What changed in this filing

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Item 1. Business

2022-02-25 compared with 2021-02-26 · 66 added, 50 removed, 185 unchanged (39% of the section changed)

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Company Overview

Patrick is a major manufacturer and distributor of component and building products and materials serving original equipment manufacturers (“OEMs”) primarily in the recreational vehicle (“RV”), marine, manufactured housing (“MH”) and industrial markets.

The Co mpany operates through a nationwide network that includes, as of December 31, 2020, 141 manufacturing plants and 58 warehouse and distribution facilities located in 23 states, China, Canada and th e Netherlands.

Patrick i s a leading component solutions provider for the recreational vehicle (" RV ") , marine, manufactured housing (MH") and various industrial markets – including single and multi-family housing, hospitality, institutional and commercial markets.

The Co mpany operates through a nationwide network that includes, as of December 31, 2021, 174 manufacturing plants and 64 warehouse and distribution facilities located in 23 states, with a small presence in China and Canada .

The Company operates within two reportable segments, Manufacturing and Distribution, through a nationwide network of manufacturing and distribution centers for its products, thereby reducing in-transit delivery time and cost to the regional manufacturing footprint of its customers.

The Manufacturing and Distribution segments accounted for 70% and 30% of the Company’s consolidated net sales for 2020, respectively.

The Manufacturing and Distribution segments accounted for 72% and 28%, respectively, of the Company’s consolidated net sales for 2021.

Financial information about these operating segments is included in Note 18 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K (the "Form 10-K") and incorporated herein by reference.

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Over the last three years, we have executed on a number of new product initiatives and invested approximately $880 million in acquisitions that directly complement our core competencies and existing product lines as well as expand our presence in our primary end markets.

The Company was incorporated in 1959 in Indiana.

The Company's principal executive and administrative offices are located at 107 West Franklin Street, Elkhart, Indiana 46515 and the telephone number is (574) 294-7511;

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Specialty bath and closet building products Roofing products

Boat covers, towers, tops, and frames Laminate and ceramic flooring

Boat covers, towers, tops, trailers, and frames Laminate and ceramic flooring

Softwoods lumber Shower doors

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CNC molds and composite parts Tile

Aluminum and plastic fuel tanks Other miscellaneous products

Slotwall panels and components

Aluminum and plastic fuel tanks Marine hardware and accessories

Slotwall panels and components Other miscellaneous products

Thermoformed shower surrounds

Fiberglass and plastic components including front and rear caps and marine helms

Polymer-based flooring

Polymer-based and other flooring

Air handling products

Marine hardware

Marine hardware and accessories

Treated, untreated and laminated plywood

RV and marine furniture

Adhesives and sealants

Audio systems and accessories, including amplifiers, tower speakers, soundbars, and subwoofers

Marine non-slip foam flooring, padding, and accessories

Other miscellaneous products

Primary Markets

Patrick manufactures and distributes its products in four primary end markets.

Operating facilities that supply our Company’s products generally are strategically located in proximity to the customers they serve.

Patrick manufactures and distributes its products for four primary end markets.

Our operating facilities generally are strategically located in proximity to the customers they serve.

The Company’s sales by market are as follows:

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(“Forest River”) and Winnebago Industries, Inc.

("Winnebago") which combined held 91% of retail market share for towables an d 86% for motorized units for 2020 as reported per Statistical Surveys, Inc.

("Winnebago") which combined held approximately 89% of retail market share for towables an d 86% for motorized units for 2021 as reported per Statistical Surveys, Inc.

In the late first quarter and early second quarter of 2020, we temporarily curtailed production at certain of our facilities in alignment with the temporary production shutdowns by our RV OEM customers in response to the COVID-19 pandemic.

In the second half of 2020, OEM production improved sharply in response to a strong increase in retail and wholesale demand for RV units, and our sales to our RV OEM customers correspondingly improved.

According to the Recreational Vehicle Industry Association (the “RVIA”), wholesale industry unit shipments increased 6% in 2020, while RV retail unit sales, according to SSI, increased by 12%.

With RV retail sales outpacing wholesale unit shipments in 2020, dealer inventories, which were already at historically low levels entering 2020, declined by more than 80,000 units in 2020, resulting in dealer inventories at their lowest levels in the last decade.

These strong demand trends continued in 2021, with wholesale industry unit shipments increasing by 39% according to the Recreational Vehicle Industry Association (the “RVIA”), while RV retail unit sales increased by 8% according to SSI.

We estimate that our mix of RV revenues related to towable units and motorized units is consistent with the overall RV industry production mix.

In 2020, according to the RVIA, towable and motorized unit shipments represented approximately 91% and 9%, respectively, of total RV industry wholesale shipments and w holesale unit shipments increased 8% in the towable sector in 2020 compared to the prior year and decreased 13% in the motorized sector.

In 2021, according to the RVIA, towable and motorized unit shipments represented approximately 91% and 9%, respectively, of total RV industry wholesale shipments with w holesale unit shipments increasing 40% in the towable sector and 38% in the motorized sector in 2021 compared to the prior year.

Recreational vehicle purchases are generally consumer discretionary income purchases, and therefore, any situation which causes concerns related to discretionary income can have a negative impact on this market.

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Demographic and ownership trends continue to point to favorable market growth in the long term in the recreational vehicle market, as there is a shift toward outdoor, nature-based tourism activities, with a large segment of the population’s “millennials” and "Gen Xers" embracing this outdoor lifestyle and entering into the RV marketplace as well as an increasing percentage of new campers from more diverse groups.

At the same time, the COVID-19 pandemic has contributed to increased consumer interest in the RV lifestyle.

According to the May and October 2020 KOA North American Camping Reports, based on surveys of North American leisure travelers, camping trips and road trips are viewed as the safest forms of travel activities in the current COVID-19 environment, and spending time outdoors with family is the leading motivating factor to return to traveling among leisure travelers and campers.

At the same time, the COVID-19 pandemic has contributed to increased consumer interest in the RV lifest yle.

According to the 2021 KOA North American Camping Report , based on surveys of North American leisure travelers, camping trips and road trips are viewed as the safest forms of travel activities in the current COVID-19 environment, and spending time outdoors with family is the leading motivating factor to return to traveling among leisure travelers and campers.

Detailed narrative information about the Company’s sales to the RV industry is included in Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” (the "MD&A") of this Form 10-K.

The marine industry reflects the active, outdoor leisure-based, family-oriented lifestyle that characterizes the RV industry and the Company has increased its focus and expanded its presence in this market through recent acquisitions, particularly within the last three years.

The marine industry reflects the active, outdoor leisure-based, family-oriented lifestyle and the Company has increased its focus and expanded its presence in this market through recent acquisitions, particularly within the last two years.

Consumer demand in the marine market is generally driven by the popularity of the recreational and leisure lifestyle and by economic conditions.

Similar to our RV market, the marine industry was impacted by COVID-19 disruptions in 2020 with our plants experiencing temporary shutdowns in the late first quarter and early second quarter of 2020, which were then followed by sharp increases in marine demand in the second half of 2020, which we believe is driven in part by an increased interest in outdoor activities, including marine activities, as a result of the COVID-19 pandemic and its impact on leisure preferences.

sharp increases in marine demand in the second half of 2020, which we believe is driven in part by an increased interest in outdoor activities, including marine activities, as a result of the COVID-19 pandemic and its impact on leisure preferences that continued into 2021.

According to the National Marine Manufacturers Association ("NMMA"), per its 2020 U.S.

Recreational Boating Statistical Abstract (the "Abstract"), it is estimated that there were approximately 12 million registered boats in the U.S.

Recreational Boating Statistical Abstract (the "Abstract"), total U.S.

retail expenditures on boats, engines, accessories, and related costs totaled approximately $49.4 billion in 2020, up approximately 14% from 2019 as stated in the Abstract.

The average age of boats currently in use is approximately 25 years compared to an average useful life of 30 years, and the expected number of boats to be retired over the next four years is approximately one million, according to NMMA.

The average age of pre-owned boats currently in use is approximately 21 years compared to an average useful life of 30 years.

The Company’s sales to the marine industry are primarily focused on the powerboat sector of the market which is comprised of four main categories:

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Based on current available data per SSI through December 2021, within the powerboat sector for 2021, fiberglass units accounted for approximately 38% of retail unit sales, aluminum 26%, pontoon 30% and ski & wake 6%.

Based on current available data per SSI through December 2020, marine powerboat retail unit shipments increase d 15% in 2020 compared to 2019, while marine wholesale unit shipments decreased approximatel y 14% in 2020 compared to 2019, resulting in historically low marine dealer inventories.

Based on current available data per SSI through December 2021, marine powerboat retail unit shipments decreased approximately 9% in 2021 compared to 2020, while marine wholesale unit shipments increased approximatel y 11% in 2021 compared to 2020.

Additional information about the Company’s sales to the marine industry is included in the MD&A of this Form 10-K.

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The MH industry was impacted by disruptions related to the COVID-19 pandemic in 2020, which resulted in plant shutdowns in the late first quarter and early second quarter of 2020, followed by a recovery that, compared to our RV and marine end markets, emerged more slowly as a result of MH OEM labor and supply disruptions that did not begin to subside until late 2020.

This recovery continued into 2021 with growing demand despite continued supply disruptions.

In addition, MH loan program initiatives by Fannie Mae are expected to increase MH loan availability and reduce the total cost of MH borrowing, with a potential resulting increase in MH demand.

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Many of Patrick's core manufacturing products are also utilized in the kitchen cabinet, high-rise, office and household furniture, hospitality, and fixtures and commercial furnishings markets.

These markets are generally

categorized by a more performance-than-price driven customer base, and provide an opportunity for the Company to diversify its customer base.

These markets are generally categorized by a more performance-than-price driven customer base, and provide an opportunity for the Company to diversify its customer base.

Additionally, other residential and commercial segments have been less vulnerable to import competition, and therefore, provide opportunities for increased sales penetration and market share gains.

Over the past three years, the residential housing market in particular has benefited from a low interest rate environment and tight housing market conditions across the country, and that trend is expected to continue in 2021.

Over the past three years, the residential housing

market in particular has benefited from a low interest rate environment and tight housing market conditions across the country, and that trend is expected to continue in 2022.

Additional information about the Company’s sales to the industrial markets is included in the MD&A of this Form 10-K.

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In 2021, the Company invested approximately $520 million in acquisitions and over the last three years has completed approximately $880 million of acquisitions.

See Note 4 of the Notes to Consolidated Financial Statements for further discussion of acquisitions completed by the Company in 2020, 2019 and 2018.

The RV, MH, marine and industrial markets are highly competitive, both among manufacturers and the suppliers of various components.

See Note 4 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion of acquisitions completed by the Company in 2021, 2020 and 2019.

The RV, marine, MH and industrial markets are highly competitive, both among manufacturers and the suppliers of various components.

The barriers to entry for each industry are generally low and include compliance with industry standards, codes and safety requirements, and the initial capital investment required to establish manufacturing operations.

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Patrick has the ability to fulfill demand for certain products in excess of capacity at certain facilities by shifting production to other facilities.

Capital expenditures for 2020 consisted of $32.1 million of investments primarily to replace and upgrade production equipment, expand facilities outside of core Midwest markets to align with OEM expansions, increase capacity, and provide more advanced manufacturing automation.

Capital expenditures for 2021 consisted of $64.8 million of investments primarily to provide more advanced manufacturing automation, replace and upgrade production equipment, expand facilities outside of core Midwest markets to align with OEM expansions, and increase capacity to meet consumer needs and trends.

Management regularly monitors capacity at its facilities and reallocates existing resources where needed to maintain production efficiencies throughout all of its operations and capitalize on commercial and industrial synergies in key regions to support profitable growth, grow its customer base, and expand its geographical product reach outside its core Midwest market.

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The 45,000 square foot facility includes a 25,000 square foot showroom devoted to the display of products, capabilities and services offered by each of Patrick’s business units, in addition to offices and conference rooms.

The Company’s specialized team of designers, engineers and graphic artists works with RV, MH, marine and industrial customers to meet their creative design and product needs, including creating new styles and utilizing new colors, patterns, products, and materials for panels and mouldings, cabinet doors, furniture, lighting and other products.

The Company’s specialized team of designers, engineers and graphic artists works with RV, marine, MH and industrial customers to meet their creative design and product needs, including creating new styles and utilizing new colors, patterns, products, and materials for panels and mouldings, cabinet doors, furniture, lighting and other products.

Other services provided at The Studio include product development, 3D CAD illustration, 3D printing, photography and marketing.

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The Company purchases a majority of its distribution segment products in railcar, container, or truckload quantities , which are warehoused prior to their sale t o customers.

Approximatel y 12 %, 1 2%, 15% of the Company's distribution segment’s sales were from products shipped directly from the suppliers to Patrick customers in 2020, 2019, 2018, respectively.

Typically there is a one to two-week period between Patrick receiving a purchase order and the delivery of products to its warehouses or customers and, as a result, the Company has no material backlog of orders.

Approximatel y 8% , 12%, and 12% of the Company's distribution segment’s sales were from products shipped directly from the suppliers to Patrick customers in 2021, 2020, 2019, respectively.

Typically, there is a two to four-week period between Patrick receiving a purchase order and the delivery of products to its warehouses or customers and, as a result, the Company has no material backlog of orders.

However, this can fluctuate depending on overall market factors and each specific end market we serve.

In periods of declining market conditions, customer order rates can decline, resulting in less efficient logistics planning and fulfillment and thus increasing delivery costs due to increased numbers of shipments with fewer products in each shipment.

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In addition, demand changes in certain market sectors can result in fluctuating costs of certain more commodity-oriented raw materials and other products that are utilized and distributed.

The Company continually explores alternative sources of raw materials and components, both domestically and from outside the U.S.

As a result of COVID-19 and other factors, the supply chain has been impacted by increasing commodity prices as well as increasing lead times and transportation costs, which has resulted in increased raw material pricing from several of our suppliers.

Patrick has taken steps to mitigate these supply chain constraints by carrying increased levels of inventory and partnering with suppliers to help secure adequate supplies of materials.

Additionally, the Company continually explores alternative sources of raw materials and components, both domestically and from outside the U.S.

Alternate sources of supply are available for all of its material purchases.

Regulation and Environmental Quality

The Company’s operations are subject to environmental laws and regulations administered by federal, state, and local regulatory authorities including requirements relating to air, water and noise pollution.

Additionally, these requirements regulate the Company's use, storage, discharge and disposal of hazardous chemicals used or generated during specific manufacturing processes.

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Our people are the heart of our business, and we allocate substantial resources to foster the well-being, success and growth of our team members in an inclusive and diverse environment which we believe is fundamental to our values and our service to our customers.

At December 31, 2020, our team members totaled 8,700, of which 85% are hourly team members who serve our OEM customers by producing and distributing products in our RV, marine, MH and industrial end markets, and 15% who are salaried employees who manage the resources, capital allocations, business decisions, and customer relationships of our end markets.

At December 31, 2021, our team members totaled approximately 11,000, of which 85% are hourly team members who serve our customers by producing and distributing products in our RV, marine, MH and industrial end markets, and 15% who are salaried employees who manage the resources, capital allocations, business decisions, and customer relationships of our end markets.

The majority of our team members work in our facilities to produce or distribute products for our customers.

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• Ergonomic assessments for all team members, which accommodate each individual to work in the most effective and comfortable manner;

• Patrick Connect, our social media platform to share ongoing events, communicate leadership messages, share success stories, and provide a platform of mutual communication;

• Community involvement initiatives, such as our participation in Military Makeover and Care Camps, which provides our team members opportunities to give back to the communities in which we do business.

Our success is dependent on our ability to hire, retain, and engage highly qualified team members who serve our customers.

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Our leadership development programs bring a diverse and energetic source of talent to lead the future of our organization, and our recruitment efforts strive to foster an inclusive culture that we believe strengthens our organization and our ability to serve our customers.

The organization is built on our six core foundational values of being BETTER Together:

• B alance - We work to build a healthy work environment that encourages excellence, happiness, and peace in both our work and our home life.

• E xcellence - We strive to meet the highest possible standards of achievement in our work and our relationships.

• T rust - We do what we say we will do every time - and communicate with all stakeholders if a commitment evolves.

• T eamwork - We challenge, encourage, equip, empower, and inspire the individuals we work with.

• E mpowerment - We give our team the information, tools, and trust they need to grow as leaders and achieve results.

• R espect - We treat our teammates and partners with the utmost honor and dignity.

Executive Officers of the Company

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Cleveland Executive Chairman of the Board 53

Nemeth President and Chief Executive Officer 51

Rodino Executive Vice President-Sales and Chief Sales Officer 50

Nemeth Chief Executive Officer 52

Rodino President 51

Ellis Executive Vice President-Operations and Chief Operating Officer 47

Petkovich Executive Vice President-Finance, Chief Financial Officer, and Treasurer

Blosser Executive Vice President-Human Resources and Chief Human Resources Officer 54

Duthie Executive Vice President-Chief Legal Officer and Secretary 47

Cleveland was appointed Executive Chairman of the Board of the Company in January 2020.

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Nemeth was appointed Chief Executive Officer of the Company in January 2020.

In addition to this role, Mr.

Nemeth serves as President of the Company, a position he has held since January 2016.

Nemeth was the Executive Vice President of Finance and Chief Financial Officer from May 2004 to December 2015, and Secretary-Treasurer from 2002 to 2015.

Nemeth previously served as President of the Company from January 2016 to July 2021, Executive Vice President of Finance and Chief Financial Officer from May 2004 to December 2015, and Secretary-Treasurer from 2002 to 2015.

Nemeth has over 30 years of manufactured housing, recreational vehicle, marine and industrial experience in various financial and managerial capacities.

Rodino was appointed Chief Sales Officer of the Company in September 2016.

In addition to this role, Mr.

Rodino serves as the Executive Vice President of Sales, a position he has held since December 2011.

Rodino was appointed President of the Company in July 2021 and was Chief Sales Officer of the Company from September 2016 to July 2021.

Rodino served as the Executive Vice President of Sales from December 2011 to July 2021.

Prior to that, he was the Chief Operating Officer of the Company from March 2013 to September 2016, and Vice President of Sales for the Midwest from August 2009 to December 2011.

Rodino has over 27 years of experience in serving the recreational vehicle, marine, manufactured housing and industrial markets.

Rodino has over 28 years of experience in serving the recreational vehicle, manufactured housing, marine and industrial markets.

Ellis was appointed Executive Vice President of Operations and Chief Operating Officer of the Company in September 2016.

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Petkovich served as Managing Director in the Leveraged Finance Group of Wells Fargo Securities and predecessor Wachovia Securities from 2004 to 2020, performing in various senior leadership roles responsible for leading, underwriting, structuring and arranging financing solutions to support issuers’ access to the capital markets for acquisition financings, recapitalizations, refinancings and restructurings.

Blosser was appointed Executive Vice President of Human Resources and Chief Human Resources Officer of the Company in May 2016.

Prior to that, Mr.

Blosser was the Vice President of Human Resources from October 2009 to May 2016.

Prior to his role at Patrick, Mr.

Blosser served as the Corporate Director-Human Resources of Whirlpool Corporation from 2008 to 2009.

Blosser has over 32 years of operations and human resource experience in various industries.

Blosser retired from the Company on January 29, 2021.

Duthie was appointed as Executive Vice President, Chief Legal Officer and Secretary in May 2021.

Duthie joined the Company as General Counsel in November 2020.

Prior to joining Patrick, Mr.

Duthie was a partner with Barnes & Thornburg LLP, and practiced law at the firm from 2000 to 2002 and 2007 to 2020.

As a corporate lawyer, Mr.

Duthie focused on mergers and acquisitions, supply chain management and commercial contract counseling.

Duthie served as an assistant general counsel for a privately-held manufacturer of flow control products from 2002 to 2006.

Website Access to Company Reports

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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-K

Item 1. Business