Company’s Form 10-K filed on March 30, 2010 and incorporated herein by reference). Form of Non-Qualified Stock Option Award (filed as Exhibit 10.4 to the Company’s Form 10- K filff ed on March 14, 2014 and incorporated herein by reference). Form of Officff er and Employee Restricted Stock Award (filed as Exhibit 10.5 to the Company’s Form 10-K filed on March 30, 2010 and incorporated herein by reference). Form of Officff er and Employee Time Based Restricted Share Award and Performance Contingent Restricted Share Award (filed as Exhibit 10.7 to the Company’s Form 10-K filed on March 29, 2012 and incorporated herein by reference). Form of Non-Employee Director Restricted Share Award (filed as Exhibit 10.2 to the Company’s Form 10-Q filed on November 8, 2011 and incorporated herein by reference). Form of Stock Appreciation Rights Award (filed as Exhibit 10.9 to the Company’s Form 10-K filed on March 14, 2014 and incorporated herein by reference). Form of Performance Share Unit Award (filed as Exhibit 10.1 to the Company’s Form 10-Q filed on May 8, 2014 and incorporated herein by reference). Third Amended and Restated Credit Agreement dated September 17, 2019 by and among the Company, the Guarantors, the lenders from time to time a party thereto and Wells Fargo Bank, National Association (filed as Exhibit 10.1 to the Company's Form 8-K filed on September 18, 2019 and incorporated herein by reference). 38 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 16.1 21** 23.1** 23.2** 31.1** 31.2** 32** Base Convertible Bond Hedge Transaction Confirmation, dated as of January 17, 2018, by and between Patrick Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.2 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). Base Convertible Bond Hedge Transaction Confirmation, dated as of January 17, 2018, by and between Patrick Industries, Inc. and Wells Fargo Bank, National Association (filed as Exhibit 10.3 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). Base Issuer Warrant Transaction Confirmation, dated as of January 17, 2018, by and between Patrick Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.4 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). Base Issuer Warrant Transaction Confirmation, dated as of January 17, 2018, by and between Patrick Industries, Inc. and Wells Fargo Bank, National Association. (filed as Exhibit 10.5 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). Additional Convertible Bond Hedge Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.6 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). Additional Convertible Bond Hedge Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc. and Wells Fargo Bank, National Association (filed as Exhibit 10.7 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). Additional Issuer Warrant Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc. and Bank of America, N.A. (filed as Exhibit 10.8 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). Additional Issuer Warrant Transaction Confirmation, dated as of January 18, 2018, by and between Patrick Industries, Inc. and Well Fargo Bank, National Association (filed as Exhibit 10.9 to the Company's Form 8-K filed on January 22, 2018 and incorporated herein by reference). Letter of Crowe LLP to the Securities and Exchange Commission dated June 7, 2019 (filed as Exhibit 16.1 to the Company's Form 8-K filed on June 7, 2019 and incorporated herein by reference). Subsidiaries of the Registrant. Consent of Deloitte & Touche LLP. Consent of Crowe LLP. Certification pursuant to Section 302 of the Sarbane Officer. r s-Oxley Act of 2002 by Chief Executive Certification pursuant to Section 302 of the Sarbane Officer. r s-Oxley Act of 2002 by Chief Financial Certification pursuant to 18 U.S.C. Section 1350. 39 XBRL Exhibits. Interactive Data Files. The following materials are filed electronically with this Annual Report on Form 10-K: 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 Labea 101.PRE XBRL Taxonomy Presentation Linkbase Document l Linkbase Document Attached as Exhibits 101 to this report are the following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 formatted in XBRL (“eXtensible Business Reporting Language”): (i) the Consolidated Statements of Financial Position; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Shareholders’ Equity; and (v) the Consolidated Statements of Cash Flows, and the related Notes to these financial statements in detail tagging format. *Management contract or compensatory plan or arrangement. **Filed herewith. All other financial statement schedules are omitted because they are not applicable or the required information is immaterial or is shown in the Notes to Consolidated Financial Statements. ITEM 16. FORM 10-K SUMMARY None. 40 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has dulyd caused this report to be signed on its behalf by the undersigned, thereunto dulyd authorized SIGNATURES Date: February 26, 2021 y , PATRICK INDUSTRIES, INC. By: /s/ Andy L. Nemeth Andy L. Nemeth President and Chief Executive Officff er Pursuant to the Requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capaa cities and on the dates indicated. Signature /s/ Andy L. Nemeth Andy L. Nemeth /s/ Jacob R. Petkovich Jacob R. Petkovich Title President and Chief Executive Officff er (Principal Executive Officff er) Director Executive Vice President Finance, Chief Financial Officer and Treasurer (Principal Financial Officer) /s/ James E. Rose James E. Rose Principal Accounting Officer (Principal Accounting Officff er) Date , y February 26, 2021 y February 26, 2021 , February 2rr y , 6, 2021 /s/ Joseph M. Cerulli Joseph M. Cerulli /s/ Todd M. Cleveland Todd M. Cleveland /s/ John A. Forbes John A. Forbes /s/ Michael A. Kitson Michael A. Kitson /s/ Pamela R. Klyn Pamela R. Klyn /s/ Derrick B. Mayes Derrick B. Mayes /s/ Denis G. Suggs Denis G. Suggs /s/ M. Scott Welch M. Scott Welch Director y February 26, 2021 , Executive Chairman of the Board y February rr 26, 2021 , Director Director Director Director Director February 2rr y , 6, 2021 y February 26, 2021 , y February 26, 2021 , February 2rr y , 6, 2021 y February 26, 2021 , Lead Director Februarr , ry 26, 2021 y 41 PATRICK INDUSTRIES, INC. Index to the Financial Statements Report of Independent Registered Public Accounting Firm, Deloitte & Touche LLP Report of Independent Registered Public Accounting Firm, Crowe LLP Financial Statements: Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Statements of Financial Position Consolidated Statements of Cash Flows Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements F-2 F-5 F-6 F-7 F-8 F-9 F-10 F-11 F-1 Report of Independent Registered Public Accounting Firm To the shareholders and the Board of Directors of Patrick Industries, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated statements of financial position of Patrick Industries, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows, for the years ended December 31, 2020 and 2019, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control— Integrated e (COSO). Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Inte— grated Framework (2013) issued by COSO. e Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. As described in Management's Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at the operations of businesses acquired in 2020, which are described in Note 4, whose financial statements constitute less than 3% of consolidated net sales for the year ended December 31, 2020 and approximately 19% of consolidated total assets as of December 31, 2020. Accordingly, our audit did not include the internal control over financial reporting at these businesses. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effecff maintained in all material respects. tive internal control over financial reporting was Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonablea basis for our opinions. F-2 Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonablea regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonablea assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effecff t on the financial statements. assurance t Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subjeu ct to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Goodwill-Refer to Notes 1 and 7 to the financial statements Critical Audit Matter Descripti i on The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company uses a combination of market and income-based methodologies. The market approach includes a comparison of multiples of earnings before interest, taxes, depreciation and amortization (EBITDA) for the reporting units to similar businesses or guideline companies whose securities are actively traded in public markets. When calculating the present value of future cash flows under the income approach, the Company takes into consideration multiple variablea industry and economic conditions, and historical results. The income approach fair value estimate also includes estimates of long-term growth rates and discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and the internally-developed forecasts. The goodwill balance was $396 million as of December 31, 2020. The estimated fair value of each of the Company's reporting units was determined to exceed the carrying value for the year ended December 31, 2020, and so no impaim rment was recognized. s, including forecasted sales volumes and operating income, current Given the significant judgments made by management to estimate the fair value of certain of the Company’s reporting units, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rates and forecasts of sales and operating income, specifically due to the sensitivity of the Company’s operations to periods of volatility in the Company’s end customer markets, required a high degree of auditor judgment and an increased extent of effort, specialists. including the need to involve our fair value ff How the Critical Audit Matter Was Addresse dd d in the Audit Our audit procedures related to the discount rate and forecasts of sales and operating income used by management to estimate the faff ir value of certain reporting units included the following, among others: F-3 • We tested the effecff tiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the Company’s reporting units, such as controls related to management’s selection of the discount rates and forecasts of sales and operating income. • We evaluated management’s ability to accurately forecast sales and operating income by comparing actual results to management’s historical forecasts. • We evaluated the reasonableness of management’s sales and operating income assumptim ons included in the income approach model, and extent to which forecast projection risk had been contemplated in the selection of the discount rates, by comparim ng the forecasts to historical sales and operating income, the strategic plans communicated to the Board of Directors, and forecasted information included in analyst and industry reports. • With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and discount rates by testing the source information underlying the determination of the discount rates and the mathematical accuracy of the calculations and developing a range of independent estimates and comparim ng those to the discount rates selected by management. /s/ Deloitte & Touche LLP Chicago, Illinois February 26, 2021 We have served as the Company's auditor since 2019. F-4 Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors of Patrick Industries, Inc. Elkhart, Indiana Opinion on the Financial Statements We have audited the accompanying consolidated statements of income, comprehensive income, cash flows, and shareholders’ equity of Patrick Industries, Inc. (the “Company”) for the year ended December 31, 2018, and the red related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referff to above present fairly, in all material respects, the Company’s results of operations and cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Crowe LLP We served as the Company's auditor from 2009 to 2018. Oak Brook, Illinois bruary 28, 2019 February F-5 Year Ended December 31, 2019 2,337,082 1,914,211 422,871 $ $ 2020 2,486,597 2,027,580 459,017 98,400 146,376 40,868 285,644 173,373 43,001 130,372 33,311 97,061 4.27 4.20 22,730 23,087 $ $ $ 98,055 134,466 35,908 268,429 154,442 36,616 117,826 28,260 89,566 3.88 3.85 23,058 23,280 $ $ $ 2018 2,263,061 1,847,195 415,866 74,996 128,242 34,213 237,451 178,415 26,436 151,979 32,147 119,832 4.99 4.93 23,995 24,317 PATRICK INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME (thousands except per share data) NET SALES Cost of goods sold GROSS PROFIT Operating Expenses: Warehouse and delivery Selling, general and administrative Amortization of intangible assets Total operating expenses OPERATRR ING INCOME Interest expense, net Income before income taxes Income taxes NET INCOME BASIC NET INCOME PER COMMON SHARE DILUTED NET INCOME PER COMMON SHARE $ $ $ $ Weighted average shares outstanding - Basic Weighted average shares outstanding - Diluted See accompanying Notes to Consolidated Financial Statements. F-6 PATRICK INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (thousands) NET INCOME Other comprehensive (loss) income, net of tax: Change in unrealized loss of hedge derivatives Foreign currency translation gain (loss) Other Total other comprehensive loss COMPREHENSIVE INCOME Year Ended December 31, 2019 2018 2020 $ 97,061 $ 89,566 $ 119,832 (515) 154 7 (354) 96,707 $ (2,401) (22) (595) (3,018) 86,548 $ (1,973) (32) (741) (2,746) 117,086 $ See accompanying Notes to Consolidated Financial Statements. F-7 PATRICK INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Assets (thousands except share data) ASSETS r Current Cash and cash equivalents Trade and other receivables, net Inventories Prepaid expenses and other Total current assets Property, plant and equipment, net Operating lease right-of-use-assets Goodwill Intangible assets, net Deferred finaff Other non-current assets TOTAL ASSETS ncing costs, net LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Current maturities of long-term debt Current operating lease liabila Accounts payable Accrued liabilities ities Total current liabilities Long-term debt, less current maturities, net Long-term operating lease liabilities Deferred tax liabila ities, net Other long-term liabilities TOTAL LIABILITIE S COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY Preferred stock, no par value; authorized 1,000,000 shares; none issued Common stock, no par value; authorized 40,000,000 shares; issued 2020 - 23,360,619 shares; issued 2019 - 23,753,551 shares Additional paid-in-capita Accumulated other comprehensive loss Retained earnings TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY al See accompanying Notes to Consolidated Financial Statements. F-8 December 31, 2020 2019 $ $ $ 44,767 132,505 312,809 37,982 528,063 251,493 117,816 395,800 456,276 2,382 1,605 1,753,435 7,500 30,901 105,786 83,202 227,389 810,907 88,175 39,516 28,007 ,193,994 1 139,390 87,536 253,870 36,038 516,834 180,849 93,546 319,349 357,014 2,978 423 1,470,993 5,000 27,694 96,208 58,033 186,935 670,354 66,467 27,284 22,472 973,512 — — 180,892 24,387 (6,052) 360,214 559,441 1,753,435 $ 172,662 25,014 (5,698) 305,503 497,481 1,470,993 $ $ $ $ PATRICK INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (thousands) CASH FLOWS FROM OPERATRR ING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of convertible notes debt discount Stock-based compensation expense Deferred income taxes Other Change in operating assets and liabilities, net of acquisitions of businesses: Trade and other receivables, net Inventories Prepaid expenses and other assets Accounts payable, accruedr liabilities and other Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capita al expenditures t Proceeds from sale of property, equipment, facff ility and other Business acquisitions, net of cash acquired Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Term debt borrowings Term debt repayments Bor rowi gng on i rver l revol Repayments on revolver Proceeds from senior notes offering Proceeds from convertible notes offering Purchase of convertible notes hedges Proceeds from sale of warrants Cash dividends paid to shareholders Stock repurchases under buyback program Payments related to vesting of stock-based awards, net of shares tendered for taxes Payment of deferred financing costs Payment of contingent consideration from a business acquisition Other finaff ncing activities Net cash provided by finff ancing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Year Ended December 31, 2020 2019 2018 $ 97,061 $ 89,566 $ 119,832 73,270 7,187 15,960 8,091 3,991 (29,190) (34,554) (2,414) 20,751 160,153 (32,100) 211 (305,995) (337,884) — (5,000) 239,277 (99,277) — — — — (23,630) (23,106) (3,741) (58) (2,000) 643 83,108 (94,623) 139,390 62,795 7,021 15,436 5,593 (1,661) 5,768 19,682 (12,869) 1,079 192,410 (27,661) 4,402 (55,953) (79,212) 7,500 (6,250) 55,052 5,885 13,981 759 (2,841) 26,680 92 1,654 (21,081) 200,013 (34,486) 6,463 (343,347) (371,370) 36,981 (7,691) 653,129 1,211,464 (910,461) (1,106,528) 300,000 — — — (5,798) (3,815) (3,380) (7,219) (4,416) 7 19,297 132,495 6,895 — 172,500 (31,481) 18,147 — (107,567) (2,698) (7,632) — (10) 175,485 4,128 2,767 6,895 Cash and cash equivalents at end of year $ 44,767 $ 139,390 $ See accompanying Notes to Consolidated Financial Statements. 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(cid:54) (cid:52) (cid:1) (cid:56) (cid:56) (cid:44) (cid:1) (cid:14) (cid:15) (cid:11) (cid:31) PATRICK INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Nature of Business Patrick Industries, Inc. (“Patrick” or the “Company”) operations consist of the manufacturet and distribution of component products and materials for use primarily by the recreational vehicle (“RV”RR ), marine, manufactured housing (“MH”) and industrial markets for customers throughout the United States and Canada. At December 31, plants and 58 distribution facilities located in 23 states, China, 2020, the Company maintained 141 manufacturing t Canada and the Netherlands. Patrick operates in two business segments: Manufacturing and Distribution. t Principles of Consolidation The accompanying 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 consolidated financial statements include the accounts of Patrick and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In preparation of Patrick’s consolidated financial statements as of December 31, 2020, management evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date of issuance of the Form 10-K to determine those requiring recognition or disclosure in the consolidated financial statements. Financial Periods The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning thirteen weeks, with the first, second and third quarters ending on the Sunday closest to the end of the first, second and third 13-week periods, respectively. The first three quarters of fiscal year 2020 ended on March 29, 2020, June 28, 2020 and September 27, 2020. The first three quarters of fiscal year 2019 ended on March 31, 2019, June 30, 2019 and September 29, 2019. The first three quarters of fiscal year 2018 ended on April 1, 2018, July 1, 2018 and September 30, 2018. Use of Estimates The preparation of the 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. Estimates include the valuation of goodwill and indefinite-lived intangible assets, the valuation of long-lived assets, the allowance for doubtful accounts, excess and obsolete inventories, the valuation of estimated contingent consideration and deferred tax asset valuation allowances. Actual results could differ from the amounts reported. Revenue Recognition See Note 3 for further information on our revenue recognition accounting policies. Costs and Expenses Cost of goods sold includes material costs, direct and indirect labor, freight charges, inspection costs, internal transfer costs, receiving costs, and other costs. a depreciation, overhead expenses, inbound Warehouse and delivery expenses include salaries and wages, building rent and insurance, and other overhead costs related to distribution operations and delivery costs related to the shipment of finished and distributed products to customers. F-11 Stock Based Compensation Compensation expense related to the fair value of restricted stock and restricted stock unit ("RSU") awards as of the grant date is calculated based on the Company’s closing stock price on the date of grant. In addition, the Company estimates the fair value of all stock option and stock appreciation rights (“SARS”) awards as of the grant date by applying the Black-Scholes option-pricing model. The use of this valuation model involves assumptim ons that are judgmental and highly sensitive in the determination of compensation expense, including the expected option term, dividend yield, risk-free interest rate and volatility of the Company's common stock. Expected volatilities take into consideration the historical volatility of the Company’s common stock. The expected term of options and SARS represents the period of time that the options and SARS granted are expected to be outstanding based on historical Company trends. The risk free interest rate is based on the U.S. Treasury yield curve in effecff instruments of a similar term. New shares are issued upon exercise of options. Forfeitures compensation are recognized as incurred. t at the time of grant for of stock based t Net Income Per Common Share Basic net income per common share is computed by dividing net income by the weighted-average number of d by dividing net income by the common shares outstanding. Diluted net income per common share is computem weighted-average number of common shares outstanding, plus the dilutive effect of stock options, SARS, and restricted stock and RSU awards (collectively, “Common Stock Equivalents”). The dilutive effect of Common Stock Equivalents is calculated under the treasury stock method using the average market price for the period. Common Stock Equivalents are not included in the computation of diluted net income per common share if their effecff be anti-dilutive. See Note 14 for the calculation of both basic and diluted net income per common share. t would Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Trade and Other Receivables s consist primarily of amounts due to the Company from its normal business activities. In assessing Trade receivablea the carrying value of its trade receivables, the Company estimates the recoverability by making assumptim ons based on historical and forward-looking factors, such as historical and anticipated customer performance, current overall and industry-specific economic conditions, historical write-off and collection experience, the level of past-due amounts, and specific risks identified in the trade receivablea s portfolio. Allowance for doubtful accounts was immaterial at December 31, 2020 and 2019, and changes in the allowance were immaterial for the years ended December 31, 2020, 2019 and 2018. Inventories Inventories are stated at the lower of cost (first-in, first-out method) and net realizablea aging and other considerations for realizable value, the Company writes down the carrying value to net realizablea value where appropriate. The Company reviews inventory on-hand and records provisions for excess and obsolete inventory based on current assessments of future demand, market conditions, and related management initiatives. The cost of manufactured inventories includes raw materials, inbound freight, labor distribution inventories include the cost of materials purchased for resale and inbound freight. and overhead. The Company’s value. Based on the inventory a r F-12 Prepaid Expenses and Other Prepaid expenses and other consists of the following at December 31, 2020 and 2019: (thousands) Vendor rebates receivable Income tax receivablea Prepaid expenses Deposits Prepaid income taxes Total Property, Plant and Equipment 2020 2019 $ $ 6,527 — 16,510 14,945 — 37,982 $ $ 11,524 3,895 7,571 1,409 11,639 36,038 Property, plant and equipment (“PP&E”) is generally recorded at cost. Depreciation is computed primarily by the straight-line method applied to individual items based on estimated usefulff years for buildings and improvem equipment. Leasehold improvements are amortized over the lesser of their useful lives or the related lease term. The ity of PP&E is evaluated whenever events or changes in circumstances indicate that the carrying amount recoverabila of the assets may not be recoverablea ised value or projected futuret cash flows. ents, and from three to seven years for machinery, equipment and transportation , primarily based on estimated selling price, appra lives, which generally range from 10 to 30 m a Goodwill and Intangible Assets Goodwill and indefinite-lived intangible assets are not amortized but are subject to an annual impairment test based on their estimated fair value. The Company performs the required test forff goodwill and indefinite-lived intangible assets for impaim rment in the fourth quarter, or more frequently, if events or changes in circumstances indicate that the carrying value may exceed the fair value. As part of the annual goodwill test, we estimate the fair value of our h includes a comparim son of reporting units using both an income and market based approach. The market approac multiples of earnings before interest, taxes, depreciation and amortization for the reporting units to similar businesses or guideline companies whose securities are actively traded in public markets. The income approach calculates the present value of expected cash flows to determine the estimated faiff r value of our reporting units. Additionally, the income approac discount rate (based on a weighted average cost of capia tal), which represents the time value of money and the inherent risk and uncertainty of the futff uret cash flows are consistent with the assumptim ons that our reporting units use for internal planning purposes. When calculating the present value of futuret including forecasted sales volumes and operating income, current industry and economic conditions, and historical results. cash flows under the income approach, we take into consideration multiple variablea h requires us to estimate future cash flows, the timing of these cash flows, and a cash flows. The assumptions we use to estimate futff uret s, a a If we determine that the estimated fair value of each reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaim red. Our fourth quarter 2020 goodwill impairment test concluded that the fair values of each of our reporting units exceeded their carrying values. Our fourth quarter indefinite-lived intangibles test also concluded that the fair values of intangibles exceeded their respective carrying values. Definite-lived intangible assets are amortized over their useful lives, as detailed further in Note 7, and are also subject to an impairment test based on estimated undiscounted cash flows when impairment indicators exist. ff Impairment of Long-Lived Assets When events or conditions warrant, the Company evaluates the recoverability of long-lived assets other than goodwill and indefinite-lived intangible assets and considers whether these assets are impaired. The Company assesses the recoverability of these assets based upon several factors, including management's intention with respect F-13 ff undiscounted cash flows to the assets and their projected future the carrying amount of the assets, the Company adjusts the carrying amounts of such assets to their estimated faiff r value. A significant adverse change in the Company’s business climate in futuret loss of market share or the inability to achieve previously projected revenue growth and could lead to a required assessment of the recoverabila impairment charge. ity of the Company’s long-lived assets, which may subsequently result in an . If projected undiscounted cash floff ws are less than periods could result in a significant ff Fair Value and Financial Instruments The Company accounts for certain assets and liabia lities at fair value. The faiff levels (Levels 1, 2 and 3) based on the assessment of the availability of observablea market data and the significance of non-observable data used to determine fair value. Each faiff corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three levels are as follows: r value measurement must be assigned to a level r values are separated into three broad • • • ity, either directly or indirectly. If the asset or liabila Level 1 inputs, which are quoted prices (unadjusted) in active markets forff the reporting entity has the ability to access at the measurement date. Level 2 inputs, which are inputs other than quoted prices included within Level 1 that are observablea asset or liabila Level 2 input must be observable forff Level 3 inputs, which are unobservablea the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information availablea include the reporting entity’s own data). the asset or liability. These unobservable inputs reflect substantially the full term of the asset or liabila in the circumstances (which might identical assets or liabilities that ity has a specified (contractual inputs forff ) term, a ity. t for the (in millions) Cash Equivalents(1) Senior Note Convertible Note Interest Rate Swapsa (2) Contingent consideration(3) 2020 2019 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 — — — — — — 329.0 180.0 6.6 — — — — — 6.9 132.6 — — — — — 320.3 162.5 5.9 — — — — — 9.6 (1) The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market, are reported on the consolidated statements of financial December 31, 2020. position as a component of "Cash and cash equivalents". The Company held no Cash Equivalents as of ff (2) 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, and are classified as Level 2 in the fair value hierarchy and discussed further in Note 9. (3) The estimated fair value of the Company's contingent consideration is valued using Level 3 inputs and is discussed further in Note 4. Income Taxes Deferred taxes are provided on an asset and liability method whereby deferred taxes are recognized based on temporary differences between the reported amounts of assets and liabia lities and their tax basis. Deferre are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets may not be realized. ff d tax assets The Company reports a liabia lity, if any, for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. t F-14 Reclassified Amounts Certain amounts have been reclassified in prior year financial statements to conform with current year presentation. These reclassifications have no impact on the overall financial information and relate to the following: • • Gross versus net presentation of earnings in accumulated other comprehensive income (loss) - Note 10 Presentation of discrete items in the Company's income tax rate reconciliation - Note 12 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Goodwill Impairment tt (Topic 350): Simplim fyi In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04, "Intangibles-Goodwill and Other ing the Test for Goodwill Impairm 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 annual and any interim impairment tests for periods beginning after December 15, 2019 and early adoption is permitted. The Company adopted this ASU 2017-04 on January 1, 2020 and the adoption did not have a material effecff financial statements. t on its consolidated ent". m 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 Accounting 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 receivablea instruments, entities will be 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 be 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 ASU is effective for fiscal years beginning after December 15, 2019, ent to retained including interim periods within those fiscal years and will be applied as a cumulative effecff earnings as of the beginning of the first reporting period for which the guidance is effective. The Company adopted ASU 2016-13 on January 1, 2020 and the adoption did not have a material effecff statements. s, held to maturity debt securities, loans and other t on its consolidated financial t adjustmd Income Taxes In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifyiff ng the Accounting for Income Taxeaa s", a new standard to simplim fy the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperi 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 r that result in a step-up in the tax basis of goodwill. The standard is effective for fiscal years beginning afteff December 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 on January 1, 2021 and the adoption is not expected to have a material effect on its consolidated financial statements. od tax allocation, the methodology for calculating income taxes in an a F-15 Reference Rate Reform e nce Rate Reforme In March 2020, the FASB issued ASU 2020-04, "Refere (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 affecff ted 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 Contractstt Entity'tt s' Own Equity", a new standard that simplim fies certain accounting treatments for convertible debt instruments. The guidance eliminates certain requirements that require separate accounting for embedded conversion features and simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification. In addition, the new guidance requires entities use the if-converted method for all convertible instruments in the diluted net income per share calculation and include the effecff 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 afteff evaluating the impact of this standard on our consolidated financial statements. r December 15, 2021, with early adoption permitted. We are currently t of potential share in an 3. REVENUE RECOGNITION t and distributor of component products and materials serving original in the RV, MH, marine, and industrial industries. Revenue is recognized when or as The Company is a majora manufacturer equipment manufacturers t control of the promised goods transfers to the Company's customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. The Company’s contracts typically consist of a single performance obligation to manufacturet have multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation using the standalone selling price of each distinct good in the contract. The transaction price for contracts may include reductions to the transaction price for estimated volume discounts and rebates and other customer incentives. and provide the promised goods. To the extent a contract is deemed to Manufacturing segment revenue is recognized when control of the products transfers to the customer which is the point when the customer gains the ability to direct the use of and obtain substantially all the remaining benefits from the asset, which is generally upon delivery of goods. In limited circumstances, where the products are customer specific with no alternative use to the Company, and the Company has a legally enforceablea right to payment for performance to date with a reasonable margin, revenue is recognized over the contract term based on the cost-to-cost method. However, such revenue is not material to the consolidated financial statements. Distribution segment revenue from product sales is recognized on a gross basis upon shipment or delivery of goods at which point control transfers to the customer. The Company acts as a principal in such arrangements because it controls the promised goods before delivery to the customer. The Company uses direct shipment arrangements with certain vendors and suppliers to deliver products to its customers without having to physically hold the inventory at its warehouses. The Company is the principal in the transaction and recognizes revenue for direct shipment arrangements on a gross basis. Our role as principal in our distribution sales is generally characterized by (i) customers entering into contracts with the Company, not the vendor; (ii) our obligation to pay the vendor F-16 irrespective of our ability to collect from the customer; (iii) our discretion in determining the price of the good provided to the customer; (iv) our title to the goods before the customer receives or accept the goods; and (v) our responsibility for the quality and condition of goods delivered to the customer. In the following tablea type and by reportablea uncertainty of revenue and cash flows ff , revenue from contracts with customers, net of intersegment sales, is disaggregated by market segment, consistent with how the Company believes the nature, t amount, timing, and (thousands) tured Housing Market type: Recreational Vehicle Manufacff Industrial Marine Total (thousands) Market type: Recreational Vehicle Manufacff tured Housing l Industria Marine Total (thousands) Market type: e Recreational Vehicl Manufactured Housing Industria l Marine Total are affected by economic facff tors: Year Ended December 31, 2020 Manufacturing Distribution Total $ $ 938,301 180,136 286,764 324,250 1,729,451 $ $ 453,907 252,227 36,601 14,411 757,146 $ $ 1,392,208 432,363 323,365 338,661 2,486,597 Year Ended December 31, 2019 Manufacturing Distribution Total $ $ 897,848 176,665 50,969 2 316,781 1,642,263 $ $ 389,345 260,121 33,595 11,758 694,819 $ $ 1,287,193 436,786 284,564 328,539 2,337,082 Year Ended December 31, 2018 Manufacturing Distribution Total $ $ 1,069,981 163,513 2 46,168 265,805 1,745,467 $ $ 364,276 111,178 33,813 8,327 517,594 $ $ 1,434,257 274,691 279,981 274,132 2,263,061 Sales and other taxes collected concurrent with revenue-producing activities are excluded from net sales. The Company records freight billed to customers in net sales. The corresponding costs incurred for shipping and handling related to these customer billed freight costs are accounted forff included in warehouse and delivery expenses. as costs to fulfill the contract and are The Company’s contracts across each of its businesses typically do not result in situat period greater than one year between performance under the contract and collection of the related consideration. The Company does not account for a significant financing component when the Company expects, at contract inception, that the period between the Company's transfer of a promised good or service to a customer and the customer’s payment for that good or service will be one year or less. ions where there is a time t F-17 The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the incurred costs that the Company otherwise would have capita These costs, representing primarily sales commissions, are included in selling, general and administrative expenses. alized is one year or less. The Company does not disclose information about the transaction price being allocated to the remaining performance obligations at period end, as the Company does not have material contracts that have original expected durations of more than one year. Contract Liabilities Contract liabia lities, representing upfront payments from customers received prior to satisfying performance obligations, were immaterial in all periods presented and changes in contract liabilities were immaterial in all periods presented. 4. ACQUISITIONS Q General during hthe yyears dendedd December 31, 2020, 2019 and The Company completed the acquisitions discussed below during 2018. The acquisitions were funded through cash on hand or through borrowings under the Company’s credit facility in existence at the time of acquisition. Assets acquired and liabilities assumed in the individual acquisitions were recorded on the Company’s consolidated statements of financial position 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. For those acquisitions where the purchase price allocation is provisional, which includes certain acquisitions complem ted in 2020, the Company is still in the process of finalizing the fair values of acquired intangible assets and fixed assets. In general, the acquisitions described below provided the opportunity for the Company to either establish a new presence in a particular market and/or expand its product offerings in an existing market and increase its market share and per unit content. 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 efficff iencies, revenue impact, market share growth and net income. For the years ended December 31, 2020, 2019 and 2018, revenue of approximately $81.9 million, $8.3 million and $249.3 million, respectively, was included in the Company’s consolidated statements of income pertaining to the businesses acquired in each such year. For the years ended December 31, 2020, 2019 and 2018, operating income of approximately $10.7 million, $0.9 million and $23.2 million, respectively, was included in the Company’s consolidated statements of income pertaining to the businesses acquired in each such year. Acquisition-related costs associated with the businesses acquired in 2020, 2019 and 2018 were immaterial in each respective year. Contingent Consideration In connection with certain acquisitions, if certain financial targets for the acquired businesses are achieved, the Company is required to pay additional cash consideration. The Company records 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 futuret payments at the date of acquisition. The liability for the contingent consideration is measured at fair value in subsequent periods, with the changes in fair value recorded in the consolidated statements of income. F-18 r value of the contingent consideration as of December 31, 2020 was $6.9 million, $1.6 million of The aggregate faiff which is included in the line item "Accruerr d liabia lities" and $5.3 million is included in “Other long-term liabilities” on the consolidated statement of financial position. At December 31, 2019, the faiff $2.0 million of which was included in the line item "Accrued liabia lities" and $7.6 million was included in "Other long-term liabilities". The liabila contingent consideration expires at various dates through Dece bmber 2023. The contingent consideration arrangements are subject to a maximum payment amount of up to $$14.5 aggregate as of December 31, 2020. In 2020, the Company recorded a $4.2 million non-cash decrease to accrued liabilities, which is included within selling, general and administrative expense in the consolidated statement of income, partly offset by a $0.2 million non-cash accretion of other long term liabilities, representing changes in the amount of consideration expected to be paid. In 2020, the Company made cash payments of approxim $2.0 million related to contingent consideration liabilities, recording a corresponding reduction to accrued liabia lities. r value was $9.6 million, imilllliion in the ity forff ately a 2020 Acquisitions The Company completed the following seven previously announced acquisitions in the year ended December 31, 2020 (the "2020 Acquisitions"): Company Maplea Corporation City Woodworking Segment Manufacturing SEI Manufacturing, Inc. Manufacturing Inland Plywood Company Manufacturing Synergy RV Transport Distribution Front Range Stone Manufacturing Geremarie Corporation Manufacturing Taco Metals, LLC Manufacturing Description Manufacturer of hardwood cabine based in Goshen, Indiana Manufacturer of towers, T-Tops, hardtops, rails, gates and other aluminum exterior products for the marine market located in Cromwell, Indiana t doors and fasff cia forff a the RV mRR arket Supplier, laminator, and wholesale distributor of treated, untreated, and laminated plywood, medium density ot verlay 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 Transportation and logistics service provider primarily forff equipment manufacturers Goshen, Indiana original arket located in and dealers in the RV mRR t Fabricator and installer of natural laminate countertops, primarily serving big box home improvement retailers, home builders and commercial contractors in the industrial market based in Englewood, Colorado stone, quartz, solid surface, and t t ff ff and fabri cator of a full suite of high-precision Designer, manufacturer, aluminum components serving the marine industry, in addition to the medical, aerospace, defense, commercial and industrial markets located in Lake Zurich, Illinois Manufacturer of boating products including rub rail systems, canvas and tower component chairs and pedestals, and specialty hardware for leading OEMs in the recreational boating industry and the related aftermarket headquartered in Miami, Florida, with manufacturing Tennessee and Florida, and distribution centers in Tennessee, Florida, South Carolina, and Massachusetts s, sport fishing and outrigger systems, helm facilities in m t a , total cash consideration for the 2020 Acquisitions was Inclusive of four immaterial acquisitions not discussed above approximately $307.0 million, plus contingent consideration over a one to three-year period based on futuret performance in connection with certain acquisitions. One acquisition in 2020 accounted forff consideration, $49.3 million of fixeff preliminary purchase price allocations are subjeb ct to valuation activities being finalized, and thus all required ct to change within the measurement period as the Company finalizes its purchase accounting adjustmd estimates. Changes to preliminary purchase accounting estimates recorded in 2020 related to the 2020 Acquisitions were immaterial. $129.7 million of cash d assets, $49.1 million of intangible assets and $32.1 million of goodwill. The ents are subjeu F-19 2019 Acquisitions The Company completed the folff (the "2019 Acquisitions"): lowing two previously announced acquisitions in the year ended December 31, 2019 Company Segment G.G. Schmitt & Sons, Inc. Manufacturing Topline Counters, LLC Manufacturing Description Designer and manufacturer components forff Designer and manufacturer of kitchen and bathroom countertops for residential and commercial markets based in Sumner, Washington the marine industry based in Sarasota, Florida of customized hardware and structural t , total cash consideration for the 2019 Acquisitions was Inclusive of two immaterial acquisitions not discussed above $53.3 million, plus contingent consideration over a one year period based on futuret performance in connection with one acquisition. Purchase price allocations and all valuation activities in connection with the 2019 Acquisitions have been finaff lized. a 2018 Acquisitions The Company completed the folff 2018 (the "2018 Acquisitions"): lowing nine previously announced acquisitions in the year ended December 31, Company Segment Metal Moulding Corporation ("MAC") Manufacturing Description Manufacturer of custom metal fabff marine market, including hinges, arm rests, brackets, panels and trim, as well as plastic products including boxes, inlay tables, steps, and related components based in Madison, Tennessee ricated products, primarily for the Aluminum Metals Company, LLC Manufacturing a IMP Holdings, LLC d/b/dd Indiana Marine Products Manufacturing Collins & Company, Inc. Distribution Dehco, Inc. Manufacturing & Distribution Dowco, Inc. Manufacturing Manufacturer of aluminum products including coil, fabric and extrusions and roofing products, primarily forff and marine markets based in Elkhart, Indiana ated sheets the RV, industrial a Manufacturer of full wiring harnesses, dash panels, instrumentation and gauges, and other products primarily forff y-assembled helm assemblies, including electrical the marine market based in Angola, Indiana ff 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 based in Bristol, Indiana t of flooring, kitchen and bath products, Distributor and manufacturer adhesives and sealants, electronics, appliances and accessories, LP tanks, and other related building materials, primarily for the RVRR market as well as the MH, marine, and other industrial markets a operating facilities in Indiana, Oregon, Pennsylvania, and Alabama 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 operating facilities in Wisconsin, Missouri, Indiana, and Minnesota Marine Accessories Corporation Manufacturing & Distribution Engineered Metals and Composites, Inc. Manufacturing 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 based in Maryville, Tennessee Designer and manufacturer of custom marine towers, frames, and other fabric ff based in West Columbia, South Carolina ated component products for OEMs in the marine industry LaSalle Bristol Distribution & Manufacturing t Distributor and manufacturer of plumbing, flooring, tile, lighting, air handling and building products for the MH, RV, and industrial markets headquartered in Elkhart, Indiana and operating a total of 15 manufacturing and distribution centers located in North America F-20 Inclusive of one immaterial acquisition not discussed above $342.7 million, plus contingent consideration over a 3-month to 3-year period based on futuret connection with certain acquisitions. Purchase price allocations and all valuation activities in connection with the 2018 Acquisitions have been finaff , total cash consideration for the 2018 Acquisitions was performance in lized. a The following tablea acquisition for 2020, 2019 and 2018 Acquisitions: summarizes the fair values of the assets acquired and liabia lities assumed as of the date of the (thousands) Consideration Cash, net of cash acquired Working capita Contingent consideration(2) al holdback and other, net(1) Total consideration Assets Acquired s Trade receivablea Inventories Prepaid expenses & other Property, plant & equipment Operating lease right-of-use assets Identifiable intangible assets Liabilities Assumed Current portion of operating lease obligations Accounts payablea & accrued liabilities Operating lease obligations ff Deferre d tax liabilities Total fair value of net assets acquired Goodwill(3) 2020 Acquisitions 2019 Acquisitions 2018 Acquisitions $ 307,011 $ 53,300 $ 342,696 (132) 4,763 311,642 — 1,160 54,460 $ 15,359 $ 9,859 $ 23,715 146,583 26,001 949 66,574 20,029 136,070 (2,721) (12,127) (17,308) (4,322) 228,504 83,138 5,641 20 6,469 5,653 (2,328) (6,721) (3,325) (1,922) 37,061 17,399 — 11,775 354,471 32,109 91,672 8,362 46,015 — — (50,667) — (6,969) 267,105 87,366 354,471 $ 311,642 $ 54,460 $ (1) Certain acquisitions contain working capital holdbacks which are typically settled in a 90-day period following the close of the acquisition. This value represents the remaining amounts due to (from) sellers as of December 31, 2020. (2) These amounts reflect the acquisition date fair value of contingent consideration based on future performance relating to certain acquisitions. (3) Goodwill is tax-deductible for the 2020 Acquisitions, except Front Range Stone (approximately $10.0 million); for the 2019 Acquisitions, except GG Schmitt (approximately $5.4 million); and for the 2018 Acquisitions, except MAC, whose goodwill is partially tax-deductible, and LaSalle Bristol, whose goodwill is not tax deductible (for total goodwill not tax-deductible for the 2018 Acquisitions of approximately $28.4 million). We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capia talization rates, discount rates, and capia tal expendituret needs of the acquired businesses. F-21 The folff lowing tablea presents our estimates of identifiablea intangibles forff the 2020, 2019, and 2018 Acquisitions: (thousands except year data) Customer relationships Non-compete agreements Patents Trademarks Estimated Usefulff Life (in years) 2020 Acquisitions 2019 Acquisitions 2018 Acquisitions 10 5 10-18 Indefinite $ 104,790 $ 18,112 $ 100,684 1,210 6,470 23,600 150 — 5,453 1,674 15,290 28,935 $ 136,070 $ 23,715 $ 146,583 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 flowff approach, with and without the individual counterparties to the non-compete agreements. Trademarks are valued using the relief-from-royalty method, which appl discounted to present value. ies an estimated royalty rate to forecasted futuret approach, which is a variation of the income cash flows, a Pro Forma Information (Unauditeii d) The following pro forma information assumes the 2020 Acquisitions and 2019 Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of each of the 2020 Acquisitions and 2019 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 the actual incremental borrowings incurred in connection with each transaction as if it occurred as of the beginning of the year immediately preceding each such acquisition. In addition, the pro forma information includes incremental amortization expense related to intangible assets acquired of $8.7 million and $11.7 million for the years ended December 31, 2020 and 2019, respectively, in connection with the acquisitions as if they occurred as of the beginning of the year immediately preceding each such acquisition. (thousands except per share data) Net sales Net income Basic net income per common share Diluted net income per common share 2020 2019 $ 2,633,388 $ 2,600,568 100,069 4.40 4.33 97,872 4.24 4.21 The pro forma information is presented forff results of operations that actually would have been achieved had the acquisitions been consummated as of that time, nor is it intended to be a projection of future results. informational purposes only and is not necessarily indicative of the F-22 5. INVENTORIES Inventories as of December 31, 2020 and 2019 consist of the following: (thousands) Raw materials Work in process Finished goods Less: reserve for inventory excess and obsolescence Total manufactured goods, net Materials purchased for resale (distribution products) Less: reserve for inventory excess and obsolescence Total materials purchased forff resale (distribution products), net 2020 2019 $ 157,219 $ 162,238 19,282 37,632 (8,320) 205,813 112,158 (5,162) 106,996 14,272 28,446 (10,123) 194,833 60,918 (1,881) 59,037 Total inventories $ 312,809 $ 253,870 6. PROPERTY, PLANT AND EQUIPMENT Q , Property, plant and equipment, net, consists of the following at December 31, 2020 and 2019: (thousands) Land and improvements Building and improvements Machinery and equipment Transportation equipment Leasehold improvements Property, plant and equipment, at cost Less: accumulated depreciation and amortization Property, plant and equipment, net yy 2020 2019 $ 12,670 $ 73,433 286,418 8,200 18,928 399,649 (148,156) 9,754 67,493 204,383 6,640 14,738 303,008 (122,159) $ 251,493 $ 180,849 Total depreciation expense forff $26.9 million and $20.8 million, respectively. property, plant and equipment for fiscal 2020, 2019, and 2018 was $32.3 million, Accrued capital expenditures December 31, 2020, 2019 and 2018. t were approximately $3.8 million, $0.4 million and $0.1 million forff the years ended F-23 7. GOODWILL AND INTANGIBLE ASSETS Changes in the carrying amount of goodwill forff follows: the years ended December 31, 2020 and 2019 by segment are as (thousands) Balance - January 1, 2019 Acquisitions Adjustment to prior year preliminary purchase price allocation Balance - December 31, 2019 Acquisitions Adjustment to prior year preliminary purchase price allocation Manufacturing Distribution Total $ 235,345 $ 46,389 $ 281,734 21,488 11,569 268,402 78,055 (8,412) — 4,558 50,947 5,083 1,725 21,488 16,127 319,349 83,138 (6,687) Balance - December 31, 2020 $ 338,045 $ 57,755 $ 395,800 As of December 31, 2020 and 2019, accumulated impairment of goodwill in the Manufacturing $27.4 million. t segment was Intangible assets, net consist of the following at December 31, 2020 and 2019: (thousands) Customer relationships Non-compete agreements Patents Trademarks Less: accumulated amortization Intangible assets, net gg 2020 2019 $ 461,754 $ 357,513 15,949 23,025 113,796 614,524 (158,248) 16,202 16,495 88,524 478,734 (121,720) $ 456,276 $ 357,014 Changes in the carrying value of intangible assets for the years ended December 31, 2020 and 2019 by segment are as follows: ands) Balance - January 1, 2019 Acquisitions Amortization Adjustment to prior year preliminary purchase price allocation Balance - December 31, 2019 Acquisitions Amortization Impairment of intangible assets (1) Adjustment to prior year preliminary purchase price allocation Manufacturing Distribution Total $ 304,485 $ 78,497 $ 382,982 17,922 (29,457) (10,827) 282,123 119,130 (33,505) (119) 6,088 — (6,451) 2,845 74,891 17,000 (7,363) (1,831) (138) 17,922 (35,908) (7,982) 357,014 136,130 (40,868) (1,950) 5,950 Balance - December 31, 2020 $ 373,717 $ 82,559 $ 456,276 (1) Certain operations permanently ceased activities during the year ended December 31, 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 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 consolidated statements of income forff the year ended December 31, 2020. value of the assets was no longer rr F-24 Amortization expense for the next five fiscal years ending December 31 related to definite-lived intangible assets as ows (in thousands): of December 31, 2020 is estimated to be as foll ff 2021 2022 2023 2024 2025 8. DEBT $ 48,918 48,119 47,030 45,759 42,009 A summary of total debt outstanding at December 31, 2020 and 2019 is as follows: (thousands) Long-term debt: 1.0% convertible notes dued 2023 Term loan due 2024 Revolver dued 2024 7.5% senior notes due 2027 Total long-term debt Less: convertible notes debt discount, net Less: term loan deferred finaff ncing costs, net Less: senior notes deferred finaff ncing costs, net Less: current maturities of long-term debt 2020 2019 $ 172,500 $ 92,500 275,000 300,000 840,000 (16,072) (434) (5,087) (7,500) 172,500 97,500 135,000 300,000 705,000 (23,260) (542) (5,844) (5,000) Total long-term debt, less current maturities, net gg $ 810,907 $ 670,354 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 will mature on October 15, 2027. Interest on the Senior Notes is payablea semi-annually in cash in arrears on April 15 and October 15 of each year. The effective interest rate on the Senior Notes, which includes debt issuance costs, is 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 approxim $6 million in deferred financing costs which is amortized using the effective interest rate over the term of the Senior Notes. ately a and unpaid interest and (b) on or afteff 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 applicablea and accruedrr 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. premium described in the associated indenture h in the r October 15, 2022 at specified redemption prices set fort ff F-25 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 date for borrowings under the 2019 Credit Agreement 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 capaa $250 million. city of the 2019 Credit Facility by up to Borrowings under the 2019 Credit Facility are secured by substantially all personal property assets of the Company 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) 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 applicablea Notes, and other customary covenants. during the six-month period preceding the maturity of the Convertible At December 31, 2020, the Company had $92.5 million outstanding under the 2019 Term Loan under the LIBOR- based option, and borrowings outstanding under the 2019 Revolver of $275 million under the LIBOR-based option. The interest rate for incremental borrowings at December 31, 2020 was LIBOR plus 1.50% (or 1.68%) for the LIBOR-based option. The fee payable on committed but unused portions of the 2019 Revolver was 0.20% at December 31, 2020. The weighted average interest rate was 4.14% for 2020 borrowings under the 2019 Revolver, and 3.67% for 2020 borrowings under the 2019 Term Loan. The weighted average interest rate was 4.59% for 2019 borrowings under the 2018 Revolver (as defined herein) and 2019 Revolver, and 4.53% for 2019 borrowings under the 2018 Term Loan (as defined herein) and 2019 Term Loan. 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 (as defined herein) with the 2019 Credit Facility. The Company's previous credit agreement (the "2018 Credit Agreement") consisted of 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”). F-26 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”). The total debt discount of $36.0 million at issuance consisted of two components: (i) the conversion option component, recorded to shareholders' equity, in the amount of $31.9 million, representing the difference between the principal amount of the Convertible Notes upon issuance less the present value of the futff uret portion of the total debt discount is being amortized to interest expense over the life of the Convertible Notes. 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 December 31, 2020 and 2019. cash flows of the Convertible Notes and (ii) debt issuance costs of $4.1 million. The unamortized a ately $167.5 million, afteff The net proceeds from the issuance of the Convertible Notes were approxim r deducting the initial purchasers’ discounts and commissions and offering expenses payable by the Company, but before deducting the net cost of the Convertible Note Hedge Transactions and the Warrant Transactions (each as defined herein) described in Note 9. The Convertible Notes are senior unsecured obligations of the Company and pay interest semi- annually in arrears on February 1 and August 1 of each year at an annual rate of 1.00%. The Convertible Notes will mature on February 1, 2023 unless earlier repurchased or converted in accordance with their terms. The Convertible Notes are convertible by the noteholders, in certain circumstances and subject to certain conditions, into cash, shares of common stock of the Company, or a combination thereof, at the Company’s election. The initial conversion rate for the Convertible Notes is 11.3785 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes (or 1,962,790 shares in the aggregate) and is equal to an initial conversion price of approxim $87.89 per share. If an event of default on the Convertible Notes occurs, the principal amount of the Convertible Notes, plus accrued and unpaid interest (including additional interest, if any) may be declared immediately dued payablea , subject to certain conditions. ately and a Convertible Notes holders can convert their Convertibles Notes on or after August 1, 2022 at any time at their option. Holders may convert Convertible Notes prior to August 1, 2022, only under the following circumstances: (i) during any calendar quarter, if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each consecutive trading day period in which applicable trading day, (ii) during the five business day period after any fiveff the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day and (iii) upon the occurrence of certain specified distributions or corporate events. a period of 30 consecutive trading days ending on the last trading day of d Debt Maturities As of December 31, 2020, the aggregate maturit thereafter are as follows (in thousands): t ies of total long-term debt for the next fivff e fisff cal years and 2021 2022 2023 2024 2025 Thereafter Total $ $ 7,500 10,000 182,500 340,000 — 300,000 840,000 Letters of credit totaling $5.2 million were outstanding at December 31, 2020 that exist to meet credit requirements for the Company’s insurance providers. Cash paid for interest forff $18.4 million, respectively. the years ended December 31, 2020, 2019 and 2018 was $36.1 million, $22.1 million and F-27 9. 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 the Convertible Note Hedge Transactions, the Company acquired options to purchase the same number of shares of the Company's common stock (or 1,962,790 shares) initially underlying the Convertibles Notes at an initial strike price equal to the initial strike price of the Convertible Notes of approxim anti-dilution adjustmd ents. The options expire on February 1, 2023, subject to earlier exercise. ately $87.89 per share, subject to customary a 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 the Company’s common stock (or 1,962,790 shares) underlying the Convertible Notes, at an initial strike price of approximately $113.93 per share, subjeu warrants have a finaff l expiration date of September 20, 2023. ct to customary anti-dilution adjustmd ents. The The Company paid $31.5 million associated with the cost of the Convertible Note Hedge Transactions and received proceeds of $18.1 million related to the Warrant Transactions. The Convertible Note Hedge Transactions are expected generally to reduced potential dilution to the Company’s common stock upon any conversion of the Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Convertible Notes. However, the Warrant Transactions could separately have a dilutive effect on the Company's common stock to the extent that the market price per share of the common stock exceeds the strike price of the warrants. As these transactions meet certain accounting criteria, the Convertible Note Hedge Transactions and Warrant Transactions are recorded in stockholders’ equity and are not accounted forff as derivatives. Interest Rate Swaps t ility exposes the Company to risks associated with the variabila The Company's credit facff associated with fluctuat ions in LIBOR. To partially mitigate this risk, the Company entered into interest rate swaps.a As of December 31, 2020, the Company had a combined notional principal amount of $200.0 million of interest rate swap aa interest expense associated with a portion of the Company's variablea interest rates and have maturities ranging from February 2022 to March 2022. greements effectively convert the d variable interest rates to fixeff greements, all of which are designated as cash flowff ity in interest expense hedges. These swap aa rate debt fromff The following tablea balance sheet (in thousands): summarizes the fair value of derivative contracts included in the accompanying consolidated Derivatives accounted for as cash flow hedges Interest rate swap aa greements Fair value of derivative liabilities Balance sheet location Other long-term liabilities December 31, 2020 December 31, 2019 $ 6,567 $ 5,868 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, and are classified as Level 2 in the fair value hierarchy. F-28 10. ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated other comprehensive loss primarily includes unrealized gains and losses on derivatives that qualify as hedges of cash flows and cumulative foreign currency translation adjustments. The activity in accumulated other comprehensive loss for the years ended December 31, 2020 and 2019 was as foll ows: ff (thousands) Balance at January 1, 2019 Other comprehensive income (loss) before reclassifications, net of tax Amounts reclassified fromff accumulated other comprehensive loss, net of tax Net current period other comprehensive loss Balance at December 31, 2019 Other comprehensive income (loss) before reclassifications, net of tax Amounts reclassified fromff accumulated other comprehensive loss, net of tax Net current period other comprehensive income (loss) Cash Flow Hedges Other Foreign Currency Translation Total $ (1,973) $ (675) $ (32) $ (2,680) (3,340) 939 (2,401) (595) — (595) (22) — (22) $ (4,374) $ (1,270) $ (54) $ (3,957) 939 (3,018) (5,698) (3,812) 3,458 (354) (6,052) 154 — 154 100 $ (3,973) 3,458 (515) 7 — 7 Balance at December 31, 2020 $ (4,889) $ (1,263) $ F-29 11. ACCRUED LIABILITIES Accrued liabia lities as of December 31, 2020 and 2019 include the folff lowing: (thousands) 2020 2019 Employee compensation and benefits $ 46,061 $ Property taxes Customer incentives Accrued interest Other Total accrued liabia lities 12. INCOME TAXES 4,689 18,071 5,819 8,562 $ 83,202 $ 28,717 3,657 12,297 7,460 5,902 58,033 The provision for income taxes for the years ended December 31, 2020, 2019 and 2018 consists of the following: (thousands) Current: Federal State Foreign Total current Deferred: Federal State Total deferred Income taxes 2020 2019 2018 $ 16,627 $ 17,587 $ 8,584 9 25,220 8,344 (253) 8,091 5,019 61 22,667 4,529 1,064 5,593 22,578 8,725 85 31,388 1,529 (770) 759 $ 33,311 $ 28,260 $ 32,147 The Company has accounted forff Low-Taxed Income, base-erosion anti-abuse derived intangible income deductd immaterial impact to the consolidated finaff a in its 2020, 2019 and 2018 income tax provision the impact of Global Intangible tax, interest expense limitations under Section 163(j), and forei ff gn- ions, although such provisions were either not applicable or resulted in a zero or ncial statements. A reconciliation of the differences between the actual t statutory t income tax rate of 21% for the years ended December 31, 2020, 2019 and 2018 is as follows: provision for income taxes and income taxes at the federal (thousands) 2020 2019 2018 Rate applied to pretax income $ 27,378 21.0 % $ 24,744 21.0 % $ 31,916 21.0 % State taxes, net of federal tax effect 6,026 4.6 % 5,147 4.4 % 6,427 4.2 % Research and development tax credits Excess tax benefit on stock-based compensation Other Income taxes (1,647) (1.3)% (343) (0.3)% — — % (350) (0.3)% (833) (0.7)% (6,685) (4.4)% 1,904 1.6 % (455) (0.4)% 489 0.4 % $ 33,311 25.6 % $ 28,260 24.0 % $ 32,147 21.2 % F-30 The composition of the deferre ff d tax assets and liabia lities as of December 31, 2020 and 2019 is as follows: (thousands) Long-term deferred income tax assets (liabilities): 2020 2019 Trade receivables allowance Inventory capita alization Accrued expenses Deferred compensation Inventory reserves Federal NOL carryforwards State NOL carryforwards Valuation allowance - NOL Share-based compensation Operating lease right-of-use assets Operating lease liabilities Other Intangibles Depreciation expense Prepaid expenses Net deferred tax liabila ities $ 426 $ 2,796 8,988 447 5,235 1,288 1,040 (767) 8,087 (15,292) 15,710 1,454 (28,992) (37,661) (2,275) $ (39,516) $ 417 2,226 5,987 413 4,651 1,113 953 (872) 7,221 (23,910) 24,160 2,015 (28,160) (22,368) (1,130) (27,284) Cash paid by the Company for income taxes was $7.9 million, $36.1 million and $28.2 million in 2020, 2019 and 2018, respectively. As of December 31, 2020 and December 31, 2019, the Company had gross fedff losses, of approximately $26.2 million and $24.5 million, respectively. These loss carryforwards generally expire between tax years ending December 31, 2020 and December 31, 2037. The components of the valuation allowance relate to certain acquired federal, state and foreign net operating loss carryforwards that the Company anticipates will not be utilized prior to their expiration, either dued to income limitations or limitations under Section 382. The tax effected values of these net operating losses are $2.3 million and $2.0 million at December 31, 2020 and 2019, respectively, exclusive of valuation allowances of $0.8 million and $0.9 million at December 31, 2020 and 2019, respectively. eral, state, and forei gn net operating ff The Company is subject to periodic audits by domestic tax authorities. For the majoa rity of tax jurisdictions, the U.S. federal statutet December 31, 2020 and 2019 and activity related to uncertain tax benefits was immaterial for all periods presented. of limitations remains open for the years 2017 and later. Uncertain tax benefits were immaterial at 13. STOCK REPURCHASE PROGRAMS In October 2018, the Company's Board of Directors ("the Board") approve Company's common stock that may be acquired over 24 months under the current stock repurchase program to $50.0 million, including amounts remaining under previous authorizations. In March 2020, the Board approved a new stock repurchase program forff previous authorizations. Approximately $36.0 million of common stock repurchases remains availablea up to $50.0 million of its common stock, including amounts remaining under d an increase in the amount of the a at December F-31 31, 2020 as part of this authorization. Under the stock repurchase plans, the Company made repurchases of common stock forff 2020, 2019 and 2018 as follows: Shares repurchased Average price Aggregate cost (in millions) 2020 2019 2018 595,805 102,932 1,984,095 $ $ 38.78 23.1 $ $ 37.06 3.8 $ $ 54.21 107.6 The Company’s common stock does not have a stated par value. As a result, repurchases of common stock have been reflected, using an average cost method, as a reductd retained earnings in the Company’s consolidated statements of finaff ion of common stock, additional paid-in-capital and ncial position. 14. NET INCOME PER COMMON SHARE Income per common share is calculated for the years ended December 31, 2020, 2019 and 2018 as follows: (thousands except per share data) 2020 2019 2018 Net income $ 97,061 $ 89,566 $ 119,832 Weighted average common shares outstanding - basic Effect of potentially dilutive securities Weighted average common shares outstanding - diluted 22,730 357 23,087 23,058 222 23,280 Basic net income per common share Diluted net income per common share Cash dividends paid per common share $ $ $ 4.27 4.20 1.03 $ $ $ 3.88 3.85 0.25 $ $ $ 23,995 322 24,317 4.99 4.93 — The impact on diluted net income per common share from antidilutive securities excluded fromff immaterial forff all periods presented. the calculation was 15. LEASES ilities, trailers, forklifts and other assets. Leases with an initial term of 12 months or less are not We lease certain facff recorded on the balance sheet and expense related to these short-term leases was immaterial for fiscal 2020 and 2019. Variablea immaterial forff nineteen years. Certain leases include options to renew forff utilize a renewal option, we include the renewal option in the lease term used to calculate operating lease right-of- use assets and lease liabia lities. lease expense, principally related to trucks, forkli the years ended December 31, 2020 and 2019. Leases have remaining lease terms of one year to an additional term. Where there is reasonable certainty to fts, and index-related facff ility rent escalators, was ff F-32 Lease expense, supplemental cash flowff ff December 31, 2020 and 2019 were as foll ows: information, and other information related to leases forff the years ended (thousands) Operating lease cost Cash paid for amounts included in the measurement of lease liabila ities: Operating cash flows for operating leases Right-of-use assets obtained in exchange for lease obligations: Operating leases 2020 2019 34,243 $ 31,653 33,599 $ 30,677 56,526 $ 37,112 $ $ $ Balance sheet information related to leases as of December 31, 2020 and 2019 was as follows: (thousands, except lease term and discount rate) 2020 2019 Assets Operating lease right-of-use assets Liabilities Operating lease liabia lities, current portion Long-term operating lease liabilities Total lease liabilities Weighted average remaining lease term, operating leases (in years) Weighted average discount rate, operating leases $ $ $ 117,816 30,901 88,175 119,076 5.3 4.1 % Maturities of operating lease liabila ities were as foll ff ows at December 31, 2020 (in thousands): 2021 2022 2023 2024 2025 Thereafter Total lease payments Less imputed interest Total 16. COMMITMENTS AND CONTINGENCIES $ $ $ $ $ 93,546 27,694 66,467 94,161 4.2 3.7 % 34,996 29,867 23,970 17,575 10,182 17,489 134,079 (15,003) 119,076 The Company is subject to proceedings, lawsuits, audits, and other claims arising in the normal course of business. All such matters are subject to uncertainties and outcomes that are not predictable with assurance. Accruar items, when applicable, have been provided to the extent that losses are deemed probablea estimablea . These accruals are adjusted from time to time as developments warrant. and are reasonably ls for these Although the ultimate outcome of these matters cannot be ascertained, on the basis of present information, amounts already provided, availability of insurance coverage and legal advice received, it is the opinion of management that F-33 the ultimate resolution of these proceedings, lawsuits, and other claims will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. di iDi hLusher nding iin hthe U.S. i turgis”)), roup”) commenc ded iSite Remedidiatiion Group ( h(the “G lcl iaims gagaiinst Pat irickk, assertedd lcl iaims istrict Court for hthe Northhern iDis itrict of gAugust 2019, a ggroup of compa inies calling lling iitselflf thhe ) iSite Remedidiatiion Group v. Sturgirgis Iron & Met lal Co., Inc., et iEnvironmentall Response, Compensatiion, andd iLi biabilili yty Act ((“CERCLA )”), 42 U.S.C. § 9601 et seq., environmentall statutet In lili itiggatiion gag iainst hthe Compa yny iin Lu hsher NNumbber 3:18-cv-00506, pending Am dendedd Com lplaiint, hiwhichh was hthe fifirst to assert Com hprehe insive an Indiana state Co., Inc. ((“Sturgi (i)(i) co dand lalso mo dved to didismiiss Sturgi didismiiss. hThe Group di istillll iits fifinanciiall co dinditiion, re lsults of operatiions, or ca hsh flflows. However, anyy lili itiggatiion iis i hinhere lntlyy uncertaiin, andd judgmjudgment or injinjunctiive business, busine bsubsequentlyly mo dved for reconsidideratiion of hthe court’s ddeci iision. hThat reconsidideratiion mo ition iis pendi gng. hThe Com ypany ddoes not currentlyly bbelilieve hthat hthiis matter iis lilik lkelyy to hhave a mate iriall dadverse iimpact on yany lreliief enteredd gagaiinst us or anyy dadverse settllement co lduld mate iri lallyly andd dadverselyly iimpact our bsubsequentlyly fifilledd two cross lcl iaims gag iainst Pa itri kck, asse irti gng gagaiinst hthe Com ypany a lcl iaim for dunder CERCLA a dnd (ii(ii)) contractuall iinddem inityy. hThe Com ypany mo dved to didismiiss hthe Group’s lcl iaims lal., Case Indiana. hThe Group’s Se di dunder hthe f dfede lral gAugust 21, 2020, hthe court ggrant ded Patrii kck’s two motiions to t urgis Indiana common llaw. One d fdefe dndant iin hthe case, Sturgis results of operatiions, fifinanciiall co dinditiion, andd prospects. Sturgis’s cross lcl iaims. On Iron & Metall intrib ibution dand di l dcond 17. COMPENSATION PLANS Stock-Based Compensation The Company has various stock option and stock-based incentive plans and various agreements whereby stock options, restricted stock awards, and SARS were made available to certain key employees, directors, and others based upon meeting various individual, divisional or company-wide performance criteria and time-based criteria. All such awards qualify and are accounted for as equity awards. Equity incentive plan awards, which are granted under the Company's 2009 Omnibus Incentive Plan, are intended to retain and reward key employees for outstanding performance and efforts as they relate to the Company’s short-term and long-term objectives and its strategic plan. At December 31, 2020, approximately one million common shares remain available for stock-based compensation grants. m ion expense was $16.0 million, $15.4 million and $14.0 million for the years ended Stock-based compensat December 31, 2020, 2019 and 2018, respectively. Income tax benefit for stock-based compensat $4.1 million, $3.9 million and $3.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was approximately $23.8 million of total unrecognized compensation cost related to share-based compensat weighted-average period of approximately 13.9 months. ion arrangements granted under incentive plans. That cost is expected to be recognized over a ion expense was m m Stock Options: p Stock options vest ratablya over either three or four years and have nine-year contractual t terms. In 2020, we granted 495,000 stock options to certain employees at an average exercise price per share of $42.87. The stock options vest 35%, 35% and 30% over years one, two, and three, respectively, and have nine-year contractual terms. No stock options were granted in 2019 and 2018. F-34 lowing tablea The folff and 2018: summarizes the Company’s option activity during d the years ended December 31, 2020, 2019 Years ended December 31 2020 2019 2018 (shares in thousands) Shares Weighted Average Exercise Price Weighted Average Exercise Price Shares Weighted Average Exercise Price Shares Outstanding beginning of year Granted during d the year Forfeited during the year Exercised during the year Outstanding end of year Vested Options: d Vested during the year Eligible end of year for exercise 536 $ 495 (4) (12) 1,015 $ 45.11 42.87 53.83 53.83 43.88 545 $ 44.35 548 $ 44.07 — — (9) — — 0.67 — — (3) — — 0.78 536 $ 45.11 545 $ 44.35 115 $ 439 $ 50.46 43.19 115 $ 336 $ 50.46 41.07 115 $ 230 $ 50.46 34.72 Aggregate intrinsic value ($ in thousands): Total options outstanding Options exercisable Options exercised $ 24,838 $ 11,047 $ 97 $ $ $ 4,398 4,051 381 $ $ $ 1,570 1,570 195 Weighted average fair value of options granted during the year $ 15.17 N/A N/A The aggregate intrinsic value (excess of market value over the option exercise price) in the tablea income taxes, and assuming the Company’s closing stock price of $68.35, $52.43 and $29.61 per share as of December 31, 2020, 2019 and 2018, respectively, is the price that would have been received by the option holders had those option holders exercised their options as of that date. At December 31, 2020, the weighted average remaining contractual term for options exercisable was 4.4 years. term for options outstanding was 6.4 years and the weighted average remaining contractual above is before t The cash received fromff income tax benefit related to the stock options exercised in 2020, 2019 and 2018 was immaterial. The grant date faiff value of stock options vested in 2020, 2019 and 2018 was $5.8 million, $5.8 million and $5.8 million, respectively. the exercise of stock options was $0.6 million in 2020 and immaterial in 2019 and 2018. The r The following tablea presents assumptim ons used in the Black-Scholes model forff the stock options granted in 2020: Dividend rate Risk-free interest rate Expected option life (years) Price volatility 2.37 % 0.65 % 5.0 42.42 % As of December 31, 2020, there was approximately $6.2 million of total unrecognized compensation expense related to the stock options, which is expected to be recognized over a weighted-average remaining life of approximately 18.8 months. F-35 ) Stock Appreciation Rights (SARS): pp g ( No SARS were granted in the years ended December 31, 2020, 2019 and 2018. The folff Company’s SARS activity during the years ended December 31, 2020, 2019 and 2018: lowing tabla e summarizes the Years ended December 31 2020 2019 2018 (shares in thousands) Total SARS: Weighted Average Exercise Price Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Shares Outstanding beginning of year 535 $ 54.53 535 $ 54.53 535 $ 54.53 Granted during d the year Forfeited during the year Exercised during the year Outstanding end of year Vested SARS: d Vested during the year Eligible end of year for exercise — (10) (40) 485 $ — 68.01 22.39 56.96 — — — — — — — — — — — — 535 $ 54.53 535 $ 54.53 115 $ 404 $ 60.71 55.58 115 $ 336 $ 60.71 50.04 115 $ 220 $ 60.71 44.46 Aggregate intrinsic value ($ in thousands): Total SARS outstanding SARS exercisable SARS exercised $ $ $ 6,032 5,540 1,918 $ $ $ 3,190 3,066 — Weighted average fair value of SARS granted during the year N/A N/A $ $ $ 983 983 — N/A The aggregate intrinsic value (excess of market value over the SARS exercise price) in the tablea income taxes, and assuming the Company’s closing stock price of $68.35, $52.43 and $29.61 per share as of December 31, 2020, 2019 and 2018, respectively, is the price that would have been received by the SARS holder had that SARS holder exercised the SARS as of that date. above is before As of December 31, 2020, there was approxi to the SARS which is expected to be recognized over a weighted-average remaining life of approximately one month. mately $0.1 million of total unrecognized compensation expense related a Restricted Stock: The Company’s stock-based awards include restricted stock awards. As of December 31, 2020, there was approximately $17.5 million of total unrecognized compensation expense related to restricted stock, which is expected to be recognized over a weighted-average remaining life of approximately 13.7 months. Restricted stock awards possess voting rights, are included in the calculation of actual shares outstanding, and include both performance- and time-based contingencies. The grant date faiff the related service or performance period. Time-based shares cliff vest at the conclusion of the required service period, which ranges from one to three years. The performance contingent shares are earned based on the r value of the awards is expensed over F-36 achievement of a cumulative financial performance target, which ranges from a one to five-year period and vest at the conclusion of the measurement period. The following tablea 2018: summarizes the activity forff restricted stock forff the years ended December 31, 2020, 2019 and 2020 2019 2018 (shares in thousands) Shares Weighted- Average Grant Date Stock Price Weighted- Average Grant Date Stock Price Shares Weighted- Average Grant Date Stock Price Shares Unvested beginning of year Granted during d the year d Vested during the year Forfeited during the year Unvested end of year yy 738 $ 309 (178) (79) 790 $ 49.65 55.03 52.80 55.87 50.39 606 $ 378 (230) (16) 738 $ 48.56 39.74 30.46 50.49 49.65 634 $ 182 (209) (1) 606 $ 35.68 65.35 23.98 57.93 48.56 18. SEGMENT INFORMATION The Company has two reportable segments, Manufacturing and Distribution, which are based on its method of internal reporting, which segregates its businesses based on the way in which its chief operating decision maker allocates resources, evaluates financial results, and determines compensation. A description of the Company’s reportablea segments is as follows: t a shelving, walls, countertops and cabine vinyl printing; decorative vinyl and paper t products; cabia net doors; fiberglass bath fixtures and tile systems; and tile systems; softwoods lumber; treated, untreated and laminated plywood; custom cabine Manufacturing – This segment includes the following products: laminated products that are utilized to produce t furniture, hardwood furniture; laminated panels; solid surface, granite, and quartz countertop fabrication; RV painting; fabricated aluminum products; fiberglass and plastic components; fiberglass bath fixt a t ures ff polymer-based flooring; electrical systems components including instrument and dash panels; wrapped 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 framff aluminum and plastic fuel tanks; CNC molds and composite products. es; marine hardware; s; and other m parts; slotwall panels and component try; vinyl, paper m a a a Distribution – The Company distributes pre-finished wall 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 ceramic flooring; tile; shower doors; furniture; fireplaces and surrounds; interior and exterior lighting t products; and other miscellaneous products in addition to providing transportation and logistics services. The accounting policies of the segments are the same as those described in Note 1, except that segment data includes intersegment sales. Assets are identified to the segments except for cash, prepaid expenses, land and buildings, and certain deferred assets, which are identified with the corporate division. The corporate division charges rents to the segments for use of the land and buildings based upon estimated market rates. The Company accounts for intersegment sales similar to third party transactions, which reflect current market prices. The Company also records certain income from purchase incentive agreements at the corporate division. The Company evaluates the F-37 performance of its segments and allocates resources to them based on a variety of indicators including but not limited to sales and operating income as presented in the tablea s below. The tablea December 31, 2020 and 2019 and forff s below present information that is provided to the chief operating decision maker of the Company as of Net outside sales Intersegment sales Total sales Operating income Total assets Capita t Depreciation and amortization al expenditures Net outside sales Intersegment sales Total sales Operating income Total assets t Capita Depreciation and amortization al expenditures Net outside sales Intersegment sales Total sales Operating income Capita t Depreciation and amortization al expenditures the years ended December 31, 2020, 2019 and 2018 (in thousands): 2020 2019 2018 $ $ $ Manufacturing 1,729,451 $ 36,367 1,765,818 190,518 1,337,920 30,588 61,407 Manufacturing 1,642,263 $ 31,223 1,673,486 174,913 990,692 25,291 52,036 Manufacturing 1,745,467 $ 33,581 1,779,048 215,246 31,152 44,747 $ $ $ Distribution 757,146 5,326 762,472 54,376 343,170 788 8,527 Distribution 694,819 4,340 699,159 38,953 304,230 1,973 7,534 Distribution 517,594 3,641 521,235 31,491 1,852 7,613 Total 2,486,597 41,693 2,528,290 244,894 1,681,090 31,376 69,934 Total 2,337,082 35,563 2,372,645 213,866 1,294,922 27,264 59,570 Total 2,263,061 37,222 2,300,283 246,737 33,004 52,360 F-38 A reconciliation of certain line items pertaining to the total reportablea statements as of December 31, 2020 and 2019 and forff follows (in thousands): segments to the consolidated financial the years ended December 31, 2020, 2019 and 2018 is as Net sales: Total sales for reportablea Elimination of intersegment sales Consolidated net sales segments Operating income: g p reportablea Operating income forff Unallocated corporate expenses Amortization Consolidated operating income segments Total assets: Identifiable assets for reportable segments Corporate assets unallocated to segments Cash and cash equivalents Consolidated total assets p Depreciation and amortization: Depreciation and amortization for reportablea Corporate depreciation and amortization Consolidated depreciation and amortization segments p : al expenditures t al expenditures p Capita Capita t Corporate capital expenditures Consolidated capia tal expenditures for reportable segments 2020 2019 2018 2,528,290 (41,693) 2,486,597 244,894 (30,653) (40,868) 173,373 1,681,090 27,578 44,767 1,753,435 69,934 3,336 73,270 31,376 724 32,100 $ $ $ $ $ $ $ $ $ $ 2,372,645 (35,563) 2,337,082 213,866 (23,516) (35,908) 154,442 1,294,922 36,681 139,390 1,470,993 59,570 3,225 62,795 27,264 397 27,661 $ $ $ $ $ $ $ $ 2,300,283 (37,222) 2,263,061 246,737 (34,109) (34,213) 178,415 52,360 2,692 55,052 33,004 1,482 34,486 $ $ $ $ $ $ $ $ $ $ Amortization expense related to intangible assets in the Manufacturing segment for the years ended December 31, 2020, 2019 and 2018 was $33.5 million, $29.5 million and $27.4 million, respectively. Intangible assets amortization expense in the Distribution segment was $7.4 million, $6.4 million and $6.8 million in 2020, 2019 and 2018, respectively. Unallocated corporate expenses include corporate general and administrative expenses comprised of wages, insurance, taxes, supplies, travel and entertainment, professional fees and other. F-39 Majoa r Customers The Company had two majora receivables balances at December 31, 2020 and 2019 as shown in the tablea the following sales forff below: customers that accounted forff 2020, 2019, 2018 and trade Customer 1 Net sales s Trade receivablea Customer 2 Net sales s Trade receivablea 2020 2019 2018 22 % 13 % 17 % 17 % 23 % 6 % 17 % 14 % 29 % 20 % ) 19. QUARTERLY FINANCIAL DATA (UNAUDITED) Q ( Selected quarterly financial data forff the years ended December 31, 2020 and 2019 is as follows: (thousands except per share data) 1Q 2Q 3Q 4Q 2020 Net sales Gross profit Net income Net income per common share(1) Basic Diluted $ 589,232 $ 424,045 $ 700,707 $ 772,613 $ 2,486,597 109,481 21,187 73,721 714 133,497 37,336 142,318 37,824 459,017 97,061 $ $ 0.92 0.91 $ 0.03 0.03 $ 1.65 1.62 $ 1.68 1.64 4.27 4.20 Cash dividends paid per common share $ 0.25 $ 0.25 $ 0.25 $ 0.28 $ 1.03 (thousands except per share data) 1Q 2Q 3Q 4Q 2019 Net sales Gross profit Net income Net income per common share(1) Basic Diluted $ 608,218 $ 613,218 $ 566,186 $ 549,460 $ 2,337,082 106,548 20,849 112,661 27,416 104,335 21,317 99,327 19,984 422,871 89,566 $ $ 0.90 0.90 $ 1.19 1.18 $ 0.92 0.92 $ 0.87 0.86 3.88 3.85 Cash dividends paid per common share $ — $ — $ — $ 0.25 $ 0.25 (1) Basic and diluted net income per common share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted net income per common share information may not equal annual basic and diluted net income per common share. F-40 Exhibit 4.3 General DESCRIPTION OF COMMON STOCK We are currently authorized to issue 40,000,000 shares of common stock, without par value, and 1,000,000 shares of preferred stock, without par value. Each share of our common stock has the same relative rights as, and is identical in all respects to, each other share of our common stock. On February 12, 2021, there were 23,544,041 shares of our common stock outstanding and no shares of preferred stock outstanding. Issuance of Common Stock Shares of common stock may be issued from time to time as our Board of Directors (the “Board”) shall determine and on such terms and for such consideration as shall be fixed by the Board. The authorized number of shares of common stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majori a ty of the stock of the Company entitled to vote. Dividends and Rights Upon Liquidation. After the requirements with respect to preferential dividends on any preferred stock outstanding, if any, are met, the holders of our outstanding common stock are entitled to receive dividends out of assets legally availablea at the time and in the amounts as the Board may from time to time determine. Our common stock is not convertible or exchangeable into other securities. Upon our liquidation, dissolution or winding up, the holders of our common stock are entitled to receive the assets that are legally available for distribution on a pro rata basis, afteff r payment of all of our debts and other liabilities and subject to the prior rights of holders of any preferred stock then outstanding. Voting Rights The holders of the common stock are entitled to vote at all meetings of the shareholders and are entitled to cast one vote for each share of common stock held by them respectively and standing in their respective names on the books of the Company. Preemptive Rights Holders of our common stock do not have preemptive rights with respect to any shares that may be issued. Shares of our common stock are not subject to redemption. Relevant Provisions of the Indiana Business Corporation Law The Indiana Business Corporation Law (the “IBCL”) limits some transactions between an Indiana company and any person who acquires 10% or more of the company’s common stock (an “interested shareholder”). During the five- year period after the acquisition of 10% or more of a company’s common stock, an interested shareholder cannot enter into a business combination with the company unless, before the interested shareholder acquired the common stock, the board of directors of the company approved the acquisition of common stock or approved the business combination. After the five-year period, an interested shareholder can enter into only the following three types of business combinations with the company: (i) a business combination approved by the board of directors of the company before the interested shareholder acquired the common stock; (ii) a business combination approved by holders of a majori a ty of the common stock not owned by the interested shareholder; and (iii) a business combination in which the shareholders receive a price for their common stock at least equal to a formula price based on the highest price per common share paid by the interested shareholder. In addition, under Indiana law, a person who acquires shares giving that person more than 20%, 33 1/3%, and 50% ” of the outstanding voting securities of an Indiana corporation is subject to the “Control Share Acquisitions Statutet of the IBCL and may lose the right to vote the shares which take the acquiror over these respective levels of ownership. Before an acquiror may vote the shares that take the acquiror over these ownership thresholds, the acquiror must obtain the approval of a majoa rity of the shares of each class or series of shares entitled to vote separately on the proposal, excluding shares held by officers of the corporation, by employees of the corporation who are directors of the corporation and by the acquiror. An Indiana corporation subject to the Control Share Acquisitions Statutet may elect not to be covered by the statute by so providing in its articles of incorporation or by- laws. We have adopted a provision in our Amended and Restated By-laws which states that the Control Share Acquisitions Statutet shall not apply to the issued and outstanding shares of our common stock. Transfer Agent and Registrar The transfer agent and registrar for our common stock is Computershare. Listing Our common stock is listed on The Nasdaq Stock Market under the symbol “PATK”. PATRICK INDUSTRIES, INC. STATEMENT OF COMPUTATION OF OPERATRR ING RATIOS Exhibit 12 Operating ratios that appear in this Form 10-K, including cost of goods sold, gross profit, warehouse and delivery expenses, selling, general and administrative expenses, operating income, and net income were computed by dividing the respective amounts by net sales for the periods indicated. PATRICK INDUSTRIES, INC. SUBSIDIARIES OF THE REGISTRANT RR Exhibit 21 Companyp y Adorn Holdings, Inc. All Counties Glass, Inc. All State Glass, Inc. Anything Boating, LLC Arran Isle, Inc. Bathroom & Closet, LLC Bristolpipe, LLC Dehco, Inc. Dowco, Inc. Dura Shower Enclosures Co., Ltd Fresno Shower Door, Inc. Front Range Stone, Inc. Geremarie Corporation G.G Schmitt & Sons, Inc. Great Lakes Boat Top, LLC Heywood Williams USA, LLC Highland Lakes Acquisition, LLC Inland Plywood Company KLS Doors, LLC Larry Methvin Installations, Inc. LaSalle Bristol Corporation LaSalle Bristol, LLC LaSalle Bristol, LP Madrona Stone, LLC Marine Accessories Corporation Marine Accessories Europe B.V. Marine Accessories Europe Holdco, LLC Monster Marine Products, Inc. Patrick Transportation, LLC SEI Manufacturing, t Inc. Shanghai Daoke Trading Co, Ltd. Shower Enclosures America, Inc. Structural Composites, LLC Sunrise Pipe and Supply, Ltd. Taco Metals, LLC Topline Counters, LLC Transport Indiana, LLC Transport Synergy, LLC Xtreme Marine Corporation p State or Country of Incorporation y Delaware California California Tennessee Indiana Nevada Indiana Indiana Wisconsin China California ff Colorado Illinois Pennsylvania Delaware Indiana Delaware Michigan California ff California Indiana Delaware Indiana Washington Arizona The Netherlands Delaware Delaware Indiana Indiana China California Indiana Canada Florida Washington Indiana Indiana Delaware CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Exhibit 23.1 dand Regigistra ition Statement Nos. 333-165788, 333-198321, 333-236454 We consent to hthe iincorpora ition byby reference iin Registgistratiion Statement Nos. 333-156391 andd 333-174774 dand 333-238795 on on Form S-3 Form S-8 of our report ddat ded dIndus itries, Inc. andd reporting appearing in this Annual Report on Form 10-K for the year ended December 31, 2020. inci lal statements of Pa itri kck tiveness of the Company's internal control over financial subsididia iries ( h(the “Company”) and the effecff bFebrua yry 26, 2021, lrelatinging to hthe fifina b i Chicago, Illinois y February 26, 2021 , /s/ Deloitte & Touche LLP CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Exhibit 23.2 We consent to the incorporation by reference iin hthe Registgistratiion Statements ((333-156391 andd S-3, andd hthe Registgistratiion Statements ((333-165788, 333-198321, 333-236454 andd rr bFebr yuary dIndus itries, Inc. of our report ddatedd Pa itri kck com hprehe insive iincome, ca hsh flflows andd hsha h l reholdder's eq iuityy for hthe yyear thhe 28, 2019, rella iti gng to hthe co l Report on Form 10-K. 333-238795) on Form S-8, of nsoliddat ded statements of iincome, li dendedd Dece bmber 31, 2018, hi hwhich appears iin 333-174774) on Form ) nua An ) Oak Brook, Illinois y February 26, 2021 , /s/ Crowe LLP I, Andy L. Nemeth, certify that: CERTIFICATIONS Exhibit 31.1 1 2 3 4 I have reviewed this annual report on Form 10-K of Patrick Industries, Inc. (the “registrant”); Based on my knowledge, this report does not contain any untrue statement of a material facff a material fact necessary t statements were made, not misleading with respect to the period covered by this report; o make the statements made, in light of the circumstances under which such rr t or omit to state Based on my knowledge, the finff ancial statements, and other finaff fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; ncial information included in this report, The registrant’s other certifying officer and I are responsible for establia shing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliabia lity of financial reporting and the preparation of financial statements forff principles; external purposes in accordance with generally accepted accounting evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affecff reasonably likely to materially affect, the registrant’s internal control over finaff reporting; and ted, or is ncial 5 The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over finaff ncial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): a) b) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 26, 2021 y , /s/ Andy L. Nemeth Andy L. Nemeth President and Chief Executive Officer I, Jacob R. Petkovich, certify that: CERTIFICATIONS Exhibit 31.2 1 2 3 4 I have reviewed this annual report on Form 10-K of Patrick Industries, Inc. (the “registrant”); Based on my knowledge, this report does not contain any untrue statement of a material facff a material fact necessary t statements were made, not misleading with respect to the period covered by this report; o make the statements made, in light of the circumstances under which such rr t or omit to state Based on my knowledge, the finff ancial statements, and other finaff fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; ncial information included in this report, The registrant’s other certifying officer and I are responsible for establia shing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; external purposes in accordance with generally accepted accounting designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliabia lity of financial reporting and the preparation of financial statements forff principles; evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the company’s fourth fiscal quarter in the case of an annual report) that has materially affecff reasonably likely to materially affect, the registrant’s internal control over finaff reporting; and ted, or is ncial 5 The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over finaff ncial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): a) b) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over finaff ncial reporting. Date: February 26, 2021 y , /s/ Jacob R. Petkovich Jacob R. Petkovich Executive Vice President - Finance and ff Chief Financial Officer Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Patrick Industries, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officeff r and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 that: 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report. /s/ Andy L. Nemeth y Andy L. Nemeth President and Chief Executive Offiff cer /s/ Jacob R. Petkovich Jacob R. Petkovich Executive Vice President – Finance and Chief Financial Officer r February 26, 2021 OFFICERS TODD M. CLEVELAND Executive Chairman of the Board ANDY L. NEMETH President and Chief Executive Officer JACOB R. PETKOVICH Executive Vice President – Finance, Chief Financial Officer and Treasurer JEFFREY M. RODINO Executive Vice President – Sales KIP B. ELLIS Executive Vice President – Operations JOEL D. DUTHIE Vice President, General Counsel and Chief Sales Officer Chief Operating Officer Secretary BOARD OF DIRECTORS JOSEPH M. CERULLI Tontine Associates, LLC TODD M. CLEVELAND Executive Chairman of the Board JOHN A. FORBES Partner Director since 2008 Director since 2008 Outcomes LLC and Full Sails LLC MICHAEL A. KITSON CFO oVertone Haircare, Inc. Director since 2013 ANDY L. NEMETH President and CEO of the Company Director since 2006 PAMELA R. KLYN Senior Vice President Global Product Organization Whirlpool Corporation Director since 2019 DENIS G. SUGGS CEO LCP Transportation, LLC Director since 2019 CORPORATE INFORMATION Director since 2011 DERRICK B. MAYES Vice President WME / IMG Director since 2019 M. SCOTT WELCH President and CEO Welch Packaging Group Director since 2015 CORPORATE OFFICE Patrick Industries, Inc. 107 W. Franklin Street P.O. Box 638 Elkhart, IN 46515 (574) 294-7511 www.patrickind.com INVESTOR RELATIONS Julie Ann Kotowski (574) 294-7511 kotowskj@patrickind.com INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP STOCK SYMBOL NASDAQ: PATK TRANSFER AGENT & REGISTRAR Computershare Investor Services 462 South 4th Street, Suite 1600 Louisville, KY 40202 Within the U.S., Canada and Puerto Rico: (877) 581-5548 Outside the U.S., Canada and Puerto Rico: (781) 575-2879 www.computershare.com/investor PATRICK INDUSTRIES, INC 2020 ANNUAL REPORT COMPANY PROFILE Patrick Industries, Inc. is a major manufacturer and distributor of component products and building products serving the recreational vehicle, marine, manufactured housing, residential housing, high-rise, hospitality, kitchen cabinet, office and household furniture, fixtures and commercial furnishings, and other industrial markets. Patrick’s major manufactured products include decorative vinyl and paper laminated panels, countertops, fabricated aluminum products, wrapped profile mouldings, slide-out trim and fascia, cabinet doors and components, hardwood furniture, fiberglass bath fixtures and tile systems, thermoformed shower surrounds, specialty bath and closet building products, fiberglass and plastic helm systems and component products, wiring and wire harnesses, boat covers, towers, tops and frames, electrical systems components including instrument and dash panels, softwoods lumber, interior passage doors, air handling products, RV painting, slotwall panels and components, fuel tanks, and CNC molds and composite parts and other products. The Company also distributes drywall and drywall finishing products, electronics and audio systems components, wiring, electrical and plumbing products, appliances, cement siding, raw and processed lumber, FRP products, interior passage doors, roofing products, tile, laminate and ceramic flooring, shower doors, furniture, fireplaces and surrounds, interior and exterior lighting products, various marine aftermarket products, and other miscellaneous products, in addition to providing transportation and logistics services. 190+ MANUFACTURING & DISTRIBUTION FACILITIES Alabama Arizona California Colorado Florida Georgia Idaho Illinois Indiana Michigan Minnesota Mississippi Missouri Nevada North Carolina Oregon Pennsylvania South Carolina Tennessee Texas Utah Washington Wisconsin China Canada Corporate Headquarters Corporate Headquarters PATRICK INDUSTRIES, INC 2020 ANNUAL REPORT PATRICK INDUSTRIES, INC. / CORPORATE OFFICE 107 W. Franklin Street P.O. Box 638 Elkhart, IN 46515 (800) 331-2151 / (574) 294-7511 www.patrickind.com PATRICK INDUSTRIES, INC 2020 ANNUAL REPORT 

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