PATRICK INDUSTRIES INC 10-Q

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 Pr ivate Securities Litigation Reform Act of 1995. See “Information Concerning Forward-Looking Statements” on page 34 of this Report. The Company undertakes no obligation to update these forward-looking statements. OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE Third Quarter and Nine Months 2021 Financial Overview Recreational Vehicle ("RV") Industry The RV industry is our largest market and comprised 60% of the Company’s sales in the third quarter ended September 26, 2021 and September 27, 2020, respectively, and 59% and 55% for the comparative 2021 and 2020 nine month periods. Sales to the RV industry increased 50% in the third quarter of 2021 and increased 83% in the first nine months of 2021, compared to the prior year periods. According to the Recreation Vehicle Industry Association ("RVIA"), wholesale shipments totaled approximately 152,400 units in the third quarter of 2021, an increase of 23% compared to approximately 124,100 units in the third quarter of 2020. RVIA indicated that wholesale unit shipments for the first nine months of 2021 totaled approximately 452,600 units, an increase of 51% compared to approximately 300,200 units in the prior year. The increase in wholesale unit shipments in the third quarter and first nine months of 2021 is attributed to a continued increase in RV dealer demand for RV units. In addition, the increase in the first nine months of 2021 reflects the comparison to the sharp decrease in wholesale unit shipments in the second quarter of 2020, which was a result of COVID-19-related production shutdowns at original equipment manufacturers' plants. This increase in dealer demand is correlated with consumer demand for RV units, which we believe reflects changes in consumer recreation patterns, which include an increased interest in outdoor recreation. According to our estimates, RV dealer invent ories are trending at historical lows relative to what we understand to be historical customary inventory levels of RV dealers. We believe that the supply-demand dynamics of historically low dealer inventory levels, combined with strong retail consumer demand, have resulted in positive momentum in our RV end market. We estimate RV retail unit sales decreased 15-20% in the third quarter of 2021 in comparison to the third quarter of 2020 as a result of supply-chain constraints and low dealer inventory levels as well as particularly strong retail sales in the third quarter of 2020 as leisure lifestyle activities recovered following the COVID-19-related slowdown. We estimate RV retail unit sales increased 15% for the first nine months of 2021 compared to the prior year period. Marine Industry Sales to the marine industry, which represented approximately 16% and 14% of the Company's consolidated net sales in the third quarter of 2021 and 2020, respectively, increased 85% compared to the prior year quarter. For the first nine months of 2021 and 2020, sales to the marine industry represented 16% and 14% of consolidated net sales, respectively, increasing 107% in 2021 compared to the prior year period. Our marine revenue is gen erally correlated to marine wholesale powerboat unit shipments which, according to National Marine Manufacturers Association ("NMMA"), increased an estimated 15% for the third quarter 2021 and increased an estimated 16% for the first nine months of 2021 compared to the prior year periods. Marine retail powerboat unit sales decreased 31% in the third quarter of 2021 and decreased 6% for the first nine months of 2021 compared to the prior year periods as a result of supply-chain constraints and low dealer inventory levels as well as particularly strong retail sales in the third quarter of 2020 as leisure lifestyle activities recover ed following the COVID-19-related slowdown. We estimate that, despite these decreases, marine retail sales exceeded marine wholesale unit shipments in both the third 26 quarter and nine months of 2021, resulting in marine dealer inventory levels that we believe are at their lowest in at least a decade. Manufactured Housing ("MH") Industry Sales to the MH industry, which represented 13% and 15% of the Company’s sales in the third quarter of 2021 and 2020, respectively, increased 25% in the third quarter of 2021 compared to the third quarter of 2020. MH sales represented 14% and 18% of the Company's sales for the first nine months of 2021 and 2020, respectively, and increased 27% in the first nine months of 2021 compared to the prio r year period. Based on industry data from the Manufactured Housing Institute, MH wholesale unit shipments increased 9% in the third quarter of 2021 and increased 14% for the first nine months of 2021 compared to the prior year periods. Industrial Market The industrial market is comprised primarily of the kitchen cabinet and countertop industry, hospitality market, retail and commercial fixtures market, office and household furniture market and regional distributors. Sales to this market represented 11% of our sales in the third quarter of 2021 and 2020, and increased 52% in the third quarter of 2021 compared to the prior year quarter. Sales to the industrial market represented 11% and 13% of our sales for the first nine months of 2021 and 2020, respectively, and increased 45% in the first nine months of 2021 compared to the prior year period. Overall, our revenues in these markets are focused on the residential and multifamily housing, hospitality, high-rise housing and office, commercial construction and institutional furniture markets. We estimate that approximately 70% of our industrial business is directly tied to the residential housing market, with the remaining 30% directly tied to the non-residential and commercial markets. According to the U.S. Census Bureau, combined n ew housing starts increased 9% in the third quarter of 2021 compared to the prior year quarter, with single family housing starts increasing 5% and multifamily housing starts increasing 19% for the same period. The U.S. Census Bureau also indicated that for the first nine months of 2021, combined new housing starts increased 20%, with single family housing starts increasing 20% and multifamily housing starts increasing 18% compared to 2020. 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 Third Quarter and Nine Months Ended September 26, 2021 Compared to 2020 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 ($ in thousands) September 26, 2021 September 27, 2020 Amount Change % Change Net sales $ 1,060,177 100.0 % $ 700,707 100.0 % $ 359,470 51 % Cost of goods sold 852,016 80.4 % 567,210 80.9 % 284,806 50 % Gross profit 208,161 19.6 % 133,497 19.1 % 74,664 56 % Warehouse and delivery expenses 35,885 3.4 % 25,263 3.6 % 10,622 42 % Selling, general and administrative expenses 64,245 6.1 % 38,184 5.4 % 26,061 68 % Amortization of intangible assets 14,758 1.4 % 10,221 1.5 % 4,537 44 % Operating income 93,273 8.8 % 59,829 8.5 % 33,444 56 % Interest expense, net 15,436 1.5 % 10,507 1.5 % 4,929 47 % Income taxes 20,440 1.9 % 11,986 1.7 % 8,454 71 % Net income $ 57,397 5.4 % $ 37,336 5.3 % $ 20,061 54 % 27 Nine Months Ended ($ in thousands) September 26, 2021 September 27, 2020 Amount Change % Change Net sales $ 2,930,613 100.0 % $ 1,713,984 100.0 % $ 1,216,629 71 % Cost of goods sold 2,356,443 80.4 % 1,397,285 81.5 % 959,158 69 % Gross profit 574,170 19.6 % 316,699 18.5 % 257,471 81 % Warehouse and delivery expenses 100,613 3.4 % 70,204 4.1 % 30,409 43 % Selling, general and administrative expenses 175,842 6.0 % 105,681 6.2 % 70,161 66 % Amortization of intangible assets 40,695 1.4 % 29,600 1.7 % 11,095 37 % Operating income 257,020 8.8 % 111,214 6.5 % 145,806 131 % Interest expense, net 41,195 1.4 % 31,820 1.9 % 9,375 29 % Income taxes 51,930 1.8 % 20,157 1.2 % 31,773 158 % Net income $ 163,895 5.6 % $ 59,237 3.5 % $ 104,658 177 % Net Sales . Net sales in the third quarter of 2021 increased $359.5 million, or 51%, to $1,060.2 million from $700.7 million in the third quarter of 2020. The net sales increase in the third quarter of 2021 reflects strong demand for our products across all end markets. The Company's RV market sales increased 50%, marine market sales increased 85%, MH market sales increased 25% and industrial market sales increased 52% when compared to the prior year quarter. Net sales in the first nine months of 2021 increased $1,216.6 million, or 71%, to $2,930.6 million from $1,714.0 million in the first nine months of 2020. The net sales increase in the first nine months of 2021 reflects sales increases in all of our end markets, while sales in the first nine months of 2020 also reflect the impact of COVID-19-related production shutdowns during the second quarter of 2020. The Company's RV market sales increased 83%, marine market sales increased 107%, MH market sales increased 27% and industrial market sales increased 45% in the first nine months of 2021 when compared to the prior year period. Revenue attributable to acquisitions completed in the first nine months of 2021 was $84.0 million in the third quarter of 2021 and $146.1 million for the first nine months of 2021. Revenue attributable to acquisitions completed in the first nine months of 2020 was $19.6 million in the third quarter of 2020 and $23.3 million for the first nine months of 2020. The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the third quarter of 2021 increased approximately 19% to $3,735 fr om $3,139 for the third quarter of 2020. Marine po werboat content per wholesale unit (on a trailing twelve-month basis) for the third quarter of 2021 increased approximately 66% to an estimated $3,166 from $1,909 for the third quarter of 2020. MH content per wholesale unit (on a trailing twelve-month basis) for the third quarter of 2021 increased approximately 10% to $4,961 from $4,497 for the third quarter of 2020. Cost of Goods Sold. Cost of goods sold increased $284.8 million, or 50%, to $852.0 million in the third quarte r of 2021 from $567.2 million in 2020. As a percentage of net sales, cost of goods sold decreased 50 basis points during the third quarter of 2021 to 80.4% from 80.9% in 2020. Cost of goods sold in the first nine months increased $959.1 million, or 69%, to $2,356.4 million from $1,397.3 million in 2020. As a percentage of net sales, cost of goods sold decreased 110 basis points during the first nine months of 2021 to 80.4% from 81.5% in 2020. Cost of goods sold as a percentage of net sales decreased in the third quarter and first nine months of 2021 primarily as a result of (i) continued cost reduction and automation initiatives we deployed throughout 2020 and into 2021, (ii) volume-driven efficiencies as a result of leveraging fixed overhead, (iii) a recovery from the production inefficiencies experienced while operating in a COVID-19 environment, and (iv) synergies and different cost profiles from our 2021 and 2020 acquisitions, partially offset by an increase in labor, supply-chain constraints, and an increase in certain 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. 28 Gross Profit. Gross profit increased $74.7 million, or 56%, to $208.2 million in the third quarter of 2021 from $133.5 million in 2020. As a percentage of net sales, gross profit increased 50 basis points to 19.6% in the third quarter of 2021 from 19.1% in the same period in 2020. Gross profit increased $257.5 million, or 81%, to $574.2 million in the first nine months of 2021 from $316.7 million in 2020. As a percentage of net sales, gross profit increased 110 basis points to 19.6% in the first nine months of 2021 from 18.5% in the same period in 2020. The increase in gross profit as a percentage of net sales in the third quarter and nine months ended September 26, 2021 compared to the same periods in 2020 reflects the impact of the factors discussed above under “Cost of Goods Sold”. Warehouse and Delivery Expenses . Warehouse and delivery expenses increased $10.6 million, or 42%, to $35.9 million in the third quarter of 2021 from $25.3 million in the third quarter of 2020. As a percentage of net sales, warehouse and delivery expenses decreased 20 basis points to 3.4% in the third quarter of 2021 compared to 3.6% in the third quarter of 2020. Warehouse and delivery expenses increased $30.4 million, or 43%, to $100.6 million in the first nine months of 2021 from $70.2 million in the first nine months of 2020. As a percentage of net sales, warehouse and delivery expenses decreased 70 basis points to 3.4% in the first nine months of 2021 compared to 4.1% in the prior year period. The increases in warehouse and delivery expenses are attributable to the significant increases in sales. However, the decreases as a percentage of sales are primarily attributable to leveraging certain fixed warehousing costs and the lower proportion of MH sales in the third quarter and first nine months of 2021 as compared to 2020, which have higher warehouse and delivery costs as a percentage of net sales. In addition, the first nine months of 2020 reflect operating inefficiencies associated with COVID-19. Selling, General and Administrative ("SG&A") Expenses . SG&A expenses increased $26.0 million, or 68%, to $64.2 million in the third quarter of 2021 from $38.2 million in the prior year quarter. As a percentage of net sales, SG&A expenses were 6.1% in the third quarter of 2021 compared to 5.4% in the third quarter of 2020. SG&A expenses increased $70.1 million, or 66%, to $175.8 million in the first nine months of 2021 from $105.7 million in the first nine months of 2020. As a percentage of net sales, SG&A expenses were 6.0% in the first nine months of 2021 compared to 6.2% in the first nine months of 2020. The increases in SG&A expenses in the third quarter and first nine months of 2021 compared to 2020 are primarily due to (i) the increase in net sales; (ii) increases in the breadth and depth of corporate resources, specifically our investments in human capital and other initiatives to support the size and growth of the Company and (iii) the comparison to the prior year, which includes SG&A cost reduction measures implemented in the second quarter of 2020 that continued into the third quarter of 2020. As a percentage of sales, SG&A expenses increased 70 basis points for the third quarter of 2021 compared to the third quarter of 2020. This increase is primarily a result of the aforementioned investment in human capital in order to further support the size and growth of the Company. As a percentage of sales, SG&A expenses decreased 20 basis points for the first nine months of 2021 when compared to the prior year period, primarily reflecting the fixed nature of certain SG&A costs and operating inefficiencies associated with COVID-19 during 2020. Amortization of Intangible Assets. Amortization of intangible assets increased $4.6 million, or 44%, to $14.8 million in the third quarter of 2021 from $10.2 million in the prior year quarter. Amortization of intangible assets increased $11.1 million, or 37%, to $40.7 million in the first nine months of 2021 from $29.6 million in the first nine months of 2020. The increases in the third quarter and first nine months of 2021 compared to the prior year periods primarily reflect the impact of businesses acquired in 2020 and 2021. Operating Income. Operating income increased $33.5 million, or 56%, to $93.3 million in the third quarter of 2021 from $59.8 million in 2020. As a percentage of net sales, operating income increased 30 basis points to 8.8% in the third quarter of 2021 versus 8.5% in the same period in 2020. Operating income increased $145.8 million, or 131%, to $257.0 million in the first nine months of 2021 from $111.2 million in 2020. As a percentage of net sales, operating income 29 increased 230 basis points to 8.8% in the first nine months of 2021 versus 6.5% in the same period in 2020. The change in operating income and operating margin is primarily attributable to the items discussed above. Interest Expense, Net. Interest expense increased $4.9 million, or 47%, to $15.4 million in the third quarter of 2021 from $10.5 million in the prior year. Interest expense increased $9.4 million, or 29%, to $41.2 million in the first nine months of 2021 from $31.8 million in the prior year. The increase in interest expense reflects (i) increased borrowings related to 2020 and 2021 acquisitions and (ii) the Company's issuance of its 4.75% Senior Notes due 2029 (the "4.75% Senior Notes") in April 2021 (as described in Note 9 in the Notes to Condensed Consolidated Financial Statements). Income Taxes. Income tax expense increased $8.4 million in the third quarter of 2021 to $20.4 million from $12.0 million in the prior year period. Income tax expense increased $31.7 million in the first nine months of 2021, to $51.9 million from $20.2 million in the prior year period. The increase in income tax expense is due primarily to an increase in pretax income. The effective tax rate in the third quarter of 2021 and 2020 was 26.3% and 24.3%, respectively. The effective tax rates in the first nine months of 2021 and 2020 were 24.1% and 25.4%, respectively. The 2021 rate includes the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense in the amount of $5.7 million, while the 2020 rate reflects the impact of $2.2 million in permanent tax differences due to certain Coronavirus Aid Relief and Economic Security Act payroll tax credits. 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. These metrics should not 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's reportable segments, Manufacturing and Distribution, are based on its method of internal reporting. The Company regularly evaluates the performance of the Manufacturing and Distribution segments and allocates resources to them based on a variety of indicators including sales and operating income. The Company does not measure profitability at the customer market (RV, marine, MH and industrial) level. 30 Third Quarter and Nine Months Ended September 26, 2021 Compared to 2020 General 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 of the Notes to Condensed Consolidated Financial Statements. Third Quarter Ended (thousands) September 26, 2021 September 27, 2020 Amount Change % Change Sales Manufacturing $ 792,299 $ 506,278 $ 286,021 56% Distribution 289,822 208,073 81,749 39% Gross Profit Manufacturing 149,139 97,543 51,596 53% Distribution 57,349 36,293 21,056 58% Operating Income Manufacturing 91,370 63,312 28,058 44% Distribution 31,187 16,444 14,743 90% Nine Months Ended (thousands) September 26, 2021 September 27, 2020 Amount Change % Change Sales Manufacturing $ 2,151,946 $ 1,230,805 $ 921,141 75% Distribution 833,381 511,895 321,486 63% Gross Profit Manufacturing 420,625 225,447 195,178 87% Distribution 158,047 88,627 69,420 78% Operating Income Manufacturing 269,227 131,426 137,801 105% Distribution 83,563 33,350 50,213 151% Manufacturing Sales. Sales increased $286.0 million, or 56%, to $792.3 million in the third quarter of 2021 from $506.3 million in the prior year quarter. For the first nine months of 2021, sales increased $921.1 million, or 75%, to $2,151.9 million from $1,230.8 million in the prior year period. This segment accounted for approximately 73% and 71% of the Company’s sales for the third quarter of 2021 and 2020, respectively, and 72% and 71% for the first nine months of 2021 and 2020, respectively. The sales increase in the third quarter of 2021 compared to 2020 was attributed to sales increases in all four of the Company's end markets, where sales to the RV end market increased 49%, marine increased 85% , MH increased 43% and industrial increased 56%. The sales increase for the first nine months of 2021 compared to the prior year period was also attributed to sales increases in all four end markets, where RV end market sales increased 77%, marine increased 107% , MH increased 49% and industrial increased 47%. Net sales in the third quarter and first nine months of 2021 attributable to acquisitions completed in the first nine months of 2021 were approximately $63.4 million and 31 $110.1 million, respectively, and net sales in the third quarter and first nine months of 2020 attributable to acquisitions completed in the first nine months of 2020 were $13.2 million and $17.0 million, respectively. Gross Profit . Gross profit increased $51.6 million, or 53%, to $149.1 million in the third quarter of 2021 from $97.5 million in the third quarter of 2020. For the first nine months of 2021, gross profit increased $195.2 million, or 87%, to $420.6 million from $225.4 million in the prior year period. As a percentage of sales, gross profit decreased to 18.8% in the third quarter of 2021 from 19.3% in the third quarter of 2020 and increased to 19.5% in the first nine months of 2021 from 18.3% in the prior year period. Gross profit margin decreased during the third quarter of 2021 compared to third quarter of 2020 primarily due to a 250 basis point increase in manufacturing material expense as a percentage of sales due to the impacts of supply chain constraints and increased material costs, partially offset by an improvement of 90 basis points in manufacturing labor and 120 basis points in manufacturing overhead as a percentage of sales. Gross profit margin increased during the first nine months of 2021 compared to the same period in 2020 primarily due to (i) a 250 basis point improvement in manufacturing overhead expense as a percentage of net sales, and (ii) an 80 basis point improvement in direct labor as a percentage of net sales, partially offset by a 200 basis point increase in material costs as a percentage of sales. Operating Income. Operating income increased $28.1 million, or 44%, to $91.4 million in the third quarter of 2021 from $63.3 million in the prior year quarter. For the first nine months of 2021, operating income increased $137.8 million, or 105%, to $269.2 million from $131.4 million the prior year period. The overall increase in operating income in the third quarter and first nine months of 2021 primarily reflects the items discussed above. Distribution Sales. Sales increased $81.7 million, or 39%, to $289.8 million in the third quarter of 2021 from $208.1 million in the prior year quarter. For the first nine months of 2021, sales increased $321.5 million, or 63%, to $833.4 million from $511.9 million in the prior year period. This segment accounted for approximately 27% and 29% of the Company’s sales for the third quarter of 2021 and 2020, respectively, and 28% and 29% of sales for the first nine months of 2021 and 2020, respectively. The sales increase in the third quarter of 2021 compared to the third quarter of 2020 was attributed to a 52% increase in our RV market sales, an 85% increase in marine market sales, an 11% increase in MH market sales, and a 25% increase in industrial market sales. The sales increase in the first nine months of 2021 compared to the same period in 2020 was attributed to a 97% increase in RV market sales, a 103% increase in marine market sales, a 12% increase in MH market sales and a 31% increase in industrial market sales. Net sales in the third quarter and first nine months of 2021 attributable to acquisitions completed in the first nine months of 2021 were approximately $20.6 million and $36.0 million, respectively, and net sales in the third quarter and first nine months of 2020 attributable to acquisitions completed in the first nine months of 2020 was approximately $6.5 million. Gross Profit. Gross profit increased $21.0 million, or 58%, to $57.3 million in the third quarter of 2021 from $36.3 million in the third quarter of 2020. For the first nine months of 2021, gross profit increased $69.4 million, or 78%, to $158.0 million from $88.6 million the prior year period. As a percentage of sales, gross profit increased to 19.8% in the third quarter of 2021 from 17.4% in the third quarter of 2020, and increased to 19.0% for the first nine months of 2021 from 17.3% for the prior year period. The increase in gross profit margin in the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 is primarily attributed to the higher margin profiles of certain 2020 and 2021 acquisitions and leveraging of certain fixed costs. Operating Income. Operating income increased $14.8 million, or 90%, to $31.2 million in the third quarter of 2021 from $16.4 million in the prior year quarter. For the first nine months of 2021, operating income increased $50.2 million or 151%, to $83.6 million from $33.4 million the prior year period. The improvement in operating income in the third quarter and first nine months of 2021 primarily reflects the items discussed above. 32 LIQUIDITY AND CAPITAL RESOURCES Our liquidity at September 26, 2021 consisted of cash and cash equivalents of $44.9 million as well as $409.3 million of 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 increased $34.6 million to $147.4 million in the first nine months of 2021 from $112.8 million in the first nine months of 2020. The increase is primarily attributable to (i) a $104.7 million increase in net income and (ii) a $23.3 million increase in depreciation and amortization. These increases in sources of cash from operations were offset by an increase in use of cash for net working capital of $108.4 million, associated primarily with investments in inventory to support customer needs and growth of accounts receivable in line with net sales. Investing Activities Net cash used in investing activities increased $198.3 million to $343.7 million in the first nine months of 2021 from $145.4 million in the first nine months of 2020 primarily due to an increase in cash used in business acquisitions of $174.3 million and a $22.0 million increase in capital expenditures. Financing Activities Net cash provided by financing activities increased $240.8 million to $196.4 million in the first nine months of 2021 from a $44.4 million use of cash in the first nine months of 2020. The increase is primarily due to (i) proceeds of $350.0 million from the Company's issuance of its 4.75% Senior Notes and (ii) an additional $58.8 million in term loan borrowings. These sources of cash were partially offset by (i) an additional $139.6 million in net revolver repayments, (ii) a $12.0 million increase in taxes paid for share-based payment arrangements and (iii) a $13.8 million increase in stock repurchases and dividends to shareholders. Summary of Liquidity and Capital Resources At September 26, 2021, the Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its 2021 Credit Facility (as defined herein) 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 ability to access unused borrowing capacity under the 2021 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 2021 Credit Facility (the "2021 Credit Agreement"). As of and for the September 26, 2021 reporting date, the Company was in compliance with its financial covenants as required under the terms of its 2021 Credit Agreement. The required maximum consolidated secured net leverage ratio and the required minimum consolidated fixed charge coverage ratio, as such ratios are defined in the 2021 Credit Agreement, compared to the actual amounts as of September 26, 2021 and for the fiscal period then ended are as follows: Required Actual Consolidated secured net leverage ratio (12-month period) 2.75 0.48 Consolidated fixed charge coverage ratio (12-month period) 1.50 6.84 In addition, as of September 26, 2021, the Company's consolidated total net leverage ratio (12-month period) was 2.20. While this ratio was a covenant under the Company’s previous credit agreement and is not a covenant under the 2021 Credit Agreement, it is used in the determination of the applicable borrowing margin under the 2021 Credit Agreement. 33 Working capital requirements vary from period to period depending on manufacturing volumes primarily related to the RV, MH, marine and 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. On April 20, 2021, we completed the issuance of $350 million aggregate principal amount of our 4.75% Senior Notes in a private placement exempt from registration under the Securities Act of 1933, as amended. The 4.75% Senior Notes, which were issued at par, carry an interest rate of 4.75%. Following the completion of the offering, the Company amended and restated the credit agreement governing its then-existing $650 million senior secured credit facility to establish a new $700 million senior secured credit facility consisting of a $550 million revolving credit facility and a $150 million term loan facility (the "2021 Credit Facility"). The maturity date for borrowings under the 2021 Credit Facility was extended to April 2026. The 2021 Credit Facility replaced the Company’s previously existing credit facility that was due to mature in September 2024. 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, 2020. OTHER Seasonality Manufacturing operations in the RV, marine and MH industries historically have been seasonal and at their highest levels when the weather is moderate. Accordingly, the Company’s sales and profits had generally been the highest in the second quarter and lowest in the fourth quarter. Seasonal industry trends in the past several years have included the impact related to the addition of 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, the impact of the COVID-19 pandemic on consumer buying patterns, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments. Subsequent Events We evaluated all subsequent events and 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. See Note 18 of the Notes to Condensed Consolidated Financial Statements for further discussion of events occurring after September 26, 2021 until the filing date of this Form 10-Q. 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 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 34 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. 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, 2020, and in the Company's 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.