What changed in this filing

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Item 1A. Risk Factors

2024-02-29 compared with 2023-02-24 · 39 added, 49 removed, 280 unchanged (24% of the section changed)

15 unchanged sentences

Weakening conditions in the economy, or the lack of available financing in the credit market, could cause the financial condition of our customers and suppliers to deteriorate, which could negatively affect our business through the loss of sales or the inability to meet our commitments.

Many of our customers participate in highly competitive markets and their financial condition may deteriorate as a result.

Many of our customers participate in highly competitive markets and their financial condition may deteriorate

In addition, a decline in the financial condition of our customers could hinder our ability to collect amounts owed by customers.

2 unchanged sentences

The loss of either of these customers could have a material adverse impact on our operating results and financial condition.

We do not have long-

term agreements with our customers and cannot predict that we will maintain our current relationships with these customers or that we will continue to supply them at current levels.

We do not have long-term agreements with our customers and cannot predict that we will maintain our current relationships with these customers or that we will continue to supply them at current levels.

Changes in consumer preferences relating to our products could adversely impact our sales levels and our operating results.

5 unchanged sentences

Declines in RV unit shipment levels or reductions in industry growth could materially reduce the Company’s revenue from the RV industry and have a material adverse impact on its operating results in 2024 and other future periods.

The manufactured housing industry has experienced a material long-term decline in shipments, which has led to reduced demand for our products.

The MH industry, which accounted for 15% and 14% of the Company's consolidated net sales for 2022 and 2021, respectively, has experienced a material decline in production of new homes compared to the last peak production level in 1998.

The downturn was caused, in part, by limited availability and high cost of financing for manufactured homes and was exacerbated by economic and political conditions during the 2008 financial crisis.

Although industry-wide wholesale production of manufactured homes has improved somewhat in recent years, annual production remains well below historical averages and a worsening of conditions in the MH market could have a material adverse impact on our operating results.

Conditions in the credit market could limit the ability of consumers, dealers and wholesale customers to obtain retail, floor plan and wholesale financing for RVs, marine products, and manufactured homes, resulting in reduced demand for our products.

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We operate in a highly competitive business environment and our sales could be negatively impacted by our inability to maintain or increase prices, changes in regional demand or product mix, or the decision of our customers to purchase our competitors’ products or to produce in-house products that we currently produce.

We compete not only with other suppliers to the RV, marine, MH and industrial producers, but also with suppliers to traditional site-built homebuilders and suppliers of cabinetry and countertops.

We compete not only with other suppliers

to the RV, marine, MH and industrial producers, but also with suppliers to traditional site-built homebuilders and suppliers of cabinetry and countertops.

Sales could also be affected by pricing, purchasing, financing, advertising, operational, promotional, or other decisions made by purchasers of our products.

17 unchanged sentences

We are reliant on our extended supply chain and any disruption in this supply chain could have an adverse impact on our ability to deliver products to our customers on a timely and cost-effective basis.

While alternative sources are available, our business would be material adversely affected if we are unable to find alternative sources on a timely and cost-effective basis.

While alternative sources are available, our business would be materially adversely affected if we are unable to find alternative sources on a timely and cost-effective basis.

A reduction or interruption in supply;

2 unchanged sentences

or a failure to appropriately cancel, reschedule, or adjust our requirements based on our business and customer needs;

could materially

adversely affect our business, operating results, and financial condition and could materially damage customer relationships.

could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships.

If there are shortages of materials we need to manufacture our products, the price of these materials may increase, or these materials may not be available at all, and we may also encounter shortages if we do not accurately anticipate our needs.

1 unchanged sentence

Accordingly, our revenue and gross margins could suffer until other sources can be developed.

Our operating results would also be adversely affected if, anticipating greater demand than actually develops, we commit to the purchase of more materials than we need, which is more likely to occur in a period of demand uncertainties such as we are currently experiencing.

uncertainties such as we are currently experiencing.

There can be no assurance that we will not encounter these problems in the future.

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We rely on free trade agreements and other supply chain initiatives in order to maximize efficiencies relating to product importation.

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

The GSP program expired on December 31, 2020.

If the GSP program is not renewed or otherwise made retroactive, we could experience significant additional duties and profitability could be negatively impacted.

For example, we have historically received benefits from duty-free imports on certain products from certain countries pursuant to the Generalized System of Preferences ("GSP") program.

Although there appears to be continued bipartisan support of the GSP program, the provisions have not been renewed since they expired on December 31, 2020.

If the GSP program is not renewed or otherwise made retroactive, we would recognize significant additional duties and profitability could be negatively impacted.

The United States has imposed tariffs and export controls on certain goods and products imported from China and certain other countries, such as plywood, which has resulted in retaliatory tariffs by China and other countries.

Additional tariffs imposed by the United States on a broader range of imports, or further retaliatory trade

measures taken by China or other countries in response, could result in an increase in supply chain costs that we may not be able to offset or that otherwise adversely impact our results of operations.

Additionally, we are subject to government regulations relating to importation activities, including related to CBP withhold release orders.

Additional tariffs imposed by the United States on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could result in an increase in supply chain costs that we may not be able to offset or that may otherwise adversely impact our results of operations.

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 imposition of taxes, duties and quotas, the withdrawal from or material modification to trade agreements, and/or if CBP detains shipments of our goods pursuant to a withhold release order could have a material adverse effect on our business, results of operations and financial condition.

If additional tariffs or trade restrictions are implemented by the U.S.

If additional tariffs or trade

restrictions are implemented by the U.S.

or other countries, the cost of our products could increase which could adversely affect our business.

2 unchanged sentences

We maintain an inventory to support these customers’ needs.

Some of our customers have adjusted the amount of inventory that they carry during the COVID-19 pandemic and it is uncertain whether these levels of inventory will continue in the future.

As a result of COVID-19 and other macroeconomic factors, in 2020 and 2021, Patrick took steps to mitigate supply chain constraints by carrying increased levels of inventory and partnering with suppliers to help secure adequate supplies of materials and as a result, the Company currently has elevated inventory levels compared to historical norms.

If we are unable to adjust to our customers’ changing inventory positions, our business could be adversely affected.

During periods of sharp fluctuations in demand, whether increasing or decreasing due to macroeconomic factors, changes in end consumer demand, supply chain disruptions, public health emergencies, or other influences, some of our customers will make adjustments to the inventory levels they maintain and the purchases of our products.

While responding to these changing dynamics in the end markets we serve, our inventory requirements will fluctuate up or down.

If we are unable to adjust to our customers’ changing inventory needs and purchases of our products, our business could be adversely affected.

Changes in demand, market conditions and/or product specifications could result in material obsolescence and a lack of alternative markets for certain of our customer specific products and could negatively impact operating results.

6 unchanged sentences

There can be no assurance that the supply of gasoline and diesel fuel will continue uninterrupted or that the price or tax on fuel will not materially increase in the future.

Shortages of gasoline and diesel fuel, and substantial increases in the price of fuel, have had a material adverse effect on our business and the RV and marine industries as a whole in the past and could have a material adverse effect on our business in the future.

Shortages of gasoline and diesel fuel, and substantial increases in the price of fuel could have a material adverse effect on our business in the future.

Interruptions or disruptions in production at one of our key facilities could have a material adverse impact on our operations.

5 unchanged sentences

As part of our business and strategic plan, we look for strategic acquisitions to provide shareholder value.

Any acquisition will require the effective integration of an existing business and certain of its administrative, financial, sales and marketing,

manufacturing, distribution and other functions to maximize synergies.

Any acquisition will require the effective integration of an existing business and certain of its administrative, financial, sales and marketing, manufacturing, distribution and other functions to maximize synergies.

Acquired businesses involve a number of risks that may affect our financial performance, including increased leverage, diversion of management resources, assumption of liabilities of the acquired businesses, financial reporting systems which do not integrate with the Company's existing financial reporting systems and possible corporate culture conflicts.

2 unchanged sentences

We may incur material charges or be adversely impacted by the consolidation and/or closure of all or part of a manufacturing or distribution facility.

We periodically assess the cost structure of our operating facilities to distribute and/or manufacture products in the most efficient manner.

We periodically assess the cost structure of our operating facilities with the objective to distribute and/or manufacture products in the most efficient manner.

We may make capital investments to move, discontinue manufacturing and/or distribution capabilities, or products and product lines, sell or close all or part of additional manufacturing and/or distribution facilities in the future.

17 unchanged sentences

Some of our manufacturing processes involve the use, handling, storage and contracting for recycling or disposal of hazardous or toxic substances or wastes.

Accordingly, we are subject to various governmental and environmental laws and

regulations regarding these substances, as well as environmental requirements relating to land, air, water and noise pollution.

Accordingly, we are subject to various governmental and environmental laws and regulations regarding these substances, as well as environmental requirements relating to land, air, water and noise pollution.

The implementation of new laws and regulations or amendments to existing regulations could materially increase the cost of the Company’s products.

38 unchanged sentences

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

• Increasing raw material and labor costs relating a public health emergency may also affect our profitability.

• Increasing raw material and labor costs relating to a public health emergency may also affect our profitability.

The ultimate impact of public health emergencies, such as the COVID-19 pandemic, on our business, results of operations, financial condition and cash flows is highly uncertain and cannot be accurately predicted and is dependent on future developments, including the duration of such an event and the length of its impact on the global economy, and the actions taken by governmental bodies to contain it or mitigate its impact.

1 unchanged sentence

Our level and terms of indebtedness could adversely affect our ability to raise additional capital to fund our operations and take advantage of new business opportunities and prevent us from meeting our obligations under our debt instruments.

As of December 31, 2022, we had $1.30 billion of total long-term debt, including current maturities and exclusive of deferred financing costs and debt discount, outstanding under our 2021 Credit Facility, 4.75% Senior Notes, 7.50% Senior Notes, 1.75% Convertible Notes and 1.00% Convertible Notes (all as defined herein).

As of December 31, 2023, we had $1.04 billion of total long-term debt, including current maturities and exclusive of deferred financing costs and debt discount, outstanding under our 2021 Credit Facility, 4.75% Senior Notes, 7.50% Senior Notes and 1.75% Convertible Notes (all as defined in Note 7 "Debt" of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K).

Our level of indebtedness could have adverse consequences on our future operations, including making it more difficult for us to meet our payments on outstanding debt, and we may not be able to find alternative financing sources to replace our indebtedness in such an event.

7 unchanged sentences

• require a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our liquidity and our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

• expose us to the risk of increased interest rates, and corresponding increased interest expense, because borrowings under our 2021 Credit Agreement (as defined herein) are at variable rates of interest;

• expose us to the risk of increased interest rates, and corresponding increased interest expense, because borrowings pursuant to the credit agreement that established our revolving credit and term loan facility (the “2021 Credit Agreement”) are at variable rates of interest;

• reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes, due to the costs and expenses associated with such debt;

27 unchanged sentences

A potential failure to comply with these financial and other restrictive covenants in our debt instruments, which, among other things, require us to maintain specified financial ratios could, if not cured or waived, have a material adverse effect on our ability to fulfill our obligations under our indebtedness and on our business and prospects generally.

Our 2021 Credit Agreement contains covenants that require that we comply with a maximum level of a consolidated secured net leverage ratio and a minimum level of a consolidated fixed charge coverage ratio (both covenants as described in Note 8 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K).

Our 2021 Credit Agreement contains covenants that require that we comply with a maximum level of a consolidated secured net leverage ratio and a minimum level of a consolidated fixed charge coverage ratio (both covenants as described in Note 7 "Debt" of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K).

There can be no assurance that we will maintain compliance with the financial and other covenants under our 2021 Credit Agreement and other agreements governing our indebtedness.

10 unchanged sentences

The inability to retain our current letters of credit, to obtain alternative letter of credit sources, or to retain our 2021 Credit Agreement to support these programs could require us to post cash collateral, reduce the amount of cash available for our operations, or cause us to curtail or limit existing operations.

The conditional conversion feature of the 1.00% Convertible Notes due 2023 that we issued in January 2018 or 1.75% Convertible Notes due 2028 that we issued in December 2021, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the 1.00% Convertible Senior Notes due 2023 (the "1.00% Convertible Notes") or 1.75% Convertible Senior Notes due 2028 (the "1.75% Convertible Notes") is triggered, holders of 1.00% Convertible Notes or 1.75% Convertible Notes will be entitled to convert the 1.00% Convertible Notes or 1.75% Convertible Notes at any time during specified periods at their option.

If one or more holders elect to convert their 1.00% Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

The conditional conversion feature of the 1.75% Convertible Notes due 2028 that we issued in December 2021, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the 1.75% Convertible Senior Notes due 2028 (the "1.75% Convertible Notes") is triggered, holders of the 1.75% Convertible Notes will be entitled to convert the 1.75% Convertible Notes at any time during specified periods at their option.

If one or more holders elect to convert their 1.75% Convertible Notes, we would be required to settle our conversion obligation equal to the aggregate principal amount of such converted notes through the payment of cash, which could adversely affect our liquidity.

In addition, even if holders do not elect to convert their 1.00% Convertible Notes or 1.75% Convertible Notes, we could be required under

applicable accounting rules to reclassify all or a portion of the outstanding principal of the 1.00% Convertible Notes or 1.75% Convertible Notes as a current rather than long-term liability.

See Notes 8 and 9 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for additional details.

Our 1.00% Convertible Notes were repaid in full on February 1, 2023, thereby eliminating the risks described above as they relate to the 1.00% Convertible Notes.

The convertible note hedge and warrant transactions may affect the value of the 1.00% Convertible Notes or 1.75% Convertible Notes and our common stock.

In connection with the pricing of the 1.00% Convertible Notes and 1.75% Convertible Notes, we entered into convertible note hedge transactions with certain of the initial purchasers and/or their respective affiliates (the “option counterparties”).

In addition, even if holders do not elect to convert their 1.75% Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 1.75% Convertible Notes as a current rather than long-term liability.

See Notes 8 "Derivative Financial Instruments" and 9 "Accrued Liabilities" of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K for additional details.

The convertible note hedge and warrant transactions may affect the value of the 1.75% Convertible Notes and our common stock.

In connection with the pricing of the 1.75% Convertible Notes, we entered into convertible note hedge transactions with certain of the initial purchasers and/or their respective affiliates (the “option counterparties”).

At the same time, we entered into warrant transactions with the option counterparties.

The convertible note hedge transactions are expected generally to reduce the potential dilution upon conversion of the 1.00% Convertible Notes or 1.75% Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be.

However, the warrant transactions could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the strike price of the warrants.

In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the 1.00% Convertible Notes or 1.75% Convertible Notes and prior to the maturity of the 1.00% Convertible Notes or 1.75% Convertible Notes (and are likely to do so during any observation period related to a conversion of 1.00% Convertible Notes or 1.75% Convertible Notes).

This activity could cause or avoid an increase or a decrease in the market price of our common stock or the 1.00% Convertible Notes or 1.75% Convertible Notes, which could affect a holder's ability to convert the 1.00% Convertible Notes or 1.75% Convertible Notes and, to the extent the activity occurs during any observation period related to a conversion of 1.00% Convertible Notes or 1.75% Convertible Notes, it could affect the number of shares and value of the consideration that a holder will receive upon conversion of the 1.00% Convertible Notes or 1.75% Convertible Notes.

The convertible note hedge transactions associated with the 1.00% Convertible Notes expired as of February 1, 2023.

The convertible note hedge transactions are expected generally to reduce the potential dilution upon conversion of the 1.75% Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be.

However, the warrant transactions

could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the strike price of the warrants.

In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the 1.75% Convertible Notes and prior to the maturity of the 1.75% Convertible Notes (and are likely to do so during any observation period related to a conversion of 1.75% Convertible Notes).

This activity could cause or avoid an increase or a decrease in the market price of our common stock or the 1.75% Convertible Notes, which could affect a holder's ability to convert the 1.75% Convertible Notes and, to the extent the activity occurs during any observation period related to a conversion of 1.75% Convertible Notes, it could affect the number of shares and value of the consideration that a holder will receive upon conversion of the 1.75% Convertible Notes.

Risks Related to Information Security, Cybersecurity and Data Privacy

10 unchanged sentences

Our technologies, systems, networks, and those of our business partners have in the past been, and may in the future become, the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of proprietary and other information, or other disruption of our business operations.

A cyber-attack could include gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption or destruction due to ransom attacks or malware or

result in denial of service on websites.

We have programs in place to detect, contain and respond to data security incidents.

35 unchanged sentences

• the occurrence of other events that are described in these risk factors.

UNRESOLVED STAFF COMMENTS

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 1A. Risk Factors