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)
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(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)
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(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)
(cid:5)(cid:19)(cid:10)(cid:13)(cid:11)(cid:10)(cid:12)(cid:10)(cid:5)
(cid:5)(cid:19)(cid:17)(cid:20)(cid:11)(cid:20)(cid:17)(cid:20)(cid:5)
(cid:5)(cid:19)(cid:15)(cid:12)(cid:11)(cid:12)(cid:12)(cid:10)(cid:5)
(cid:5)(cid:19)(cid:17)(cid:13)(cid:11)(cid:12)(cid:19)(cid:15)(cid:5)
(cid:16)(cid:17)(cid:11)(cid:18)(cid:14)(cid:19)(cid:5)
(cid:12)(cid:21)(cid:10)(cid:18)(cid:5)
(cid:10)(cid:20)(cid:11)(cid:18)(cid:13)(cid:17)(cid:5)
(cid:13)(cid:16)(cid:11)(cid:15)(cid:14)(cid:14)(cid:5)
(cid:5)(cid:19)(cid:19)(cid:16)(cid:11)(cid:13)(cid:20)(cid:10)(cid:5)
(cid:5)(cid:20)(cid:21)(cid:13)(cid:15)(cid:5)
(cid:10)(cid:20)(cid:11)(cid:10)(cid:13)(cid:18)(cid:5)
(cid:12)(cid:21)(cid:16)(cid:20)(cid:5)
(cid:10)(cid:12)(cid:11)(cid:20)(cid:19)(cid:17)(cid:5)
(cid:19)(cid:11)(cid:17)(cid:15)(cid:20)(cid:11)(cid:12)(cid:20)(cid:15)(cid:5)
(cid:5)(cid:19)(cid:11)(cid:12)(cid:17)(cid:18)(cid:11)(cid:16)(cid:16)(cid:20)(cid:5)
(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.
F-9
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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