What changed in this filing

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Item 1. Business

2023-02-24 compared with 2022-02-25 · 70 added, 55 removed, 196 unchanged (39% of the section changed)

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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 through a nationwide network that includes, as of December 31, 2022, 185 manufacturing plants and 67 warehouse and distribution facilities located in 23 states, with a small presence in Mexico, 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.

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Financial information about these operating segments is included in Note 17 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.

The Company’s strategic and capital allocation strategy is to optimally manage and utilize its resources and leverage its platform of operating brands to continue to grow and reinvest in its business.

The Company’s capital allocation strategy is to optimally manage and utilize its resources and leverage its platform of operating brands to continue to grow, reinvest in its business, and return capital to shareholders.

Through strategic acquisitions, expansion both geographically and into new product lines and investment in infrastructure and capital expenditures, Patrick seeks to ensure that its operating network contains capacity, technology and innovative thought processes to support anticipated growth needs, effectively respond to changes in market conditions, inventory and sales levels, and successfully integrate manufacturing, distribution and administrative functions.

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.

Over the last three years, we have executed on a number of new product initiatives and completed acquisitions for approximately $1.09 billion in total consideration that directly complement our core competencies and existing products, expand our presence in our primary end markets, and position us to enter new end markets.

Patrick believes that returning capital to shareholders is an important part of its capital allocation strategy, and during 2022 we returned $110 million to shareholders through our regular quarterly dividend and opportunistic share repurchases.

The Company was incorporated in 1959 in Indiana.

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Specialty bath and closet building products Roofing products

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

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

Softwoods lumber Shower doors

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Marine non-slip foam flooring, padding, and accessories

Protective covers for boats, RVs, aircraft, and military and industrial equipment

Other miscellaneous products

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

The Company’s sales by market are as follows:

The Company’s net sales by market are as follows:

Marine 21 % 16 %

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Recreational Vehicles

The Company’s RV products are sold primarily to major manufacturers of RVs, smaller OEMs, and to a lesser extent, manufacturers in adjacent industries.

The Company’s RV products are sold primarily to major manufacturers of RVs, smaller original equipment manufacturers ("OEMs"), and to a lesser extent, manufacturers in adjacent industries.

The principal types of recreational vehicles include (1) towables:

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("Winnebago") which combined held approximately 87% of retail market share for towables an d 86% for motorized units for 2022 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.

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.

In 2021, strong demand in the RV market due to demographic trends and the post-COVID increased interest in the travel and leisure lifestyle resulted in RV wholesale industry unit shipments of approximately 600,200, an increase of 39% compared to the prior year and a record high for the industry, according to the Recreational Vehicle Industry Association (the “RVIA”), while RV retail unit sales increased by 9% according to SSI.

While wholesale unit growth and dealer inventory restocking continued in the first half of 2022, RV OEMs dramatically reduced production in the second half of the year as retail demand decreased and the OEMs focused on maintaining a balanced dealer inventory channel for the long-term health and stability of the industry.

RV wholesale shipments were down 18% in 2022 compared to 2021 as a result of the reduced production levels, while RV retail unit shipments decreased 22% compared to 2021 in part due to rising interest rates and macroeconomic conditions.

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 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.

In 2022, according to the RVIA, towable and motorized unit shipments represented approximately 88% and 12%, respectively, of total RV industry wholesale shipments with w holesale unit shipments decreasing 20% in the towable sector and increasing 4% in the motorized sector in 2022 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 may have a negative impact on the RV market.

The Company believes that industry-wide retail sales and the related production levels of RVs will continue to be dependent on the overall strength of the economy, consumer confidence levels, equity securities market trends, fluctuations in dealer inventories, the level of disposable income, and other demographic trends.

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 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.

Demographic and ownership trends continue to point to favorable market growth for the long term in the RV market, as we believe that there has been a shift toward outdoor, nature-based tourism activities in a post-COVID environment, with younger and more diverse campers across different socio-economic groups.

According to the 2022 KOA North American Camping Report, based on surveys of North American leisure travelers, 53% of campers in 2021 were "millennials" and "Gen Zers", up from 48% in 2020 and 34% in 2019.

Additionally, according to KOA, 37% of 2021 camper households reported household income of over $100,000, up from 29% in 2020, demonstrating leisure lifestyle participants who may be more resilient to negative macroeconomic conditions.

Furthermore, 56% of non-camping leisure travelers polled expressed having an interest in camping in the future.

According to the 2022 KOA North American Camping Report, KOA projects that a record 61.3 million households went camping in 2022, illustrating both current and potential long-term interest in the leisure lifestyle space.

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 and the Company has increased its focus and expanded its presence in this market through recent acquisitions, particularly within the last two years.

We believe that the marine market reflects the active, outdoor leisure-based, family-oriented lifestyle, similar to our RV end market, and the Company has increased its focus and expanded its presence in this market through recent acquisitions, particularly within the last three years.

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

Similar to our RV market, the marine industry was 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 that continued into 2021.

As was the case with the RV industry, the marine industry experienced an increase in demand in 2021, primarily driven by new entrants into the market resulting from the post-COVID interest in outdoor leisure lifestyle activities.

While retail demand remained strong throughout 2022, supply chain constraints relating to certain inputs, particularly engines, limited wholesale unit shipments which resulted in higher order backlogs and historically low dealer inventory levels, as measured by weeks of sales on hand, during the first half of 2022.

As supply chain constraints improved during the second half of 2022, dealer inventory levels began to increase, although at the end of 2022 they remained well below levels historically seen in the industry.

According to the National Marine Manufacturers Association ("NMMA"), per its 2021 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 pre-owned boats currently in use is approximately 21 years compared to an average useful life of 30 years.

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

retail expenditures on boats, engines, accessories, and related costs totaled approximately $56.7 billion in 2021, up approximately 13% from 2020.

Based on data from the Abstract, we estimate that the average age of pre-owned powerboats sold during 2021 was approximately 25 years compared to an average useful life of 30 years, while the estimated average age of pre-owned powerboats sold during 2020 was approximately 22 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:

fiberglass, aluminum fishing, pontoon and ski & wake.

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 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.

Based on current available data per SSI through December 2022, within the powerboat sector for 2022, fiberglass units a ccounted for approximately 38% of retail unit sales, aluminum 24%, pontoon 32% and ski & wake 6%.

In addition, per SSI, marine powerboat retail unit shipments decreased approximately 15% in 2022 compared to 2021, while marine wholesale unit shipments, according to Company estimates based on NMMA data, increased approximatel y 7% in 2022 compared to 2021.

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

Manufactured Housing

The Company’s manufactured housing products are sold primarily to major manufacturers of manufactured homes, other OEMs, and to a lesser extent, to manufacturers in adjacent industries.

The Company’s manufactured housing products are sold primarily to major manufacturers of manufactured homes, other OEMs, and to a lesser extent, manufacturers in adjacent industries.

In the aggregate, the top three manufacturers produced approximately 75% of MH market retail unit shipments in 2022 per SSI.

Although wholesale unit shipments have increased in the MH industry from a low of approximately 49,800 units in 2009 to 105,800 units in 2021, they are still trending well below historical levels.

The Company believes there is upside potential for this market in the long term driven by pent-up demand, multi-family housing capacity, improving consumer credit and financing conditions, residential housing market conditions, higher consumer confidence levels, increased affordability and quality, demographic trends such as first-time home buyers and urban-to-suburban trends, new home pricing, and improved consumer savings levels.

Factors that may favorably impact production levels further in this industry include improving quality credit standards in the residential housing market, new jobs growth, consumer confidence, favorable changes in financing regulations, a narrowing in the difference between interest rates on MH loans and mortgages on traditional residential "stick-built" housing, and any improvement in conditions in the asset-backed securities markets for manufactured housing loans.

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

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.

Although wholesale unit shipments have increased in the MH industry from a low of approximately 49,800 units in 2009 to approximately 112,900 units in 2022, they are still trending below historical levels.

The Company believes there is growth potential for this market in the long term driven by pent-up demand, multi-family housing capacity, demand for lower-cost rental options, increased affordability and quality, demographic trends such as increased first-time home buyers and urban-to-suburban relocations trends, new home pricing, and investments from developers and real estate investment trusts.

Factors that may favorably impact production levels further in this industry include jobs growth, consumer confidence, favorable changes in financing regulations, a narrowing in the difference between interest rates on MH loans and mortgages on traditional residential "stick-built" housing, and any improvement in conditions in the asset-backed securities markets for manufactured housing loans.

Despite supply chain disruptions, the MH industry expanded capacity during 2022 to meet current and future customer demand.

We believe that MH units offer a cost-effective housing solution in a time when high home prices coupled with increased mortgage interest rates have negatively impacted housing affordability.

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

Industrial Markets

We estimate that approximately 65% of our industrial net sales in 2021 were associated with the U.S.

We estimate that approximately 70% to 80% of our industrial net sales in 2022 were associated with the U.S.

residential housing market.

We believe that there is a direct correlation between the demand for our products in this market and new residential housing construction and remodeling activities.

Patrick's sales to the industrial market generally lag new housing starts by four to six months as our industrial products are generally among the last components installed in new unit construction and will vary based on differences in regional economic prospects.

We believe that there is a direct correlation between the demand for our products and new residential housing construction and existing home remodeling activities.

Patrick's sales to the industrial market generally lag new housing starts by four to six months as our industrial products are generally among the last components installed into new unit construction and will vary based on differences in regional economic prospects.

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.

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 2022.

Additionally, we believe that 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 limited housing inventory across the country.

While the demand for single family homes may be negatively impacted by the interest rate increases throughout 2022 and into 2023, the demand for multi-family units to provide rental options in a limited-inventory environment remains relatively strong, which we believe may provide support for our industrial market.

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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The Company is focused on driving growth in its primary markets through the acquisition of companies with strong management teams having a strategic fit with Patrick’s core values, business model and customer presence, as well as additional product lines, facilities, or other assets to complement or expand its existing businesses.

The Company may explore strategic acquisition opportunities that are not directly tied to the four primary markets it serves in order to further leverage its core competencies in manufacturing and distribution and to diversify its end market exposure and presence.

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

The Company may explore strategic acquisition opportunities that are not directly tied to the four primary markets it serves in order to further leverage its core competencies in manufacturing and distribution, diversify its end market exposure and presence, and expand its footprint outside of its core Midwest markets.

During 2022 , the Company completed acquisitions for approximately $250 million of total consideration and over the last three years has completed acquisitions for approximately $1.09 billion of total consideration.

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 2022, 2021 and 2020.

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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 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.

Capital expenditures for 2022 consisted of $80 million of investments primarily to provide more advanced manufacturing automation, replace and upgrade production equipment, 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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Marine Studio

The Company's Marine Studio, which was opened in February 2020 and is located in Sarasota, Florida, is a comprehensive marine studio showroom, design and engineering center, which provides engineering and integrated design solutions for our marine customers.

The Company's Marine Studio, located in Sarasota, Florida, is a comprehensive marine studio showroom, design and engineering center, which provides engineering and integrated design solutions for our marine customers.

The 14,000 square foot facility includes a showroom that displays the Company's marine products as well as the marine design and engineering capabilities and services offered by our marine businesses.

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Marketing and Distribution

As of December 31, 2021, the Company had over 3,700 active customers.

As of December 31, 2022, the Company had approximately 4,500 active customers.

Its revenues from the RV market include sales to two major manufacturers of RVs that each account for over 10% of the Company's net sales, Forest River and Thor.

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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 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.

Approximate ly 9% , 8 %, and 12% of the Company's distribution segment’s sales were from products shipped directly from the suppliers to Patrick customers in 2022, 2021, and 2020, 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.

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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.

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.

As a result of COVID-19 and other macroeconomic factors, the supply chain was previously impacted by increased commodity prices, decreased product availability, longer lead times and higher transportation costs, which resulted in increased raw material pricing from several of our suppliers.

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

In the second half of 2022, the Company began to reduce its inventory in alignment with lower production levels.

We believe the Company's inventory levels remained elevated as of December 31, 2022 compared to historical norms, and we intend to continue to manage inventory based on anticipated customer needs.

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

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Upholstered products and mattresses provided by the Company for RVs must comply with Federal Motor Vehicle Safety Standards regulated by the National Highway Traffic Safety Administration regarding flammability.

Select raw materials are subject to tariffs and other import duties.

For example, we have historically received benefits from duty-free imports on certain products from certain countries pursuant to the U.S.

Generalized System of Preferences ("GSP") program.

Additionally, we are subject to government regulations relating to importation activities, including related to U.S.

Customs and Border Protection ("CBP") withhold release orders.

The Company also produces and provides products for manufactured homes that must comply with performance and construction regulations promulgated by the U.S.

Department of Housing and Urban Development (“HUD”).

Department of Housing and Urban Development.

For additional information on the Company's efforts for sustainability and environmental quality, please see our 2022 Responsibility & Sustainability Report under "ESG" on the "For Investors" section of our website.

Information on our website is not incorporated in this Annual Report on Form 10-K.

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

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Our primary commitment to our team members in the production environment is to their safety, well-being and progress, and in this regard our human capital management programs focus on the following, in addition to our health care insurance and other employment benefits:

• Free assistance programs available to all team members and their families to address mental health and others matters which arise, which we believe are essential during the unique pressures and uncertainties during the COVID-19 pandemic;

• Free assistance programs available to all team members and their families to address mental health and other matters which arise, which we believe are essential during the unique pressures and uncertainties during the COVID-19 pandemic;

• Tuition reimbursement programs available to all team members as they pursue educational opportunities;

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

For additional information on the Company's human capital management, please see our 2022 Responsibility & Sustainability Report under "ESG" on the "For Investors" section of our website.

Information on our website is not incorporated in this Annual Report on Form 10-K.

Executive Officers of the Company

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Officer Position Age

Cleveland Executive Chairman of the Board 53

Nemeth Chief Executive Officer 53

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Duthie Executive Vice President-Chief Legal Officer and Secretary 48

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

Prior to that, Mr.

Cleveland was Chairman of the Board from May 2018 to December 2019 and Chief Executive Officer from February 2009 until December 2019.

Cleveland was President of the Company from May 2008 to December 2015, and Chief Operating Officer from May 2008 to March 2013.

Prior to that, Mr.

Cleveland served as Executive Vice President of Operations and Sales and Chief Operating Officer from August 2007 to May 2008 following the acquisition of Adorn Holdings, Inc.

by Patrick in May 2007.

Cleveland has over 31 years of manufactured housing, recreational vehicle, marine and industrial experience in various leadership capacities.

Stacey Amundson Executive Vice President-Human Resources and Chief Human Resources Officer 56

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

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

Stacey Amundson was appointed Executive Vice President, Human Resources and Chief Human Resources Officer in May 2022.

Prior to joining Patrick in February 2022, Ms.

Amundson served in a temporary capacity with Kerry Foods with a focus on providing HR leadership in the transformation of its North America operations model.

Prior to this role, Ms.

Amundson was with Spectrum Brands, Inc.

from 2005 to 2018, holding a series of key human resources leadership roles, including Senior Vice President, Human Resources and Chief Human Resources Officer from 2010 to 2018.

With over 25 years of experience in multiple industries, Ms.

Amundson has led the human resource function with specialties in talent management, executive compensation, mergers and acquisitions, integrations, shared services, and large-scale organizational transformations.

Website Access to Company Reports

We make available free of charge through our website, www.patrickind.com , our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

The charters of our Audit, Compensation, and Corporate Governance and Nominations Committees, our Corporate Governance Guidelines and our Code of Ethics and Business Conduct are also available on the “Corporate Governance” portion of our website.

Our website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K.

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