What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-06 compared with 2020-05-07 · 146 added, 111 removed, 83 unchanged (76% of the section changed)

5 unchanged sentences

OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

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.

Despite a strong start to the year, there was an abrupt decline in OEM production in the recreational vehicle and marine markets as well as a decrease in U.S.

housing starts during the second half of March 2020.

We also expect an adverse impact on the Company’s sales and profitability in future periods as a result of a decrease in activity in all of our end markets.

These impacts are expected to be material.

However, the duration and the magnitude of these impacts cannot be precisely estimated at this time, as they are affected by a number of factors, many of which are outside of our control, including those presented in Item 1A.

Risk Factors of this Quarterly Report.

However, we generally expect the second quarter of 2020 to be the most significantly impacted quarter during the 2020 fiscal year.

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.

We believe that the combination of our financial position, our available liquidity, the flexibility of our highly variable cost operating model and the diversification of our end markets and the geographic regions in which we operate will help to lessen the impacts of COVID-19 on the Company's operations and financial results.

If the situation evolves into a more prolonged pandemic, we plan to continue to adjust mitigation measures as needed related to the health and safety of our employees as well as to operating efficiencies.

Those measures have included, and could continue to include in the future, temporarily suspending select plant operations, modifying workspaces, continuing social distancing policies, implementing new personal protective equipment or health screening policies at our facilities, or such other industry best practices needed to continue to maintain a healthy and safe environment for our employees during the pandemic.

While we have enhanced, and will continue to enhance, functionality and security of technology for off-site functions, we are planning for the eventual reintroduction of our on-site workforce to our facilities.

We have taken steps to reduce the impact of the COVID-19 pandemic on our operating results, including reducing working capital, postponing non-essential capital expenditures, reducing operating costs, aligning production with demand, initiating workforce reductions and furloughs, reducing salaries, and substantially reducing discretionary spending.

These countermeasures are expected to lessen the impacts of COVID-19 on our full year 2020 financial results.

As the impact of the COVID-19 pandemic on the economy and our markets evolves, we will continue to assess the impact on the Company and plan to continue to take actions to reduce such impact on our business and operating results.

First Quarter 2020 Financial Overview

The second quarter of 2020 exhibited distinct trends in each month of April, May and June, which are historically among our strongest sales months, as we responded to COVID-19 market volatility.

Beginning in late March and early April of 2020, we temporarily curtailed production in certain of our facilities in alignment with reductions in OEM customer production levels, which resulted in a significant decline in revenue during April from each of our end markets.

Cost reduction measures implemented at the end of the first quarter of 2020, in order to more closely align our direct and indirect labor costs with the decreased level of business activities, helped to mitigate the financial impact of the revenue

decline in April.

These cost reduction measures also positively impacted the rest of the second quarter of 2020.

In early May 2020 our facilities started to incrementally increase production levels as demand began to recover in our end markets, and the majority of our direct labor force, many of whom had been furloughed with benefits in April, returned to work in our RV, marine, MH and industrial facilities.

While the first half of May 2020 was impacted by the temporary shutdowns in operations, the second half of May 2020 experienced a strong increase in end market demand compared to the first half of the month.

This momentum continued in June 2020, where our revenues from the RV and industrial markets increased from the prior year, while revenues from the marine and MH markets recovered more gradually but still exhibited a positive trajectory.

While current trends in our end markets are encouraging, we believe the combination of our strong financial position, our available liquidity, the flexibility of our highly variable cost operating model, and the diversification of our end markets and the geographic regions in which we operate will help us to manage through any future volatility in our business caused by the pandemic, while allowing us to take advantage of opportunities that may arise in our markets.

The safety and well-being of our team members continue to be a key priority during the COVID-19 pandemic.

We have successfully implemented extensive safety measures to adapt to this new environment.

Those measures have included modifying workspaces, continuing social distancing policies, implementing new personal protective equipment or health screening policies at our facilities, and other industry best practices needed to continue to maintain a healthy and safe environment for our employees during the pandemic.

Second Quarter and Six Months 2020 Financial Overview

Recreational Vehicle ("RV") Industry

The RV industry is our primary market and comprised 55% and 56% of the Company’s sales in the first quarter ended March 29, 2020 and March 31, 2019, respectively.

Sales to the RV industry decreased 6% in the first quarter of 2020 compared to the prior year quarter.

According to the Recreation Vehicle Industry Association, wholesale shipments totaled 100,404 units in the first quarter of 2020, and were virtually flat compared to 99,976 units in the first quarter of 2019.

Retail unit sales in the first quarter of 2020 are estimated to have increased slightly despite the disruption to consumers related to COVID-19.

Additionally, based on our estimates, RV dealer inventories at the end of the first quarter of 2020 were at their lowest level since 2014.

The RV industry is our largest market and comprised 48% and 56% of the Company’s sales in the second quarter ended June 28, 2020 and June 30, 2019, respectively, and 52% and 56% for the comparative 2020 and 2019 six month periods.

Sales to the RV industry decreased 40% in the second quarter of 2020 and 23% in the first six months, respectively, compared to the prior year periods.

According to the Recreation Vehicle Industry Association, wholesale shipments totaled 75,663 units in the second quarter of 2020, decreasing 35% compared to 116,605 units in the second quarter of 2019.

Wholesale unit shipments for the first six months of 2020 decreased 19% for the first six months of 2020, totaling 176,067 units compared to 216,581 units in the prior year period.

Retail unit sales are estimated to have decreased 17% and 13% during the second quarter and first six months of 2020, respectively.

Decreases in wholesale and retail RV shipments in the second quarter and first six months of 2020 are largely attributed to COVID-19 market disruptions.

Based on our estimates, RV dealer inventories at the end of the second quarter of 2020 were at their lowest level since 2014 due to a combination of reduced wholesale shipments by the OEMs during the quarter and a recovery in retail sales in the latter part of May and throughout June 2020.

Marine Industry

Sales to the marine industry, which represented approximately 13% and 15% of the Company's consolidated net sales in the first quarter of 2020 and 2019, respectively, decreased 14% compared to the prior year quarter.

For the first quarter of 2020, overall marine retail unit shipments in the powerboat sector, which is the Company's primary marine market, decreased an estimated 5%, with aluminum fishing sales decreasing an estimated 5%;

pontoon sales

decreasing an estimated 2%;

Sales to the marine industry, which represented approximately 14% of the Company's consolidated net sales in the second quarter of 2020 and 2019, decreased 34% in the second quarter of 2020 compared to the prior year quarter.

For the first six months of 2020 and 2019, sales to the marine industry represented 13% and 15% of consolidated net sales, respectively, declining 24% in 2020 compared to the prior year period.

For the second quarter of 2020, overall marine retail unit shipments in the powerboat sector, which is the Company's primary marine market, decreased an estimated 7%, with aluminum fishing sales decreasing an estimated 11%;

pontoon sales decreasing an estimated 3%;

fiberglass sales decreasing an estimated 10%;

and ski and wake sales decreasing an estimated 6%.

Inventory re-calibration continued in the first quarter of 2020, with wholesale unit shipments declining at an estimated mid-to-high teens percentage rate as OEMs continued to decrease production in alignment with lower dealer inventories.

and ski and wake sales increasing an estimated 1%.

Wholesale unit shipments declined an estimated 39% during the quarter, reflecting the impact of COVID-19 OEM production shutdowns.

For the first six months of 2020, overall marine retail unit shipments in the powerboat sector decreased an estimated 7%, with aluminum fishing sales decreasing an estimated 10%;

pontoon sales decreasing an estimated 4%;

fiberglass sales decreasing an estimated 9%;

and ski and wake sales virtually flat.

Wholesale unit shipments declined an estimated 27% during the first six months of 2020, due mostly to temporary OEM production shutdowns.

Manufactured Housing ("MH") Industry

Sales to the MH industry, which represented 19% and 17% of the Company’s sales in the first quarter of 2020 and 2019, respectively, increased 6% in the first quarter of 2020 compared to the first quarter of 2019.

Based on industry data from the Manufactured Housing Institute, MH wholesale unit shipments increased by approximately 13% in the first quarter of 2020 compared to the prior year quarter.

MH wholesale unit shipments benefited from an improvement in weather conditions in the first quarter of 2020 compared to the first quarter of 2019, where wet weather conditions affected the moving of inventory and the setting of foundations and houses.

Sales to the MH industry, which represented 21% and 18% of the Company’s sales in the second quarter of 2020 and 2019, respectively, decreased 18% in the second quarter of 2020 compared to the second quarter of 2019.

MH sales for the first six months of 2020, representing 20% and 18% of the Company's sales for the 2020 and 2019 periods, decreased 6% in the first six months of 2020 compared to the prior year period.

Based on industry data from the Manufactured Housing Institute, MH wholesale unit shipments decreased by approximately 14% in the second quarter of 2020 compared to the prior year quarter and decreased 1% for the first six months of 2020 compared to the prior year period.

MH wholesale unit shipments were impacted due to temporary OEM plant shutdowns in the second quarter and first six months of 2020 as well as COVID-19 related construction delays during these periods.

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 13% and 12% of our sales in the first quarter of 2020 and 2019, respectively, and increased 14% in the first quarter of 2020 compared to the prior year quarter.

Sales to this market represented 17% and 12% of our sales in the second quarter of 2020 and 2019, respectively, and decreased 2% in the second quarter of 2020 compared to the prior year quarter.

Sales to the industrial market represented 15% and 11% of our sales for the first six months of 2020 and 2019, respectively, and increased 6% in the first six months of 2020 compared to the prior year 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 22% in the first quarter of 2020 compared to the prior year quarter, with single family housing starts increasing 12% and multifamily residential starts increasing 47% for the same period.

Combined new housing starts decreased 17% in the second quarter of 2020 compared to the prior year quarter, with single family housing starts decreasing 13% and multifamily residential starts decreasing 27%.

For the first six months of 2020, combined new housing starts increased 1% compared to the prior year period, with single family housing starts decreasing 1% and multifamily residential starts increasing 5%.

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 months.

REVIEW OF CONSOLIDATED OPERATING RESULTS

First Quarter Ended March 29, 2020 Compared to 2019

Second Quarter and Six Months Ended June 28, 2020 Compared to 2019

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

First Quarter Ended

March 29, 2020

March 31, 2019

Second Quarter Ended

Six Months Ended

June 28, 2020

June 30, 2019

June 28, 2020

June 30, 2019

Cost of goods sold

Warehouse and delivery expenses

Selling, general and administrative expenses

Warehouse and delivery

Selling, general and administrative

Amortization of intangible assets

1 unchanged sentence

Interest expense, net

Net sales in the first quarter of 2020 decreased $19.0 million, or 3%, to $589.2 million from $608.2 million in the first quarter of 2019.

The consolidated net sales decrease in the first quarter of 2020 was primarily attributed to sales decreases to the RV and marine markets, partially offset by sales increases to the MH and industrial markets.

The Company's RV market sales decreased 6% and marine market sales decreased 14%, while industrial market sales increased

14% and MH market sales increased 6% when compared to the prior year quarter.

All four of our end markets were impacted by business disruptions and associated lost shipping days due to the COVID-19 pandemic.

The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2020 decreased approximately 1% to $3,112 from $3,131 for the first quarter of 2019.

Marine powerboat content per retail unit (on a trailing twelve-month basis) for the first quarter of 2020 increased approximately 3% to an estimated $1,531 from $1,484 for the first quarter of 2019.

MH content per wholesale unit (on a trailing twelve-month basis) for the first quarter of 2020 increased approximately 33% to an estimated $4,543 from $3,415 for the first quarter of 2019.

Net sales in the second quarter of 2020 decreased $189.2 million, or 31%, to $424.0 million from $613.2 million in the second quarter of 2019.

The consolidated net sales decrease in the second quarter of 2020 was attributed to sales decreases in all four of our end markets.

The Company's RV market sales decreased 40%, marine market sales decreased 34%, industrial market sales decreased 2% and MH market sales decreased 18% when compared to the prior year quarter.

Net sales in the first six months of 2020 decreased $208.1 million, or 17%, to $1,013.3 million from $1,221.4 million in the first six months of 2019.

The consolidated net sales decrease in the first six months of 2020 was attributed to sales decreases in three of our end markets.

The Company's RV market sales decreased 23%, marine market sales decreased 24% and MH market sales decreased 6% while industrial market sales increased 6% when compared to the prior year period.

During the second quarter and six months ended June 28, 2020, all four of our end markets were impacted by business disruptions and associated lost production and shipping days due to the COVID-19 pandemic.

Revenue attributable to acquisitions completed in the second quarter and first six months of 2020 was $3.3 million and $3.8 million, respectively.

The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the second quarter of 2020 decreased approximately 2% to $3,086 from $3,135 for the second quarter of 2019.

Marine powerboat content per retail unit (on a trailing twelve-month basis) for the second quarter of 2020 decreased approximately 13% to an estimated $1,439 from $1,659 for the second quarter of 2019.

MH content per wholesale unit (on a trailing twelve-month basis) for the second quarter of 2020 increased approximately 16% to an estimated $4,501 from $3,889 for the second quarter of 2019.

Cost of Goods Sold.

Cost of goods sold decreased $21.9 million, or 4%, to $479.8 million in the first quarter of 2020 from $501.7 million in 2019.

As a percentage of net sales, cost of goods sold decreased during the first quarter of 2020 to 81.4% from 82.5% in 2019.

Cost of goods sold as a percentage of net sales decreased primarily as a result of (i) cost reductions we initiated in the third quarter of 2019 which benefited our gross margins in the first quarter of 2020, (ii) synergies achieved and realized in the first quarter of 2020 from our 2018 and 2019 acquisitions and (iii) decreases in commodity cost inputs.

In general, the Company's cost of goods sold percentage can be impacted from quarter-to-quarter by demand changes in certain market sectors that can result in fluctuating costs of certain raw materials and commodity-based components that are utilized in the production of our products.

Cost of goods sold decreased $150.3 million, or 30%, to $350.3 million in the second quarter of 2020 from $500.6 million in 2019, primarily reflecting the decrease in net sales in the quarter.

As a percentage of net sales, cost of goods sold increased during the second quarter of 2020 to 82.6% from 81.6% in 2019.

This percentage increase is largely attributed to additional costs incurred and production inefficiencies related to business disruption of our end markets as a result of the COVID-19 pandemic.

Cost of goods sold decreased $172.1 million, or 17%, to $830.1 million in the first six months of 2020 from $1,002.2 million in 2019, primarily reflecting the decrease in net sales in the period.

As a percentage of net sales, cost of goods sold decreased during the first six months of 2020 to 81.9% from 82.1% in 2019.

Cost of goods sold as a percentage of net sales decreased in the first six months of 2020 primarily as a result of (i) cost reductions we initiated in the third quarter of 2019, (ii) synergies achieved and realized in the first six months of 2020 from our 2018 and 2019 acquisitions and (iii) decreases in commodity cost inputs.

These decreases in cost of goods sold were partially offset by additional costs incurred and production inefficiencies related to business disruption of our end markets as a result of the COVID-19 pandemic.

Gross Profit.

Gross profit increased $3.0 million, or 3%, to $109.5 million in the first quarter of 2020 from $106.5 million in 2019.

As a percentage of net sales, gross profit increased to 18.6% in the first quarter of 2020 from 17.5% in the same period in 2019.

The increase in gross profit as a percentage of net sales in the first quarter of 2020 compared to the same period in 2019 reflects the impact of the factors discussed above under “Cost of Goods Sold”.

Gross profit decreased $39.0 million, or 35%, to $73.7 million in the second quarter of 2020 from $112.7 million in 2019.

As a percentage of net sales, gross profit decreased to 17.4% in the second quarter of 2020 from 18.4% in the same period in 2019.

Gross profit decreased $36.0 million, or 16%, to $183.2 million in the first six months of 2020 from $219.2 million in 2019.

As a percentage of net sales, gross profit increased to 18.1% in the first six months of 2020 from 17.9% in the same period in 2019.

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

Warehouse and Delivery Expenses .

Warehouse and delivery expenses increased $0.7 million, or 3%, to $24.7 million in the first quarter of 2020 from $24.0 million in the first quarter of 2019.

As a percentage of net sales, warehouse and delivery expenses were 4.2% in the first quarter of 2020 compared to 4.0% in the first quarter of 2019.

Warehouse and delivery expenses decreased $6.1 million, or 23%, to $20.2 million in the second quarter of 2020 from $26.3 million in the second quarter of 2019.

As a percentage of net sales, warehouse and delivery expenses were 4.8% in the second quarter of 2020 compared to 4.3% in the second quarter of 2019.

Warehouse and delivery expenses decreased $5.4 million, or 11%, to $44.9 million in the first six months of 2020 from $50.3 million in the first six months of 2019.

As a percentage of net sales, warehouse and delivery expenses were 4.4% in the first six months of 2020 compared to 4.1% in the same period in 2019.

The increase in warehouse and delivery expenses as a percentage of net sales for the second quarter and first six months of 2020 primarily reflects the fixed nature of certain of these expenses and operating inefficiencies as net sales declined.

Selling, General and Administrative ("SG&A") Expenses .

SG&A expenses decreased $1.8 million, or 5%, to $35.9 million in the first quarter of 2020 from $37.7 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 6.1% in the first quarter of 2020 compared to 6.2% in the first quarter of 2019.

The decrease in SG&A expenses in the first quarter of 2020 compared to 2019 is primarily due to the realization of cost reduction measures implemented in the third quarter of 2019 as well as reductions in certain SG&A spending associated with the decrease in net sales in the first quarter of 2020.

SG&A expenses decreased $1.3 million, or 4%, to $31.6 million in the second quarter of 2020 from $32.9 million in the prior year quarter.

As a percentage of net sales, SG&A expenses were 7.4% in the second quarter of 2020 compared to 5.4% in the second quarter of 2019.

SG&A expenses decreased $3.1 million, or 4%, to $67.5 million in the first six months of 2020 from $70.6 million in the prior year period.

As a percentage of net sales, SG&A expenses were 6.7% in the first six months of 2020 compared to 5.8% in the prior year period.

The decrease in SG&A expenses in the second quarter of 2020 compared to 2019 is primarily due to the realization of cost reduction measures implemented in the third quarter of 2019 and the first quarter of 2020 as well as reductions in certain SG&A spending associated with the decrease in net sales in the second quarter and first six months of 2020.

The increase in SG&A expenses as a percentage of net sales in the second quarter and first six months of 2020 compared to prior year periods is attributed to the decline in net sales from the impact of COVID-19, discussed above.

Amortization of Intangible Assets.

Amortization of intangible assets increased $0.6 million, or 7%, to $9.6 million in the first quarter of 2020 from $9.0 million in the prior year quarter.

The increase in the first quarter of 2020 compared to the prior year quarter primarily reflects the impact of businesses acquired in 2019.

Amortization of intangible assets increased $1.5 million, or 18%, to $9.8 million in the second quarter of 2020 from $8.3 million in the prior year quarter and increased $2.1 million, or 12%, to $19.4 million in the first six months of 2020 from $17.3 million in the prior year period.

The increase in the second quarter and first six months of 2020 compared to the prior year periods primarily reflects the impact of businesses acquired in 2019 and 2020.

Operating Income.

Operating income increased $3.5 million, or 10%, to $39.3 million in the first quarter of 2020 from $35.8 million in 2019.

As a percentage of net sales, operating income was 6.7% in the first quarter of 2020 versus 5.9% in the same period in 2019.

The change in operating income and operating margin is primarily attributable to the items discussed above.

Operating income decreased $33.1 million, or 73%, to $12.1 million in the second quarter of 2020 from $45.2 million in 2019.

As a percentage of net sales, operating income was 2.9% in the second quarter of 2020 versus 7.4% in the same period in 2019.

Operating income decreased $29.7 million, or 37%, to $51.4 million in the first six months of 2020 from $81.1 million in 2019.

As a percentage of net sales, operating income was 5.1% in the first six months of 2020 versus 6.6% in the same period in 2019.

The change in operating income and operating income percentage is primarily attributable to the items discussed above.

Interest Expense, Net.

Interest expense increased $1.5 million, or 17%, to $10.5 million in the first quarter of 2020 from $9.0 million in the prior year.

The increase in interest expense reflects increased borrowings related to 2019 acquisitions and an increase in the Company's overall average interest rate resulting from the issuance of $300 million aggregate principal amount of 7.5% senior notes in the third quarter of 2019, partially offset by a decrease in variable interest rates on the Company's term loan and revolving credit facility.

Interest expense increased $2.2 million, or 25%, to $10.8 million in the second quarter of 2020 from $8.6 million in the prior year.

For the first six months of 2020, interest expense increased $3.7 million, or 21%, to $21.3 million from $17.6 million in the prior year period.

The increase in interest expense in the second quarter and first six months of 2020 reflects increased borrowings related to 2019 and 2020 acquisitions and an increase in the Company's overall average interest rate resulting from the issuance of $300 million aggregate principal amount of 7.5% senior notes in the third quarter of 2019.

Income Taxes.

Income tax expense increased $1.6 million, or 27%, to $7.6 million from $6.0 million in the prior year period.

The increase in income tax expense is due primarily to an increase in pretax income as well as an increase in the effective tax rate in the first quarter of 2020 compared to the prior year quarter.

The effective tax rate in the first quarter of 2020 and 2019 was 26.4% and 22.3% , respectively.

The effective tax rate for the first quarter 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 $0.8 million .

Income tax expense decreased $8.6 million, or 94%, to $0.6 million in the second quarter of 2020 from $9.2 million in the prior year period.

For the first six months of 2020, income tax expense decreased $7.0 million, or 46%, to $8.2 million for the first six months of 2020 from $15.2 million in the prior year period.

The decrease in both the second quarter and first six months of 2020 is attributed to the decrease in taxable income for both periods.

The effective tax rate in the second quarter of 2020 and 2019 was 44.4% and 25.1% , respectively, and the effective tax rate for the comparable six month periods was 27.2% and 23.9% , respectively.

The effective tax rate for the second quarter and six 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 six 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.

Use of Financial Metrics

8 unchanged sentences

The Company does not measure profitability at the customer market (RV, marine, MH and industrial) level.

First Quarter Ended March 29, 2020 Compared to 2019

Second Quarter and Six Months Ended June 28, 2020 Compared to 2019

In the discussion that follows, sales attributable to the Company’s 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 reportable segments.

A reconciliation of consolidated operating income is presented in Note 15 to the Notes to Condensed Consolidated Financial Statements.

First Quarter Ended

March 29, 2020

March 31, 2019

A reconciliation of consolidated operating income is presented in Note 15 of the Notes to Condensed Consolidated Financial Statements.

Second Quarter Ended

Six Months Ended

June 28, 2020

June 30, 2019

June 28, 2020

June 30, 2019

Manufacturing

3 unchanged sentences

Manufacturing

Sales decreased $6.6 million, or 2%, to $426.8 million in the first quarter of 2020 from $433.4 million in the prior year quarter.

This segment accounted for approximately 71% and 70% of the Company’s consolidated net sales for the first quarter of 2020 and 2019, respectively.

The sales decrease in the first quarter of 2020 was primarily attributed to sales decreases to the RV and marine markets as a result of business disruptions and lost shipping days due to the COVID-19 pandemic.

Sales decreased $144.9 million, or 33%, to $297.7 million in the second quarter of 2020 from $442.6 million in the prior year quarter.

For the first six months of 2020, sales decreased $151.5 million, or 17%, to $724.5 million from $876.0 million in the prior year period.

This segment accounted for approximately 69% and 71% of the Company’s consolidated net sales for the second quarter of 2020 and 2019, respectively, and 70% of the Company's consolidated net sales for the first six months of 2020 and 2019.

The sales decrease in the second quarter and first six 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.

Gross Profit .

Gross profit increased $2.1 million, or 3%, to $78.9 million in the first quarter of 2020 from $76.8 million in the first quarter of 2019.

As a percentage of sales, gross profit increased to 18.5% in the first quarter of 2020 from 17.7% in the first quarter of 2019.

Gross profit increased during the first quarter of 2020 compared to the prior year quarter primarily due to cost reduction initiatives implemented in the third quarter of 2019 as well as synergies we achieved from our 2018 and 2019 acquisitions.

Gross profit decreased $31.7 million, or 39%, to $49.0 million in the second quarter of 2020 from $80.7 million in the second quarter of 2019.

For the first six months of 2020, gross profit decreased $29.6 million, or 19%, to $127.9 million from $157.5 million in 2019.

As a percentage of sales, gross profit decreased to 16.5% in the second quarter of 2020 from 18.2% in the second quarter of 2019 and decreased to 17.7% in the first six months of 2020 from 18.0% in the prior year period.

Gross profit as a percentage of net sales decreased during the second quarter and first six months of 2020 compared to the prior year periods primarily due to additional costs and operational inefficiencies as a result of business disruptions from the COVID-19 pandemic.

Operating Income.

Operating income increased $1.3 million, or 3%, to $45.7 million in the first quarter of 2020 from $44.4 million in the prior year quarter.

The overall increase in operating income in the first quarter of 2020 primarily reflects the items discussed above.

Sales decreased $12.4 million, or 7%, to $171.3 million in the first quarter of 2020 from $183.7 million in the prior year quarter.

This segment accounted for approximately 29% and 30% of the Company’s consolidated net sales for the first quarter of 2020 and 2019, respectively.

The sales decrease was mostly attributed to a decrease in our RV end market sales in the first quarter of 2020 compared to the prior year quarter as a result of business disruptions and lost shipping days due to the COVID-19 pandemic.

Operating income decreased $26.4 million, or 54%, to $22.4 million in the second quarter of 2020 from $48.8 million in the prior year quarter.

For the first six months of 2020, operating income decreased $25.1 million, or 27%, to $68.1 million from $93.2 million in the prior year.

The overall decrease in operating income in the second quarter and first six months of 2020 primarily reflects the items discussed above.

Sales decreased $47.5 million, or 26%, to $132.6 million in the second quarter of 2020 from $180.1 million in the prior year quarter.

For the first six months of 2020, sales decreased $60.0 million, or 16%, to $303.8 million from $363.8 million in the prior year period.

This segment accounted for approximately 31% and 29% of the Company’s consolidated net sales for the second quarter of 2020 and 2019, respectively, and 30% of consolidated net sales for the first six months of 2020 and 2019.

Gross Profit.

Gross profit increased $0.2 million, or 1%, to $29.2 million in the first quarter of 2020 from $29.0 million in the first quarter of 2019.

As a percentage of sales, gross profit increased to 17.0% in the first quarter of 2020 from 15.8% in the first quarter of 2019.

The increase in gross profit margin in the first quarter of 2020 compared to the first quarter of 2019 is primarily attributed to a reduction of overall fixed costs relative to RV and MH distribution product revenue.

Gross profit decreased $7.6 million, or 25%, to $23.2 million in the second quarter of 2020 from $30.8 million in the second quarter of 2019.

For the first six months of 2020, gross profit decreased $7.4 million, or 12%, to $52.4 million from $59.8 million in 2019.

As a percentage of sales, gross profit increased to 17.5% in the second quarter of 2020 from 17.1% in the second quarter of 2019 and increased to 17.2% in the first six months of 2020 from 16.4% in the prior year period.

As a percentage of sales, gross profit increased during the second quarter and first six months of 2020 compared to the prior year periods 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.

Operating Income.

Operating income increased $1.7 million, or 20%, to $10.0 million in the first quarter of 2020 from $8.3 million in the prior year quarter.

The improvement in operating income in the first quarter of 2020 primarily reflects the items discussed above.

Operating income decreased $3.9 million, or 36%, to $6.9 million in the second quarter of 2020 from $10.8 million in the prior year quarter.

For the first six months of 2020, operating income decreased $2.2 million, or 11%, to $16.9 million from $19.1 million in the prior year.

The overall decrease in operating income in the second quarter and first six months of 2020 primarily reflects the items discussed above.

LIQUIDITY AND CAPITAL RESOURCES

As the impact of the COVID-19 pandemic on the economy, our markets and our operations evolves, we will continue to assess our liquidity needs.

The COVID-19 pandemic has materially adversely impacted the global economy, disrupted global supply chains and created significant volatility and disruption in financial markets.

An extended period of global supply chain and economic disruption could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition.

Given the economic uncertainty as a result of the pandemic, we have taken actions to improve our current liquidity position, including reducing working capital, pausing our share repurchase program, postponing non-essential capital expenditures, reducing executive salaries, reducing operating costs by initiating workforce reductions and furloughs, and reducing discretionary spending.

Our liquidity at March 29, 2020 consisted of cash and cash equivalents of $94.5 million as well as $410.2 million of availability under our credit facility.

After a postponement of non-essential capital expenditures in the second quarter of 2020, the Company expects to return to its historical levels of capital expenditures in the second half of 2020 reflecting the anticipated recovery of our end markets.

Our liquidity at June 28, 2020 consisted of cash and cash equivalents of $111.1 million and $410.2 million of unused borrowing availability under our credit facility.

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 $14.7 million to $13.2 million in the first quarter of 2020 from $27.9 million in the first quarter of 2019 primarily as a result of an increase in the use of cash from trade receivables of $12.3 million, primarily reflecting the timing of cash receipts from one large customer, and an increase in the use of cash from inventories of $19.4 million, due mostly to purchases of raw materials in anticipation of potential supply chain disruptions related to COVID-19.

These decreases in operating cash flows were partially offset by an increase of cash flows from prepaid expenses and other assets of $4.4 million, accounts payable of $10.5 million, and other items of $2.1 million, mostly due to the timing of prepaid expenditures and accounts payable disbursements.

Net cash provided by operating activities decreased $54.4 million to $39.4 million in the first six months of 2020 from $93.8 million in the first six months of 2019 primarily due to (i) a decrease of net income of $26.4 million due to disruptions in our end markets as a result of the COVID-19 pandemic;

(ii) an increase in the use of cash from trade receivables of $24.0 million, primarily due to the timing of customer cash payments at the end of our fiscal second quarter;

(iii) an increase in the use of cash from inventories of $20.8 million, due mostly to purchases of inventory in June 2020 as a result of an increase in demand in our end markets;

and (iv) a decrease of deferred income tax liabilities of $7.6 million.

These decreases in operating cash flows were partially offset by an increase of cash flows from prepaid expenses and other assets of $12.5 million and accounts payable of $5.2 million and an increase of depreciation and amortization of $4.4 million.

Investing Activities

Net cash used in investing activities increased $21.9 million to $31.8 million in the first quarter 2020 from $9.9 million in the first quarter of 2019 primarily due to an increase in cash used in business acquisitions of $23.1 million, partially offset by a decrease in capital expenditures and other investing activities of $1.2 million.

Net cash used in investing activities increased $19.9 million to $35.0 million in the first six months of 2020 from $15.1 million in the first six months of 2019 primarily due to an increase in cash used in business acquisitions of $22.6 million

and a decrease in proceeds from sale of property, plant, and equipment and other investing activities of $4.2 million, partially offset by a decrease in capital expenditures of $6.9 million.

Financing Activities

Net cash flows used by financing activities increased $9.7 million to $26.2 million in the first quarter of 2020 from $16.5 million in the first quarter of 2019 primarily due to stock repurchases under our buyback program of $15.6 million with no corresponding amount in the prior year quarter and cash dividends paid to shareholders of $5.8 million with no corresponding amount in the prior year quarter.

These increases in use of cash from financing activities were partially offset by a decrease in the payment of contingent consideration from a business acquisition of $2.4 million and a decrease in net repayments on our credit facility of $8.6 million and other financing activities of $0.7 million.

Net cash flows used by financing activities decreased $29.4 million to $32.7 million in first six months of 2020 from $62.1 million in the first six months of 2019 primarily due to a net decrease in repayments on our revolving credit facility and term loan of $52.8 million and other financing activities of $3.8 million, partially offset by stock repurchases under our buyback program of $15.6 million with no corresponding amount in the prior year period and cash dividends paid to shareholders of $11.6 million with no corresponding amount in the prior year period.

Summary of Liquidity and Capital Resources

11 unchanged sentences

The Company is required to pay fees on unused but committed portions of the revolver, which range from 0.15% to 0.225%.

At March 29, 2020, the Company had $410.2 million of unused borrowing availability under its credit facility.

At June 28, 2020, the Company had $410.2 million of unused borrowing availability under its credit facility.

The ability to access unused borrowing capacity under the 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.

As of and for the March 29, 2020 reporting date, the Company was in compliance with its financial covenants as required under the terms of 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 March 29, 2020 and for the fiscal period then ended are as follows:

Consolidated total leverage ratio (12-month period)

Consolidated fixed charge coverage ratio (12-month period)

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.

As of and for the June 28, 2020 reporting date, the Company was in compliance with its financial covenants as required under the terms of 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 June 28, 2020 and for the fiscal period then ended are as follows:

Maximum consolidated total leverage ratio (12-month period)

Minimum consolidated fixed charge coverage ratio (12-month period)

Working capital requirements vary from period to period depending on manufacturing volumes, 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.

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.

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, 2019 .

Manufacturing operations in the RV, marine and MH industries historically have been seasonal and at their highest levels when the weather is moderate.

Operations in the RV, marine and MH industries historically have been seasonal and at their highest levels when the weather is moderate.

Accordingly, the Company’s sales and profits had generally been the highest in the second quarter and lowest in the fourth quarter.

7 unchanged sentences

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, 2019 , and in the Company's Form 10-Qs for subsequent quarterly periods, which are filed with the SEC and are available on the SEC’s website at www.sec.gov.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis