UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September ~~29, 2019~~27, 2020

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ……………… to ………………

Commission file number 000-03922

PATRICK INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)



Indiana			35-1057796
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)



107 WEST FRANKLIN STREET, P.O. Box 638
ELKHART,	IN	46515
(Address of principal executive offices)		(ZIP Code)

(574) 294-7511

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, no par value	PATK	NASDAQ

As of October ~~25, 2019,~~23, 2020, there were ~~23,764,458~~23,363,124 shares of the registrant’s common stock outstanding.

PATRICK INDUSTRIES, INC.

TABLE OF CONTENTS


		Page No.
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

Condensed Consolidated Statements of Income Third Quarter and Nine Months ended September 27, 2020 and September 29, 2019		~~Page No.~~ 3
~~PART I. FINANCIAL INFORMATION~~
Condensed Consolidated Statements of Comprehensive Income Third Quarter and Nine Months ended September 27, 2020 and September 29, 2019		4
~~ITEM 1. FINANCIAL STATEMENTS (Unaudited)~~

Condensed Consolidated Statements of Financial Position September ~~29, 2019~~27, 2020 and December 31, ~~2018~~ 2019	35

Condensed Consolidated Statements of ~~Income~~ ~~Third Quarter and~~ Cash Flows Nine Months ~~Ended~~ended September 27, 2020 and September 29, 2019 ~~and September 30, 2018~~		46

~~Condensed Consolidated Statements of Comprehensive Income~~ ~~Third Quarter and Nine Months Ended September 29, 2019 and September 30, 2018~~		5

Condensed Consolidated Statements of Shareholders' Equity Third Quarter and Nine Months ~~Ended~~ended September 27, 2020 and September 29, 2019 ~~and September 30, 2018~~	67

~~Condensed Consolidated Statements of Cash Flows~~ ~~Nine Months Ended September 29, 2019 and September 30, 2018~~		8

Notes to Condensed Consolidated Financial Statements	9

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		2623

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		3531

ITEM 4. CONTROLS AND PROCEDURES		3632

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		33

ITEM 1A. RISK FACTORS		3733

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		3734

ITEM 6. EXHIBITS		3836

SIGNATURES		3937

PART 1: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	Third Quarter Ended				Nine Months Ended
(thousands except per share data)	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
NET SALES	$	700,707	$	566,186	$	1,713,984	$	1,787,622
Cost of goods sold	567,210		461,851		1,397,285		1,464,078
GROSS PROFIT	133,497		104,335		316,699		323,544
Operating Expenses:
Warehouse and delivery	25,263		23,917		70,204		74,228
Selling, general and administrative	38,184		33,817		105,681		104,403
Amortization of intangible assets	10,221		9,191		29,600		26,448
Total operating expenses	73,668		66,925		205,485		205,079
OPERATING INCOME	59,829		37,410		111,214		118,465
Interest expense, net	10,507		8,603		31,820		26,222
Income before income taxes	49,322		28,807		79,394		92,243
Income taxes	11,986		7,490		20,157		22,661
NET INCOME	$	37,336	$	21,317	$	59,237	$	69,582

BASIC NET INCOME PER COMMON SHARE	$	1.65	$	0.92	$	2.60	$	3.02
DILUTED NET INCOME PER COMMON SHARE	$	1.62	$	0.92	$	2.57	$	2.99

Weighted average shares outstanding – Basic	22,674		23,076		22,784		23,073
Weighted average shares outstanding – Diluted	23,072		23,273		23,088		23,279

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	Third Quarter Ended				Nine Months Ended
(thousands)	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
NET INCOME	$	37,336	$	21,317	$	59,237	$	69,582
Other comprehensive (loss) income, net of tax:
Unrealized gain (loss) of hedge derivatives	989		(240)		(1,553)		(3,225)
Other	60		19		8		(48)
Total other comprehensive income (loss)	1,049		(221)		(1,545)		(3,273)
COMPREHENSIVE INCOME	$	38,385	$	21,096	$	57,692	$	66,309

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)


	As of
(thousands)	September 27, 2020		December 31, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	62,347	$	139,390
Trade and other receivables, net	175,533		87,536
Inventories	281,374		253,870
Prepaid expenses and other	12,580		36,038
Total current assets	531,834		516,834
Property, plant and equipment, net	197,415		180,849
Operating lease right-of-use assets	105,410		93,546
Goodwill	356,433		319,349
Intangible assets, net	380,919		357,014
Deferred financing costs, net	2,544		2,978
Other non-current assets	384		423
TOTAL ASSETS	$	1,574,939	$	1,470,993
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current maturities of long-term debt	$	5,000	$	5,000
Current operating lease liabilities	29,565		27,694
Accounts payable	117,088		96,208
Accrued liabilities	101,296		58,033
Total current liabilities	252,949		186,935
Long-term debt, less current maturities, net	673,852		670,354
Long-term operating lease liabilities	76,873		66,467
Deferred tax liabilities, net	26,100		27,284
Other long-term liabilities	19,336		22,472
TOTAL LIABILITIES	1,049,110		973,512
SHAREHOLDERS’ EQUITY
Common stock	177,308		172,662
Additional paid-in-capital	24,440		25,014
Accumulated other comprehensive loss	(7,243)		(5,698)
Retained earnings	331,324		305,503
TOTAL SHAREHOLDERS’ EQUITY	525,829		497,481
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,574,939	$	1,470,993

As of
(thousands)
September 29, 2019
December 31, 2018
ASSETS

Current Assets

    Cash and cash equivalents
$ 116,712

$ 6,895
    Trade and other receivables, net
129,837

82,499
    Inventories
262,558

272,898
    Prepaid expenses and other
18,897

22,875
        Total current assets
528,004

385,167
Property, plant and equipment, net
179,884

177,145
Operating lease right-of-use assets 81,064
—
Goodwill
308,358

281,734
Intangible assets, net
350,216

382,982
Deferred financing costs, net
3,130

3,688
Other non-current assets
474

515
        TOTAL ASSETS $ 1,451,130

$ 1,231,231
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities

    Current maturities of long-term debt
$ 5,000

$ 8,750
    Current operating lease liabilities 25,990
—
    Accounts payable
117,862

89,803
    Accrued liabilities
53,423

59,202
        Total current liabilities
202,275

157,755
Long-term debt, less current maturities, net
670,928

621,751
Long-term operating lease liabilities 55,553
—
Deferred tax liabilities, net
19,735

22,699
Other long-term liabilities
22,701

20,272
        TOTAL LIABILITIES
971,192

822,477
SHAREHOLDERS’ EQUITY

Common stock
169,220

161,436
Additional paid-in-capital
25,020

25,124
Accumulated other comprehensive loss
(5,953 )
(2,680 )
Retained earnings
291,651

224,874
        TOTAL SHAREHOLDERS’ EQUITY
479,938

408,754
        TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$ 1,451,130

$ 1,231,231

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~CASH FLOWS (Unaudited)

Third Quarter Ended Nine Months Ended
(thousands except per share data)
September 29, 2019
September 30, 2018 September 29, 2019 September 30, 2018
NET SALES
$ 566,186

$ 575,139
$ 1,787,622
$ 1,731,850
Cost of goods sold
461,851

468,484
1,464,078
1,412,649
GROSS PROFIT
104,335

106,655
323,544
319,201
Operating Expenses:

  Warehouse and delivery
23,917

19,789
74,228
55,540
  Selling, general and administrative
33,817

33,284
104,403
98,999
  Amortization of intangible assets
9,191

8,873
26,448
25,140
    Total operating expenses
66,925

61,946
205,079
179,679
OPERATING INCOME
37,410

44,709
118,465
139,522
Interest expense, net
8,603

7,338
26,222
17,980
Income before income taxes
28,807

37,371
92,243
121,542
Income taxes
7,490

9,437
22,661
28,680
NET INCOME
$ 21,317

$ 27,934
$ 69,582
$ 92,862

BASIC NET INCOME PER COMMON SHARE
$ 0.92

$ 1.17
$ 3.02
$ 3.82
DILUTED NET INCOME PER COMMON SHARE
$ 0.92

$ 1.15
$ 2.99
$ 3.77

Weighted average shares outstanding – Basic
23,076

23,894
23,073
24,279
Weighted average shares outstanding – Diluted
23,273

24,232
23,279
24,619

See accompanying Notes to Condensed Consolidated Financial Statements.

~~PATRICK INDUSTRIES, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)~~

Third Quarter Ended Nine Months Ended
(thousands) September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
NET INCOME $ 21,317
$ 27,934
$ 69,582
$ 92,862
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain of hedge derivatives (240 ) 80
(3,225 ) 80
Foreign currency translation gain (loss) 19
(28 ) (48 ) (31 )
Total other comprehensive (loss) gain (221 ) 52
(3,273 ) 49
COMPREHENSIVE INCOME $ 21,096
$ 27,986
$ 66,309
$ 92,911


	Nine Months Ended
(thousands)	September 27, 2020		September 29, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	59,237	$	69,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	52,955		46,449
Stock-based compensation expense	11,177		12,039
Amortization of convertible notes debt discount	5,302		5,123
Deferred income taxes	(4,057)		(794)
Other	3,521		235
Change in operating assets and liabilities, net of acquisitions of businesses:
Trade receivables	(78,701)		(44,359)
Inventories	(12,885)		9,084
Prepaid expenses and other assets	23,787		4,319
Accounts payable, accrued liabilities and other	52,422		20,355
Net cash provided by operating activities	112,758		122,033
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(22,159)		(22,227)
Proceeds from sale of property, equipment and other investing activities	117		4,509
Business acquisitions, net of cash acquired	(123,382)		(22,350)
Net cash used in investing activities	(145,424)		(40,068)
CASH FLOWS FROM FINANCING ACTIVITIES
Term debt borrowings	0		7,500
Term debt repayments	(2,500)		(3,750)
Borrowings on revolver	8,198		648,460
Repayments on revolver	(8,198)		(905,792)
Stock repurchases under buyback program	(20,286)		(3,583)
Proceeds from issuance of senior notes	0		300,000
Cash dividends paid to shareholders	(17,265)		0
Payments related to vesting of stock-based awards, net of shares tendered for taxes	(2,910)		(3,359)
Payment of deferred financing costs	(58)		(7,214)
Proceeds from exercise of stock options	642		6
Payment of contingent consideration from a business acquisition	(2,000)		(4,416)
Net cash (used in) provided by financing activities	(44,377)		27,852
Increase (decrease) in cash and cash equivalents	(77,043)		109,817
Cash and cash equivalents at beginning of year	139,390		6,895
Cash and cash equivalents at end of period	$	62,347	$	116,712

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)


Third Quarter Ended September 27, 2020
(thousands)	Common Stock		Additional Paid-in- Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total
Balance June 28, 2020	$	173,178	$	24,534	$	(8,292)	$	303,848	$	493,268
Net income	—		—		—		37,336		37,336
Dividends declared	—		—		—		(5,865)		(5,865)
Other comprehensive income, net of tax	—		—		1,049		—		1,049
Share repurchases under buyback program	(647)		(94)		—		(3,995)		(4,736)
Shares used to pay taxes on stock grants	(53)		—		—		—		(53)
Stock-based compensation expense	4,830		—		—		—		4,830
Balance September 27, 2020	$	177,308	$	24,440	$	(7,243)	$	331,324	$	525,829

Nine Months Ended September 27, 2020
(thousands)	Common Stock		Additional Paid-in- Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total
Balance December 31, 2019	$	172,662	$	25,014	$	(5,698)	$	305,503	$	497,481
Net income	—		—		—		59,237		59,237
Dividends declared	—		—		—		(17,666)		(17,666)
Other comprehensive loss, net of tax	—		—		(1,545)		—		(1,545)
Share repurchases under buyback program	(3,962)		(574)		—		(15,750)		(20,286)
Issuance of shares upon exercise of common stock options	642		—		—		—		642
Shares used to pay taxes on stock grants	(3,211)		—		—		—		(3,211)
Stock-based compensation expense	11,177		—		—		—		11,177
Balance September 27, 2020	$	177,308	$	24,440	$	(7,243)	$	331,324	$	525,829

Third Quarter Ended September 29, 2019
(thousands)	Common Stock		Additional Paid-in- Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total
Balance June 30, 2019	$	166,086	$	25,124	$	(5,732)	$	273,139	$	458,617
Net income	—		—		—		21,317		21,317
Other comprehensive loss, net of tax	—		—		(221)		—		(221)
Stock repurchases under buyback program	(674)		(104)		—		(2,805)		(3,583)
Shares used to pay taxes on stock grants	(59)		—		—		—		(59)
Stock-based compensation expense	3,867		—		—		—		3,867
Balance September 29, 2019	$	169,220	$	25,020	$	(5,953)	$	291,651	$	479,938


Third Quarter Ended September 29, 2019
(thousands)		Common Stock			Additional Paid-in- Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
Balance June 30, 2019		$	166,086		$	25,124		$	(5,732	)	$	273,139		$	458,617
Net income		—			—			—			21,317			21,317
Other comprehensive loss, net of tax		—			—			(221		)	—			(221		)
Share repurchases under buyback program		(674		)	(104		)	—			(2,805		)	(3,583		)
Shares used to pay taxes on stock grants		(59		)	—			—			—			(59		)
Stock-based compensation expense		3,867			—			—			—			3,867
Balance September 29, 2019		$	169,220		$	25,020		$	(5,953	)	$	291,651		$	479,938

PATRICK INDUSTRIES, INC.																	PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (cont.)																	CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (cont.)
Nine Months Ended September 29, 2019	Nine Months Ended September 29, 2019																Nine Months Ended September 29, 2019
(thousands)		Common Stock			Additional Paid-in- Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total			(thousands)	Common Stock		Additional Paid-in- Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total
Balance December 31, 2018		$	161,436		$	25,124		$	(2,680	)	$	224,874		$	408,754		Balance December 31, 2018	$	161,436	$	25,124	$	(2,680)	$	224,874	$	408,754
Net income		—			—			—			69,582			69,582			Net income	—		—		—		69,582		69,582
Other comprehensive loss, net of tax		—			—			(3,273		)	—			(3,273		)	Other comprehensive loss, net of tax	—		—		(3,273)		—		(3,273)
Share repurchases under buyback program		(674		)	(104		)	—			(2,805		)	(3,583		)
Stock repurchases under buyback program																	Stock repurchases under buyback program	(674)		(104)		—		(2,805)		(3,583)
Shares used to pay taxes on stock grants		(3,587		)	—			—			—			(3,587		)	Shares used to pay taxes on stock grants	(3,587)		—		—		—		(3,587)
Issuance of shares upon exercise of common stock options		6			—			—			—			6			Issuance of shares upon exercise of common stock options	6		—		—		—		6
Stock-based compensation expense		12,039			—			—			—			12,039			Stock-based compensation expense	12,039		—		—		—		12,039
Balance September 29, 2019		$	169,220		$	25,020		$	(5,953	)	$	291,651		$	479,938		Balance September 29, 2019	$	169,220	$	25,020	$	(5,953)	$	291,651	$	479,938

Third Quarter Ended September 30, 2018
(thousands)		Common Stock			Additional Paid-in- Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
Balance July 1, 2018		$	161,648		$	25,552		$	63		$	216,357		$	403,620
Net income		—			—			—			27,934			27,934
Other comprehensive income, net of tax		—			—			52			—			52
Stock repurchases under buyback program		(2,237		)	(113		)	—			(18,593		)	(20,943		)
Issuance of shares upon exercise of common stock options		(37		)	—			—			—			(37		)
Shares used to pay taxes on stock grants		9			—			—			—			9
Stock-based compensation expense		3,542			—			—			—			3,542
Equity component of convertible notes issuance		—			41			—			—			41
Balance September 30, 2018		$	162,925		$	25,480		$	115		$	225,698		$	414,218

PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (cont.)
Nine Months Ended September 30, 2018
(thousands) Common Stock Additional Paid-in- Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total
Balance December 31, 2017 $ 163,196
$ 8,243
$ 66
$ 199,180
$ 370,685
Net income —
—
—
92,862
92,862
Other comprehensive loss, net of tax —
—
49
—
49
Stock repurchases under buyback program (8,266 ) (418 ) —
(66,344 ) (75,028 )
Issuance of shares upon exercise of common stock options 3
—
—
—
3
Shares used to pay taxes on stock grants (2,919 ) —
—
—
(2,919 )
Stock-based compensation expense 10,911
—
—
—
10,911
Purchase of convertible notes hedges —
(31,481 ) —
—
(31,481 )
Proceeds from sale of warrants —
18,147
—
—
18,147
Equity component of convertible notes issuance —
30,989
—
—
30,989
Balance September 30, 2018 $ 162,925
$ 25,480
$ 115
$ 225,698
$ 414,218

See accompanying Notes to Condensed Consolidated Financial Statements

~~PATRICK INDUSTRIES, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)~~

Nine Months Ended
(thousands)
September 29, 2019
September 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$ 69,582

$ 92,862
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
46,449

39,893
Stock-based compensation expense
12,039

10,911
Amortization of convertible notes debt discount
5,123

4,495
Deferred income taxes
(794 )
(1,088 )
Other
235

(2,739 )
Change in operating assets and liabilities, net of acquisitions of businesses:

Trade receivables
(44,359 )
(29,295 )
Inventories
9,084

(13,238 )
Prepaid expenses and other assets
4,319

4,299
Accounts payable, accrued liabilities and other
20,355

21,313
Net cash provided by operating activities
122,033

127,413
CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures
(22,227 )
(26,073 )
Proceeds from sale of property, equipment and other investing activities
4,509

5,125
Business acquisitions, net of cash acquired
(22,350 )
(290,052 )
Net cash used in investing activities
(40,068 ) (311,000 )
CASH FLOWS FROM FINANCING ACTIVITIES

Term debt borrowings
7,500

36,981
Term debt repayments
(3,750 )
(6,441 )
Borrowings on revolver
648,460

954,535
Repayments on revolver
(905,792 )
(877,931 )
Stock repurchases under buyback program
(3,583 )
(75,028 )
Proceeds from issuance of senior notes 300,000
—
Proceeds from convertible notes offering
—
172,500
Purchase of convertible notes hedges
—
(31,481 )
Proceeds from sale of warrants
—
18,147
Payments related to vesting of stock-based awards, net of shares tendered for taxes
(3,359 ) (2,659 )
Payment of deferred financing costs
(7,214 ) (7,485 )
Payment of contingent consideration from a business acquisition (4,416 ) —
Other financing activities
6
(12 )
Net cash provided by financing activities
27,852
181,126
Increase (decrease) in cash and cash equivalents
109,817
(2,461 )
Cash and cash equivalents at beginning of year
6,895
2,767
Cash and cash equivalents at end of period
$ 116,712
$ 306

~~See accompanying Notes to Condensed Consolidated Financial Statements.~~

PATRICK INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



1.			BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Patrick Industries, Inc. (“Patrick”, the “Company”, "we", "our") contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of September ~~29, 2019~~27, 2020 and December 31, ~~2018, and~~2019, its results of operations for the ~~three~~third quarter and nine months ended September 27, 2020 and September 29, 2019 and ~~September 30, 2018 and~~its statements of cash flows for the nine months ended September ~~29, 2019~~27, 2020 and September ~~30, 2018.~~29, 2019.

Patrick’s unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules or regulations. ~~Certain immaterial reclassifications have been made to the prior period presentation to conform to the current period presentation.~~ For a description of significant accounting policies used by the Company in the preparation of its consolidated financial statements, please refer to Note ~~2 to Notes~~1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. The December 31, ~~2018~~2019 condensed consolidated statement of financial position data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Operating results for the third quarter and nine months ended September ~~29, 2019~~27, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2019.~~2020.

The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Sunday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The third quarter of fiscal year ~~2019~~2020 ended on September ~~29, 2019~~27, 2020 and the third quarter of fiscal year ~~2018~~2019 ended on September ~~30, 2018.~~29, 2019.

In preparation of Patrick’s condensed consolidated financial statements as of and for the ~~three~~third quarter and nine months ended September ~~29, 2019,~~27, 2020, management evaluated all ~~material~~ subsequent events orand transactions that occurred after the balance sheet date through the date of issuance of the Form 10-Q that required recognition or disclosure in the condensed consolidated financial statements.



2.			RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

~~Leases~~Goodwill Impairment

In ~~February 2016,~~January 2017, the Financial Accounting Standards Board ~~(“FASB”~~("FASB") issued Accounting Standards Update ~~(“ASU”~~("ASU") ~~2016-02, "Leases (Topic 842)~~", which requires in part that an entity recognize lease assets and lease liabilities on its statement of financial position for leases that were previously classified as operating leases under U.S. GAAP.

~~In July 2018, the FASB issued ASU 2018-11, "Leases (Topic 842): Targeted Improvements", which offered practical expedient alternatives to the modified retrospective adoption of Accounting Standards Codification (“ASC”) 842.~~

The Company adopted ASC 842 effective January 1, 2019, and recorded approximately $80 million in lease right-of-use assets and corresponding lease liabilities, with no material impact on the condensed consolidated statement of shareholders' equity, income, comprehensive income or cash flows. See Note 12 for further information.

~~Goodwill Impairment~~

~~In January 2017, the FASB issued ASU~~ 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". This ASU simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. The standard requires that the impairment loss be measured as the excess of the reporting unit's carrying amount over its fair value. It eliminates the second step that requires the impairment to be measured between the implied value of a reporting unit's goodwill and its carrying value. The ~~standard is effective for annual~~Company adopted ASU 2017-04 on January 1, 2020 and ~~any interim impairment tests for periods beginning after December 15, 2019 and early~~the adoption ~~is permitted. The Company is currently evaluating the effect of adopting this new accounting standard, which will depend~~did not have a material impact on the ~~outcomes of future goodwill impairment tests.~~condensed consolidated financial statements.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments”, which amends certain provisions of ~~ASC~~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 receivables, held to maturity debt securities, loans and other instruments, entities ~~will be~~are 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~~are required to disclose more information with respect to credit quality indicators, including information used to track credit quality by year of origination for most financing receivables. The Company adopted ASU 2016-13 on January 1, 2020 and the adoption did not have a material impact on the condensed consolidated financial statements.

Income Taxes

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", a new standard to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for fiscal years beginning after December 15, ~~2019, including interim periods within those fiscal years and will be applied as a cumulative effect adjustment to retained earnings as~~2020, with early adoption permitted. We are currently evaluating the impact of ~~the beginning of the first reporting period for which the guidance is effective. The Company does not expect that the adoption of the ASU will have a material effect~~this standard on ~~its condensed~~our consolidated financial statements.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)", a new standard providing final guidance to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently evaluating the impact of this standard on our consolidated financial statements.

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

In August 2020, the FASB issued ASU 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity", a new standard that simplifies certain accounting treatments for convertible debt instruments. The guidance eliminates certain requirements that require separate accounting for embedded conversion features and simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification. In addition, the new guidance requires entities use the if-converted method for all convertible instruments in the diluted EPS calculation and include the effect of potential share settlement for instruments that may be settled in cash or shares, with certain exceptions. Furthermore, the guidance requires new disclosures about events that occur during the reporting period that cause conversion contingencies to be met and about the fair value of convertible debt at the instrument level, among other things. The guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.



3.			REVENUE RECOGNITION

In the following table, revenue from contracts with customers, net of intersegment sales, is disaggregated by market type and by reportable ~~segments,~~segment, consistent with how the Company believes the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors:


	Third Quarter Ended September 27, 2020
(thousands)	Manufacturing		Distribution		Total
Market type:
Recreational Vehicle	$	290,326	$	130,845	$	421,171
Manufactured Housing	45,845		61,908		107,753
Industrial	69,242		9,090		78,332
Marine	88,861		4,590		93,451
Total	$	494,274	$	206,433	$	700,707

Third Quarter Ended September 29, 2019
(thousands) Manufacturing Distribution Total Reportable Segments
Market type:
Recreational Vehicle $ 218,706
$ 91,313
$ 310,019
Manufactured Housing 44,159
64,959
109,118
Industrial 64,541
7,566
72,107
Marine 72,306
2,636
74,942
Total $ 399,712
$ 166,474
$ 566,186


	Nine Months Ended September 27, 2020
(thousands)	Manufacturing		Distribution		Total
Market type:
Recreational Vehicle	$	656,739	$	288,778	$	945,517
Manufactured Housing	127,857		182,579		310,436
Industrial	202,368		25,113		227,481
Marine	219,150		11,400		230,550
Total	$	1,206,114	$	507,870	$	1,713,984

Nine Months Ended September 29, 2019
(thousands) Manufacturing Distribution Total Reportable Segments
Market type:
Recreational Vehicle $ 694,261
$ 299,115
$ 993,376
Manufactured Housing 131,101
193,975
325,076
Industrial 188,292
25,149
213,441
Marine 246,017
9,712
255,729
Total $ 1,259,671
$ 527,951
$ 1,787,622


	Third Quarter Ended September 30, 2018							Third Quarter Ended September 29, 2019
(thousands)	Manufacturing		Distribution		Total Reportable Segments		(thousands)	Manufacturing		Distribution		Total
Market type:							Market type:
Recreational Vehicle	$	262,936	$	91,637	$	354,573	Recreational Vehicle	$	218,706	$	91,313	$	310,019
Manufactured Housing	41,428		26,334		67,762		Manufactured Housing	44,159		64,959		109,118��
Industrial	63,429		8,906		72,335		Industrial	64,541		7,566		72,107
Marine	77,421		3,048		80,469		Marine	72,306		2,636		74,942
Total	$	445,214	$	129,925	$	575,139	Total	$	399,712	$	166,474	$	566,186

Nine Months Ended September 30, 2018
(thousands) Manufacturing Distribution Total Reportable Segments
Market type:
Recreational Vehicle $ 847,944
$ 280,082
$ 1,128,026
Manufactured Housing 124,406
75,946
200,352
Industrial 186,890
25,701
212,591
Marine 184,848
6,033
190,881
Total $ 1,344,088
$ 387,762
$ 1,731,850


	Nine Months Ended September 29, 2019
(thousands)	Manufacturing		Distribution		Total
Market type:
Recreational Vehicle	$	694,261	$	299,115	$	993,376
Manufactured Housing	131,101		193,975		325,076
Industrial	188,292		25,149		213,441
Marine	246,017		9,712		255,729
Total	$	1,259,671	$	527,951	$	1,787,622

~~The following table provides information about contract balances:~~Contract Liabilities

(thousands) September 29, 2019 December 31, 2018
Receivables, which are included in trade and other receivables, net $ 128,672
$ 74,196
Contract liabilities $ 2,692
$ 2,642

~~Significant~~Contract liabilities, representing upfront payments from customers received prior to satisfying performance obligations, were immaterial as of the beginning and end of all periods presented and changes in ~~the~~ contract liabilities ~~balance~~were immaterial during ~~the nine months ended September 29, 2019 are as follows:~~all periods presented.

(thousands) Contract Liabilities
Revenue recognized that was included in the contract liability balance at the beginning of the period $ (1,006 )
Increases due to cash received, excluding amounts recognized as revenue during the period $ 1,056



4.			INVENTORIES

Inventories consist of the following:


(thousands)	September 27, 2020		December 31, 2019
Raw materials	$	196,298	$	162,238
Work in process	15,955		14,272
Finished goods	28,225		28,446
Less: reserve for inventory obsolescence	(13,301)		(10,123)
Total manufactured goods, net	227,177		194,833
Materials purchased for resale (distribution products)	56,676		60,918
Less: reserve for inventory obsolescence	(2,479)		(1,881)
Total materials purchased for resale (distribution products), net	54,197		59,037
Total inventories	$	281,374	$	253,870

(thousands) September 29, 2019 December 31, 2018
Raw materials $ 172,775
$ 164,408
Work in process 14,235
12,829
Finished goods 25,403
28,341
Less: reserve for inventory obsolescence (10,258 ) (5,354 )
Total manufactured goods, net 202,155
200,224
Materials purchased for resale (distribution products) 62,616
74,914
Less: reserve for inventory obsolescence (2,213 ) (2,240 )
Total materials purchased for resale (distribution products), net 60,403
72,674
Total inventories $ 262,558
$ 272,898



5.			GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the nine months ended September ~~29, 2019~~27, 2020 by segment are as follows:


(thousands)	Manufacturing		Distribution		Total
Balance - December 31, 2019	$	268,402	$	50,947	$	319,349
Acquisitions	35,087		8,980		44,067
Adjustments to preliminary purchase price allocations	(8,708)		1,725		(6,983)
Balance - September 27, 2020	$	294,781	$	61,652	$	356,433

(thousands) Manufacturing Distribution Total
Balance - December 31, 2018 $ 235,345
$ 46,389
$ 281,734
Acquisitions 7,177
—
7,177
Adjustments to preliminary purchase price allocations 8,428
11,019
19,447
Balance - September 29, 2019 $ 250,950
$ 57,408
$ 308,358

Intangible assets, net consist of the following as of September ~~29, 2019~~27, 2020 and December 31, ~~2018:~~2019:


(thousands)	September 27, 2020		December 31, 2019
Customer relationships	$	394,687	$	357,513
Non-compete agreements	15,231		16,202
Patents	16,555		16,495
Trademarks	101,426		88,524
	527,899		478,734
Less: accumulated amortization	(146,980)		(121,720)
Intangible assets, net	$	380,919	$	357,014

(thousands)
September 29,
2019
Weighted Average Useful Life
(in years)
December 31,
2018
Weighted Average Useful Life
(in years)
Customer relationships
$ 348,947

10.1
$ 366,228

10.1
Non-compete agreements
16,405

4.9
19,159

4.9
Patents
16,338

14.6
1,048

8.9
Trademarks 80,786
Indefinite 82,358
Indefinite

462,476

468,793

Less: accumulated amortization
(112,260 )

(85,811 )

Intangible assets, net
$ 350,216

$ 382,982

Changes in the carrying value of intangible assets for the nine months ended September ~~29, 2019~~27, 2020 by segment are as follows:


(thousands)	Manufacturing		Distribution		Total
Balance - December 31, 2019	$	282,123	$	74,891	$	357,014
Acquisitions and other	36,409		13,096		49,505
Amortization	(24,313)		(5,287)		(29,600)
Impairment of intangible assets (1)	(119)		(1,831)		(1,950)
Adjustments to preliminary purchase price allocations	6,095		(145)		5,950
Balance - September 27, 2020	$	300,195	$	80,724	$	380,919

(thousands)
Manufacturing
Distribution
Total
Balance - December 31, 2018
$ 304,485

$ 78,497

$ 382,982
Acquisitions
8,329

—

8,329
Amortization
(21,808 )
(4,640 )
(26,448 )
Adjustments to preliminary purchase price allocations
(12,023 )
(2,624 )
(14,647 )
Balance - September 29, 2019
$ 278,983

$ 71,233

$ 350,216
(1) Certain immaterial operations permanently ceased activities during the nine months ended September 27, 2020. As a result, we recorded a $2.0 million pre-tax impairment of customer relationships and trademarks of these operations after determining the net carrying value of the assets was no longer recoverable. The impairment was calculated using our internal projections of discounted cash flows, which rely on Level 3 inputs in the fair value hierarchy based on the unobservable nature of the underlying data. The impairment was recorded in selling, general and administrative in our condensed consolidated statements of income for the nine months ended September 27, 2020.

Valuation of Goodwill and Indefinite-Lived Intangibles

We test goodwill and indefinite-lived intangible assets (trademarks) for impairment on an annual basis (as of September 30, 2019 for our most recent annual tests) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. Our 2019 tests indicated that there was no impairment, as fair value exceeded carrying values, and we concluded that none of our reporting units or trademarks were at risk of failing the impairment test.

Despite the excess fair value identified in our 2019 impairment tests, we assessed during the quarter and nine months ended September 27, 2020 whether the impact of the COVID-19 pandemic on overall macroeconomic conditions and our results of operations for the third quarter and nine months ended September 27, 2020 indicated that at September 27, 2020 it was more likely than not that our goodwill and trademarks were impaired. We evaluated among other factors (i) the results of our 2019 impairment tests; (ii) our market capitalization at September 27, 2020 in relation to the carrying amount of shareholders’ equity at September 27, 2020 and to fair values determined during our 2019 impairment tests; (iii) the results of our operations during the third quarter and nine months ended September 27, 2020 in relation to our projections; and (iv) our analysis of the impact on the fair values determined during our 2019 impairment tests using more recent projections and discount rates that account for various risks and uncertainties, including the duration and extent of impact to our business, related to the COVID-19 pandemic.

Based on the results of our assessment, and other than immaterial impairments discussed above, we concluded that no triggering events had occurred which would indicate the fair values of our goodwill and trademarks may be less than the carrying values at September 27, 2020. However, we are unable to predict how long the COVID-19-related conditions will persist, what additional measures may be introduced by governments or private parties, or what effect any such additional measures may have on demand for our products or those of our customers in each of our end markets. As such, the outcome of our 2020 impairment tests, which we will perform in the fourth quarter of 2020, could result in an impairment of our goodwill or our trademarks.



6.			ACQUISITIONS

General

~~In addition~~The Company completed 6 acquisitions in the third quarter of 2020 and completed 9 acquisitions in the first nine months of 2020 (the "2020 Acquisitions"). For the third quarter and nine months ended September 27, 2020, net sales included in the Company's condensed consolidated statements of income related to the ~~acquisitions completed~~2020 Acquisitions were $19.6 million and $23.3 million, respectively. Operating income related to the 2020 Acquisitions for the third quarter and nine months ended September 27, 2020 was approximately $2.1 million and $2.2 million, respectively. Acquisition-related costs incurred in ~~2018 as discussed below,~~ the first nine months of 2020 were immaterial. The Company completed 2 acquisitions in the first nine months of 2019. For the third quarter and first nine months ended September 29, 2019, revenue and operating income included in the Company's condensed consolidated statements of income ~~related to the 2019 acquisitions~~ were immaterial. For the third quarter ended September 30, 2018, revenue and operating income of approximately $82.4 million and $8.8 million, respectively, were included in the Company’s condensed consolidated statements of income relating to the businesses acquired in the first nine months of 2018. The first nine months of 2018 included revenue and operating income of approximately $160.0 million and $17.3 million, respectively, related to these acquisitions. Acquisition-related costs ~~in the aggregate associated with the businesses acquired~~incurred in the first nine months of 2019 ~~and 2018~~ were immaterial.

~~Contingent Consideration~~

In connection with certain acquisitions, if certain financial targets for the acquired businesses are achieved, the Company will be required to pay additional cash consideration. The Company has recorded a liability for the fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments. As required, the liabilities for the contingent consideration associated with each of these acquisitions will be remeasured quarterly at fair value.

As of September ~~29, 2019,~~27, 2020, the aggregate fair value of the estimated contingent consideration payments was ~~$12.0~~$8.0 million, ~~$4.5~~$6.1 million of which is included in the line item "Accrued liabilities" and ~~$7.5~~$1.9 million is included in “Other long-term liabilities” on the condensed consolidated statement of financial position. At December 31, ~~2018,~~2019, the aggregate fair value of the estimated contingent consideration payments was ~~$13.8~~$9.6 million, ~~$4.4~~$2.0 million of which was included in the line item "Accrued liabilities" and ~~$9.4~~$7.6 million was included in "Other long-term liabilities". The liabilities for contingent consideration expire at various dates through December 2023. The contingent consideration arrangements are subject to a maximum payment amount of up to ~~$17.2~~$14.8 million in the aggregate. In the first ~~quarter~~nine months of ~~2019,~~2020, the Company made cash payments of ~~approximately $4.4~~$2.0 million related to contingent consideration ~~liabilities,~~arrangements, recording a corresponding reduction to accrued liabilities.

~~2019~~2020 Acquisitions

Acquisitions completed in the first nine months of 2020 include the following previously announced acquisitions:


Company			Description
Maple City Woodworking Corporation			Manufacturer of hardwood cabinet doors and fascia for the recreational vehicle ("RV") market based in Goshen, Indiana
SEI Manufacturing, Inc.			Manufacturer of towers, T-Tops, hardtops, rails, gates and other aluminum exterior products for the marine market located in Cromwell, Indiana
Inland Plywood Company			Supplier, laminator, and wholesale distributor of treated, untreated, and laminated plywood, medium density overlay panels, and other specialty products, primarily serving the marine market as well as the RV and industrial markets headquartered in Pontiac, Michigan with an additional facility in Cocoa, Florida
Synergy RV Transport			Transportation and logistics service provider primarily for original equipment manufacturers and dealers in the RV market located in Goshen, Indiana
Front Range Stone			Fabricator and installer of natural stone, quartz, solid surface, and laminate countertops, primarily serving big box home improvement retailers, home builders and commercial contractors in the industrial market based in Englewood, Colorado

Inclusive of 4 immaterial acquisitions not discussed above, total cash consideration for the 2020 Acquisitions was approximately $124 million, plus contingent consideration over a maximum of a one-year period based on future performance in connection with certain acquisitions. The preliminary purchase price allocations are subject to valuation activities being finalized, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company ~~completed 2 acquisitions~~finalizes its estimates. Changes to preliminary purchase accounting estimates recorded in the third quarter and first nine months ~~ended September 29,~~ of 2020 related to the 2020 Acquisitions were immaterial. The 2020 Acquisitions are included in the Manufacturing segment except for Synergy RV Transport, which is included in the Distribution segment.

2019 Acquisitions

The Company completed 4 acquisitions in 2019 (the "2019 Acquisitions"), including the previously announced ~~acquisition~~acquisitions of Topline Counters, LLC ("Topline Counters"), a Sumner, Washington-based designer and manufacturer of

kitchen and bathroom countertops for residential and commercial markets, and G.G. Schmitt & Sons, Inc. ("G.G. Schmitt"), a Sarasota, Florida-based designer and manufacturer of customized hardware and structural components for the marine industry. The total ~~initial~~cash consideration for ~~these acquisitions~~the 2019 Acquisitions was ~~$21.1~~$53.1 million, plus ~~subsequent~~ contingent consideration ~~payments~~ over a one-year period based on future performance in connection with the acquisition of G.G. Schmitt. ~~The preliminary purchase price allocation is subject to final review~~Valuation activities and ~~approval, and thus all required~~ purchase accounting adjustments ~~are subject~~have been finalized on all 2019 Acquisitions, except for the finalization of tangible assets for Topline Counters. Changes to ~~change within~~preliminary purchase accounting estimates recorded in the ~~measurement period as~~third quarter and first nine months of 2020 related to the ~~Company finalizes its fair value estimates.~~

2019 Acquisitions were immaterial. The ~~results of operations for these acquisitions~~2019 Acquisitions are included in the ~~Company’s condensed consolidated financial statements and the~~ Manufacturing ~~operating segment from their respective dates of acquisition.~~

~~2018 Acquisitions~~segment.

~~Metal Moulding Corporation (~~
“~~MMC”~~)

In February 2018, the Company completed the acquisition of the business and certain assets of Madison, Tennessee-based MMC, a manufacturer of custom metal fabricated products, primarily for the marine market, including hinges, arm rests, brackets, panels and trim, as well as plastic products including boxes, inlay tables, steps, and related components, for a net initial purchase price of $19.9 million, plus contingent consideration payments over a one-year period based on future performance.

~~The results of operations for MMC are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition.~~

~~Aluminum Metals Company, LLC (“AMC”~~)

In February 2018, the Company completed the acquisition of the business and certain assets of Elkhart, Indiana-based AMC, a manufacturer of aluminum products including coil, fabricated sheets and extrusions, in addition to roofing products, primarily for the recreational vehicle (“RV”), industrial, and marine markets, for a net purchase price of $17.8 million.

~~The results of operations for AMC are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition.~~

~~IMP Holdings, LLC d/b/a Indiana Marine Products (“IMP”)~~

In March 2018, the Company completed the acquisition of the business and certain assets of Angola, Indiana-based IMP, a manufacturer of fully-assembled helm assemblies, including electrical wiring harnesses, dash panels, instrumentation and gauges, and other products primarily for the marine market, for a net initial purchase price of $18.6 million, plus subsequent contingent consideration payments over a three-year period based on future performance.

~~The results of operations for IMP are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition.~~

~~Collins & Company, Inc. (“Collins”)~~

In March 2018, the Company completed the acquisition of the business and certain assets of Bristol, Indiana-based Collins, a distributor of appliances, trim products, fuel systems, flooring, tile, and other related building materials primarily to the RV market as well as the housing and industrial markets, for a net purchase price of $40.0 million.

The results of operations for Collins are included in the Company’s condensed consolidated financial statements and the Distribution operating segment from the date of acquisition. Changes from previously reported estimated amounts as of December 31, 2018 include a decrease to intangible assets of $3.6 million and a $3.6 million offsetting increase to goodwill. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were finalized.

~~Dehco, Inc. (“Dehco”)~~

In April 2018, the Company completed the acquisition of Dehco, a distributor and manufacturer of flooring, kitchen and bath products, adhesives and sealants, electronics, appliances and accessories, LP tanks, and other related building materials, primarily for the RV market as well as the manufactured housing (“MH”), marine and other industrial markets, for a net purchase price of $52.8 million. Dehco has operating facilities in Indiana, Oregon, Pennsylvania and Alabama.

The results of operations for Dehco are included in the Company’s condensed consolidated financial statements and the Manufacturing and Distribution operating segments from the date of acquisition. Changes from previously reported estimated amounts as of December 31, 2018 include a decrease to intangible assets of $0.3 million and a $0.3 million offsetting increase to goodwill. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were finalized.

~~Dowco, Inc. (“Dowco”)~~

In May 2018, the Company completed the acquisition of Dowco, a designer and manufacturer of custom designed boat covers and bimini tops, full boat enclosures, mounting hardware, and other accessories and components for the marine market, for a net purchase price of $56.3 million, net of cash acquired. Dowco has operating facilities in Wisconsin, Missouri, Indiana, and Minnesota.

The results of operations for Dowco are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition. Changes from previously reported estimated amounts as of December 31, 2018 include a $2.7 million increase to property, plant and equipment and a $3.3 million increase to goodwill, offset by a $5.9 million decrease to intangible assets and a $0.1 million increase in accounts payable and accrued liabilities. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were finalized.

~~Marine Accessories Corporation (“MAC”)~~

In June 2018, the Company acquired 100% of the membership interests of Maryville, Tennessee-based MAC, a manufacturer, distributor and aftermarket supplier of custom tower and canvas products and other related accessories to OEMs, dealers, retailers and distributors within the marine market, as well as direct to consumers, for a net purchase price of $57.0 million, net of cash acquired.

The results of operations for MAC are included in the Company’s condensed consolidated financial statements and the Manufacturing and Distribution operating segments from the date of acquisition. Changes from previously reported estimated amounts as of December 31, 2018 include a $6.5 million decrease to intangible assets and a $1.0 million decrease to property, plant and equipment, offset by a decrease in deferred taxes and other liabilities of $1.1 million and an increase to goodwill of $6.4 million. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were finalized.

~~Engineered Metals and Composites, Inc. (“EMC”)~~

In September 2018, the Company completed the acquisition of the business and certain assets of West Columbia, South Carolina-based EMC, a designer and manufacturer of custom marine towers, frames, and other fabricated component products for OEMs in the marine industry, for a net initial purchase price of $25.3 million, plus contingent consideration over a three-month period based on future performance.

The results of operations for EMC are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition. After adjusting for a $0.1 million increase to the estimated purchase price reported at December 31, 2018 due to a final working capital adjustment of $0.1 million, changes from previously reported estimated amounts as of December 31, 2018 include an increase to intangible assets of $1.6 million, an increase to inventory of $0.1 million, a decrease to property, plant and equipment of $0.8 million, a decrease to goodwill of $0.6 million and an increase to accounts payable of $0.2 million. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were finalized.

~~LaSalle Bristol (“LaSalle”)~~

In November 2018, the Company completed the acquisition of LaSalle, a distributor and manufacturer of plumbing, flooring, tile, lighting, air handling and building products for the MH, RV, and industrial markets, for a net purchase price of $51.1 million, net of cash acquired. LaSalle is headquartered in Elkhart, Indiana and operates a total of 15 manufacturing and distribution centers located in North America.

The results of operations for LaSalle are included in the Company’s condensed consolidated financial statements and the Manufacturing and Distribution operating segments from the date of acquisition. The preliminary purchase price allocation is subject to final review and approval, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its fair value estimates.

After adjusting for a $1.1 million increase in the estimated purchase price reported at December 31, 2018 due to a final working capital adjustment of $1.1 million, changes from previously reported estimated amounts as of December 31, 2018 are related primarily to a $6.7 million decrease to inventory, offset partly by a $0.8 million increase to accounts receivable, a $0.3 million increase to prepaid expenses and a $6.7 million increase to goodwill. There was no material impact to the condensed consolidated statement of income related to these changes.

The following table summarizes the fair values of the consideration paid, assets acquired, and the liabilities assumed as of the date of ~~the~~ acquisition for the 2020 Acquisitions and the 2019 ~~and 2018 acquisitions:~~Acquisitions:

(thousands) Trade receivables Inventories Property, plant and equipment Prepaid expenses & other Intangible assets Goodwill Less: Total liabilities Less: Deferred tax liability, net Total net assets acquired

2019⁽¹⁾
$ 2,245
$ 5,296
$ 1,650
$ 133
$ 8,329
$ 7,177
$ 1,135
$ —
$ 23,695

2018

MMC ⁽²⁾
$ 1,463
$ 2,324
$ 2,085
$ —
$ 8,540
$ 7,668
$ 827
$ —
$ 21,253
AMC 3,942
5,623
2,321
39
6,550
1,755
2,463
—
17,767
IMP ⁽³⁾
1,943
4,286
1,463
13
12,920
8,803
2,930
—
26,498
Collins 2,830
9,903
1,188
5
18,430
10,237
2,586
—
40,007
Dehco 4,771
16,923
13,755
208
13,950
6,580
3,392
—
52,795
Dowco 4,053
4,498
8,566
1,240
28,435
13,732
4,178
—
56,346
MAC 3,054
6,815
7,003
284
26,190
25,669
4,226
7,767
57,022
EMC ⁽⁴⁾
623
1,678
1,684
—
17,350
7,483
987
—
27,831
LaSalle 9,002
39,344
8,500
6,547
5,885
10,441
28,601
41
51,077
Other 473 329
280
13
1,667
919
195
—
3,486
2018 Totals $ 32,154
$ 91,723
$ 46,845
$ 8,349
$ 139,917
$ 93,287
$ 50,385
$ 7,808
$ 354,082


(thousands)			2020 Acquisitions		2019 Acquisitions
Consideration
	Cash, net of cash acquired		$	124,013	$	53,307
	Contingent consideration(1)		1,813		1,160
		Total consideration	125,826		54,467

Assets Acquired
	Trade receivables		$	9,785	$	9,692
	Inventories		16,073		5,803
	Prepaid expenses & other		502		20
	Property, plant & equipment		15,633		6,567
	Operating lease right-of-use assets		6,222		5,653
	Identifiable intangible assets		49,445		23,715
Liabilities Assumed
	Accounts payable & accrued liabilities		(6,264)		(6,514)
	Operating lease obligations		(6,222)		(5,653)
	Deferred tax liabilities, net		(3,415)		(1,922)
		Total fair value of net assets acquired	81,759		37,361
		Goodwill(2)	44,067		17,106
			$	125,826	$	54,467

(1) ~~Total net assets acquired for the 2019 acquisitions~~ These amounts reflect the preliminary estimated liability ~~of $2.6 million~~ pertaining to the fair value of contingent consideration based on future performance relating to certain acquisitions.

(2) Goodwill is tax-deductible for the ~~acquisition~~2020 Acquisitions, except Front Range Stone (approximately $14.1 million), and for the 2019 Acquisitions, except GG Schmitt (approximately $5.4 million). For acquisitions, the excess of ~~G.G. Schmitt.~~

~~(2) Total net assets acquired for MMC reflect the preliminary estimated liability of $1.4 million pertaining to~~purchase price consideration over the fair value of ~~the contingent consideration based on future performance.~~

~~(3) Total~~ net assets acquired ~~for IMP reflect~~is recorded as goodwill, which generally represents the ~~preliminary estimated liability of $7.9 million pertaining to the fair~~combined value of the ~~contingent consideration based~~Company's existing purchasing, manufacturing, sales, industry relationships, and systems resources with the organizational talent and expertise of the acquired companies' respective management teams to maximize efficiencies, revenue impact, market share growth, and net income.

We estimate the value of acquired property, plant, and equipment using a combination of the income, cost, and market approaches, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the acquired businesses.

The following table presents our estimates of identifiable intangibles for the 2020 Acquisitions and the 2019 Acquisitions:


		(thousands)
	Estimated Useful Life (in years)	2020 Acquisitions		2019 Acquisitions
Customer relationships	10	$	37,723	$	18,112
Non-compete agreements	5	492		150
Trademarks	Indefinite	11,230		5,453
		$	49,445	$	23,715

We estimate the value of customer relationships using the multi-period excess earnings method, which is a variation on ~~future performance.~~

~~(4) Total net assets acquired for EMC reflect~~ the ~~preliminary estimated liability~~income approach, calculating the present value of ~~$2.5 million pertaining~~incremental after-tax cash flows attributable to the ~~fair value~~asset. Non-compete agreements are valued using a discounted cash flow approach, which is a variation of an income approach, with and without the ~~contingent consideration based on~~individual counterparties to the non-compete agreements. Trademarks are valued using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future ~~performance.~~cash flows, discounted to present value.

Pro Forma Information

The following pro forma information for the third quarter and ~~first~~ nine months ended September 27, 2020 and September 29, 2019 ~~and September 30, 2018~~ assumes the 2020 Acquisitions and the 2019 ~~and 2018 acquisitions~~Acquisitions occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2020 Acquisitions and 2019 ~~and 2018 acquisitions~~Acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.

The pro forma information includes financing and interest expense charges based on incremental borrowings incurred in connection with each transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $0.5 million and $2.2 million~~$0.2~~ for the third quarter and nine months ended September 27, 2020, respectively, and $1.4 million and ~~$0.5~~$4.0 million for the third quarter and nine months ended September 29, 2019, ~~respectively, and$0.7 million and $5.7 million for the third quarter and nine months ended September 30, 2018,~~ respectively.


	Third Quarter Ended				Nine Months Ended
(thousands except per share data)	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Revenue	$	719,953	$	621,936	$	1,798,914	$	1,961,263
Net income	38,412		24,914		65,392		80,077
Basic net income per common share	1.69		1.08		2.87		3.47
Diluted net income per common share	1.66		1.07		2.83		3.44

Third Quarter Ended Nine Months Ended
(thousands except per share data)
September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Revenue
$ 571,734
$ 660,873
$ 1,806,933
$ 2,049,540
Net income
21,346
30,377
70,067
103,502
Basic net income per common share
0.93
1.27
3.04
4.26
Diluted net income per common share
0.92
1.25
3.01
4.20

The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of the periods indicated above.



7.			STOCK-BASED COMPENSATION

The Company recorded expense of ~~$3.8~~$4.9 million and ~~$3.5~~$11.2 million for the third quarter and nine months ended September ~~29, 2019 and September 30, 2018,~~27, 2020, respectively, for its stock-based compensation plans in the condensed consolidated statements of income. Stock-based compensation expense for the nine months ended September 27, 2020 includes a reduction of expense due to certain forfeitures and adjustments in the amount of $2.3 million. For the ~~first~~third quarter and nine months ofended September 29, 2019, ~~and 2018,~~ the Company recorded ~~$12.0 million and $10.9 million in~~ stock-based compensation expense of $3.8 million and $12.0 million, respectively.

The Board approved various ~~share~~stock-based grants under the Company’s 2009 Omnibus Incentive Plan in the first nine months of ~~2019~~2020 totaling ~~376,186~~275,740 shares in the ~~aggregate.~~aggregate at an average fair value of $53.78 per share at grant date for a total fair value at grant date of $14.8 million. In addition, in the second quarter of 2020, the Board approved stock option grants representing 465,000 shares in the aggregate at an exercise price of $41.33 per share. The total cost to be expensed over the three-year vesting period will be $6.6 million, or $14.25 per share, with an underlying volatility of 42% under the Black Scholes option pricing model.

As of September ~~29, 2019,~~27, 2020, there was approximately ~~$23.8~~$25.5 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans. That cost is expected to be recognized over a weighted-average period of ~~18.0~~17.4 months.



8.			NET INCOME PER COMMON SHARE

Net income per common share calculated for the third quarter and nine months of ~~2019~~2020 and ~~2018~~2019 is as follows:


	Third Quarter Ended				Nine Months Ended
(thousands except per share data)	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Net income for basic and diluted per share calculation	$	37,336	$	21,317	$	59,237	$	69,582
Weighted average common shares outstanding - basic	22,674		23,076		22,784		23,073
Effect of potentially dilutive securities	398		197		304		206
Weighted average common shares outstanding - diluted	23,072		23,273		23,088		23,279
Basic net income per common share	$	1.65	$	0.92	$	2.60	$	3.02
Diluted net income per common share	$	1.62	$	0.92	$	2.57	$	2.99

Third Quarter Ended Nine Months Ended
(thousands except per share data) September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Net income for basic and diluted per share calculation $ 21,317
$ 27,934
$ 69,582
$ 92,862
Weighted average common shares outstanding - basic 23,076
23,894
23,073
24,279
Effect of potentially dilutive securities 197
338
206
340
Weighted average common shares outstanding - diluted 23,273
24,232
23,279
24,619
Basic net income per common share $ 0.92
$ 1.17
$ 3.02
$ 3.82
Diluted net income per common share $ 0.92
$ 1.15
$ 2.99
$ 3.77

An immaterial amount of securities was not included in the computation of diluted income per share as they are considered anti-dilutive under the treasury stock method.



9.			DEBT

A summary of total debt outstanding at September ~~29, 2019~~27, 2020 and December 31, ~~2018~~2019 is as follows:


(thousands)	September 27, 2020		December 31, 2019
Long-term debt:
1.0% convertible notes due 2023	$	172,500	$	172,500
Term loan due 2024	95,000		97,500
Revolver due 2024	135,000		135,000
7.5% senior notes due 2027	300,000		300,000
Total long-term debt	702,500		705,000
Less: convertible notes debt discount, net	(17,958)		(23,260)
Less: term loan deferred financing costs, net	(463)		(542)
Less: senior notes deferred financing costs, net	(5,227)		(5,844)
Less: current maturities of long-term debt	(5,000)		(5,000)
Total long-term debt, less current maturities, net	$	673,852	$	670,354

(thousands)
September 29, 2019
December 31, 2018
Long-term debt:

Revolver
$ 135,000

$ 392,332
Term Loan
100,000

96,250
Senior Notes 300,000
—
Convertible Notes
172,500

172,500
Total long-term debt
707,500

661,082
Less: Convertible Notes debt discount, net
(25,023 )
(30,125 )
Less: Senior Notes deferred financing costs, net (5,979 ) —
Less: current maturities of long-term debt
(5,000 )
(8,750 )
Less: Term Loan deferred financing costs, net
(570 )
(456 )
Total long-term debt, less current maturities, net
$ 670,928

$ 621,751

There were no material changes to any of our debt arrangements during the third quarter and nine months ended September 27, 2020.

~~Senior Notes~~

On September 17, 2019, the Company issued $300 million aggregate principal amount of 7.50% Senior Notes due 2027 (the “Senior Notes”). The Senior Notes were not registered under the Securities Act of 1933, as amended (the "Securities Act") and were offered under Rule 144A under the Securities Act. The Senior Notes will mature on October 15, 2027. Interest on the Senior Notes will accrue from September 17, 2019 and is payable semi-annually in cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2020. The effective interest rate on the Senior Notes, which includes debt issuance costs, was 7.83%. In connection with the issuance of the Senior Notes, the Company incurred and capitalized as a reduction of the principal amount of the Senior Notes approximately $6.0 million in deferred financing costs which will be amortized using the effective interest rate over the term of the Senior Notes.

The Senior Notes are senior unsecured indebtedness of the Company and are guaranteed by each of the Company’s subsidiaries that guarantee the obligations of the Company under the 2019 Credit Facility (as defined herein). The Company may redeem the Senior Notes, in whole or in part, at any time (a) prior to October 15, 2022, at a price equal to 100% of the principal amount thereof, plus the applicable premium described in the associated indenture and accrued and unpaid interest and (b) on or after October 15, 2022 at specified redemption prices set forth in the indenture, plus accrued and unpaid interest. In addition, prior to October 15, 2022, the Company may redeem, in one or more transactions, up to an aggregate of 40% of the original principal amount of the Senior Notes at a redemption price equal to 107.5% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of one or more equity offerings. If the Company experiences specific kinds of changes of control, the Company must offer to repurchase all of the Senior Notes (unless otherwise redeemed) at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest.

~~2019 Credit Facility~~

Simultaneously with the issuance of the Senior Notes, the Company entered into the Third Amended and Restated Credit Agreement (the “2019 Credit Agreement”). The 2019 Credit Agreement amended and extended the Company’s 2018 Credit Agreement (as defined herein) and consists of a $550 million senior secured revolver (the “2019 Revolver”) and a $100 million senior secured term loan (the “2019 Term Loan” and together with the 2019 Revolver, the “2019 Credit Facility”). The maturity daterates for borrowings under the ~~2019 Credit Agreement is~~revolver and term loan are the prime rate or LIBOR plus a margin. At September ~~17, 2024. Upon the satisfaction of certain conditions, and obtaining incremental commitments from its lenders, the Company may be able to increase the borrowing capacity~~27, 2020, all of the ~~2019 Credit Facility by up to $250 million.~~

~~Borrowings~~Company's borrowings under the ~~2019 Credit Facility are secured by substantially all personal property assets of the Company~~revolver and ~~any domestic subsidiary guarantors. Pursuant to the 2019 Credit Agreement:~~


•	~~The 2019 Term Loan is due in consecutive quarterly installments in the following amounts: (i) beginning September 30, 2019, through and including June 30, 2021,~~ ~~$1,250,000~~ ~~and (ii) beginning September 30, 2021, and each quarter thereafter,~~ ~~$2,500,000, with the remaining balance due at maturity;~~

•

~~The interest rates for borrowings under the 2019 Revolver and the 2019 Term Loan are the Prime Rate or LIBOR plus a margin, which ranges from~~ ~~0.00% to 0.75%~~ ~~for Prime Rate loans and from~~ ~~1.00% to 1.75%~~ for LIBOR loans depending on the Company’s consolidated total leverage ratio, as defined below. The Company is required to pay fees on unused but committed portions of the 2019 Revolver, which range from ~~0.15% to 0.225%; and~~

Covenants include requirements as to a maximum consolidated total net leverage ratio (4.00:1.00, increasing to 4.50:1.00 in certain circumstances in connection with Company acquisitions) and a minimum consolidated fixed charge coverage ratio (1.50 :1.00) that are tested on a quarterly basis, a minimum liquidity requirement applicable during the six-month period preceding the maturity of the Convertible Notes (as defined herein), and other customary covenants.

~~At September 29, 2019, the Company had $100.0 million outstanding under the 2019 Term Loan under the LIBOR-based option, and borrowings outstanding under the 2019 Revolver of $135.0 million~~term loan were under the LIBOR-based option. The interest rate for incremental borrowings at September ~~29, 2019~~27, 2020 was LIBOR plus 1.5% (or ~~3.54%~~1.69%) for the LIBOR-based option. The fee payable on committed but unused portions of the ~~2019 Revolver~~revolver was 0.20% at September ~~29, 2019.~~27, 2020.

Total cash interest paid was $3.2 million and $6.9 million for the third quarter of 2020 and 2019, respectively, and ~~2018 was $6.9~~$21.4 million ~~and $6.6 million, respectively,~~ and $19.7 million ~~and $12.2 million~~ for the ~~comparative~~first nine ~~month periods,~~months of 2020 and 2019, respectively.

~~2018 Credit Facility~~

See Note 9 of the Notes to Consolidated Financial Statements section of the Fiscal 2018 Form 10-K regarding the Company's previous credit agreement (the "2018 Credit Agreement") which established an $800 million revolving credit loan (the “2018 Revolver”) and a $100 million term loan (the “2018 Term Loan” and, together with the 2018 Revolver, the “2018 Credit Facility”). The 2018 Credit Agreement was amended by the 2019 Credit Agreement on September 17, 2019 as discussed above. The Company recorded a $0.7 million loss on extinguishment of debt in the third quarter of 2019 in connection with the replacement of the 2018 Credit Facility with the 2019 Credit Facility.

~~Convertible Senior Notes~~

In January 2018, the Company issued $172.5 million aggregate principal amount of 1.00% Convertible Senior Notes due 2023 (the “Convertible Notes”). See Note 9 of the Notes to Consolidated Financial Statements section of the Fiscal 2018 Form 10-K for further information. The effective interest rate on the Convertible Notes, which includes the non-cash interest expense of debt discount amortization and debt issuance costs, was 5.25% as of September 29, 2019 and December 31, 2018. The unamortized portion of the debt discount and debt issuance costs as of September 29, 2019 and December 31, 2018 was $25.0 million and $30.1 million, respectively.



10.			DERIVATIVE FINANCIAL INSTRUMENTS

~~Convertible Note Hedge Transactions and Warrant Transactions~~

In January 2018, in connection with the Convertible Notes offering, the Company entered into privately negotiated convertible note hedge transactions (together, the “Convertible Note Hedge Transactions”) with each of Bank of America, N.A. and Wells Fargo Bank, National Association (together, the “Hedge Counterparties”), pursuant to which the Company acquired options to purchase the same number of shares of its common stock initially underlying the Convertible Notes. See Note 10 of the Notes to Consolidated Financial Statements section of the Fiscal 2018 Form 10-K for information regarding the Convertible Note Hedge Transactions.

At the same time, the Company also entered into separate, privately negotiated warrant transactions (the “Warrant Transactions”) with each of the Hedge Counterparties, pursuant to which the Company sold warrants to purchase the same number of shares of its common stock initially underlying the Convertible Notes. See Note 10 of the Notes to Consolidated Financial Statements section of the Fiscal 2018 Form 10-K for further information regarding the Warrant Transactions.

~~There have been no material changes to the terms of the Convertible Note Hedge Transactions or the Warrant Transactions during the nine month period ended September 29, 2019.~~

As these transactions meet certain accounting criteria, the Convertible Note Hedges Transactions and Warrant Transactions are recorded in shareholders’ equity and are not accounted for as derivatives.

~~Interest Rate Swaps~~

The ~~2019 Credit Facility~~Company's credit facility exposes the Company to ~~risk~~risks associated with the variability in interest expense associated with fluctuations in LIBOR. To partially mitigate this risk, the Company has historically entered into interest rate ~~swaps on a portion of its 2018 Credit Facility, now amended by the 2019 Credit Facility.~~swaps. As of September ~~29, 2019,~~27, 2020, the Company had a combined notional principal amount of $200.0 million of interest rate swap agreements, all of which are designated as cash flow hedges. These swap agreements effectively convert the interest expense associated with a portion of the ~~2019 Term Loan and a portion of the 2019 Revolver~~Company's variable rate debt from variable interest rates to fixed interest rates and have maturities ranging from February 2022 to March 2022.

~~Fair Value of Derivative Contracts~~

The following table summarizes the fair value of derivative contracts included in the condensed ~~statement~~consolidated statements of financial position (in thousands):

Fair value of derivative instruments

Derivatives accounted for as cash flow hedges

Balance sheet location

September 27, 2020

December 31, 2019

Interest rate swaps

Other long-term liabilities

7,964

5,868

Fair value of derivative instruments
Derivatives accounted for as cash flow hedges Balance sheet location September 29, 2019 December 31, 2018
Interest rate swaps Other long-term liabilities $ 6,974
$ 2,652

The interest rate swaps are comprised of over-the-counter derivatives, which are valued using models that primarily rely on observable inputs such as yield curves, which are classified as Level 2 in the fair value hierarchy.

See Note 11 for information regarding accumulated other comprehensive loss on interest rate swaps.



11.			ACCUMULATED OTHER COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

Accumulated other comprehensive ~~income (loss)~~loss includes unrealized gains and losses on derivatives that qualify as hedges of cash flows, ~~unrecognized pension-related costs and~~ cumulative foreign currency translation and other adjustments. The activity in accumulated other comprehensive loss during the ~~three~~third quarter and nine months ended September ~~29, 2019~~27, 2020 and September ~~30, 2018~~29, 2019 was as follows:


Third Quarter Ended September 27, 2020
(thousands)	Cash Flow Hedges		Other		Foreign Currency Items		Total
Balance at June 28, 2020	$	(6,916)	$	(1,270)	$	(106)	$	(8,292)
Other comprehensive income (net of tax of $340, $0 and $0)	989		0		60		1,049
Balance at September 27, 2020	$	(5,927)	$	(1,270)	$	(46)	$	(7,243)

Third Quarter Ended September 29, 2019
(thousands) Cash Flow Hedges Defined Benefit Pension Foreign Currency Items Total
Balance at June 30, 2019 $ (4,958 ) $ (675 ) $ (99 ) $ (5,732 )
Other comprehensive income (loss) (net of tax of $83, $0 and $0) (240 ) —
19
(221 )
Balance at September 29, 2019 $ (5,198 ) $ (675 ) $ (80 ) $ (5,953 )

Nine Months Ended September 29, 2019
(thousands) Cash Flow Hedges Defined Benefit Pension Foreign Currency Items Total
Balance at December 31, 2018 $ (1,973 ) $ (675 ) $ (32 ) $ (2,680 )
Other comprehensive loss (net of tax of $1,098, $0 and $0) (3,225 ) —
(48 ) (3,273 )
Balance at September 29, 2019 $ (5,198 ) $ (675 ) $ (80 ) $ (5,953 )

Third Quarter Ended September 30, 2018
(thousands) Cash Flow Hedges Defined Benefit Pension Foreign Currency Items Total
Balance at July 1, 2018 $ —
$ 66
$ (3 ) $ 63
Other comprehensive income (loss) (net of tax of $28, $0 and $0) 80
—
(28 ) 52
Balance at September 30, 2018 $ 80
$ 66
$ (31 ) $ 115

Nine Months Ended September 30, 2018
(thousands) Cash Flow Hedges Defined Benefit Pension Foreign Currency Items Total
Balance at December 31, 2017 $ —
$ 66
$ —
$ 66
Other comprehensive income (loss) (net of tax of $28, $0 and $0) 80
—
(31 ) 49
Balance at September 30, 2018 $ 80
$ 66
$ (31 ) $ 115


Nine Months Ended September 27, 2020
(thousands)	Cash Flow Hedges		Other		Foreign Currency Items		Total
Balance at December 31, 2019	$	(4,374)	$	(1,270)	$	(54)	$	(5,698)
Other comprehensive income (loss) (net of tax benefit of $542, $0 and $0)	(1,553)		0		8		(1,545)
Balance at September 27, 2020	$	(5,927)	$	(1,270)	$	(46)	$	(7,243)


Third Quarter Ended September 29, 2019
(thousands)	Cash Flow Hedges		Other		Foreign Currency Items		Total
Balance at June 30, 2019	$	(4,958)	$	(675)	$	(99)	$	(5,732)
Other comprehensive income (loss) (net of tax benefit of $83, $0 and $0)	(240)		0		19		(221)
Balance at September 29, 2019	$	(5,198)	$	(675)	$	(80)	$	(5,953)


Nine Months Ended September 29, 2019
(thousands)	Cash Flow Hedges		Other		Foreign Currency Items		Total
Balance at December 31, 2018	$	(1,973)	$	(675)	$	(32)	$	(2,680)
Other comprehensive loss (net of tax benefit of $1,098, $0 and $0)	(3,225)		0		(48)		(3,273)
Balance at September 29, 2019	$	(5,198)	$	(675)	$	(80)	$	(5,953)

Reclassification adjustments out of accumulated other comprehensive loss were immaterial for all periods presented.



12.			LEASES

As discussed in Note 2, the Company adopted the provisions of ASC 842 on January 1, 2019 using the modified retrospective approach as of the effective date of ASC 842 (the effective date method). Under the effective date method, financial results in periods reported prior to 2019 are unchanged.

As a result of the adoption of ASC 842, operating leases for certain warehouses, buildings, forklifts, trucks, trailers and other equipment are now recognized as right-of-use assets and corresponding short-term and long-term lease liabilities. The Company utilized a package of available practical expedients in the adoption of ASC 842, which, among them, does not require the reassessment of operating versus capital lease classification.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and expense related to these short term leases is immaterial. Lease and non-lease components in the fixed base rent of facility and equipment leases are included as a single component and accounted for as a lease. Pursuant to ASC 842, the Company elected to use the remaining non-cancellable lease term as of January 1, 2019 in determining the lease term at the date of adoption and the corresponding incremental borrowing rate for such leases. Variable lease expense, principally related to trucks, forklifts, and index-related facility rent escalators, was immaterial for the third quarter and nine months ended September 29, 2019. Leases have remaining lease terms of one year to eleven years. Certain leases include options to renew for an additional term. Where there is reasonable certainty to utilize a renewal option, we include the renewal option in the lease term used to calculate operating lease right-of-use assets and lease liabilities.

Lease expense, supplemental cash flow information, and other information related to leases were as follows:


	Third Quarter Ended
(thousands)	September 27, 2020		September 29, 2019
Operating lease cost	$	8,525	$	7,848

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	8,317	$	6,946

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	17,091	$	5,522

(thousands) Third Quarter Ended Nine Months Ended
September 29, 2019 September 29, 2019
Operating lease cost $ 7,848
$ 23,536

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases $ 6,946
$ 20,545

Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ 5,522
$ 14,767


	Nine Months Ended
(thousands)	September 27, 2020		September 29, 2019
Operating lease cost	$	25,093	$	23,536

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	24,680	$	20,545

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	34,993	$	14,767

Balance sheet information related to leases was as follows:


(thousands, except lease term and discount rate)	September 27, 2020		December 31, 2019
Assets
Operating lease right-of-use assets	$	105,410	$	93,546
Liabilities
Operating lease liabilities, current portion	$	29,565	$	27,694
Long-term operating lease liabilities	76,873		66,467
Total lease liabilities	$	106,438	$	94,161

(thousands, except lease term and discount rate) September 29, 2019
Assets
Operating lease right-of-use assets $ 81,064
Liabilities
Operating lease liabilities, current portion $ 25,990
Long-term operating lease liabilities 55,553
Total lease liabilities $ 81,543



Weighted average remaining lease term, operating leases (in years)	4.2		4.2
Weighted average discount rate, operating leases	3.9	%	3.7	%



~~Weighted average remaining lease term, operating leases (in years)~~	~~4.04~~
~~Weighted average discount rate, operating leases~~	~~3.83~~	%

Maturities of lease liabilities were as follows at September ~~29, 2019:~~27, 2020:


(thousands)
2020 (excluding the nine months ended September 27, 2020)	$	8,561
2021	31,924
2022	26,328
2023	20,593
2024	14,552
Thereafter	14,283
Total lease payments	116,241
Less imputed interest	(9,803)
Total	$	106,438

(thousands)
2019 (excluding the nine months ended September 29, 2019) $ 8,150
2020 26,916
2021 20,512
2022 13,556
2023 8,954
Thereafter 10,158
Total lease payments 88,246
Less imputed interest (6,703 )
Total $ 81,543

Leases have remaining lease terms of one year to ten years.

~~Disclosures related to periods prior to the adoption of ASC 842:~~

~~Maturities of lease liabilities were as follows at December 31, 2018:~~

(thousands)
2019 $ 29,345
2020 23,344
2021 16,165
2022 9,602
2023 5,357
Thereafter 4,883
Total $ 88,696



13.			FAIR VALUE MEASUREMENTS

The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market, are reported on the condensed consolidated statements of financial position as a component of "Cash and cash equivalents". The carrying amount of cash equivalents, valued using Level 1 inputs and approximating fair value because of their relatively short maturities, was approximately $31.0 million and $132.6 million at September ~~29,~~27, 2020 and December 31, 2019, ~~approximated~~respectively. The estimated fair value ~~which~~of our senior notes, calculated using Level 2 inputs, was approximately ~~$108.0~~$326.1 million and $320.3 million at September 27, 2020 and December 31, 2019, respectively. The carrying amounts of our term loan and our revolver, valued using level 1 inputs, with no corresponding amount at December 31, 2018. The carrying amount of the Senior Notes at September 29, 2019 approximated fair value given their recent issuance and based upon terms and conditions available to the Company, with no corresponding amount at December 31, 2018. The 2019 Term Loan and the 2019 Revolver, valued using levelLevel 2 inputs, approximated fair value as of September ~~29, 2019~~27, 2020 and ~~the 2018 Term Loan and the 2018 Revolver, valued using level 2 inputs, approximated fair value ss of~~ December 31, ~~2018, respectively,~~2019 based upon terms and conditions available to the Company at those dates in comparison to the terms and conditions of its outstanding debt. The estimated fair value of ~~the Convertible Notes,~~our convertible notes, calculated using Level 2 inputs, was approximately ~~$152.1~~$166.9 million and ~~$130.3~~$162.5 million as of September ~~29, 2019~~27, 2020 and December 31, ~~2018,~~2019, respectively. The estimated fair value of the Company's interest rate swaps is valued using Level 2 inputs and discussed in further detail in Note 10. The estimated fair value of the Company's contingent consideration is valued using Level 3 inputs and is discussed further in Note 6.



14.			INCOME TAXES

The effective tax rate in the third quarter of 2020 and 2019 was 24.3% and ~~2018 was~~ 26.0% ~~and 25.3%~~, respectively, and the effective tax rate for the comparable nine month periods was ~~24.6%~~25.4% and ~~23.6%~~24.6%, respectively. The effective tax rate for the ~~periods presented~~third quarter of 2020 reflects the impact of certain federal and state income tax benefits and the first nine months of 2020 reflects the impact of $2.2 million of permanent tax differences due to certain Coronavirus Aid, Relief, and Economic Security Act payroll tax credits. In addition, the effective tax rate for the first nine months of 2019 includes the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense upon realization in the amount of $0.9 million.

Cash paid for income taxes, net of refunds, was $1.8 million and ~~$2.2~~$1.6 million for the third quarter and nine months ~~ended September 29, 2019~~of 2020, respectively, and ~~September 30, 2018, respectively, with no corresponding amounts in the corresponding quarterly periods.~~

~~The Company made income tax payments of~~ $7.4 million and ~~$5.6~~$30.0 million in the third quarter ~~of 2019~~ and ~~2018, respectively, and $30.0 million and $21.0 million in the first~~ nine months of 2019, ~~and 2018,~~ respectively.



15.			SEGMENT INFORMATION

The Company has 2 reportable segments, Manufacturing and Distribution, which are ~~those~~ based on its method of internal reporting, which segregates its businesses based on the manner in which its ~~Chief Operating Decision Maker~~chief operating decision maker allocates resources, evaluates financial results, and determines compensation.

The tables below present information about the sales and operating income of those segments.


Third Quarter Ended September 27, 2020
(thousands)	Manufacturing		Distribution		Total
Net outside sales	$	494,274	$	206,433	$	700,707
Intersegment sales	12,004		1,640		13,644
Total sales	506,278		208,073		714,351
Operating income	63,312		16,444		79,756


Third Quarter Ended September 29, 2019
(thousands)	Manufacturing		Distribution		Total
Net outside sales	$	399,712	$	166,474	$	566,186
Intersegment sales	8,102		1,078		9,180
Total sales	407,814		167,552		575,366
Operating income	42,353		9,041		51,394


Nine Months Ended September 27, 2020
(thousands)	Manufacturing		Distribution		Total
Net outside sales	$	1,206,114	$	507,870	$	1,713,984
Intersegment sales	24,691		4,025		28,716
Total sales	1,230,805		511,895		1,742,700
Operating income	131,426		33,350		164,776

Third Quarter Ended September 30, 2018
(thousands) Manufacturing Distribution Total
Net outside sales $ 445,214
$ 129,925
$ 575,139
Intersegment sales 8,182
1,097
9,279
Total sales 453,396
131,022
584,418
Operating income 54,887
7,606
62,493


Nine Months Ended September 29, 2019
(thousands)	Manufacturing		Distribution		Total
Net outside sales	$	1,259,671	$	527,951	$	1,787,622
Intersegment sales	24,153		3,361		27,514
Total sales	1,283,824		531,312		1,815,136
Operating income	135,577		28,132		163,709

Nine Months Ended September 30, 2018
(thousands) Manufacturing Distribution Total
Net outside sales $ 1,344,088
$ 387,762
$ 1,731,850
Intersegment sales 27,464
2,840
30,304
Total sales 1,371,552
390,602
1,762,154
Operating income 172,799
25,092
197,891

The following table presents a reconciliation of segment operating income to consolidated operating income:


	Third Quarter Ended				Nine Months Ended
(thousands)	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Operating income for reportable segments	$	79,756	$	51,394	$	164,776	$	163,709
Unallocated corporate expenses	(9,706)		(4,793)		(23,962)		(18,796)
Amortization	(10,221)		(9,191)		(29,600)		(26,448)
Consolidated operating income	$	59,829	$	37,410	$	111,214	$	118,465

Third Quarter Ended Nine Months Ended
(thousands) September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Operating income for reportable segments $ 51,394
$ 62,493
$ 163,709
$ 197,891
Unallocated corporate expenses (4,793 ) (8,911 ) (18,796 ) (33,229 )
Amortization (9,191 ) (8,873 ) (26,448 ) (25,140 )
Consolidated operating income $ 37,410
$ 44,709
$ 118,465
$ 139,522

Unallocated corporate expenses include corporate general and administrative expenses comprised of wages, insurance, taxes, supplies, travel and entertainment, professional fees and other.



16.			STOCK REPURCHASE PROGRAMS

In ~~2018,~~March 2020, the Board approved a new stock repurchase program for up to $50 million of its common stock, ~~as well as two additions totaling $87.9~~including amounts remaining under previous authorizations. Approximately $38.8 million ~~to this program. Approximately $26.7 million~~ remains available in the amount of the Company's common stock that may be acquired under the current stock repurchase ~~program.~~program as of September 27, 2020. In the third quarter ~~and first nine months ended September 29, 2019,~~of 2020, the Company repurchased ~~98,201~~88,950 shares of its common stock at an average price of ~~$36.50 per share at~~$53.24 for an aggregate cost of ~~$3.6~~approximately $4.7 million. In the ~~third quarter~~first nine months of ~~2018,~~2020, the Company repurchased ~~347,235~~545,105 shares of its common stock at an average price of ~~$60.32~~$37.22 per share atfor an aggregate cost of ~~$20.9~~approximately $20.3 million. InDuring the ~~first nine months of 2018, the Company repurchased 1,282,930 shares of its common stock at an average price of $58.48 per share at an aggregate cost of $75.0 million.~~



~~17.~~	~~RELATED PARTY TRANSACTIONS~~

~~In the~~third quarter and first nine months of 2019, the Company ~~entered into transactions with companies affiliated with 2~~repurchased 98,201 shares at an average price of ~~its independent Board members. The Company purchased~~$36.50 per share for an aggregate cost of approximately $0.8 million of corrugated packaging materials from Welch Packaging Group, an independently owned company established by M. Scott Welch who serves as its President and CEO. The Company also sold approximately $0.4 million of RV component products to DNA Enterprises, Inc. ("DNA") in the first six months of 2019. After June 30, 2019, sales to DNA no longer qualified as related party transactions, as Walter E. Wells, whose son is affiliated with DNA, retired from Patrick's Board on May 15, 2019.$3.6 million.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of this Report. In addition, this MD&A contains certain statements relating to future results which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. See “Information Concerning Forward-Looking Statements” on ~~pages 34 and 35~~page 31 of this Report. The Company undertakes no obligation to update these forward-looking statements.

~~The MD&A is divided into seven major sections:~~

OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

Our four primary end markets each experienced sharp recoveries in the third quarter of 2020 following the production disruptions related to the COVID-19 pandemic in the second quarter of 2020. In aggregate, we achieved our highest quarterly sales in the Company's history in the third quarter of 2020, with revenue from the RV, marine and industrial end markets increasing in the third quarter of 2020 compared to the prior year. RV and marine original equipment manufacturers ("OEMs") experienced a strong increase in dealer demand in the third quarter of 2020, when compared to the prior year quarter, driven by increases in RV and marine retail sales against a background of low RV and marine dealer inventories. Our industrial end market benefited in the third quarter of 2020 from increases in housing starts and an increase in home improvement activity. Our MH end market recovered in the third quarter of 2020 from COVID-19 production disruptions in the second quarter of 2020, and OEM demand in this end market is strong despite short-term OEM labor and supply constraints experienced in the third quarter of 2020. In addition, our team members are currently working full production schedules, having adopted CDC, state, and local best practice safety protocols.

~~REVIEW OF CONSOLIDATEDOPERATINGRESULTS~~

Third Quarter and Nine Months ~~Ended September 29, 2019 Compared to 2018~~

~~Use of~~2020 Financial ~~Metrics~~

~~REVIEW BY BUSINESS SEGMENT~~Overview

~~Third Quarter and Nine Months Ended September 29, 2019 Compared to 2018~~

~~LIQUIDITY AND CAPITAL RESOURCES~~

~~Cash Flows~~

~~Summary of Liquidity and Capital Resources~~

~~CRITICAL ACCOUNTING POLICIES~~

~~OTHER~~

~~Seasonality~~

~~Cyber Security Incident~~

~~INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS~~

~~OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE~~

Recreational Vehicle ("RV") Industry

The RV industry is our ~~primary~~largest market and comprised ~~55%~~60% and ~~56%~~55% of the Company’s sales in the third quarter ended September 27, 2020 and September 29, 2019, respectively, and 55% and 56% for the comparative 2020 and 2019 nine month periods. Sales to the RV industry increased 36% in the third quarter of 2020 and decreased 5% in the first nine months of ~~2019, respectively. Sales from~~2020, compared to the ~~RV industry~~prior year periods.

According to the Recreation Vehicle Industry Association, wholesale shipments totaled 124,033 units in the third quarter of 2020, increasing 33% compared to 93,357 units in the third quarter of 2019. Towable and motorized wholesale unit shipments increased 37% and 5%, respectively, for the third quarter of 2020 compared to the prior year quarter. Wholesale unit shipments for the first nine months of 2020 decreased ~~13%~~3%, totaling 300,100 units compared to 309,938 units in the

prior year period. Towable and ~~12% in~~motorized wholesale unit shipments decreased 1% and 20%, respectively, for the first nine months of 2020 compared to the prior year period. Retail unit sales are estimated to have increased between 25%-30% and between 4%-6% during the third quarter and first nine months of ~~2019, respectively, compared to the prior year periods.~~

~~According to the Recreation Vehicle Industry Association (“RVIA”),~~2020, respectively. The increase in wholesale and retail RV shipments ~~totaled 93,357 units~~ in the third quarter of ~~2019, a decline of 13% compared~~2020 was attributed to ~~107,130 units~~an increase in consumer demand in the ~~third quarter~~RV industry against a background of ~~2018, while~~low dealer inventory. The decrease in wholesale shipments in the first nine months of 2020 is largely attributed to COVID-19 market disruptions. The increase in retail unit sales for the first nine months of ~~2019, wholesale unit shipments decreased 18% versus~~2020 is largely due to the ~~prior year period.~~increase in consumer demand in the RV industry, partially offset by COVID-19 market disruptions. Based on ~~actual retail sales data through August,~~our estimates, RV dealer inventories at the ~~Company estimates that retail unit shipments declined 6% and 7%, respectively, for~~end of the third quarter of 2019 and first nine months of 2019 versus the comparable prior year periods. With estimated retail unit shipments outpacing wholesale unit shipments in the third quarter and first nine months of 2019, RV dealer inventories declined in both periods. The RVIA’s latest published expectations for fiscal 2019 project wholesale unit shipments to be approximately 401,000 units, representing a decline of 17% from 2018. On the retail side, the Company expects RV retail unit shipments to decline2020 were at a mid-to-high single digit rate in 2019. For the full year 2019, RV dealer inventories are expected to decline by more than 50,000 units, positioning the industry to return to a more direct relationship between wholesale unit shipments and retail unit shipments for the upcoming 2020 selling season.

their lowest level since 2014.

Marine Industry

Sales to the marine industry, which represented approximately ~~13%~~14% and ~~14%~~13% of the Company's ~~consolidated net~~ sales in the third quarter of 2020 and 2019, respectively, increased 25% in the third quarter of 2020 compared to the prior year quarter. Sales to the marine industry, representing 14% of sales in the first nine months of 2020 and 2019, ~~respectively,~~ decreased ~~7% and increased 34%~~10% in the 2020 period compared to the ~~third quarter and first nine months of 2018, respectively.~~ prior year period.

For the third quarter ~~and first nine months~~ of ~~2019,~~2020, overall marine ~~retail~~wholesale unit shipments in the powerboat sector, which is the Company's primary marine market, ~~increased approximately 2% and~~ decreased ~~approximately 5%~~an estimated 4%, ~~respectively,~~ with aluminum fishing sales decreasing ~~5% and 11% in the third quarter and first nine months of 2019, respectively;~~an estimated 7%; pontoon sales ~~increasing 11% and~~ decreasing ~~1%, respectively;~~an estimated 2%; fiberglass sales decreasing ~~1% and 3%, respectively;~~an estimated 4% and ski and wake sales ~~increasing 12% and 4%, respectively.~~

~~Adverse weather and flooding~~decreasing an estimated 2%. The decrease in ~~certain regions of the country impacted~~wholesale marine ~~retail unit~~ shipments ~~in the first half of 2019, particularly in the pontoon and aluminum fishing categories. Reflecting this retail softness in the first half of 2019, we saw inventory recalibration by marine dealers~~ in the third quarter of ~~2019, which we believe contributed~~2020 was attributed to marine OEM capacity constraints that were the result of an rapid transition from production shutdowns related to the COVID-19 pandemic in the late first quarter and early second quarter of 2020 to production acceleration in response to a ~~decline~~sharp increase in consumer demand in the third quarter of 2020. For the first nine months of 2020, overall marine wholesale unit shipments in the powerboat sector decreased an estimated 19%, with aluminum fishing sales decreasing an estimated 11%; pontoon sales decreasing an estimated 25%; fiberglass sales decreasing an estimated 22% and ski and wake sales decreasing an estimated 20%. The decrease in wholesale unit shipments during the first nine months of 2020 is primarily attributed to temporary OEM production shutdowns during the late first quarter ~~despite the increase~~and early second quarter of 2020 in ~~overall retail unit shipments. Factoring~~addition to OEM capacity constraints in the ~~impact~~third quarter of weather in the first half of 2019 and the related dealer inventory re-calibration, we anticipate that the powerboat sector of this market will experience a retail unit percentage decline in the low-to-mid single digits for fiscal 2019 and a wholesale unit percentage decline in the high-single digits.2020, discussed above.

Manufactured Housing ("MH") Industry

Sales to the MH industry, which represented ~~19%~~15% and ~~18%~~19% of the Company’s sales in the third quarter of 2020 and 2019, respectively, decreased 1% in the third quarter of 2020 compared to the third quarter of 2019. MH sales represented 18% of the Company's sales for the first nine months of 2020 and 2019 ~~respectively, increased 61%~~ and ~~62%~~decreased 5% in the first nine months of 2020 compared to the ~~respective~~ prior year ~~periods.~~period. Based on industry

data from the Manufactured Housing Institute, MH wholesale unit shipments ~~increased by approximately 2% and~~ decreased by approximately 5%2% in the third quarter of 2020 compared to the prior year quarter and decreased 2% for the first nine months of ~~2019, respectively. Manufactured housing was negatively impacted in~~2020 compared to the first half of 2019 by wet weather conditions in certain regions of the country where moving inventory and setting foundations and houses were difficult, and as a result our current estimates indicate an overall percentage decline inprior year period. MH wholesale unit shipments ~~for fiscal 2019~~were impacted by OEM labor and supply constraints in the ~~low-to-mid single digits.~~third quarter of 2020 and temporary OEM plant shutdowns in the first nine months of 2020 related to the COVID-19 pandemic.

Industrial Market

The industrial market is comprised primarily of the kitchen cabinet industry, hospitality market, retail and commercial fixtures market, office and household furniture market and regional distributors. Sales to this market represented 11% and 13% of our sales in the third quarter of 2020 and 2019, respectively, and increased 9% in the third quarter of 2020 compared to the prior year quarter. Sales to the industrial market represented 13% and 12% of our ~~consolidated~~ sales ~~in the third quarter and first nine months of 2019, respectively, and were virtually unchanged in the third quarter and~~for the first nine months of 2020 and 2019, respectively, and increased 7% in the first nine months of 2020 compared to the prior year ~~periods.~~period. Overall, our revenues in these markets are focused on the residential housing, hospitality, high-rise housing and office, commercial construction and institutional furniture markets. We estimate that approximately 60% of our industrial business is directly tied to the residential housing market, with the remaining 40% directly tied to the non-residential and commercial markets.

Combined ~~new~~ housing starts increased 4%11% in the third quarter of ~~2019~~2020 compared to the prior year quarter, with single family housing starts increasing 4%17% and multifamily residential starts ~~increasing 6% for the same period.~~decreasing 1%. For the first nine months of ~~2019,~~2020, combined new housing starts increased 5% compared to the prior year period, with single family housing starts ~~decreased 2%, while~~increasing 6% and multifamily ~~housing~~residential starts ~~were virtually flat, with combined housing starts decreasing 1%~~increasing 4%. Our industrial products are generally among the last components installed in new unit construction and as such our related sales typically trail ~~new~~ housing starts by four to ~~six~~nine months. Because of this lag in the relationship between new housing starts and our sale of related industrial products, we expect our industrial sales to benefit in the next two quarters from recent growth in residential housing starts. We expect a low-single digit growth rate in new housing starts overall for fiscal 2019.

REVIEW OF CONSOLIDATED OPERATING RESULTS

ThirdQuarter and Nine Months EndedSeptember ~~29, 2019~~27, 2020 Compared to ~~2018~~2019

The following table sets forth the percentage relationship to net sales of certain items on the Company’s Condensed Consolidated Statements of Income.


	Third Quarter Ended				Nine Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	80.9		81.6		81.5		81.9
Gross profit	19.1		18.4		18.5		18.1
Warehouse and delivery	3.6		4.2		4.1		4.2
Selling, general and administrative	5.4		6.0		6.2		5.8
Amortization of intangible assets	1.5		1.6		1.7		1.5
Operating income	8.5		6.6		6.5		6.6
Interest expense, net	1.5		1.5		1.9		1.5
Income taxes	1.7		1.3		1.2		1.3
Net income	5.3		3.8		3.5		3.9

Third Quarter Ended Nine Months Ended

September 29, 2019

September 30, 2018

September 29, 2019

September 30, 2018

Net sales
100.0 %
100.0 % 100.0 % 100.0 %
Cost of goods sold
81.6

81.5
81.9
81.6
Gross profit 18.4
18.5
18.1
18.4
Warehouse and delivery expenses
4.2

3.4
4.2
3.2
Selling, general and administrative expenses
6.0

5.8
5.8
5.7
Amortization of intangible assets
1.6

1.5
1.5
1.4
Operating income
6.6

7.8
6.6
8.1
Interest expense, net
1.5

1.3
1.5
1.0
Income taxes
1.3

1.6
1.3
1.7
Net income
3.8

4.9
3.9
5.4

Net Sales. Net sales in the third quarter of ~~2019 decreased $8.9~~2020 increased $134.5 million, or 2%24%, to ~~$566.2~~$700.7 million from ~~$575.1~~$566.2 million in the third quarter of ~~2018.~~2019. The ~~Company's~~consolidated net sales ~~decreased~~increase in ~~two~~the third quarter of ~~its primary markets, with a decrease~~2020 was attributed to sales increases in three of our end markets. The Company's RV market sales ~~of 13% and a decrease in~~increased 36%, marine market sales ~~of 7%~~increased 25%, ~~while~~ industrial market sales ~~were virtually flat~~increased 9% and MH market sales ~~increased 61%~~decreased 1% when compared to the prior year quarter.

Net sales in the first nine months of ~~2019 increased $55.8~~2020 decreased $73.6 million, or 3%4%, to ~~$1.79 billion~~$1,714.0 million from ~~$1.73 billion in the prior year period. The Company's net sales increased in two of its primary markets~~$1,787.6 million in the first nine months of ~~2019 with increases of 62% in MH and 34% in marine, while industrial market sales were virtually unchanged and RV market sales decreased 12% compared to 2018.~~

2019. The consolidated net sales decrease in the third quarter of 2019 primarily reflected decreases in OEM wholesale unit shipments in the RV and marine industries, partly offset by an increase in revenue from the acquisition of LaSalle Bristol ("LaSalle"), completed in the fourth quarter of 2018. The consolidated net sales increase in the first nine months of ~~2019~~2020 was ~~mostly~~ attributed to sales decreases in three of our end markets. The Company's RV market sales decreased 5%, marine market sales decreased 10% and MH market sales decreased 5% while industrial market sales increased 7% when compared to the ~~contribution~~prior year period.

During the nine months ended September 27, 2020, all four of ~~revenue from LaSalle.~~our end markets were impacted by business disruptions and associated lost production and shipping days due to the COVID-19 pandemic, which primarily affected our end markets in the second quarter of 2020.

Revenue attributable to acquisitions completed in 2020 was $19.6 million and $23.3 million for the third quarter and first nine months of 2020, respectively. Revenue attributable to acquisitions completed in the first nine months of 2019 was immaterial for both the third quarter and first nine months of 2019. ~~Revenue attributable to acquisitions completed in first nine months of 2018 was $82.4 million and $160.0 million for the third quarter and first nine months of 2018, respectively.~~

The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the third quarter of ~~2019 increased approximately 9% to~~2020 was relative1y flat at $3,140 versus $3,132 ~~from $2,875~~ for the third quarter of ~~2018. Marine~~2019. Estimated marine content per ~~retail~~wholesale powerboat unit (on a trailing twelve-month basis) for the third quarter of ~~2019~~2020 increased ~~approximately 54%~~16% to ~~an estimated $1,624 from $1,054~~$1,915 for the third quarter of ~~2018.~~2020 from $1,651 for the third quarter of 2019. Beginning in the third quarter of 2020, we calculate marine content per unit based on estimated wholesale powerboat unit shipments, which we believe better represents the relationship between our sales and marine OEM production, rather than based on estimated retail powerboat unit sales. Estimated MH content per wholesale unit (on a trailing twelve-month basis) for the third quarter of ~~2019~~2020 increased ~~approximately 65%~~4% to ~~an estimated~~$4,503 from $4,327 ~~from $2,628~~ for the third quarter of ~~2018.~~2019.

Cost of Goods Sold. Cost of goods sold ~~decreased $6.6~~increased $105.3 million, or 1%23%, to ~~$461.9~~$567.2 million in the third quarter of ~~2019~~2020 from ~~$468.5~~$461.9 million in ~~2018.~~2019, primarily reflecting the increase in net sales in the quarter. As a percentage of net sales, cost of goods sold ~~increased~~decreased during the third quarter of 2020 to 80.9% from 81.6% in 2019. This percentage decrease is largely attributed to an increase in sales relative to certain fixed components of cost of goods sold, synergies achieved and realized in the first quarter of 2020 from acquisitions completed in 2018 and 2019 and a decrease in commodity cost inputs.

Cost of goods sold decreased $66.8 million, or 5%, to ~~81.6% from 81.5%~~$1,397.3 million in ~~2018. For~~ the first nine months of ~~2019, cost of goods sold increased $51.4 million, or 4%, to~~2020 from $1,464.1 million ~~from $1,412.6 million~~ in ~~2018.~~2019, primarily reflecting the decrease in net sales in the period. As a percentage of net sales, cost of goods sold ~~increased~~decreased during the first nine months of ~~2019~~2020 to 81.5% from 81.9% ~~from 81.6%~~ in ~~2018.~~2019.

Cost of goods sold as a percentage of net sales ~~was impacted during~~decreased in the ~~third quarter and~~ first nine months of ~~2019 by:~~2020 primarily as a result of (i) ~~higher overall fixed overhead costs relative to RV and marine revenue; (ii) the lower margin profile of LaSalle, which was acquired~~cost reductions we initiated in the ~~fourth~~third quarter of 2019, (ii) synergies achieved and realized in the first nine months of 2020 from our 2018 and 2019 acquisitions and (iii) ~~a temporary disruption~~decreases in ~~operations and associated inefficiencies related to the cybersecurity incident, discussed below. In general, the Company's~~commodity cost inputs. These decreases in cost of goods sold ~~percentage can be impacted from quarter-to-quarter~~were partially offset by ~~demand changes in certain market sectors that can result in fluctuating~~additional costs ~~of certain raw materials~~incurred and ~~commodity-based components that are utilized in the~~ production and labor inefficiencies related to business disruption of our ~~products.~~end markets as a result of the COVID-19 pandemic.

Gross Profit. Gross profit ~~decreased $2.4~~increased $29.2 million, or 2%28%, to ~~$104.3~~$133.5 million in the third quarter of ~~2019~~2020 from ~~$106.7~~$104.3 million in ~~2018. For the first nine months of 2019, gross profit increased $4.3 million, or 1%, to $323.5 million from $319.2 million in 2018.~~2019. As a percentage of net sales, gross profit ~~decreased~~increased to ~~18.4%~~19.1% in the third quarter of ~~2019 from 18.5% in the same period in 2018, and decreased to 18.1% for the first nine months of 2019~~2020 from 18.4% in the same period in ~~2018.~~ 2019. Gross profit decreased $6.8 million, or 2%, to $316.7 million in the first nine months of 2020 from $323.5 million in 2019. As a percentage of net sales, gross profit increased to 18.5% in the first nine months of 2020 from 18.1% in the same period in 2019.

The changes in gross profit as a percentage of net sales in the third quarter and first nine months of ~~2019~~2020 compared to the same periods in ~~2018~~2019 reflect the impact of the factors discussed above under “Cost of Goods Sold”.

Economic or industry-wide factors affecting the profitability of our RV, MH, marine and industrial businesses include the costs of commodities and the labor used to manufacture our products as well as the competitive environment that can cause gross margins to fluctuate from quarter-to-quarter and year-to-year.

Warehouse and Delivery Expenses. Warehouse and delivery expenses increased ~~$4.1~~$1.4 million, or ~~21%~~6%, to $25.3 million in the third quarter of 2020 from $23.9 million in the third quarter of 2019, ~~from $19.8 million~~primarily reflecting the increase in ~~2018. For~~net sales in the ~~first nine months in 2019, warehouse and delivery expenses increased $18.7 million, or 34%, to $74.2 million from $55.5 million in 2018.~~quarter. As a percentage of net sales, warehouse and delivery expenses were 3.6% in the third quarter of 2020 compared to 4.2% in the third quarter of ~~2019 compared~~2019. Warehouse and delivery expenses decreased $4.0 million, or 5%, to ~~3.4%~~$70.2 million in the ~~third quarter~~first nine months of ~~2018 and 4.2%~~2020 from $74.2 million in the first nine months of 2019, ~~compared to 3.2%~~primarily reflecting the decrease in net sales in the period. As a percentage of net sales, warehouse and delivery expenses were 4.1% in the first nine months of ~~2018. The increase in expense~~2020 compared to 4.2% in the ~~third quarter and first nine months of 2019 compared to the prior year periods was primarily attributable to the impact of certain acquisitions completed~~same period in ~~2018 that had higher~~2019.

The decrease in warehouse and delivery expenses as a percentage of net sales when compared to the consolidated percentage. For the first nine months of 2019 compared to the prior year period, increased sales volumes also contributed to the increase in warehouse and delivery expense. In addition, the Company's shipments to OEMs infor the third quarter and first nine months of ~~2019 were generally lower volume~~2020 primarily reflects the fixed nature of certain of these expenses and ~~higher frequency, and~~operating efficiencies as ~~a result transportation costs relative~~net sales increased in the third quarter of 2020 compared to ~~sales levels of products delivered increased as a percentage of net sales.~~the prior year period.

Selling, General and Administrative ("SG&A") Expenses. SG&A expenses increased ~~$0.5~~$4.4 million, or 2%13%, to ~~$33.8~~$38.2 million in the third quarter of ~~2019~~2020 from ~~$33.3~~$33.8 million in ~~2018. For~~ the ~~first nine months of 2019, SG&A expenses increased $5.4 million, or 5%, to $104.4 million from $99.0 million in 2018.~~prior year quarter. As a percentage of net sales, SG&A expenses were 5.4% in the third quarter of 2020 compared to 6.0% in the third quarter of ~~2019 compared~~2019.

SG&A expenses increased $1.3 million, or 1%, to ~~5.8% in the third quarter of 2018 and 5.8%~~$105.7 million in the first nine months of ~~2019~~2020 from $104.4 million in the prior year period. As a percentage of net sales, SG&A expenses were 6.2% in the first nine months of 2020 compared to ~~5.7%~~5.8% in ~~2018.~~the prior year period.

The increase in SG&A expenses in the third quarter ~~and first nine months~~ of ~~2019~~2020 compared to ~~2018~~2019 is primarily due ~~to: (i)~~ an increase in ~~professional service fees~~general and ~~other costs associated with~~administrative expenses as the ~~cyber security event discussed below; (ii) a loss on extinguishment of debt associated with the amendment of the Company's credit facility and (iii) the impact of certain acquisitions completed~~Company expanded resources to support end market demand. The decrease in ~~2018 that had higher~~ SG&A expenses as a percentage of net sales ~~when~~in the third quarter of 2020 is primarily attributed to the increase in net sales compared to the ~~consolidated percentage. Partially offsetting these factors was~~prior year period.

The increase in SG&A expenses in the first nine months of 2020 as a ~~decrease~~percentage of revenue is attributed to the decline in ~~incentive compensation and~~net sales ~~commissions.~~from the impact of COVID-19, discussed above.

Amortization of Intangible Assets. Amortization of intangible assets increased ~~$0.3~~$1.0 million, or 4%11%, to $10.2 million in the third quarter of ~~2019 compared to~~2020 from $9.2 million in the prior year quarter and increased ~~$1.3~~$3.2 million, or 5%12%, to $29.6 million in the first nine months of ~~2019 compared to~~2020 from $26.4 million in the prior year period. The increase in the third quarter and first nine months of ~~2019~~2020 compared to the prior year periods primarily reflects the impact of businesses acquired in ~~2018, partly offset by purchase accounting adjustments to intangible assets~~2019 and ~~the associated impact to amortization expense.~~2020.

Operating Income. Operating income ~~decreased $7.3~~increased $22.4 million, or ~~16%~~60%, to ~~$37.4~~$59.8 million in the third quarter of ~~2019~~2020 from ~~$44.7~~$37.4 million in ~~2018. For the first nine months of 2019, operating income decreased $21.1 million, or 15%, to $118.5 million from $139.5 million in the prior year period.~~2019. As a percentage of net sales, operating income was ~~6.6%~~8.5% in the third quarter of ~~2019~~2020 versus ~~7.8%~~6.6% in the same period in ~~2018 and 6.6% for~~2019. Operating income decreased $7.3 million, or 6%, to $111.2 million in the first nine months of ~~2019 versus 8.1%~~

2020 from $118.5 million in ~~the prior year period. Operating~~2019. As a percentage of net sales, operating income ~~in the third quarter and first nine months of 2019 attributable to acquisitions completed~~was 6.5% in the first nine months of ~~2019 was immaterial.~~2020 versus 6.6% in the same period in 2019. Operating income inrelated to the 2020 acquisitions for the third quarter and ~~the first~~ nine months ~~of 2018 included $8.8~~ended September 27, 2020 was approximately $2.1 million and ~~$17.3~~$2.2 million, ~~respectively, attributable to acquisitions completed in the first nine months of 2018.~~respectively. The change in operating income and operating ~~margin~~income percentage is primarily attributable to the items discussed above.

Interest Expense, Net. Interest expense increased ~~$1.3~~$1.9 million, or ~~17%~~22%, to ~~$8.6~~$10.5 million in the third quarter of ~~2019~~2020 from ~~$7.3~~$8.6 million in the prior year. For the first nine months of ~~2019,~~2020, interest expense increased ~~$8.2~~$5.6 million, or ~~46%~~21%, to ~~$26.2~~$31.8 million from ~~$18.0~~$26.2 million in the prior year period.

The increase in interest expense ~~reflects: (i) increased borrowings related to 2018 acquisitions, (ii) increases in the average interest rate on the variable rate portion of the Company's debt, which reflects increases in LIBOR~~ in the third quarter and first nine months of 2020 reflects increased borrowings related to 2019 ~~compared to the prior year periods~~ and ~~(iii)~~2020 acquisitions and an increase in the Company's overall average interest rate resulting from the issuance of ~~the Company's~~$300 million aggregate principal amount of 7.5% ~~Senior Notes due 2027 (the "Senior Notes")~~senior notes in the third quarter of 2019.

Income Taxes. Income tax expense ~~decreased $1.9~~increased $4.5 million, or ~~21%~~60%, to ~~$7.5~~$12.0 million in the third quarter of 2020 from ~~$9.4~~$7.5 million in the prior year period. For the first nine months of ~~2019,~~2020, income tax expense decreased ~~$6.0~~$2.5 million, or ~~21%~~11%, to ~~$22.7~~$20.2 million for the first nine months of 2020 from ~~$28.7~~$22.7 million in the prior year period. ~~For~~

The effective tax rate in the third quarter of 2020 and 2019 was 24.3% and 26.0%, respectively, and the effective tax rate for the comparable nine month periods was ~~26.0% compared to 25.3%~~25.4% and 24.6%, respectively. The effective tax rate in the ~~comparable 2018 period. For~~third quarter of 2020 reflects the impact of certain federal and state income tax benefits, and the effective tax rate in the first nine months of ~~2019,~~2020 reflects $2.2 million of permanent tax differences due to certain Coronavirus Aid, Relief, and Economic Security Act payroll tax credits. In addition, the ~~effective tax rate was 24.6% compared to 23.6% for the prior year period. The~~ effective tax rate for the ~~periods presented~~first nine months of 2019 includes the impact of the recognition of excess tax benefits on share-based compensation that ~~were~~was recorded as a reduction to income tax expense upon ~~realization. Amounts recorded include~~realization in the amount of $0.9 ~~million and $2.2 million for the nine-month 2019 and 2018 periods, respectively, with no amounts for the comparable quarterly periods.~~

The Company's combined effective income tax rate from period to period and for the full year 2019 could further fluctuate due to: (i) refinements in federal and state income tax estimates, which are impacted by the availability of tax credits; (ii) permanent differences impacting the effective tax rate; (iii) shifts in apportionment factors among states as a result of recent acquisition activity and other factors and (iv) the timing of the recognition of excess tax benefits related to the vesting of share-based payments awards as previously discussed.

million.

~~Net Income.~~ Net income for the third quarter of 2019 was $21.3 million, or $0.92 per diluted share, compared to $27.9 million, or $1.15 per diluted share for 2018. For the first nine months of 2019, net income was $69.6 million, or $2.99 per diluted share, compared to $92.9 million, or $3.77 per diluted share for 2018. The changes in net income for the third quarter and first nine months of 2019 compared to prior year periods reflect the impact of the items previously discussed.

Use of Financial Metrics

Our MD&A includes financial metrics, such as RV, marine and MH content per unit, which we believe are important measures of the Company's business performance. Content per unit metrics are generally calculated using our market sales divided by third-party measures of industry volume. These metrics should not be considered alternatives to U.S. GAAP. Our computations of content per unit may differ from similarly titled measures used by others. ~~You~~These metrics should not ~~consider these metrics~~be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP.

REVIEW BY BUSINESS SEGMENT

The ~~Company has determined that its~~Company's reportable segments, Manufacturing and Distribution, are ~~those~~ based on its method of internal ~~reporting, which segregates its businesses~~reporting. The Company regularly evaluates the performance of the Manufacturing and Distribution segments and allocates resources to them based on ~~the manner in which its Chief Operating Decision Maker allocates resources, evaluates financial results,~~a variety of indicators including sales and ~~determines compensation.~~

~~The Company’s reportable business segments are as follows:~~

~~Manufacturing~~ – This segment includes the following: laminated products that are utilized to produce furniture, shelving, walls, countertops, and cabinet products, cabinet doors, fiberglass bath fixtures and tile systems, hardwood furniture, vinyl printing, decorative vinyl and paper laminated panels, solid surface, granite, and quartz countertop fabrication, RV painting, fabricated aluminum products, fiberglass and plastic components, softwoods lumber, custom cabinetry, polymer-based flooring, electrical systems components including instrument and dash panels, wrapped vinyl, paper and hardwood profile mouldings, interior passage doors, air handling products, slide-out trim and fascia, thermoformed shower surrounds, specialty bath and closet building products, fiberglass and plastic helm systems and components products, wiring and wire harnesses, boat covers, towers, tops and frames, aluminum fuel tanks, CNC molds and composite parts, slotwall panels and components and other products.

~~Distribution~~ –operating income. The Company ~~distributes pre-finished wall~~does not measure profitability at the customer market (RV, marine, MH and ceiling panels, drywall and drywall finishing products, electronics and audio systems components, appliances, wiring, electrical and plumbing products, fiber reinforced polyester products, cement siding, raw and processed lumber, interior passage doors, roofing products, laminate and ceramicindustrial) level.

flooring, tile, shower doors, furniture, fireplaces and surrounds, interior and exterior lighting products, and other miscellaneous products, in addition to providing transportation and logistics services.

ThirdQuarter and Nine Months EndedSeptember ~~29, 2019~~27, 2020 Compared to ~~2018~~2019

General

In the discussion that follows, sales attributable to the Company’s ~~operating~~reportable segments include intersegment sales and gross profit includes the impact of intersegment operating activity.

The table below presents information about the sales, gross profit and operating income of the Company’s ~~operating~~reportable segments. A reconciliation of consolidated operating income is presented in Note 15 toof the Notes to Condensed Consolidated Financial Statements.


	Third Quarter Ended				Nine Months Ended
(thousands)	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Sales
Manufacturing	$	506,278	$	407,814	$	1,230,805	$	1,283,824
Distribution	208,073		167,552		511,895		531,312
Gross Profit
Manufacturing	97,543		73,700		225,447		231,227
Distribution	36,293		27,965		88,627		87,738
Operating Income
Manufacturing	63,312		42,353		131,426		135,577
Distribution	16,444		9,041		33,350		28,132

Third Quarter Ended Nine Months Ended
(thousands)
September 29, 2019

September 30, 2018
September 29, 2019

September 30, 2018
Sales

Manufacturing $ 407,814
$ 453,396
$ 1,283,824
$ 1,371,552
Distribution 167,552
131,022
531,312
390,602
Gross Profit

Manufacturing 73,700

86,015
231,227
262,824
Distribution 27,965

21,974
87,738
63,668
Operating Income

Manufacturing 42,353
54,887
135,577
172,799
Distribution 9,041
7,606
28,132
25,092

Manufacturing

Sales. Sales ~~decreased $45.6~~increased $98.5 million, or ~~10%~~24%, to ~~$407.8~~$506.3 million in the third quarter of ~~2019~~2020 from ~~$453.4~~$407.8 million in ~~2018.~~the prior year quarter. For the first nine months of ~~2019,~~2020, sales decreased ~~$87.7~~$53.0 million, or 6%4%, to ~~$1,283.8~~$1,230.8 million from ~~$1,371.6~~$1,283.8 million in the prior year period. This segment accounted for approximately 71% ~~and 70%~~ of the Company’s consolidated net sales for the third quarter of 2020 and 2019, and 70% of the Company's consolidated net sales for the first nine months of ~~2019~~2020 and ~~77% and 78% for the third quarter and first nine months of 2018.~~2019. The sales ~~decrease~~increase in the third quarter of ~~2019~~2020 largely reflected ~~a decrease in wholesale unit shipments~~sales increases in the RV, marine, and ~~marine industries, and in~~industrial markets compared to the ~~RV, MH and marine industries in~~prior year quarter. The sales decrease for the first nine months of ~~2019.~~

~~Revenue~~2020 was primarily attributed to sales decreases in our primary end markets as a result of business disruptions and lost production and shipping days due to the COVID-19 pandemic that occurred primarily in the ~~third~~second quarter ~~and first nine months~~ of 2019 was immaterial related to acquisitions completed in the first nine months of 2019. Revenue in the third quarter and first nine months of 2018 included $51.8 million and $99.0 million, respectively, related to acquisitions completed in the first nine months of 2018.2020.

Gross Profit. Gross profit ~~decreased $12.3~~increased $23.8 million, or ~~14%~~32%, to $97.5 million in the third quarter of 2020 from $73.7 million in the third quarter of ~~2019 from $86.0 million in the third quarter of 2018.~~2019. For the first nine months of ~~2019,~~2020, gross profit decreased ~~$31.6~~$5.8 million, or ~~12%~~2%, to $225.4 million from $231.2 million ~~from $262.8 million~~ in ~~2018.~~2019. As a percentage of sales, gross profit ~~decreased~~increased to 19.3% in the third quarter of 2020 from 18.1% in the third quarter of 2019 ~~from 19.0% in 2018~~ and ~~decreased~~increased to ~~18.0%~~18.3% in the first nine months of ~~2019~~2020 from ~~19.2%~~18.0% in ~~2018.~~

the prior year period. Gross profit ~~decreased~~as a percentage of net sales increased during the third quarter ~~and~~of 2020 primarily due to an increase in net sales relative to certain fixed components of costs of goods sold as well as a decrease in commodity cost inputs. Gross profit as a percentage of net sales increased in first nine months of ~~2019~~2020 compared to the ~~corresponding~~ prior year ~~periods~~period primarily due to ~~decreased revenue relative to overall fixed overhead costs.~~a decrease in commodity cost inputs, partially offset by operational and labor inefficiencies as a result of business disruptions from the COVID-19 pandemic incurred in the second quarter of 2020.

Operating Income. Operating income ~~decreased $12.5~~increased $20.9 million, or ~~23%~~49%, to ~~$42.4~~$63.3 million in the third quarter of ~~2019~~2020 from ~~$54.9~~$42.4 million in the prior ~~year.~~year quarter. For the first nine months of ~~2019,~~2020, operating income decreased ~~$37.2~~$4.2 million, or ~~22%~~3%, to $131.4 million from $135.6 million ~~from $172.8~~in the prior year. The overall increase in operating income in the third quarter of 2020 and the overall decrease in operating income in the first nine months of 2020 primarily reflects the items discussed above.

Distribution

Sales. Sales increased $40.6 million, or 24%, to $208.1 million in ~~2018.~~the third quarter of 2020 from $167.5 million in the prior year quarter. For the first nine months of 2020, sales decreased $19.4 million, or 4%, to $511.9 million from $531.3 million in the prior year period. This segment accounted for approximately 29% of the Company’s consolidated net sales for the third quarter of 2020 and 2019, and 30% of consolidated net sales for the first nine months of 2020 and 2019. The sales increase in the third quarter of 2020 was primarily attributed to sales increases in our RV, marine, and industrial markets. The decrease in sales in the first nine months of 2020 was primarily attributed to sales decreases in our primary end

markets as a result of business disruptions and lost production and shipping days due to the COVID-19 pandemic, primarily in the second quarter of 2020.

Gross Profit. Gross profit increased $8.3 million, or 30%, to $36.3 million in the third quarter of 2020 from $28.0 million in the third quarter of 2019. For the first nine months of 2020, gross profit increased $0.9 million, or 1%, to $88.6 million from $87.7 million in 2019. As a percentage of sales, gross profit increased to 17.4% in the third quarter of 2020 from 16.7% in the third quarter of 2019 and increased to 17.3% in the first nine months of 2020 from 16.5% in the prior year period.

As a percentage of sales, gross profit increased during the third quarter of 2020 compared to the prior year quarter primarily due to realized synergies from certain 2018 and 2019 acquisitions. For the first nine months of 2020, gross profit as a percentage of sales increased primarily due to realized synergies from certain 2018 and 2019 acquisitions, partially offset by additional costs and operational inefficiencies as a result of business disruptions from the COVID-19 pandemic primarily in the second quarter of 2020.

Operating Income. Operating income increased $7.4 million, or 82%, to $16.4 million in the third quarter of 2020 from $9.0 million in the prior year quarter. For the first nine months of 2020, operating income increased $5.2 million, or 19%, to $33.3 million from $28.1 million in the prior year. The overall ~~decrease~~increase in operating income in the third quarter and first nine months of ~~2019~~2020 primarily reflects the items discussed above.

Operating income in the third quarter and first nine months of 2019 attributable to acquisitions completed in the first nine months of 2019 was immaterial, and operating income in the third quarter and first nine months of 2018 included $7.0 million and $12.9 million, respectively, attributable to acquisitions completed in the first nine months of 2018.

~~Distribution~~

~~Sales.~~ Sales increased $36.5 million, or 28%, to $167.5 million in the third quarter of 2019 from $131.0 million in 2018. For the first nine months of 2019, sales increased $140.7 million, or 36%, to $531.3 million from $390.6 million in 2018. This segment accounted for approximately 29% and 30%, respectively, of the Company’s consolidated net sales for the third quarter and first nine months of 2019, and 23% and 22%, respectively, for the third quarter and first nine months of 2018. The sales increase in the third quarter and first nine months of 2019 compared to the prior year periods was largely attributed to the revenue contribution of LaSalle, which was acquired during the fourth quarter of 2018. Revenue in the third quarter and first nine months of 2018 included $30.6 million and $61.0 million, respectively, related to acquisitions completed in the first nine months of 2018.

~~Gross Profit.~~ Gross profit increased $6.0 million, or 27%, to $28.0 million in the third quarter of 2019 from $22.0 million in the third quarter of 2018. For the first nine months of 2019, gross profit increased $24.0 million, or 38%, to $87.7 million from $63.7 million in 2018. As a percentage of sales, gross profit decreased to 16.7% in the third quarter of 2019 from 16.8% in the third quarter of 2018 and increased to 16.5% for the first nine months of 2019 from 16.3% for the first nine months of 2018. The decrease in gross profit margin in the third quarter of 2019 compared to the third quarter of 2018 is primarily attributed to higher overall fixed costs relative to RV and MH distribution product revenue. The increase in gross profit margin for the first nine months of 2019 compared to 2018 primarily reflects the impact of acquisitions completed during 2018.

~~Operating Income.~~ Operating income increased $1.4 million, or 19%, to $9.0 million in the third quarter of 2019 from $7.6 million in the prior year. For the first nine months of 2019, operating income increased $3.0 million, or 12%, to $28.1 million from $25.1 million for the first nine months of 2018. Operating income in the third quarter and first nine months of 2018 included $1.8 million and $4.4 million, respectively, related to distribution acquisitions completed in the first nine months of 2018. The overall net improvement in operating income in the third quarter and first nine months of 2019 primarily reflects the items discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity at September 27, 2020 consisted of cash and cash equivalents of $62.3 million and $410.3 million of unused borrowing availability under our credit facility.

Cash Flows

Operating Activities

Cash flows from operating activities are one of the Company's primary sources of liquidity, representing the net income the Company earned in the reported periods, adjusted for non-cash items and changes in operating assets and liabilities.

Net cash provided by operating activities decreased ~~$5.4~~$9.2 million to $112.8 million in the first nine months of 2020 from $122.0 million in the first nine months of 2019 ~~from $127.4 million in the first nine months of 2018~~ primarily due ~~to:~~to (i) a decrease inof net income of ~~$23.3~~$10.4 million ~~partly~~due to disruptions in our end markets as a result of the COVID-19 pandemic; (ii) an increase in the use of cash from working capital of $4.8 million and (iii) a decrease of deferred income tax liabilities of $3.3 million. These decreases in operating cash flows were partially offset by ~~(i)~~ an increase of depreciation and amortization of ~~$6.6~~$6.5 million ~~(ii) an increase in stock based compensation expense, amortization of debt discount, deferred income taxes~~ and other ~~operating~~ items of ~~$5.0 million and (iii) a net source of cash from changes in operating assets and liabilities of $6.3~~$2.8 million.

Investing Activities

Net cash used in investing activities ~~decreased $270.9~~increased $105.3 million to $145.4 million in the first nine months of 2020 from $40.1 million in the first nine months of 2019 ~~from $311.0 million in the first nine months of 2018~~ primarily due ~~to: a decrease~~to an increase in cash used in business acquisitions of ~~$267.7~~$101.0 million and a decrease in ~~capital expenditures~~proceeds from sale of ~~$3.8~~property, plant, and equipment and other investing activities of $4.4 million.

~~The Company's current operating model forecasts capital expenditures for fiscal 2019 of approximately $30 million.~~

Financing Activities

Cash flows from financing activities are one of the Company's primary sources of liquidity through borrowings under the Company's credit facility as well as convertible and senior note issuances in 2018 and 2019, respectively.

Net cash flows ~~provided~~used by financing activities ~~decreased $153.2~~increased $72.2 million to ~~$27.9~~$44.4 million in first nine months of 2020 from a source of cash of $27.8 million in the first nine months of 2019 ~~from $181.1 million in the first nine months of 2018~~ primarily due ~~to: (i) cash used for net repayments on the Company's credit facility of $253.6 million in the first nine months of 2019 compared~~ to a source of cash from net borrowings on the Company's credit facility of $107.1 million in the first nine months of 2018; (ii) gross proceeds of $172.5 million from the third quarter 2018 issuance of 1% Convertible Senior Notes due 2023 (the "Convertible Notes") with no comparable amount in the first nine months of 2019; (iii) a source of cash in the first nine months of 2018 of $18.1 million from the related sale of warrants with no comparable amount in the first nine months of 2019 and (iv) a use of cash of $4.4 million in the first nine months of 2019 from payment of contingent consideration resulting from a business acquisition with no comparable amount in the first nine months of 2018. Partially offsetting these items were: (i) the issuance of $300 million of ~~Senior Notes~~senior notes in the first nine months of 2019 with no comparable amount in the first nine months of ~~2018;~~ 2020; (ii) ~~a use~~cash dividends paid to shareholders of cash in the first nine months of 2018 of $31.5 million from the purchase of Convertible Notes hedges with no comparable amount in the first nine months of 2019 and (iii) a decrease in the use of cash for stock repurchases of $71.4$17.3 million in the first nine months of ~~2019 from~~2020 with no corresponding amount in the prior year ~~period.~~

~~See Notes 9, 10~~period and ~~16 of the Notes to Condensed Consolidated Financial Statements for further information on the Company's indebtedness, derivative financial instruments and~~(iii) an increase in stock repurchases ~~respectively.~~under our buyback program of $16.7 million. These increases in cash used in financing activities were partially offset by (i) a decrease in repayments on our revolving credit facility and term loan of $251.1 million; (ii) a decrease in payment of deferred financing costs of $7.2 million and (iii) a decrease in the payment of contingent consideration from a business acquisition and other financing activities of $3.5 million.

Summary of Liquidity and Capital Resources

The Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its ~~current~~ credit facility ~~(the "2019 Credit Facility")~~ are expected to be sufficient to meet anticipated cash needs for working capital and capital expenditures for at least the next 12 months, exclusive of any acquisitions, based on its current cash flow budgets and forecast of short-term and long-term liquidity needs.

The Company's credit facility consists of a $550 million senior secured revolver and a $100 million senior secured term loan. The maturity date for borrowings under the credit agreement that established the credit facility is September 17, 2024. Upon the satisfaction of certain conditions, and obtaining incremental commitments from its lenders, the Company may be able to increase the borrowing capacity of the credit facility by up to $250 million. Borrowings under the credit facility are secured by substantially all personal property assets of the Company and any domestic subsidiary guarantors. Pursuant to the credit agreement:

•The term loan is due in consecutive quarterly installments in the following amounts: (i) through and including June 30, 2021, $1,250,000 and (ii) beginning September 30, 2021, and each quarter thereafter, $2,500,000, with the remaining balance due at maturity;

•The interest rates for borrowings under the revolver and the term loan are the Prime Rate or LIBOR

plus a margin, which ranges from 0.00% to 0.75% for Prime Rate loans and from 1.00% to 1.75% for LIBOR

loans depending on the Company’s consolidated total leverage ratio. The Company is required to pay fees on unused but committed portions of the revolver, which range from 0.15% to 0.225%.

On July 27, 2017, the Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), announced that it intends to phase out LIBOR by the end of 2021. We expect that widespread use of LIBOR as a reference borrowing rate will transition to alternative interest rates in the near future. Since interest rates on loans made under our credit facility may be based on LIBOR based loans, the phasing out of LIBOR may adversely affect interest rates under our credit facility and result in higher borrowing costs. The Company is currently evaluating its options under our credit facility, but at this time we cannot reasonably estimate the impact to our financial statements from the phasing out of LIBOR.

At September 27, 2020, the Company had $410.3 million of unused borrowing availability under its credit facility. The ability to access unused borrowing capacity under the ~~2019 Credit Facility~~credit facility as a source of liquidity is dependent on maintaining compliance with the financial covenants as specified under the terms of the credit ~~agreement that established the 2019 Credit Facility (the "2019 Credit Agreement").~~agreement.

As of and for the September ~~29, 2019~~27, 2020 reporting date, the Company was in compliance with its financial ~~debt~~ covenants as required under the terms of ~~the 2019 Credit Agreement.~~its credit agreement. The required maximum consolidated total leverage ratio and the required minimum consolidated fixed charge coverage ratio, as such ratios are defined in the credit agreement, compared to the actual amounts as of September ~~29, 2019~~27, 2020 and for the fiscal period then ended are as follows:


	Required	Actual
Maximum consolidated total leverage ratio (12-month period)	4.00	2.24
Minimum consolidated fixed charge coverage ratio (12-month period)	1.50	5.76

Required

Actual
Consolidated total leverage ratio (12-month period)
4.00

2.30
Consolidated fixed charge coverage ratio (12-month period)
1.50

4.05

The indenture associated with the Senior Notes places restrictions on the Company’s ability to, among other items, (i) incur additional indebtedness or issue certain preferred shares; (ii) pay dividends, redeem stock or make other distributions; (iii) make investments; (iv) transfer or sell assets; and (v) merge or consolidate. The Senior Note indenture also provides for customary events of default, which could require the Senior Notes to become due and payable immediately, and also contains customary covenant provisions with which the Company is in compliance as of September 29, 2019.

Working capital requirements vary from period to period depending on manufacturing volumes, ~~primarily related to the RV, MH and marine industries as well as the industrial markets we serve,~~ the timing of deliveries, and the payment cycles of customers. In the event that operating cash flow is inadequate and one or more of the Company's capital resources were to become unavailable, the Company would seek to revise its operating strategies accordingly. The Company will continue to assess its liquidity position and potential sources of supplemental liquidity in view of operating performance, current economic and capital market conditions, and other relevant circumstances.

Borrowings under the revolving credit loan (the "2019 Revolver") and the term loan (the "2019 Term Loan") comprising the 2019 Credit Facility, which are subject to variable rates of interest, are subject to a maximum total borrowing limit of $650.0 million (effective September 17, 2019). See Note 9 of the Notes to the Condensed Consolidated Financial Statements for further information. See Note 10 of the Notes to Condensed Consolidated Financial Statements for information on interest rate swaps used to partially hedge variable interest rates under the 2019 Revolver and 2019 Term Loan. The unused availability under the 2019 Credit Facility as of September 29, 2019 was $411.1 million.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our critical accounting policies which are summarized in the MD&A in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~ 2019.

OTHER

Seasonality

~~Manufacturing operations~~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~~third quarter and lowest in the fourth quarter. Seasonal industry trends in the past several years have included the impact related to the addition of major RV manufacturer open houses for dealers in the August/September timeframe as well as marine open houses in the January/February timeframe, resulting in dealers delaying certain restocking purchases until new product lines are introduced at these shows. In addition, current and future seasonal industry trends may be different than in prior years due to the impact of national and regional economic conditions and consumer confidence on retail sales of RVs and other products for which the Company sells its components, timing of dealer orders, fluctuations in dealer inventories, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments.

~~Cyber Security Incident~~

At the end of the third quarter of 2019, the Company experienced a highly-sophisticated third-party malware cyberattack that impacted certain of the Company's administrative and production servers and resulted in a disruption of administrative and network operations for approximately two business days. In response to the attack, the Company immediately took steps to ensure customer commitments were honored and to remediate the attack to minimize the disruption. Further, although the Company has programs in place to detect, contain and respond to data security incidents, the Company began an investigation of the attack, including engaging external forensic and other IT experts, and is in the process of implementing further security measures and processes designed to prevent unauthorized access to its information systems and mitigate cybersecurity related risks. Estimated after-tax costs incurred in the third quarter of 2019 related to the cyberattack were approximately $1.5 million, which included incremental consulting and professional fees, administrative, operating, and production inefficiencies, and equipment replacement and repair. No additional material costs are expected to be incurred in future quarters related to the cyber incident.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

The Company makes forward-looking statements with respect to financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive position, growth opportunities for existing products, plans and objectives of management, markets for the common stock of Patrick Industries, Inc. and other matters from time to time and desires to take advantage of the “safe harbor” which is afforded such statements under the Private Securities Litigation Reform Act of 1995 when they are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements. The statements contained in the foregoing “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as other statements contained in ~~the~~this quarterly report and statements contained in future filings with the Securities and Exchange Commission (“SEC”), publicly disseminated press releases, quarterly earnings conference calls, and statements which may be made from time to time in the future by management of the Company in presentations to shareholders, prospective investors, and others interested in the business and financial affairs of the Company, which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Any projections of financial performance or statements concerning expectations as to future developments should not be construed in any manner as a guarantee that such results or developments will, in fact, occur. There can be no assurance that any forward-looking statement will be realized or that

actual results will not be significantly different from that set forth in such forward-looking statement. ~~The Company does not undertake to publicly update or revise any forward-looking statements except as required by law.~~ Information about certain risks that could affect our business and cause actual results to differ from those expressed or implied in the forward-looking statements are contained in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, and in the Company's ~~Form 10-Qs~~Forms 10-Q for subsequent quarterly periods, which are filed with the SEC and are available on the SEC’s website at www.sec.gov.



ITEM 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Debt Obligations under Credit Agreement

At September ~~29, 2019,~~27, 2020, our total debt obligations under our ~~2019 Credit Agreement~~credit agreement were under LIBOR-based interest rates. A 100-basis point increase in the underlying LIBOR and prime rates would result in additional annual interest cost of approximately ~~$0.4~~$0.3 million, assuming average borrowings, including ~~the 2019 Term Loan,~~our term loan, subject to variable rates of ~~$35.0~~$30.0 million, which was the amount of such borrowings outstanding at September ~~29, 2019~~27, 2020 subject to variable rates. The ~~$35.0~~$30.0 million excludes deferred financing costs related to the ~~2019 Term Loan~~term loan and $200.0 million of borrowings outstanding under the ~~2019 Credit Facility~~revolver and term loan that are hedged at a fixed interest rate through interest rate swaps.

~~Inflation~~ Commodity Price Volatility

The prices of key raw materials, consisting primarily of lauan, gypsum, particleboard, aluminum, softwoods lumber, and petroleum-based products are influenced by demand and other factors specific to these commodities, such as the price of oil, rather than being directly affected by inflationary pressures. Prices of certain commodities have historically been volatile and continued to fluctuate in the third quarter and first nine months of ~~2019.~~2020. During periods of ~~rising~~volatile commodity prices, we have generally been able to pass ~~the increased costs~~both price increases and decreases to our customers in the form of ~~surcharges and~~ price ~~increases. However,~~adjustments. We are exposed to risks during periods of commodity volatility because there can be no assurance that future cost increases or decreases, if any, can be partially or fully passed on to customers, or that the timing of such sales price

increases or decreases will match raw material cost ~~increases.~~increases or decreases. We do not believe that ~~inflation~~commodity price volatility had a material effect on results of operations for the periods presented.



ITEM 4.			CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains “disclosure controls and procedures”, as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934, as amended (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and the Company’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, ~~required~~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 the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the third quarter ended September ~~29, 2019 or subsequent to the date the Company completed its evaluation,~~27, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Items 1, 3, 4 and 5 of Part II are not applicable and have been omitted.

ITEM 1. LEGAL PROCEEDINGS

In August 2019, a group of companies calling itself the Lusher Site Remediation Group (the “Group”) commenced litigation against the Company in Lusher Site Remediation Group v. Sturgis Iron & Metal Co., Inc., et al., Case Number 3:18-cv-00506, pending in the U.S. District Court for the Northern District of Indiana. The Group’s Second Amended Complaint, which was the first to assert claims against Patrick, asserted claims under the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et seq., an Indiana state environmental statute and Indiana common law. One defendant in the case, Sturgis Iron & Metal Co., Inc. (“Sturgis”) subsequently filed two cross claims against Patrick, asserting against the Company a claim for (i) contribution under CERCLA and (ii) contractual indemnity. The Company moved to dismiss the Group’s claims and also moved to dismiss Sturgis’s cross claims. On August 21, 2020, the court granted Patrick’s two motions to dismiss. The Group subsequently moved for reconsideration of the court’s decision. That reconsideration motion is still pending. The Company does not currently believe that this matter is likely to have a material adverse impact on its financial condition, results of operations, or cash flows. However, any litigation is inherently uncertain, and any judgment or injunctive relief entered against us or any adverse settlement could materially and adversely impact our business, results of operations, financial condition, and prospects.



ITEM 1A.			RISK FACTORS

~~There have been no material changes to~~“Item 1A. Risk Factors” of our Form 10-K includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors ~~previously~~and information disclosed in our ~~Annual Report on~~ Form 10-K for the year ended December 31, ~~2018.~~2019. Except as presented below, there have been no material changes from the risk factors described in our Form 10-K for the year ended December 31, 2019.

The global spread of the COVID-19 virus and measures implemented to combat it have had, and are expected to continue to have, a material adverse effect on our business.

The global spread of the novel coronavirus (COVID-19) in recent months has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption in financial markets. The impact of this pandemic has created significant uncertainty in the global economy and has had, and is expected to continue to have, a material adverse effect on our business, employees, suppliers, and customers. The duration and magnitude of the impact of the COVID-19 pandemic cannot be precisely estimated at this time, as each is affected by a number of factors, many of which are outside of our control. As a result of the COVID-19 pandemic and potential future pandemic outbreaks, we face significant risks including, but not limited to:

•Decreases in consumer confidence and disposable income and increases in unemployment could reduce demand for our products by our customers in all of our end markets.

•Tightening credit standards could negatively impact credit availability to consumers which could have an adverse effect on all of our end markets.

•Supply chain and shipping interruptions and constraints, volatility in demand for our products caused by sudden and significant changes in production levels by our customers or other restrictions affecting our business could adversely impact our planning and forecasting, our revenues and our operations.

•Disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce, or other manufacturing and distribution capabilities could result in our inability to meet our end market customer needs and achieve cost targets.

•Significant changes in the conditions in markets in which we manufacture, sell or distribute our products, including additional or expanded quarantines or "stay at home" orders, governmental or regulatory actions,

closures or other restrictions that further limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, restrict or prevent consumers from having access to our products, or otherwise prevent our suppliers or customers from sufficiently staffing operations, could adversely impact operations necessary for the production, distribution, sale, and support of our products.

•Failure of third parties on which we rely, including our customers, suppliers, distributors, commercial banks, and other external business partners, to meet their obligations to the Company or to timely meet those obligations, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties, may adversely impact our operations.

•Certain of our customers may experience financial difficulties, including bankruptcy or insolvency, as a result of the impact of COVID-19. If any of our customers suffer significant financial difficulties, they may be unable to pay amounts due to us fully, partially, or timely. Further, we may have to negotiate significant discounts and/or extended financing terms with these customers in such a situation. If we are unable to collect our accounts receivable as they come due, there may be a material adverse effect on our financial condition, results of operations and cash flows.

•If we are unable to maintain normal operations, or subsequently are unable to resume normal operations in a timely fashion, our cash flows could be adversely affected, making it difficult to maintain adequate liquidity or meet debt covenants. As a result, the Company may be required to pursue additional sources of financing to meet our financial obligations and fund our operations and obtaining such financing is not guaranteed and is largely dependent upon market conditions and other factors.

•Disruptions to our operations related to COVID-19 as a result of absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others at our facilities, or due to quarantines.

•The COVID-19 pandemic has led to and could continue to lead to severe disruption and volatility in the United States and global capital markets, which could increase our cost of capital and adversely affect our ability to access the capital markets in the future. In addition, trading prices in the public equity markets, including prices of our common stock, have been highly volatile as a result of the COVID-19 pandemic.

•Sustained adverse impacts to the Company, certain suppliers, and customers may also affect the Company’s future valuation of certain assets and therefore may increase the likelihood of an impairment charge, write-off, or reserve associated with such assets, including goodwill, indefinite and finite-lived intangible assets, property and equipment, inventories, accounts receivable, tax assets, and other assets.

The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is highly uncertain and cannot be accurately predicted and is dependent on future developments, including the duration of the pandemic and the length of its impact on the global economy, as well as any new information that may emerge concerning the COVID-19 pandemic and the actions taken to contain it or mitigate its impact. The continued impact on our business as a result of the COVID-19 pandemic could materially adversely affect our business, results of operations, financial condition, cash flows, prospects and the trading prices of our securities in the near-term and beyond 2020.



ITEM 2.			UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None.

(b) None.

Period
Total Number of Shares Purchased ⁽¹⁾

Average Price
Paid Per Share ⁽¹⁾

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽²⁾
July 1 - July 28, 2019 —
$ —
—
$ 30,306,041
July 29 - September 1, 2019 69,399
37.00
68,122
27,794,558
September 2 - September 29, 2019 30,079
35.65
30,079
26,722,195
99,478
98,201


Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
June 29 - July 26, 2020	857	$	59.00	—	$	43,515,568
July 27 - August 30, 2020	5,000	58.84		5,000	43,221,354
August 31 - September 27, 2020	83,950	52.91		83,950	38,779,489
	89,807			88,950

(1) Includes 857~~Amount includes 1,277~~ shares of common stock purchased by the Company in ~~August 2019~~July 2020 for the sole purpose of satisfying the minimum tax withholding obligations of employees upon the vesting of stock awards held by the employees.

(2) See Note 16 toof the Notes to Condensed Consolidated Financial Statements for additional information about the Company's stock repurchase program.



ITEM 6.			EXHIBITS



Exhibits (1)			Description
31.1			Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer
31.2			Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer
32			Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer and Chief Financial Officer
101			Interactive Data Files. The following materials are filed electronically with this Quarterly Report on Form 10-Q:



			101.INS			XBRL Instance Document
			101.SCH			XBRL Taxonomy Schema Document
			101.CAL			XBRL Taxonomy Calculation Linkbase Document
			101.DEF			XBRL Taxonomy Definition Linkbase Document
			101.LAB			XBRL Taxonomy Label Linkbase Document
			101.PRE			XBRL Taxonomy Presentation Linkbase Document



104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	PATRICK INDUSTRIES, INC.
	(Registrant)

Date: November ~~7, 2019~~5, 2020	By:	/s/ ~~Todd M. Cleveland~~Andy L. Nemeth
		~~Todd M. Cleveland~~ Andy L. Nemeth
		President and Chief Executive Officer




Date: November ~~7, 2019~~5, 2020	By:	/s/ ~~Joshua~~John A. ~~Boone~~Forbes
		~~Joshua~~John A. ~~Boone~~Forbes
		~~Vice President-Finance and~~Interim Chief Financial Officer



PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (cont.)
Nine Months Ended September 30, 2018
(thousands)	Common Stock			Additional Paid-in- Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings			Total
Balance December 31, 2017	$	163,196		$	8,243		$	66	$	199,180		$	370,685
Net income	—			—			—		92,862			92,862
Other comprehensive loss, net of tax	—			—			49		—			49
Stock repurchases under buyback program	(8,266		)	(418		)	—		(66,344		)	(75,028		)
Issuance of shares upon exercise of common stock options	3			—			—		—			3
Shares used to pay taxes on stock grants	(2,919		)	—			—		—			(2,919		)
Stock-based compensation expense	10,911			—			—		—			10,911
Purchase of convertible notes hedges	—			(31,481		)	—		—			(31,481		)
Proceeds from sale of warrants	—			18,147			—		—			18,147
Equity component of convertible notes issuance	—			30,989			—		—			30,989
Balance September 30, 2018	$	162,925		$	25,480		$	115	$	225,698		$	414,218



(thousands)	September 29, 2019		December 31, 2018
Receivables, which are included in trade and other receivables, net	$	128,672	$	74,196
Contract liabilities	$	2,692	$	2,642



(thousands)	Contract Liabilities
Revenue recognized that was included in the contract liability balance at the beginning of the period	$	(1,006	)
Increases due to cash received, excluding amounts recognized as revenue during the period	$	1,056



(thousands)	September 29, 2019			Weighted Average Useful Life (in years)	December 31, 2018			Weighted Average Useful Life (in years)
Customer relationships	$	348,947		10.1	$	366,228		10.1
Non-compete agreements	16,405			4.9	19,159			4.9
Patents	16,338			14.6	1,048			8.9
Trademarks	80,786			Indefinite	82,358			Indefinite
	462,476				468,793
Less: accumulated amortization	(112,260		)		(85,811		)
Intangible assets, net	$	350,216			$	382,982



(thousands)
2019 (excluding the nine months ended September 29, 2019)	$	8,150
2020	26,916
2021	20,512
2022	13,556
2023	8,954
Thereafter	10,158
Total lease payments	88,246
Less imputed interest	(6,703		)
Total	$	81,543



(thousands)
2019	$	29,345
2020	23,344
2021	16,165
2022	9,602
2023	5,357
Thereafter	4,883
Total	$	88,696



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share ⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽²⁾
July 1 - July 28, 2019	—	$	—	—	$	30,306,041
July 29 - September 1, 2019	69,399	37.00		68,122	27,794,558
September 2 - September 29, 2019	30,079	35.65		30,079	26,722,195
	99,478			98,201

Consolidated total leverage ratio (12-month period)

Consolidated fixed charge coverage ratio (12-month period)