UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

~~( X )~~ ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~MARCH 31,~~September 29, 2019

~~( )~~ ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ……………… to ………………

Commission file number 000-03922

PATRICK INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)



~~INDIANA~~Indiana	35-1057796
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)



107 WEST FRANKLIN STREET,P.O. Box 638
ELKHART, IN	IN	46515
~~(Address~~ (Address of principal executive offices)		~~(ZIP~~ (ZIP Code)

(~~(574)~~ 574)294-7511

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[X]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ~~[X]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ~~[X]~~	☒	Accelerated filer ~~[ ]~~	☐	Non-accelerated filer ~~[ ]~~	☐	Smaller reporting company ~~[ ]~~	☐	Emerging growth company ~~[ ]~~	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ~~[ ]~~☐ No ~~[X]~~☒

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, no par value	PATK	~~The~~ NASDAQ ~~Global Stock Market~~

As of ~~April 26,~~October 25, 2019, there were ~~23,849,644~~23,764,458 shares of the registrant’s common stock outstanding.

PATRICK INDUSTRIES, INC.

TABLE OF CONTENTS



	Page No.
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

Condensed Consolidated Statements of Financial Position ~~March 31,~~September 29, 2019 and December 31, 2018	3

Condensed Consolidated Statements of Income ~~First~~Third Quarter and Nine Months Ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018	4

Condensed Consolidated Statements of Comprehensive Income ~~First~~Third Quarter and Nine Months Ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018	5

Condensed Consolidated Statements of Shareholders' Equity ~~First~~Third Quarter and Nine Months Ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018	6

Condensed Consolidated Statements of Cash Flows ~~First Quarter~~Nine Months Ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018	78

Notes to Condensed Consolidated Financial Statements	89

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3635

ITEM 4. CONTROLS AND PROCEDURES	3736

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS	3837

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3837

ITEM 6. EXHIBITS	3938

SIGNATURES	4039

PART 1: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)


	As of						As of
(thousands)	March 31, 2019			December 31, 2018			September 29, 2019			December 31, 2018
ASSETS
Current Assets
Cash and cash equivalents	$	8,454		$	6,895		$	116,712		$	6,895
Trade receivables, net	137,318			82,499
Trade and other receivables, net							129,837			82,499
Inventories	264,994			272,898			262,558			272,898
Prepaid expenses and other	17,757			22,875			18,897			22,875
Total current assets	428,523			385,167			528,004			385,167
Property, plant and equipment, net	180,331			177,145			179,884			177,145
Operating lease right-of-use assets	79,868			—			81,064			—
Goodwill	292,113			281,734			308,358			281,734
Intangible assets, net	370,233			382,982			350,216			382,982
Deferred financing costs, net	3,617			3,688			3,130			3,688
Other non-current assets	499			515			474			515
TOTAL ASSETS	$	1,355,184		$	1,231,231		$	1,451,130		$	1,231,231
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current maturities of long-term debt	$	10,000		$	8,750		$	5,000		$	8,750
Current operating lease liabilities	25,874			—			25,990			—
Accounts payable	124,640			89,803			117,862			89,803
Accrued liabilities	57,292			59,202			53,423			59,202
Total current liabilities	217,806			157,755			202,275			157,755
Long-term debt, less current maturities, net	613,599			621,751			670,928			621,751
Long-term operating lease liabilities	54,309			—			55,553			—
Deferred tax liabilities, net	23,624			22,699			19,735			22,699
Other long-term liabilities	16,757			20,272			22,701			20,272
TOTAL LIABILITIES	926,095			822,477			971,192			822,477
SHAREHOLDERS’ EQUITY
Common stock	161,949			161,436			169,220			161,436
Additional paid-in-capital	25,124			25,124			25,020			25,124
Accumulated other comprehensive loss	(3,707		)	(2,680		)	(5,953		)	(2,680		)
Retained earnings	245,723			224,874			291,651			224,874
TOTAL SHAREHOLDERS’ EQUITY	429,089			408,754			479,938			408,754
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,355,184		$	1,231,231		$	1,451,130		$	1,231,231

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	First Quarter Ended				Third Quarter Ended				Nine Months Ended
(thousands except per share data)	March 31, 2019		April 1, 2018		September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
NET SALES	$	608,218	$	551,832	$	566,186	$	575,139	$	1,787,622	$	1,731,850
Cost of goods sold	501,670		454,078		461,851		468,484		1,464,078		1,412,649
GROSS PROFIT	106,548		97,754		104,335		106,655		323,544		319,201
Operating Expenses:
Warehouse and delivery	24,041		17,028		23,917		19,789		74,228		55,540
Selling, general and administrative	37,692		31,841		33,817		33,284		104,403		98,999
Amortization of intangible assets	8,989		7,127		9,191		8,873		26,448		25,140
Total operating expenses	70,722		55,996		66,925		61,946		205,079		179,679
OPERATING INCOME	35,826		41,758		37,410		44,709		118,465		139,522
Interest expense, net	8,983		4,378		8,603		7,338		26,222		17,980
Income before income taxes	26,843		37,380		28,807		37,371		92,243		121,542
Income taxes	5,994		7,312		7,490		9,437		22,661		28,680
NET INCOME	$	20,849	$	30,068	$	21,317	$	27,934	$	69,582	$	92,862

BASIC NET INCOME PER COMMON SHARE	$	0.90	$	1.22	$	0.92	$	1.17	$	3.02	$	3.82
DILUTED NET INCOME PER COMMON SHARE	$	0.90	$	1.20	$	0.92	$	1.15	$	2.99	$	3.77

Weighted average shares outstanding - Basic	23,039		24,740
Weighted average shares outstanding - Diluted	23,248		25,110
Weighted average shares outstanding – Basic					23,076		23,894		23,073		24,279
Weighted average shares outstanding – Diluted					23,273		24,232		23,279		24,619

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	First Quarter Ended					Third Quarter Ended						Nine Months Ended
(thousands)	March 31, 2019			April 1, 2018		September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
NET INCOME	$	20,849		$	30,068	$	21,317		$	27,934		$	69,582		$	92,862
Other comprehensive (loss) income, net of tax:
Change in unrealized loss of hedge derivatives	(1,054		)	—
Foreign currency translation gain	27			28
Total other comprehensive (loss) income	(1,027		)	28
Unrealized (loss) gain of hedge derivatives						(240		)	80			(3,225		)	80
Foreign currency translation gain (loss)						19			(28		)	(48		)	(31		)
Total other comprehensive (loss) gain						(221		)	52			(3,273		)	49
COMPREHENSIVE INCOME	$	19,822		30,096		$	21,096		$	27,986		$	66,309		$	92,911

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)


Third Quarter Ended September 29, 2019																	Third Quarter Ended September 29, 2019
(thousands)	Common Stock			Additional Paid-in- Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings				Total				Common Stock			Additional Paid-in- Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
First Quarter Ended April 1, 2018
Balance December 31, 2017	$	163,196		$	8,243		$	66		$	199,180			$	370,685
Balance June 30, 2019																		$	166,086		$	25,124		$	(5,732	)	$	273,139		$	458,617
Net income																		—			—			—			21,317			21,317
Other comprehensive loss, net of tax																		—			—			(221		)	—			(221		)
Share repurchases under buyback program																		(674		)	(104		)	—			(2,805		)	(3,583		)
Shares used to pay taxes on stock grants																		(59		)	—			—			—			(59		)
Stock-based compensation expense																		3,867			—			—			—			3,867
Balance September 29, 2019																		$	169,220		$	25,020		$	(5,953	)	$	291,651		$	479,938

Nine Months Ended September 29, 2019																	Nine Months Ended September 29, 2019
(thousands)																		Common Stock			Additional Paid-in- Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
Balance December 31, 2018																		$	161,436		$	25,124		$	(2,680	)	$	224,874		$	408,754
Net income																		—			—			—			69,582			69,582
Other comprehensive loss, net of tax																		—			—			(3,273		)	—			(3,273		)
Share repurchases under buyback program																		(674		)	(104		)	—			(2,805		)	(3,583		)
Shares used to pay taxes on stock grants																		(3,587		)	—			—			—			(3,587		)
Issuance of shares upon exercise of common stock options																		6			—			—			—			6
Stock-based compensation expense																		12,039			—			—			—			12,039
Balance September 29, 2019																		$	169,220		$	25,020		$	(5,953	)	$	291,651		$	479,938

Third Quarter Ended September 30, 2018																	Third Quarter Ended September 30, 2018
(thousands)																		Common Stock			Additional Paid-in- Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
Balance July 1, 2018																		$	161,648		$	25,552		$	63		$	216,357		$	403,620
Net income	—			—			—			30,068				30,068				—			—			—			27,934			27,934
Other comprehensive income, net of tax	—			—			28			—				28				—			—			52			—			52
Stock repurchases under buyback program	(1,424		)	(72		)	—			(11,974		)	��	(13,470		)		(2,237		)	(113		)	—			(18,593		)	(20,943		)
Issuance of shares upon exercise of common stock options																		(37		)	—			—			—			(37		)
Shares used to pay taxes on stock grants	(2,843		)	—			—			—				(2,843		)		9			—			—			—			9
Stock-based compensation expense	3,696			—			—			—				3,696				3,542			—			—			—			3,542
Purchase of convertible notes hedges	—			(31,481		)	—			—				(31,481		)
Proceeds from sale of warrants	—			18,147			—			—				18,147
Equity component of convertible note issuance	—			30,948			—			—				30,948
Balance April 1, 2018	$	162,625		$	25,785		$	94		$	217,274			$	405,778
Equity component of convertible notes issuance																		—			41			—			—			41
Balance September 30, 2018																		$	162,925		$	25,480		$	115		$	225,698		$	414,218

First Quarter Ended March 31, 2019
Balance December 31, 2018	$	161,436		$	25,124		$	(2,680	)	$	224,874			$	408,754
Net income	—			—			—			20,849				20,849
Other comprehensive loss, net of tax	—			—			(1,027		)	—				(1,027		)
Shares used to pay taxes on stock grants	(3,437		)	—			—			—				(3,437		)
Issuance of shares upon exercise of common stock options	3			—			—			—				3
Stock-based compensation expense	3,947			—			—			—				3,947
Balance March 31, 2019	$	161,949		$	25,124		$	(3,707	)	$	245,723			$	429,089



PATRICK INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (cont.)
Nine Months Ended September 30, 2018
(thousands)	Common Stock			Additional Paid-in- Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings			Total
Balance December 31, 2017	$	163,196		$	8,243		$	66	$	199,180		$	370,685
Net income	—			—			—		92,862			92,862
Other comprehensive loss, net of tax	—			—			49		—			49
Stock repurchases under buyback program	(8,266		)	(418		)	—		(66,344		)	(75,028		)
Issuance of shares upon exercise of common stock options	3			—			—		—			3
Shares used to pay taxes on stock grants	(2,919		)	—			—		—			(2,919		)
Stock-based compensation expense	10,911			—			—		—			10,911
Purchase of convertible notes hedges	—			(31,481		)	—		—			(31,481		)
Proceeds from sale of warrants	—			18,147			—		—			18,147
Equity component of convertible notes issuance	—			30,989			—		—			30,989
Balance September 30, 2018	$	162,925		$	25,480		$	115	$	225,698		$	414,218

See accompanying Notes to Condensed Consolidated Financial Statements

PATRICK INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	Nine Months Ended
(thousands)	September 29, 2019			September 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	69,582		$	92,862
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	46,449			39,893
Stock-based compensation expense	12,039			10,911
Amortization of convertible notes debt discount	5,123			4,495
Deferred income taxes	(794		)	(1,088		)
Other	235			(2,739		)
Change in operating assets and liabilities, net of acquisitions of businesses:
Trade receivables	(44,359		)	(29,295		)
Inventories	9,084			(13,238		)
Prepaid expenses and other assets	4,319			4,299
Accounts payable, accrued liabilities and other	20,355			21,313
Net cash provided by operating activities	122,033			127,413
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(22,227		)	(26,073		)
Proceeds from sale of property, equipment and other investing activities	4,509			5,125
Business acquisitions, net of cash acquired	(22,350		)	(290,052		)
Net cash used in investing activities	(40,068		)	(311,000		)
CASH FLOWS FROM FINANCING ACTIVITIES
Term debt borrowings	7,500			36,981
Term debt repayments	(3,750		)	(6,441		)
Borrowings on revolver	648,460			954,535
Repayments on revolver	(905,792		)	(877,931		)
Stock repurchases under buyback program	(3,583		)	(75,028		)
Proceeds from issuance of senior notes	300,000			—
Proceeds from convertible notes offering	—			172,500
Purchase of convertible notes hedges	—			(31,481		)
Proceeds from sale of warrants	—			18,147
Payments related to vesting of stock-based awards, net of shares tendered for taxes	(3,359		)	(2,659		)
Payment of deferred financing costs	(7,214		)	(7,485		)
Payment of contingent consideration from a business acquisition	(4,416		)	—
Other financing activities	6			(12		)
Net cash provided by financing activities	27,852			181,126
Increase (decrease) in cash and cash equivalents	109,817			(2,461		)
Cash and cash equivalents at beginning of year	6,895			2,767
Cash and cash equivalents at end of period	$	116,712		$	306

Three Months Ended
(thousands)
March 31, 2019
April 1, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$ 20,849

$ 30,068
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
15,543

11,325
Stock-based compensation expense
3,947

3,696
Amortization of convertible notes debt discount
1,671

1,246
Deferred income taxes
1,281

1,410
Other
(233 )
(1,304 )
Change in operating assets and liabilities, net of acquisitions of businesses:

Trade receivables
(54,188 )
(48,443 )
Inventories
1,224

(8,557 )
Prepaid expenses and other assets
5,216

2,136
Accounts payable, accrued liabilities and other
32,574

34,231
Net cash provided by operating activities
27,884

25,808
CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures
(10,005 )
(7,641 )
Proceeds from sale of property, equipment and other investing activities
1,372

(6 )
Business acquisitions, net of cash acquired
(1,222 )
(95,861 )
Net cash used in investing activities
(9,855 )
(103,508 )
CASH FLOWS FROM FINANCING ACTIVITIES

Term debt repayments
(1,250 )
(3,941 )
Borrowings on revolver
213,523

331,058
Repayments on revolver
(220,855 )
(389,855 )
Stock repurchases under buyback program
—

(13,470 )
Proceeds from convertible notes offering
—

172,500
Purchase of convertible notes hedges
—

(31,481 )
Proceeds from sale of warrants
—

18,147
Payments related to vesting of stock-based awards, net of shares tendered for taxes
(3,222 )
(2,586 )
Payment of deferred financing costs
(253 )
(5,367 )
Payment of contingent consideration from a business acquisition (4,416 ) —
Other financing activities
3

(1 )
Net cash (used in) provided by financing activities
(16,470 )
75,004
Increase (decrease) in cash and cash equivalents
1,559

(2,696 )
Cash and cash equivalents at beginning of year
6,895

2,767
Cash and cash equivalents at end of period
$ 8,454

$ 71

See accompanying Notes to Condensed Consolidated Financial Statements.

PATRICK INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



1.	BASIS OF PRESENTATION

~~In the opinion~~The accompanying unaudited condensed consolidated financial statements of Patrick Industries, Inc. (“Patrick”, the “Company”, "we", "our")~~, the accompanying unaudited condensed consolidated financial statements~~ contain all adjustments (consisting of normal recurring adjustments) that we believe are necessary to present fairly the Company’s financial position as of ~~March 31,~~September 29, 2019 and December 31, 2018, and its results of operations for the three and nine months ended September 29, 2019 and September 30, 2018 and cash flows for the ~~three~~nine months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018.

Patrick’s unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules or regulations. Certain immaterial reclassifications have been made to the prior period presentation to conform to the current period presentation. For a description of significant accounting policies used by the Company in the preparation of its consolidated financial statements, please refer to Note 2 ~~of the~~to Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The December 31, 2018 condensed consolidated statement of financial position data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. Operating results for the ~~first~~third quarter and nine months ended ~~March 31,~~September 29, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019.

The Company maintains its financial records on the basis of a fiscal year ending on December 31, with the fiscal quarters spanning approximately thirteen weeks. The first quarter ends on the Sunday closest to the end of the first thirteen-week period. The second and third quarters are thirteen weeks in duration and the fourth quarter is the remainder of the year. The third quarter of fiscal year 2019 ended on September 29, 2019 and the third quarter of fiscal year 2018 ended on September 30, 2018.

In preparation of Patrick’s condensed consolidated financial statements as of and for the ~~first quarter~~three and nine months ended ~~March 31,~~September 29, 2019, management evaluated all material subsequent events or 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.



2.	RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, "Leases (Topic 842)", which requires in part that an entity recognize lease assets and lease liabilities on its statement of financial position for leases that were previously classified as operating leases under U.S. GAAP. The standard also requires companies to disclose in the footnotes to the financial statements information about the amount and timing of lease payments. The standard is effective for financial statements issued for annual and interim periods beginning after December 15, 2018 on a modified retrospective basis and early adoption was permitted.

In July 2018, the FASB issued ASU 2018-11, "Leases (Topic 842): Targeted Improvements", which offered practical expedient alternatives to the modified retrospective adoption of Accounting Standards Codification (“ASC”) 842. Specifically, the practical expedients allow companies to recognize right of use lease assets and lease liabilities at the date of adoption only, rather than retrospectively for all periods presented, as well as practical expedients related to the presentation of lease components.

The Company adopted ASC 842 effective January 1, 2019, and recorded approximately $80 million in lease right-of-use assets and corresponding lease liabilities, with no material impact on the condensed consolidated statement of shareholders' equity, ~~results of operations~~income, comprehensive income or cash flows. See Note 12 for further information.

Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". This ASU simplifies the accounting for goodwill impairments by eliminating step two from the

goodwill impairment test. The standard requires that the impairment loss be measured as the excess of the reporting unit's carrying amount over its fair value. It eliminates the second step that requires the impairment to be measured between the implied value of a reporting unit's goodwill and its carrying value. The standard is effective for annual and any interim impairment tests for periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the effect of adopting this new accounting standard, ~~and has not yet determined~~which will depend on the ~~impact that its implementation will have on its condensed consolidated financial statements.~~outcomes of future goodwill impairment tests.

Credit Losses

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments”, which amends certain provisions of ASC 326, “Financial Instruments-Credit Loss”. The ASU changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held to maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. Additionally, entities will ~~have~~be required to disclose more information with respect to credit quality indicators, including information used to track credit quality by year of origination for most financing receivables. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and will be applied as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period for which the guidance is effective. The Company does not expect that the adoption of the ASU will have a material effect on its condensed consolidated financial statements.



3.	REVENUE RECOGNITION

~~Effective January 1, 2018, the Company adopted FASB ASU 2014-09, "~~
~~Revenue from Contracts with Customers"~~ (commonly referred to as “Topic 606”), which requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive. The Company adopted Topic 606 using the modified retrospective method and applied it to those contracts which were not completed as of the adoption date. The adoption of the new revenue standard did not have a material impact on the Company’s condensed consolidated financial position, results of operations, or revenues as of the adoption date.

~~Revenue Recognition~~

Revenues are recognized when or as control of the promised goods or services transfers to the Company's customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The transaction price for contracts may include forms of variable consideration, including reductions to the transaction price for volume discounts and rebates. To the extent a contract is deemed to have multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation using the standalone selling price of each distinct good or service in the contract.

~~Disaggregation of Revenue~~

In the following table, revenue from contracts with customers, net of intersegment sales, is disaggregated by market type and by reportable ~~operating segments:~~segments, consistent with how the Company believes the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors:

First Quarter Ended March 31, 2019
(thousands) Manufacturing Distribution Total Reportable Operating Segments
Market type:
Recreational Vehicle $ 234,878
$ 107,558
$ 342,436
Manufactured Housing 42,203
63,816
106,019
Industrial 60,928
8,049
68,977
Marine 87,675
3,111
90,786
Total $ 425,684
$ 182,534
$ 608,218



	Third Quarter Ended September 29, 2019
(thousands)	Manufacturing		Distribution		Total Reportable Segments
Market type:
Recreational Vehicle	$	218,706	$	91,313	$	310,019
Manufactured Housing	44,159		64,959		109,118
Industrial	64,541		7,566		72,107
Marine	72,306		2,636		74,942
Total	$	399,712	$	166,474	$	566,186

First Quarter Ended April 1, 2018
(thousands) Manufacturing Distribution Total Reportable Operating Segments
Market type:
Recreational Vehicle $ 293,225
$ 85,066
$ 378,291
Manufactured Housing 39,315
22,941
62,256
Industrial 58,677
7,018
65,695
Marine 44,696
894
45,590
Total $ 435,913
$ 115,919
$ 551,832



	Nine Months Ended September 29, 2019
(thousands)	Manufacturing		Distribution		Total Reportable Segments
Market type:
Recreational Vehicle	$	694,261	$	299,115	$	993,376
Manufactured Housing	131,101		193,975		325,076
Industrial	188,292		25,149		213,441
Marine	246,017		9,712		255,729
Total	$	1,259,671	$	527,951	$	1,787,622



	Third Quarter Ended September 30, 2018
(thousands)	Manufacturing		Distribution		Total Reportable Segments
Market type:
Recreational Vehicle	$	262,936	$	91,637	$	354,573
Manufactured Housing	41,428		26,334		67,762
Industrial	63,429		8,906		72,335
Marine	77,421		3,048		80,469
Total	$	445,214	$	129,925	$	575,139

~~Description of Products and Services~~

The Company is a major manufacturer of component products and a distributor of building products and materials serving original equipment manufacturers (“OEMs”). The following is a description of the principal activities, by reportable segments, from which the Company generates its revenue. See Note 15 for more detailed information about the Company's reportable operating segments.



	Nine Months Ended September 30, 2018
(thousands)	Manufacturing		Distribution		Total Reportable Segments
Market type:
Recreational Vehicle	$	847,944	$	280,082	$	1,128,026
Manufactured Housing	124,406		75,946		200,352
Industrial	186,890		25,701		212,591
Marine	184,848		6,033		190,881
Total	$	1,344,088	$	387,762	$	1,731,850

~~Manufacturing~~

The Company’s Manufacturing segment revenue is primarily derived from the sale of laminated products that are utilized to produce furniture, shelving, walls, countertops, and cabinet products, cabinet doors, fiberglass bath fixtures and tile systems, hardwood furniture, vinyl printing, decorative vinyl and paper laminated panels, solid surface, granite, and quartz countertop fabrication, RV painting, fabricated aluminum products, fiberglass and plastic components, softwoods lumber, custom cabinetry, polymer-based flooring, electrical systems components (including instrument and dash panels), wrapped vinyl, paper and hardwood profile mouldings, interior passage doors, air handling products, slide-out trim and fascia, thermoformed shower surrounds, specialty bath and closet building products, fiberglass and plastic helm systems and components products, wiring and wire harnesses, boat covers, towers, tops and frames, aluminum fuel tanks, CNC molds and composite parts, slotwall panels and components and other products.

Manufacturing segment revenue is recognized when control of the product transfers to the customer which is the point when the customer gains the ability to direct the use of and obtain substantially all of the remaining benefits from the asset, which is generally upon delivery of goods. In limited circumstances, where the products are customer specific with no alternative use to the Company and the Company has a legally enforceable right to payment for performance to date with a reasonable margin, revenue is recognized over the contract term based on the cost-to-cost method. The Company uses this measure of progress because it best depicts the transfer of value to the customer and correlates with the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods to the customer. However, revenue recognized based on the cost-to-cost method does not constitute a material amount of total Manufacturing segment revenue and consolidated net sales.

~~Distribution~~

The Company’s Distribution segment revenue is primarily derived from the resale of pre-finished wall and ceiling panels, drywall and drywall finishing products, electronics and audio systems components, appliances, wiring, electrical and plumbing products, fiber reinforced polyester products, cement siding, raw and processed lumber, interior passage doors, roofing products, laminate and ceramic flooring, tile, shower doors, furniture, fireplaces and surrounds, interior and exterior lighting products, and other miscellaneous products, in addition to providing transportation and logistics services.

The Company acts as a principal in such arrangements because it controls the promised goods before delivery to the customer. Distribution segment revenue from product sales is recognized on a gross basis upon delivery of goods at which point control transfers to the customer. The Distribution segment also generates revenue by providing marketing services for other manufacturers in exchange for agreed upon commissions. The commission revenue is recognized in the amount of expected commissions to be collected from the manufacturer upon delivery of goods to the customer. The overall commission business is not material to the Company’s consolidated net sales.

~~Significant Judgments and Practical Expedients Applied~~

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are not recognized as separate performance obligations to which a portion of revenue would otherwise be allocated.

The Company records freight billed to customers in net sales. The corresponding costs incurred for shipping and handling related to these customer billed freight costs are recorded as costs to fulfill the contract and are included in warehouse and delivery expenses.

The Company’s contracts across each of its businesses typically do not result in situations where there is a time period greater than one year between performance under the contract and collection of the related consideration. The Company elected the practical expedient under Topic 606 related to significant financing components, where the Company expects, at contract inception, that the period between the entity’s transfer of a promised good or service to a customer and the customer’s payment for that good or service will be one year or less.

The Company also applies the practical expedient in Topic 606 related to costs to obtain a contract and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the incurred costs that the Company otherwise would have capitalized is one year or less. These costs are included in selling, general and administrative expenses.

~~Contract Balances~~

The Company typically invoices the customer after shipment of the promised goods, at which time it has an unconditional right to payment. In limited circumstances, the Company may receive upfront payments from customers prior to satisfaction of a performance obligation in both the manufacturing and distribution businesses, in which case a contract liability is recorded. The following table provides information about contract balances:


(thousands)	March 31, 2019		December 31, 2018		September 29, 2019		December 31, 2018
Receivables, which are included in trade receivables, net	$	135,202	$	74,196
Receivables, which are included in trade and other receivables, net					$	128,672	$	74,196
Contract liabilities	$	2,847	$	2,642	$	2,692	$	2,642

Significant changes in the contract liabilities balance during the ~~three~~nine months ended ~~March 31,~~September 29, 2019 are as follows:


(thousands)	Contract Liabilities			Contract Liabilities
Revenue recognized that was included in the contract liability balance at the beginning of the period	$	(910	)	$	(1,006	)
Increases due to cash received, excluding amounts recognized as revenue during the period	$	1,115		$	1,056

~~Transaction Price Allocated to the Remaining Performance Obligation~~

The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.~~The Company does not have material contracts that have original expected durations of more than one year.~~



4.	INVENTORIES

Inventories ~~are stated at the lower of cost (First-In, First-Out (FIFO) Method) and net realizable value and~~ consist of the ~~following classes:~~following:

(thousands) March 31, 2019 December 31, 2018
Raw materials $ 166,369
$ 164,408
Work in process 13,882
12,829
Finished goods 25,003
28,341
Less: reserve for inventory obsolescence (7,341 ) (5,354 )
Total manufactured goods, net 197,913
200,224
Materials purchased for resale (distribution products) 68,876
74,914
Less: reserve for inventory obsolescence (1,795 ) (2,240 )
Total materials purchased for resale (distribution products), net 67,081
72,674
Total inventories $ 264,994
$ 272,898



(thousands)	September 29, 2019			December 31, 2018
Raw materials	$	172,775		$	164,408
Work in process	14,235			12,829
Finished goods	25,403			28,341
Less: reserve for inventory obsolescence	(10,258		)	(5,354		)
Total manufactured goods, net	202,155			200,224
Materials purchased for resale (distribution products)	62,616			74,914
Less: reserve for inventory obsolescence	(2,213		)	(2,240		)
Total materials purchased for resale (distribution products), net	60,403			72,674
Total inventories	$	262,558		$	272,898



5.	GOODWILL AND INTANGIBLE ASSETS

The Company acquired goodwill and intangible assets in various acquisitions in 2018 that were determined to be business combinations. No new intangible assets were acquired through business combination in the first quarter of 2019, but purchase accounting adjustments to previously reported estimated amounts were made in such quarter. See Note 6 for further details. Goodwill and intangible assets are allocated to the Company’s reporting units on the date they are initially recorded. Goodwill and indefinite-lived intangible assets are not amortized but are subject to an impairment test based on their estimated fair value performed annually (or under certain circumstances more frequently as warranted). Goodwill impairment testing is performed at the reporting unit level, one level below the business segment
.

Finite-lived intangible assets that meet certain criteria continue to be amortized over their useful lives and are also subject to an impairment test based on estimated undiscounted cash flows when impairment indicators exist. The Company assesses finite-lived intangible assets for impairment if events or changes in circumstances indicate that the carrying value may exceed the fair value.

~~No impairment was recognized during the three months ended March 31, 2019 and April 1, 2018, related to goodwill, indefinite-lived intangible assets or finite-lived intangible assets.~~

~~Goodwill~~

Changes in the carrying amount of goodwill for the ~~three~~nine months ended ~~March 31,~~September 29, 2019 by segment are as follows:


(thousands)	Manufacturing		Distribution		Total		Manufacturing		Distribution		Total
Balance - December 31, 2018	$	235,345	$	46,389	$	281,734	$	235,345	$	46,389	$	281,734
Adjustments to prior year preliminary purchase price allocations	339		10,040		10,379
Balance - March 31, 2019	$	235,684	$	56,429	$	292,113
Acquisitions							7,177		—		7,177
Adjustments to preliminary purchase price allocations							8,428		11,019		19,447
Balance - September 29, 2019							$	250,950	$	57,408	$	308,358

~~Intangible Assets~~

Intangible assets are comprised of customer relationships, non-compete agreements, trademarks and patents. Customer relationships and non-compete agreements represent finite-lived intangible assets that have been recorded in the Manufacturing and Distribution segments along with related amortization expense. As of March 31, 2019, the remaining intangible assets balance of $370.2 million is comprised of $85.2 million of trademarks which have an indefinite life, and therefore, no amortization expense has been recorded for trademarks, and $285.0 million pertaining to customer relationships, non-compete agreements and patents which are being amortized over periods ranging from three to 19 years.

~~Amortization expense for the Company’s intangible assets in the aggregate was $9.0 million and $7.1 million for the three months ended March 31, 2019 and April 1, 2018, respectively.~~

Intangible assets, net consist of the following as of ~~March 31,~~September 29, 2019 and December 31, 2018:


(thousands)	March 31, 2019			Weighted Average Useful Life (in years)	December 31, 2018			Weighted Average Useful Life (in years)	September 29, 2019			Weighted Average Useful Life (in years)	December 31, 2018			Weighted Average Useful Life (in years)
Customer relationships	$	361,308		10.1	$	366,228		10.1	$	348,947		10.1	$	366,228		10.1
Non-compete agreements	17,499			5.0	19,159			4.9	16,405			4.9	19,159			4.9
Patents	1,048			9.0	1,048			8.9	16,338			14.6	1,048			8.9
Trademarks	85,178			Indefinite	82,358			Indefinite	80,786			Indefinite	82,358			Indefinite
	465,033				468,793				462,476				468,793
Less: accumulated amortization	(94,800		)		(85,811		)		(112,260		)		(85,811		)
Intangible assets, net	$	370,233			$	382,982			$	350,216			$	382,982

Changes in the carrying value of intangible assets for the ~~three~~nine months ended ~~March 31,~~September 29, 2019 by segment are as follows:


(thousands)	Manufacturing			Distribution			Total			Manufacturing			Distribution			Total
Balance - December 31, 2018	$	304,485		$	78,497		$	382,982		$	304,485		$	78,497		$	382,982
Acquisitions										8,329			—			8,329
Amortization	(7,715		)	(1,274		)	(8,989		)	(21,808		)	(4,640		)	(26,448		)
Adjustments to prior year preliminary purchase price allocations	(3,451		)	(309		)	(3,760		)
Balance - March 31, 2019	$	293,319		$	76,914		$	370,233
Adjustments to preliminary purchase price allocations										(12,023		)	(2,624		)	(14,647		)
Balance - September 29, 2019										$	278,983		$	71,233		$	350,216



6.	ACQUISITIONS

General

~~The Company did not complete any~~In addition to the acquisitions ~~the first quarter of 2019 and~~ completed ~~nine acquisitions~~ in 2018 ~~including four~~as discussed below, the Company completed 2 acquisitions in the first nine months of 2019. For the third quarter ~~of 2018. Each of the 2018 acquisitions was funded through borrowings under the Company’s credit facility in effect at the time of acquisition. Assets acquired~~ and ~~liabilities assumed~~first nine months ended September 29, 2019, revenue and operating income included in the ~~individual acquisitions were recorded on the Company’s~~Company's condensed consolidated statements of ~~financial position at their estimated fair values as of the respective dates of acquisition. For each acquisition, the Company completes its allocation of the purchase price~~income related to the ~~fair value of acquired assets and liabilities within the one year measurement period. For those~~2019 acquisitions where the purchase price allocation has been noted as being provisional, the Company generally is still in the process of finalizing the fair values of acquired goodwill, intangible assets, fixed assets, and, if applicable, related deferred tax assets and liabilities. Historically, the impact of finalizing provisional purchase price allocations has not been significant. In general, the acquisitions described below provided the opportunity for the Company to either establish a new presence in a particular market and/or expand its product offerings in an existing market and increase its market share and per unit content.

For each acquisition, the excess of the purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which represents the combined value of the Company’s existing purchasing, manufacturing, sales, and systems resources with the organizational talent and expertise of the acquired companies’ respective management teams to maximize efficiencies, revenue impact, market share growth and net income. The goodwill recognized is expected to be deductible for income tax purposes for each of the 2018 acquisitions with the exception of the acquisition of Marine Accessories Corporation which is expected to be partially deductible for income tax purposes, and the acquisition of LaSalle Bristol which is not deductible for income tax purposes. Intangible asset values were ~~estimated using income based valuation methodologies. See Note 5 for information regarding the amortization periods assigned to finite-lived intangible assets.~~

immaterial. For the ~~first~~third quarter ended ~~April 1,~~September 30, 2018, revenue and operating income of approximately ~~$12.6~~$82.4 million and ~~$1.3~~$8.8 million, respectively, ~~was~~were included in the Company’s condensed consolidated statements of income relating to the ~~four~~ businesses acquired in the first ~~three~~nine months of 2018. The first nine months of 2018 included revenue and operating income of approximately $160.0 million and $17.3 million, respectively, related to these acquisitions. Acquisition-related costs in the aggregate associated with the businesses acquired in the first ~~three~~nine months of 2019 and 2018 were immaterial.

Contingent Consideration

In connection with certain ~~2018 and 2017~~ acquisitions, if certain financial targets for the acquired businesses are achieved, the Company will be required to pay additional cash consideration. The Company has recorded a liability for the fair value of the contingent consideration related to each of these acquisitions as part of the initial purchase price based on the present value of the expected future cash flows and the probability of future payments. As required, the liabilities for the contingent consideration associated with each of these acquisitions will be ~~measured~~remeasured quarterly at fair ~~value and the Company could record adjustments in future periods.~~value.

~~The~~As of September 29, 2019, the aggregate fair value of the estimated contingent consideration payments was ~~$9.4~~$12.0 million, ~~$4.9~~$4.5 million of which is included in the line item "Accrued liabilities" and ~~$4.5~~$7.5 million is included in “Other long-term liabilities” on the condensed consolidated statement of financial ~~position as~~position. At December 31, 2018, the aggregate fair value of ~~March 31, 2019.~~the estimated contingent consideration payments was $13.8 million, $4.4 million of which was included in the line item "Accrued liabilities" and $9.4 million was included in "Other long-term liabilities". The liabilities for contingent consideration expire at various dates through December 2023. The contingent consideration arrangements are subject to a maximum payment amount of up to ~~$13.7~~$17.2 million in the aggregate. In the first quarter of 2019, the Company made cash payments of approximately $4.4 million related to contingent consideration liabilities, recording a corresponding reduction to accrued liabilities.

2019 Acquisitions

The Company completed 2 acquisitions in the third quarter and first nine months ended September 29, 2019, including the previously announced acquisition of G.G. Schmitt & Sons, Inc. ("G.G. Schmitt"), a Sarasota, Florida-based designer and manufacturer of customized hardware and structural components for the marine industry. The total initial consideration for these acquisitions was $21.1 million, plus subsequent contingent consideration payments over a one-year period based on future performance in connection with the acquisition of G.G. Schmitt. The preliminary purchase price allocation is subject to final review and approval, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its fair value estimates.

The results of operations for these acquisitions are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from their respective dates of acquisition.

2018 Acquisitions

Metal Moulding Corporation (“MMC”)

In February 2018, the Company completed the acquisition of the business and certain assets of Madison, Tennessee-based MMC, a manufacturer of custom metal fabricated products, primarily for the marine market, including hinges, arm rests, brackets, panels and trim, as well as plastic products including boxes, inlay tables, steps, and related components, for a net initial purchase price of $19.9 million, plus ~~subsequent~~ contingent consideration payments over a one-year period based on future performance.

The results of operations for MMC are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition.

Aluminum Metals Company, LLC (“AMC”)

In February 2018, the Company completed the acquisition of the business and certain assets of Elkhart, Indiana-based AMC, a manufacturer of aluminum products including coil, fabricated sheets and extrusions, in addition to roofing products, primarily for the recreational vehicle (“RV”), industrial, and marine markets, for a net purchase price of $17.8 million.

The results of operations for AMC are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition.

IMP Holdings, LLC d/b/a Indiana Marine Products (“IMP”)

In March 2018, the Company completed the acquisition of the business and certain assets of Angola, Indiana-based IMP, a manufacturer of fully-assembled helm assemblies, including electrical wiring harnesses, dash panels, instrumentation and gauges, and other products primarily for the marine market, for a net initial purchase price of $18.6 million, plus subsequent contingent consideration payments over a three-year period based on future performance. ~~The Company recorded a fair value estimate of the contingent consideration of $7.9 million at the time of acquisition.~~

The results of operations for IMP are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition. The purchase price allocation and all required purchase accounting adjustments were finalized in the first quarter of 2019. Net changes from previously reported estimated amounts as of December 31, 2018 were immaterial.

Collins & Company, Inc. (“Collins”)

In March 2018, the Company completed the acquisition of the business and certain assets of Bristol, Indiana-based Collins, a distributor of appliances, trim products, fuel systems, flooring, tile, and other related building materials primarily to the RV market as well as the housing and industrial markets, for a net purchase price of $40.0 million.

The results of operations for Collins are included in the Company’s condensed consolidated financial statements and the Distribution operating segment from the date of acquisition. ~~The purchase price allocation and all required purchase accounting adjustments were finalized in the first quarter of 2019.~~ Changes from previously reported estimated amounts as of December 31, 2018 include a decrease to intangible assets of $3.6 million and a $3.6 million offsetting increase to goodwill. There was no material impact to the condensed consolidated statement of income related to these changes in the ~~first quarter of 2019.~~period in which the purchase price allocation and all purchase accounting adjustments were finalized.

Dehco, Inc. (“Dehco”)

In April 2018, the Company completed the acquisition of Dehco, a distributor and manufacturer of flooring, kitchen and bath products, adhesives and sealants, electronics, appliances and accessories, LP tanks, and other related building materials, primarily for the RV market as well as the manufactured housing (“MH”), marine and other industrial markets, for a net purchase price of $52.8 million. Dehco has operating facilities in Indiana, Oregon, Pennsylvania and Alabama.

The results of operations for Dehco are included in the Company’s condensed consolidated financial statements and the Manufacturing and Distribution operating segments from the date of acquisition. ~~The purchase price allocation and all required purchase accounting adjustments were finalized in the first quarter of 2019.~~ Changes from previously reported estimated amounts as of December 31, 2018 include a decrease to intangible assets of $0.3 million and a $0.3 million offsetting increase to goodwill. There was no material impact to the condensed consolidated statement of income related to these changes in the ~~first quarter of 2019.~~period in which the purchase price allocation and all purchase accounting adjustments were finalized.

Dowco, Inc. (“Dowco”)

In May 2018, the Company completed the acquisition of Dowco, a designer and manufacturer of custom designed boat covers and bimini tops, full boat enclosures, mounting hardware, and other accessories and components for the marine market, for a net purchase price of $56.3 million, net of cash acquired. Dowco has operating facilities in Wisconsin, Missouri, Indiana, and Minnesota.

The results of operations for Dowco are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition. The preliminary purchase price allocation is subject to final review and approval, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its fair value estimates. Changes from previously reported estimated amounts as of December 31, 2018 include a $2.7 million increase to property, plant and equipment and a $3.3 million increase to goodwill, offset by a $5.9 million decrease to intangible assets and a $0.1 million increase in accounts payable and accrued liabilities. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were ~~immaterial.~~finalized.

Marine Accessories Corporation (“MAC”)

In June 2018, the Company acquired 100% of the membership interests of Maryville, Tennessee-based MAC, a manufacturer, distributor and aftermarket supplier of custom tower and canvas products and other related accessories to OEMs, dealers, retailers and distributors within the marine market, as well as direct to consumers, for a net purchase price of $57.0 million, net of cash acquired.

The results of operations for MAC are included in the Company’s condensed consolidated financial statements and the Manufacturing and Distribution operating segments from the date of acquisition. The preliminary purchase price allocation is subject to final review and approval, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its fair value estimates. Changes from previously reported estimated amounts as of December 31, 2018 include a $6.5 million decrease to intangible assets and a $1.0 million decrease to property, plant and equipment, offset by a decrease in deferred taxes and other liabilities of $1.1 million and an increase to goodwill of $6.4 million. There was no material impact to the condensed consolidated statement of income related to these changes in the period in which the purchase price allocation and all purchase accounting adjustments were ~~immaterial.~~finalized.

Engineered Metals and Composites, Inc. (“EMC”)

In September 2018, the Company completed the acquisition of the business and certain assets of West Columbia, South Carolina-based EMC, a designer and manufacturer of custom marine towers, frames, and other fabricated component products for OEMs in the marine industry, for a net initial purchase price of ~~$24.9~~$25.3 million, plus ~~subsequent~~ contingent consideration over a three-month period based on future performance. ~~The Company recorded a preliminary fair value estimate of the contingent consideration of $2.5 million.~~

The results of operations for EMC are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition. ~~The preliminary~~After adjusting for a $0.1 million increase to the estimated purchase price ~~allocation is subject~~reported at December 31, 2018 due to a final ~~review and approval, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its fair value estimates. Changes~~working capital adjustment of $0.1 million, changes from previously reported estimated amounts as of December 31, 2018 include an increase to intangible assets of $1.6 million, an increase to inventory of $0.1 million, a decrease to ~~the estimated purchase price~~property, plant and equipment of ~~$0.3~~$0.8 million, ~~based on~~ a ~~final working capital adjustment resulting from~~decrease to goodwill of $0.6 million and an increase to accounts payable ~~in the same amount.~~of $0.2 million. There was no material impact to the condensed consolidated statement of income related to these changes in the ~~first quarter of 2019.~~period in which the purchase price allocation and all purchase accounting adjustments were finalized.

LaSalle Bristol (“LaSalle”)

In November 2018, the Company completed the acquisition of LaSalle, a distributor and manufacturer of plumbing, flooring, tile, lighting, air handling and building products for the MH, RV, and industrial markets, for a net purchase price of ~~$51.5~~$51.1 million, net of cash acquired. LaSalle is headquartered in Elkhart, Indiana and operates a total of 15 manufacturing and distribution centers located in North America.

The results of operations for LaSalle are included in the Company’s condensed consolidated financial statements and the Manufacturing and Distribution operating segments from the date of acquisition. The preliminary purchase price allocation is subject to final review and approval, and thus all required purchase accounting adjustments are subject to change within the measurement period as the Company finalizes its fair value estimates.

After adjusting for a ~~$1.5~~$1.1 million increase in the estimated purchase price reported at December 31, 2018 due to a final working capital adjustment of ~~$1.4 million and other adjustments of $0.1~~$1.1 million, changes from previously reported estimated amounts as of December 31, 2018 ~~include~~are related primarily to a $6.7 million decrease to inventory, offset partly by a $0.8 million increase to accounts receivable, a $0.3 million increase to prepaid expenses and a ~~$6.8~~$6.7 million increase to goodwill. There was no material impact to the condensed consolidated statement of income related to these ~~changes in the first quarter of 2019.~~changes.

The following table summarizes the fair values of the assets acquired and the liabilities assumed as of the date of the acquisition for the 2019 and 2018 ~~acquisitions. The purchase price allocation in each acquisition is final except as noted in the discussions above:~~acquisitions:

(thousands) Trade receivables Inventories Property, plant and equipment Prepaid expenses & other Intangible assets Goodwill Less: Total liabilities Less: Deferred tax liability, net Total net assets acquired
2018

MMC ⁽¹⁾
$ 1,463
$ 2,324
$ 2,085
$ —
$ 8,540
$ 7,668
$ 827
$ —
$ 21,253
AMC 3,942
5,623
2,321
39
6,550
1,755
2,463
—
17,767
IMP ⁽²⁾
1,943
4,286
1,463
13
12,920
8,803
2,930
—
26,498
Collins 2,830
9,903
1,188
5
18,430
10,237
2,586
—
40,007
Dehco 4,771
16,923
13,755
208
13,950
6,580
3,392
—
52,795
Dowco 4,053
4,498
5,910
1,240
34,379
10,444
4,178
—
56,346
MAC 3,054
6,815
8,000
284
32,733
19,264
4,290
8,839
57,021
EMC ⁽³⁾
634
1,576
2,500
—
15,750
8,074
1,115
—
27,419
LaSalle 8,888
39,318
8,500
6,548
5,885
10,497
28,128
41
51,467
Other 473 329
300
13
1,667
899
184
3,497
2018 Totals $ 32,051
$ 91,595
$ 46,022
$ 8,350
$ 150,804
$ 84,221
$ 50,093
$ 8,880
$ 354,070



(thousands)	Trade receivables		Inventories		Property, plant and equipment		Prepaid expenses & other		Intangible assets		Goodwill		Less: Total liabilities		Less: Deferred tax liability, net		Total net assets acquired

2019⁽¹⁾	$	2,245	$	5,296	$	1,650	$	133	$	8,329	$	7,177	$	1,135	$	—	$	23,695

2018
MMC ⁽²⁾	$	1,463	$	2,324	$	2,085	$	—	$	8,540	$	7,668	$	827	$	—	$	21,253
AMC	3,942		5,623		2,321		39		6,550		1,755		2,463		—		17,767
IMP ⁽³⁾	1,943		4,286		1,463		13		12,920		8,803		2,930		—		26,498
Collins	2,830		9,903		1,188		5		18,430		10,237		2,586		—		40,007
Dehco	4,771		16,923		13,755		208		13,950		6,580		3,392		—		52,795
Dowco	4,053		4,498		8,566		1,240		28,435		13,732		4,178		—		56,346
MAC	3,054		6,815		7,003		284		26,190		25,669		4,226		7,767		57,022
EMC ⁽⁴⁾	623		1,678		1,684		—		17,350		7,483		987		—		27,831
LaSalle	9,002		39,344		8,500		6,547		5,885		10,441		28,601		41		51,077
Other	473		329		280		13		1,667		919		195		—		3,486
2018 Totals	$	32,154	$	91,723	$	46,845	$	8,349	$	139,917	$	93,287	$	50,385	$	7,808	$	354,082

(1) Total net assets acquired for the 2019 acquisitions reflect the preliminary estimated liability of $2.6 million pertaining to the fair value of contingent consideration based on future performance relating to the acquisition of G.G. Schmitt.

(2) Total net assets acquired for MMC reflect the preliminary estimated liability of $1.4 million pertaining to the fair value of the contingent consideration based on future performance. ~~The actual net cash paid for the MMC acquisition of $19.9 million is included in~~ “~~Cash Flows from Investing Activities - Business Acquisitions~~” ~~on the consolidated statement of cash flows for the year ended December 31, 2018.~~

~~(2)~~(3) Total net assets acquired for IMP reflect the preliminary estimated liability of $7.9 million pertaining to the fair value of the contingent consideration based on future performance. ~~The actual net cash paid for the IMP acquisition of $18.6 million is included in~~ “~~Cash Flows from Investing Activities - Business Acquisitions~~” ~~on the consolidated statement of cash flows for the year ended December 31, 2018.~~

~~(3)~~(4) Total net assets acquired for EMC reflect the preliminary estimated liability of $2.5 million pertaining to the fair value of the contingent consideration based on future performance. ~~The actual net cash paid for the EMC acquisition of $24.9 million included $25.2 million in~~ “~~Cash Flows from Investing Activities - Business Acquisitions~~” ~~on the consolidated statement of cash flows for the year ended December 31, 2018 as well as a decrease of $0.3 million in~~ “~~Cash Flows from Investing Activities - Business Acquisitions~~” ~~on the condensed consolidated statement of cash flows for the first quarter ended March 31, 2019.~~

Pro Forma Information

The following pro forma information for the third quarter and first ~~quarter~~nine months ended ~~April 1,~~September 29, 2019 and September 30, 2018 assumes the ~~MMC, AMC, IMP, Collins, Dehco, Dowco, MAC, EMC~~2019 and ~~LaSalle~~2018 acquisitions ~~(which were completed in 2018)~~ occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of the 2019 and 2018 acquisitions combined with the results prior to their respective acquisition dates, adjusted to reflect the pro forma impact of the acquisitions occurring as of the beginning of the year immediately preceding each such acquisition.

The pro forma information includes financing and interest expense charges based on ~~the actual~~ incremental borrowings incurred in connection with each ~~transaction as if it occurred as of the beginning of the year immediately preceding each such acquisition.~~transaction. In addition, the pro forma information includes amortization expense, in the aggregate, related to intangible assets acquired in connection with the transactions of $~~2.9~~0.2 million and $0.5 million for the ~~first~~third quarter and nine months ended ~~April 1, 2018.~~September 29, 2019, respectively, and$0.7 million and $5.7 million for the third quarter and nine months ended September 30, 2018, respectively.


	First Quarter Ended		Third Quarter Ended				Nine Months Ended
(thousands except per share data)	April 1, 2018		September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Revenue	$	690,482	$	571,734	$	660,873	$	1,806,933	$	2,049,540
Net income	34,375		21,346		30,377		70,067		103,502
Basic net income per common share	1.39		0.93		1.27		3.04		4.26
Diluted net income per common share	1.37		0.92		1.25		3.01		4.20

The pro forma information is presented for informational purposes only and is not ~~necessarily~~ indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of ~~that time, nor is it intended to be a projection of future results.~~the periods indicated above.



7.	STOCK-BASED COMPENSATION

The Company ~~accounts for stock-based compensation in accordance with fair value recognition provisions. The Company~~ recorded ~~compensation~~ expense of ~~$3.9~~$3.8 million and ~~$3.7~~$3.5 million for the ~~first~~third quarter ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018, respectively, for its stock-based compensation plans onin the condensed consolidated statements of income. For the first nine months of 2019 and 2018, the Company recorded $12.0 million and $10.9 million in stock-based compensation expense, respectively.

The Company estimates the fair value of (i) all stock grants as of the grant date using the closing price per share of the Company’s common stock on such date, and (ii) all stock option and stock appreciation rights awards as of the grant date by applying the Black-Scholes option pricing model.

~~For full year 2018, the~~ Board ~~of Directors (the “Board”)~~ approved various share grants under the Company’s 2009 Omnibus Incentive Plan ~~(the “Plan”) totaling 181,808 shares in the aggregate, of which grants of 164,988 shares were approved~~ in the first ~~quarter of 2018.~~

~~The Board approved various share grants under the Plan in the first quarter~~nine months of 2019 totaling ~~356,017~~376,186 shares in the aggregate.

As of ~~March 31,~~September 29, 2019, there was approximately ~~$31.3~~$23.8 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under incentive plans. That cost is expected to be recognized over a weighted-average period of ~~23.5~~18.0 months.



8.	NET INCOME PER COMMON SHARE

~~Basic net~~Net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding, plus the dilutive effect of stock options, stock appreciation rights, and restricted stock units (collectively “Common Stock Equivalents”). The dilutive effect of Common Stock Equivalents is calculated under the treasury stock method using the average market price for the period. Certain Common Stock Equivalents were not included in the computation of diluted net income per common share because the exercise prices of those Common Stock Equivalents were greater than the average market price of the common shares.

~~Income per common share is~~ calculated for the ~~first~~third quarter and nine months of 2019 and 2018 is as follows:


	First Quarter Ended				Third Quarter Ended				Nine Months Ended
(thousands except per share data)	March 31, 2019		April 1, 2018		September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Net income for basic and diluted per share calculation	$	20,849	$	30,068	$	21,317	$	27,934	$	69,582	$	92,862
Weighted average common shares outstanding - basic	23,039		24,740		23,076		23,894		23,073		24,279
Effect of potentially dilutive securities	209		370		197		338		206		340
Weighted average common shares outstanding - diluted	23,248		25,110		23,273		24,232		23,279		24,619
Basic net income per common share	$	0.90	$	1.22	$	0.92	$	1.17	$	3.02	$	3.82
Diluted net income per common share	$	0.90	$	1.20	$	0.92	$	1.15	$	2.99	$	3.77



9.	DEBT

A summary of total debt outstanding at ~~March 31,~~September 29, 2019 and December 31, 2018 is as follows:


(thousands)	March 31, 2019			December 31, 2018			September 29, 2019			December 31, 2018
Long-term debt:
Revolver	$	385,000		$	392,332		$	135,000		$	392,332
Term Loan	95,000			96,250			100,000			96,250
Senior Notes							300,000			—
Convertible Notes	172,500			172,500			172,500			172,500
Total long-term debt	652,500			661,082			707,500			661,082
Less: Convertible Notes debt discount	(28,454		)	(30,125		)
Less: Convertible Notes debt discount, net							(25,023		)	(30,125		)
Less: Senior Notes deferred financing costs, net							(5,979		)	—
Less: current maturities of long-term debt	(10,000		)	(8,750		)	(5,000		)	(8,750		)
Less: net deferred financing costs related to Term Loan	(447		)	(456		)
Less: Term Loan deferred financing costs, net							(570		)	(456		)
Total long-term debt, less current maturities, net	$	613,599		$	621,751		$	670,928		$	621,751

~~2018~~Senior Notes

On September 17, 2019, the Company issued $300 million aggregate principal amount of 7.50% Senior Notes due 2027 (the “Senior Notes”). The Senior Notes were not registered under the Securities Act of 1933, as amended (the "Securities Act") and were offered under Rule 144A under the Securities Act. The Senior Notes will mature on October 15, 2027. Interest on the Senior Notes will accrue from September 17, 2019 and is payable semi-annually in cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2020. The effective interest rate on the Senior Notes, which includes debt issuance costs, was 7.83%. In connection with the issuance of the Senior Notes, the Company incurred and capitalized as a reduction of the principal amount of the Senior Notes approximately $6.0 million in deferred financing costs which will be amortized using the effective interest rate over the term of the Senior Notes.

The Senior Notes are senior unsecured indebtedness of the Company and are guaranteed by each of the Company’s subsidiaries that guarantee the obligations of the Company under the 2019 Credit Facility (as defined herein). The Company may redeem the Senior Notes, in whole or in part, at any time (a) prior to October 15, 2022, at a price equal to 100% of the principal amount thereof, plus the applicable premium described in the associated indenture and accrued and unpaid interest and (b) on or after October 15, 2022 at specified redemption prices set forth in the indenture, plus accrued and unpaid interest. In addition, prior to October 15, 2022, the Company may redeem, in one or more transactions, up to an aggregate of 40% of the original principal amount of the Senior Notes at a redemption price equal to 107.5% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of one or more equity offerings. If the Company experiences specific kinds of changes of control, the Company must offer to repurchase all of the Senior Notes (unless otherwise redeemed) at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest.

2019 Credit Facility

~~The~~Simultaneously with the issuance of the Senior Notes, the Company entered into ~~a Second~~the Third Amended and Restated Credit Agreement ~~dated as of June 5, 2018,~~ (the ~~“2018~~“2019 Credit Agreement”) ~~by and among the Company, the Lenders party thereto, and Wells Fargo, as Administrative Agent.~~. The ~~2018~~2019 Credit Agreement amended and ~~restated~~extended the Company’s ~~2015 Credit Agreement.~~

~~The~~ 2018 Credit Agreement ~~established~~(as defined herein) and consists of a $550 million senior secured revolver (the “2019 Revolver”) and a $100 million senior secured term loan (the “2019 Term Loan” and together with the 2019 Revolver, the “2019 Credit Facility”). The maturity date for borrowings under the 2019 Credit Agreement is September 17, 2024. Upon the satisfaction of certain conditions, and obtaining incremental commitments from its lenders, the Company may be able to increase the borrowing capacity of the 2019 Credit Facility by up to $250 million.

Borrowings under the 2019 Credit Facility are secured by substantially all personal property assets of the Company and any domestic subsidiary guarantors. Pursuant to the 2019 Credit Agreement:


•	The 2019 Term Loan is due in consecutive quarterly installments in the following amounts: (i) beginning September 30, 2019, through and including June 30, 2021, $1,250,000 and (ii) beginning September 30, 2021, and each quarter thereafter, $2,500,000, with the remaining balance due at maturity;

•

The interest rates for borrowings under the 2019 Revolver and the 2019 Term Loan are the Prime Rate or LIBOR plus a margin, which ranges from 0.00% to 0.75% for Prime Rate loans and from 1.00% to 1.75% for LIBOR loans depending on the Company’s consolidated total leverage ratio, as defined below. The Company is required to pay fees on unused but committed portions of the 2019 Revolver, which range from 0.15% to 0.225%; and

Covenants include requirements as to a maximum consolidated total net leverage ratio (4.00:1.00, increasing to 4.50:1.00 in certain circumstances in connection with Company acquisitions) and a minimum consolidated fixed charge coverage ratio (1.50 :1.00) that are tested on a quarterly basis, a minimum liquidity requirement applicable during the six-month period preceding the maturity of the Convertible Notes (as defined herein), and other customary covenants.

At September 29, 2019, the Company had $100.0 million outstanding under the 2019 Term Loan under the LIBOR-based option, and borrowings outstanding under the 2019 Revolver of $135.0 million under the LIBOR-based option. The interest rate for incremental borrowings at September 29, 2019 was LIBOR plus 1.5% (or 3.54%) for the LIBOR-based option. The fee payable on committed but unused portions of the 2019 Revolver was 0.20% at September 29, 2019.

Total cash interest paid for the third quarter of 2019 and 2018 was $6.9 million and $6.6 million, respectively, and $19.7 million and $12.2 million for the comparative nine month periods, respectively.

2018 Credit Facility

See Note 9 of the Notes to Consolidated Financial Statements section of the Fiscal 2018 Form 10-K regarding the Company's previous credit ~~facility comprised of~~agreement (the "2018 Credit Agreement") which established an $800 million revolving credit loan (the “2018 Revolver”) and a $100 million term loan (the “2018 Term Loan” and, together with the 2018 Revolver, the “2018 Credit Facility”). ~~Borrowings under the 2018 Credit Agreement mature on March 17, 2022.~~

The 2018 Credit Agreement ~~is secured~~was amended by ~~substantially all personal property assets of~~ the ~~Company and any domestic subsidiary guarantors. The 2018~~2019 Credit Agreement ~~includes certain definitions, terms and reporting requirements and includes the following additional provisions:~~

on September 17, 2019 as discussed above. The ~~2018 Term Loan will be repaid in consecutive quarterly installments~~Company recorded a $0.7 million loss on ~~the last business day~~extinguishment of ~~each of March, June, September and December~~debt in the ~~following amounts: (i) beginning June 30, 2018, through and including March 31,~~third quarter of 2019 ~~$1,250,000, (ii) beginning June 30, 2019, through and including March 31, 2021, $2,500,000, and (iii) beginning June 30, 2021, and each quarter thereafter, $3,750,000,~~in connection with the ~~remaining balance due at maturity;~~

The interest rates for borrowings under the 2018 Revolver and the 2018 Term Loan are the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin, with a fee payable by the Company on unused but committed portions of the Revolver;

~~The 2018 Revolver includes a $10.0 million limit for same day advances (“Swing Line”) which shall bear interest based upon the Base Rate plus the Applicable Margin;~~

~~Up to $10.0 million of the 2018 Revolver is available as a sub facility for the issuance of standby letters of credit, which are subject to certain expiration dates;~~

The financial covenants include requirements as to a consolidated total leverage ratio and a consolidated fixed charge coverage ratio, and other covenants include limitations and restrictions concerning permitted acquisitions, investments, sales of assets, liens on assets, dividends and other payments; and

~~Customary prepayment provisions, representations, warranties and covenants, and events of default.~~

At March 31, 2019, the Company had $95.0 million outstanding under the 2018 Term Loan under the LIBOR-based option, and borrowings outstanding under the 2018 Revolver of $385.0 million under the LIBOR-based option. The interest rate for incremental borrowings at March 31, 2019 was the Prime Rate plus 1.00% (or 6.50%) for the Base Rate-based option, or LIBOR plus 2.00% (or 4.50%) for the LIBOR-based option. At December 31, 2018, the Company had $96.3 million outstanding under the 2018 Term Loan under the LIBOR-based option, and borrowings outstanding under the 2018 Revolver of: (i) $388.0 million under the LIBOR-based option and (ii) $4.3 million under the Base Rate-based option. The interest rate for incremental borrowings at December 31, 2018 was the Prime Rate plus 1.00% (or 6.50%) for the Base Rate-based option, or LIBOR plus 2.00% (or 4.56%) for the LIBOR-based option. The fee payable on committed but unused portions of the 2018 Revolver was 0.25% at March 31, 2019 and December 31, 2018.

Pursuant to the 2018 Credit Agreement, the financial covenants include: (a) a required maximum consolidated total leverage ratio, measured on a quarter-end basis, not to exceed 3.00:1.00 for the 12-month period ending on such quarter-end; and (b) a required minimum consolidated fixed charge coverage ratio, measured on a quarter-end basis, of at least 1.50:1.00 for the 12-month period ending on such quarter-end.

The consolidated total leverage ratio is the ratio for any period of consolidated total indebtedness (as measured as of the second day following the end of the immediately preceding fiscal quarter) to consolidated adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”). Consolidated total indebtedness for any period is the sum of: (i) total debt outstanding under the 2018 Revolver, the 2018 Term Loan and the Convertible Notes (as defined herein); (ii) capital leases and letters of credit outstanding; and (iii) deferred payment obligations. The consolidated fixed charge coverage ratio for any period is the ratio of consolidated EBITDA less restricted payments, taxes paid and capital expenditures as defined under the 2018 Credit Agreement to consolidated fixed charges. Consolidated fixed charges for any period is the sum of cash interest expense related to the 2018 Term Loan, 2018 Revolver and the Convertibles Notes, and scheduled principal payments on outstanding indebtedness under the 2018 Term Loan.

~~As of and for the March 31, 2019 reporting date, the Company was in compliance with both of these financial debt covenants as required under the terms~~replacement of the 2018 Credit Agreement. The required maximum consolidated total leverage ratio and the required minimum consolidated fixed charge coverage ratio compared to the actual amounts as of March 31, 2019 and for the fiscal period then ended are as follows:

Required

Actual
Consolidated total leverage ratio (12-month period)
3.00

2.46
Consolidated fixed charge coverage ratio (12-month period)
1.50

2.87

~~Total cash interest paid for the first quarter of 2019 and 2018 was $6.5 million and $2.9 million, respectively.~~

~~Interest Rate Swaps~~

~~In the third quarter of2018, the Company entered into $200.0 million notional amount of variable to fixed interest rate swaps to partially hedge risks associated~~Facility with the ~~variable LIBOR component of the 2018~~2019 Credit Facility. These interest rate swaps fix the LIBOR component of interest expense on $200.0 million of the debt outstanding under the 2018 Credit Facility at an average interest rate of 2.91%, with an all-in average rate of 4.91% with the current applicable margin, discussed above. See Note 10 for further details.

Convertible Senior Notes

In January 2018, the Company issued $172.5 million aggregate principal amount of 1.00% Convertible Senior Notes due 2023 (the “Convertible Notes”). The total debt discount of $36.0 million at issuance consisted of two components: (i) the conversion option component, recorded to shareholders' equity, in the amount of $31.9 million, representing the difference between the principal amountSee Note 9 of the ~~Convertible~~ Notes ~~upon issuance less the present value~~to Consolidated Financial Statements section of the future cash flows of the Convertible Notes and (ii) debt issuance costs of $4.1 million. The unamortized portion of the total debt discount is being amortized to interest expense over the life of the Convertible Notes beginning in the first quarter of 2018.Fiscal 2018 Form 10-K for further information. The effective interest rate on the Convertible Notes, which includes the non-cash interest expense of debt discount amortization and debt issuance costs, was 5.25% as of ~~March 31,~~September 29, 2019 and December 31, 2018. The unamortized portion of the debt discount and debt issuance costs as of ~~March~~September 29, 2019 and December 31, ~~2019~~2018 was ~~$28.5 million.~~

~~The net proceeds from the issuance of the Convertible Notes were approximately $167.5~~$25.0 million ~~after deducting the initial purchasers’ discounts~~ and commissions and offering expenses payable by the Company, but before deducting the net cost of the Convertible Note Hedge Transactions and the Warrant Transactions (each as defined herein) described in Note 10. The Convertible Notes are senior unsecured obligations of the Company and pay interest semi-annually in arrears on February 1 and August 1 of each year at an annual rate of 1.00% beginning August 1, 2018. The Convertible Notes will mature on February 1, 2023 unless earlier repurchased or converted in accordance with their terms. The Convertible Notes are convertible by the noteholders, in certain circumstances and subject to certain conditions, into cash, shares of common stock of the Company, or a combination thereof, at the Company’s election. The initial conversion rate for the Convertible Notes is 11.3785 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes (or 1,962,790 shares in the aggregate) and is equal to an initial conversion price of approximately $87.89 per share. If an event of default on the Convertible Notes occurs, the principal amount of the Convertible Notes, plus accrued and unpaid interest (including additional interest, if any) may be declared immediately due and payable, subject to certain conditions.

Convertible Notes holders can convert their Convertibles Notes on or after August 1, 2022 at any time at their option. Holders may convert Convertible Notes prior to August 1, 2022, only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on June 30, 2018, if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day, (ii) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day and (iii) upon the occurrence of certain specified distributions or corporate events.$30.1 million, respectively.



10.	DERIVATIVE FINANCIAL INSTRUMENTS

Convertible Note Hedge Transactions and Warrant Transactions

In January 2018, in connection with the Convertible Notes offering, the Company entered into privately negotiated convertible note hedge transactions (together, the “Convertible Note Hedge Transactions”) with each of Bank of America, N.A. and Wells Fargo Bank, National Association (together, the “Hedge Counterparties”)~~. Pursuant~~, pursuant to ~~the Convertible Note Hedge Transactions,~~which the Company acquired options to purchase the same number of shares of ~~the Company's~~its common stock ~~(or 1,962,790 shares)~~ initially underlying the ~~Convertibles Notes at an initial strike price equal to the initial strike price~~Convertible Notes. See Note 10 of the Notes to Consolidated Financial Statements section of the Fiscal 2018 Form 10-K for information regarding the Convertible ~~Notes of approximately $87.89 per share, subject to customary anti-dilution adjustments. The options expire on February 1, 2023, subject to earlier exercise.~~

Note Hedge Transactions.

At the same time, the Company also entered into separate, privately negotiated warrant transactions (the “Warrant Transactions”) with each of the Hedge Counterparties, pursuant to which the Company sold warrants to purchase the same number of shares of ~~the Company’s~~its common stock ~~(or 1,962,790 shares)~~initially underlying the Convertible Notes. See Note 10 of the Notes ~~at an initial strike price~~to Consolidated Financial Statements section of ~~approximately $113.93 per share, subject~~the Fiscal 2018 Form 10-K for further information regarding the Warrant Transactions.

There have been no material changes to ~~customary anti-dilution adjustments. The warrants have a final expiration date of September 20, 2023.~~

~~The Company paid $31.5 million associated with~~ the ~~cost~~terms of the Convertible Note Hedge Transactions and received proceeds of $18.1 million related to the Warrant Transactions. The Convertible Note Hedge Transactions are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of the Convertible Notes and/or ~~offset any cash payments the Company is required to make in excess of the principal amount of converted Convertible Notes. However,~~ the Warrant Transactions ~~could separately have a dilutive effect on~~during the ~~Company's common stock to the extent that the market price per share of the common stock exceeds the strike price of the warrants.~~nine month period ended September 29, 2019.

As these transactions meet certain accounting criteria, the Convertible Note Hedges Transactions and Warrant Transactions are recorded in ~~stockholders’~~shareholders’ equity and are not accounted for as derivatives.

Interest Rate Swaps

The ~~2018~~2019 Credit Facility exposes the Company to risk associated with the variability in interest expense associated with fluctuations in LIBOR. To partially mitigate this risk, the Company entered into interest rate swaps on a portion of its 2018 Credit Facility, now amended by the 2019 Credit Facility. As of ~~March 31,~~September 29, 2019, the Company had a combined notional principal amount of $200.0 million of ~~variable to fixed~~ interest rate swap agreements, all of which ~~were~~are designated as cash flow hedges. These swap agreements effectively convert the interest expense associated with a portion of the ~~2018~~2019 Term Loan and a portion of the ~~2018~~2019 Revolver from variable interest rates to fixed interest rates and have maturities ranging from February 2022 to March 2022.

Fair Value of Derivative Contracts

The following table summarizes the fair value of derivative contracts included in the ~~accompanying~~ condensed ~~consolidated balance sheet~~statement of financial position (in thousands):

Fair value of derivative liabilities

Fair value of derivative instruments

Derivatives accounted for as cash flow hedges

Balance sheet location

March 31, 2019

December 31, 2018

Balance sheet location

September 29, 2019

December 31, 2018

Interest rate swap agreements

Other long-term liabilities

4,062

2,652

Interest rate swaps

Other long-term liabilities

6,974

2,652

The interest rate swaps are comprised of over-the-counter derivatives, which are valued using models that primarily rely on observable inputs such as yield curves, ~~and~~which are classified as Level 2 in the fair value hierarchy.

~~AOCI Recognition~~

~~The following table presents the amount of gains and losses that have been recognized in~~See Note 11 for information regarding accumulated other comprehensive ~~("AOCI") from changes in the unrealized gain~~loss on ~~the~~ interest rate ~~swaps, net of tax (in thousands):~~

Unrealized Loss Recognized in AOCI
First Quarter Ended
March 31, 2019 April 1, 2018
$ 3,027
$ —

swaps.



11.	ACCUMULATED OTHER COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

~~The Company incurs activity in AOCI for~~Accumulated other comprehensive income (loss) includes unrealized gains and losses on derivatives that qualify as hedges of cash flows, unrecognized ~~pension~~pension-related costs and cumulative foreign currency translation adjustments. The activity in ~~AOCI is~~accumulated other comprehensive loss during the three and nine months ended September 29, 2019 and September 30, 2018 was as follows:

(thousands) Cash Flow Hedges Defined Benefit Pension Foreign Currency Items Total
Balance at December 31, 2018 $ (1,973 ) $ (675 ) $ (32 ) $ (2,680 )
Other comprehensive income (loss) (net of tax of $356, $0 and $0) (1,054 ) —
27
(1,027 )
Balance at March 31, 2019 $ (3,027 ) $ (675 ) $ (5 ) $ (3,707 )



Third Quarter Ended September 29, 2019
(thousands)	Cash Flow Hedges			Defined Benefit Pension			Foreign Currency Items			Total
Balance at June 30, 2019	$	(4,958	)	$	(675	)	$	(99	)	$	(5,732	)
Other comprehensive income (loss) (net of tax of $83, $0 and $0)	(240		)	—			19			(221		)
Balance at September 29, 2019	$	(5,198	)	$	(675	)	$	(80	)	$	(5,953	)

(thousands) Defined Benefit Pension Foreign Currency Items Total
Balance at December 31, 2017 $ 66
$ —
$ 66
Other comprehensive income (net of tax of $0 and $0) —
28
28
Balance at April 1, 2018 $ 66
$ 28
$ 94



Nine Months Ended September 29, 2019
(thousands)	Cash Flow Hedges			Defined Benefit Pension			Foreign Currency Items			Total
Balance at December 31, 2018	$	(1,973	)	$	(675	)	$	(32	)	$	(2,680	)
Other comprehensive loss (net of tax of $1,098, $0 and $0)	(3,225		)	—			(48		)	(3,273		)
Balance at September 29, 2019	$	(5,198	)	$	(675	)	$	(80	)	$	(5,953	)



Third Quarter Ended September 30, 2018
(thousands)	Cash Flow Hedges		Defined Benefit Pension		Foreign Currency Items			Total
Balance at July 1, 2018	$	—	$	66	$	(3	)	$	63
Other comprehensive income (loss) (net of tax of $28, $0 and $0)	80		—		(28		)	52
Balance at September 30, 2018	$	80	$	66	$	(31	)	$	115



Nine Months Ended September 30, 2018
(thousands)	Cash Flow Hedges		Defined Benefit Pension		Foreign Currency Items			Total
Balance at December 31, 2017	$	—	$	66	$	—		$	66
Other comprehensive income (loss) (net of tax of $28, $0 and $0)	80		—		(31		)	49
Balance at September 30, 2018	$	80	$	66	$	(31	)	$	115

Reclassification adjustments out of accumulated other comprehensive loss were immaterial for all periods presented.



12.	LEASES

~~The~~As discussed in Note 2, the Company adopted the provisions of ASC 842 inon January of1, 2019 using the modified retrospective approach as of the effective date of ASC 842 (the effective date method). Under the effective date method, financial results in periods reported prior to 2019 are unchanged.

As a result of the adoption of ASC 842, operating leases for certain warehouses, buildings, forklifts, trucks, trailers and other equipment are now recognized as right-of-use assets and corresponding short-term and long-term lease liabilities. The Company utilized a package of available practical expedients in the adoption of ASC 842, which, among them, does not require the reassessment of operating versus capital lease classification.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and expense related to these short term leases is ~~included in total operating lease cost and not separately disclosed due to immateriality.~~immaterial. Lease and non-lease components in the fixed base rent of facility and equipment leases are included as a single component and accounted for as a lease. Pursuant to ASC 842, the Company elected to use the remaining non-cancellable lease term as of January 1, 2019 in determining the lease term at the date of adoption and the corresponding incremental borrowing rate for such leases. Variable lease expense, principally related to trucks, forklifts, and index-related facility rent escalators, was immaterial for the third quarter and nine months ended ~~March 31, 2019 and is expected to be immaterial for~~September 29, 2019. Leases have remaining lease terms of one year to ~~ten~~eleven years. Certain leases include options to renew for an additional term. Where there is reasonable certainty to utilize a renewal option, we ~~would~~ include the renewal option in the lease term used to calculate operating lease right-of-use assets and lease liabilities.

Lease expense, supplemental cash flow information, and other information related to leases were as follows:


(thousands)	First Quarter Ended		Third Quarter Ended		Nine Months Ended
	March 31, 2019		September 29, 2019		September 29, 2019
Operating lease cost	$	7,787	$	7,848	$	23,536

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	6,724	$	6,946	$	20,545

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	577	$	5,522	$	14,767

Balance sheet information related to leases was as follows:


(thousands, except lease term and discount rate)	March 31, 2019		September 29, 2019
Assets
Operating lease right-of-use assets	$	79,868	$	81,064
Liabilities
Operating lease liabilities, current portion	$	25,874	$	25,990
Long-term operating lease liabilities	54,309		55,553
Total lease liabilities	$	80,183	$	81,543



Weighted average remaining lease term, operating leases (in years)	~~3.86~~4.04
Weighted average discount rate, operating leases	~~4.01~~3.83	%

Maturities of lease liabilities were as follows at ~~March 31,~~September 29, 2019:


(thousands)
2019 (excluding the three months ended March 31, 2019)	$	21,884
2019 (excluding the nine months ended September 29, 2019)				$	8,150
2020	24,314			26,916
2021	17,542			20,512
2022	10,910			13,556
2023	6,864			8,954
Thereafter	5,211			10,158
Total lease payments	86,725			88,246
Less imputed interest	(6,542		)	(6,703		)
Total	$	80,183		$	81,543

As of March 31, 2019, we have additional operating leases, primarily for facilities and equipment, that have not yet commenced of $1.5 million in future cash payments under the non-cancellable terms of the leases. These operating leases will commence in fiscal year 2019 with lease terms of 4 years to 7 years.

Disclosures related to periods prior to the adoption of ASC 842:

Maturities of lease liabilities were as follows at December 31, 2018:



(thousands)
2019	$	29,345
2020	23,344
2021	16,165
2022	9,602
2023	5,357
Thereafter	4,883
Total	$	88,696

~~Operating lease expense for the first quarter of 2018 was approximately $6 million.~~



13.	FAIR VALUE MEASUREMENTS

The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market, are reported on the condensed consolidated statements of financial position as a component of "Cash and cash equivalents". The carrying amount of cash equivalents ~~trade receivables,~~at September 29, 2019 approximated fair value which was approximately $108.0 million, valued using level 1 inputs, with no corresponding amount at December 31, 2018. The carrying amount of the Senior Notes at September 29, 2019 approximated fair value given their recent issuance and ~~accounts payable~~based upon terms and conditions available to the Company, with no corresponding amount at December 31, 2018. The 2019 Term Loan and the 2019 Revolver, valued using level 2 inputs, approximated fair value as of ~~March 31,~~September 29, 2019 and ~~December 31, 2018 because of the relatively short maturities of these financial instruments. The carrying amounts of~~ the 2018 Term Loan and the 2018 Revolver, valued using level 2 inputs, approximated fair value asss of ~~March 31, 2019 and~~ December 31, 2018, respectively, based upon terms and conditions available to the Company at those dates in comparison to the terms and conditions of its outstanding debt. The estimated fair value of the Convertible Notes, calculated using Level 2 inputs, was approximately ~~$154.8~~$152.1 million and $130.3 million as of ~~March~~September 29, 2019 and December 31, 2019. As discussed in Note 10, the Convertible Note Hedges Transactions and Warrant Transactions are recorded in shareholders’ equity, are not accounted for as derivatives and are presented at carrying value, which does not approximate fair value at March 31, 2019.2018, respectively. The estimated fair value of the Company's interest rate swaps ~~are~~is valued using Level 2 inputs and discussed in further detail in Note 10. The estimated fair value of the Company's contingent consideration is valued using Level 3 inputs and is discussed further in Note 6.



14.	INCOME TAXES

The effective tax rate in the ~~first~~third quarter of 2019 and 2018 was ~~22.3%~~26.0% and ~~19.6%~~25.3%, respectively, and the effective tax rate for the comparable nine month periods was 24.6% and 23.6%, respectively. The effective tax rate for the periods presented includes the impact of the recognition of excess tax benefits on share-based compensation that was recorded as a reduction to income tax expense upon realization in the amount of ~~$0.8~~$0.9 million and~~$2.1~~ $2.2 million for the nine months ended September 29, 2019 and September 30, 2018, respectively, with no corresponding amounts in the corresponding quarterly periods.

The Company made income tax payments of $7.4 million and $5.6 million in the ~~first~~third quarter of 2019 and 2018, ~~respectively.~~

~~The Company paid income taxes of $1.5~~respectively, and $30.0 million and $21.0 million in the first ~~quarter~~nine months of 2019 and an immaterial amount in the first quarter of 2018. Due to the timing of tax payments, the Company paid an additional $10.2 million in April 2019 (the beginning of the 2019 second fiscal quarter) and $3.7 million in April 2018, ~~(the beginning of the 2018 second fiscal quarter).~~respectively.



15.	SEGMENT INFORMATION

The Company has ~~determined that its~~2 reportable segments, Manufacturing and Distribution, which are those based on its method of internal reporting, which segregates its businesses ~~by product category~~based on the manner in which its Chief Operating Decision Maker allocates resources, evaluates financial results, and ~~production/distribution process.~~

~~A description of the Company’s reportable segments is as follows:~~

~~Manufacturing~~ – Products in this segment include: laminated products that are utilized to produce furniture, shelving, walls, countertops, and cabinet products, cabinet doors, fiberglass bath fixtures and tile systems, hardwood furniture, vinyl printing, decorative vinyl and paper laminated panels, solid surface, granite, and quartz countertop fabrication, RV painting, fabricated aluminum products, fiberglass and plastic components, softwoods lumber, custom cabinetry, polymer-based flooring, electrical systems components (including instrument and dash panels), wrapped vinyl, paper and hardwood

profile mouldings, interior passage doors, air handling products, slide-out trim and fascia, thermoformed shower surrounds, specialty bath and closet building products, fiberglass and plastic helm systems and components products, wiring and wire harnesses, boat covers, towers, tops and frames, aluminum fuel tanks, CNC molds and composite parts, slotwall panels and components and other products. The Manufacturing segment contributed approximately 70% and 79% of the Company’s net sales for the first three months ended March 31, 2019 and April 1, 2018, respectively.

~~Distribution~~ – The Company distributes pre-finished wall and ceiling panels, drywall and drywall finishing products, electronics and audio systems components, appliances, wiring, electrical and plumbing products, fiber reinforced polyester products, cement siding, raw and processed lumber, interior passage doors, roofing products, laminate and ceramic flooring, tile, shower doors, furniture, fireplaces and surrounds, interior and exterior lighting products, and other miscellaneous products, in addition to providing transportation and logistics services. The Distribution segment contributed approximately 30% and 21% of the Company’s net sales for the three months ended March 31, 2019 and April 1, 2018, respectively.determines compensation.

The tables below present ~~unaudited~~ information about the sales and operating income of those segments.


First Quarter Ended March 31, 2019
Third Quarter Ended September 29, 2019
(thousands)	Manufacturing		Distribution		Total		Manufacturing		Distribution		Total
Net outside sales	$	425,684	$	182,534	$	608,218	$	399,712	$	166,474	$	566,186
Intersegment sales	7,720		1,165		8,885		8,102		1,078		9,180
Total sales	433,404		183,699		617,103		407,814		167,552		575,366
Operating income	44,437		8,291		52,728		42,353		9,041		51,394


First Quarter Ended April 1, 2018
Third Quarter Ended September 30, 2018
(thousands)	Manufacturing		Distribution		Total		Manufacturing		Distribution		Total
Net outside sales	$	435,913	$	115,919	$	551,832	$	445,214	$	129,925	$	575,139
Intersegment sales	9,369		669		10,038		8,182		1,097		9,279
Total sales	445,282		116,588		561,870		453,396		131,022		584,418
Operating income	52,923		7,290		60,213		54,887		7,606		62,493



Nine Months Ended September 29, 2019
(thousands)	Manufacturing		Distribution		Total
Net outside sales	$	1,259,671	$	527,951	$	1,787,622
Intersegment sales	24,153		3,361		27,514
Total sales	1,283,824		531,312		1,815,136
Operating income	135,577		28,132		163,709



Nine Months Ended September 30, 2018
(thousands)	Manufacturing		Distribution		Total
Net outside sales	$	1,344,088	$	387,762	$	1,731,850
Intersegment sales	27,464		2,840		30,304
Total sales	1,371,552		390,602		1,762,154
Operating income	172,799		25,092		197,891

The following table presents a reconciliation of segment operating income to consolidated operating income:


	First Quarter Ended						Third Quarter Ended						Nine Months Ended
(thousands)	March 31, 2019			April 1, 2018			September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Operating income for reportable segments	$	52,728		$	60,213		$	51,394		$	62,493		$	163,709		$	197,891
Unallocated corporate expenses	(7,913		)	(11,328		)	(4,793		)	(8,911		)	(18,796		)	(33,229		)
Amortization	(8,989		)	(7,127		)	(9,191		)	(8,873		)	(26,448		)	(25,140		)
Consolidated operating income	$	35,826		$	41,758		$	37,410		$	44,709		$	118,465		$	139,522

Unallocated corporate expenses include corporate general and administrative expenses comprised of wages, insurance, taxes, supplies, travel and entertainment, professional fees and other.



16.	STOCK REPURCHASE PROGRAMS

In 2018, the Board approved a new stock repurchase program for up to $50 million of its common stock as well as two additions totaling $87.9 million to this program. Approximately ~~$30.3~~$26.7 million remains in the amount of the Company's common stock that may be acquired under the current stock repurchase program. ~~The Company did not repurchase any of its common stock in the first quarter of 2019.~~ In the third quarter and first ~~quarter of 2018,~~nine months ended September 29, 2019, the Company repurchased ~~221,095~~98,201 shares of its common stock at an average price of ~~$60.93~~$36.50 per share at an aggregate cost of ~~$13.5~~$3.6 million.

~~Common Stock~~

~~The Company’s~~ In the third quarter of 2018, the Company repurchased 347,235 shares of its common stock ~~does not have a stated par value. As a result, repurchases~~at an average price of $60.32 per share at an aggregate cost of $20.9 million. In the first nine months of 2018, the Company repurchased 1,282,930 shares of its common stock ~~have been reflected, using~~at an average price of $58.48 per share at an aggregate cost ~~method, as a reduction~~ of ~~common stock, additional paid-in-capital, and retained earnings on the Company’s condensed consolidated statements of financial position.~~$75.0 million.



17.	RELATED PARTY TRANSACTIONS

In the first ~~three~~nine months of 2019, the Company entered into transactions with companies affiliated with ~~two~~2 of its independent Board members. The Company purchased approximately ~~$0.2~~$0.8 million of corrugated packaging materials from Welch Packaging Group, an independently owned company established by M. Scott Welch who serves as its President and CEO. The Company also sold approximately ~~$0.2~~$0.4 million of RV component products to DNA Enterprises, Inc. ("DNA"). in the first six months of 2019. After June 30, 2019, sales to DNA no longer qualified as related party transactions, as Walter E. ~~Wells'~~Wells, whose son ~~serves as the President of DNA.~~is affiliated with DNA, retired from Patrick's Board on May 15, 2019.

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 Private Securities Litigation Reform Act of 1995. See “Information Concerning Forward-Looking Statements” on ~~page~~pages 34 and 35 of this Report. The Company undertakes no obligation to update these forward-looking statements.

The MD&A is divided into seven major sections:

OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

REVIEW OF CONSOLIDATED OPERATING RESULTS

~~First~~Third Quarter and Nine Months Ended ~~March 31,~~September 29, 2019 Compared to ~~April 1,~~ 2018

Use of Financial Metrics

REVIEW BY BUSINESS SEGMENT

~~First~~Third Quarter and Nine Months Ended ~~March 31,~~September 29, 2019 Compared to ~~April 1,~~ 2018

~~Unallocated Corporate Expenses~~

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

~~Capital Resources~~

Summary of Liquidity and Capital Resources

CRITICAL ACCOUNTING POLICIES

OTHER

Seasonality

Cyber Security Incident

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

~~Summary~~

The first quarter of 2019 reflected a continuation of planned end market diversification and the execution of our organic and strategic growth initiatives as the gap continued to widen in the first quarter of 2019 between wholesale production and retail shipments in the recreational vehicleRecreational Vehicle ("RV") market. As RV dealers continued to manage inventory to return to more normalized levels, RV original equipment manufacturers ("OEMs") continued to adjust production levels, and we expect OEM production to align with retail demand once normalized inventory levels are established among the dealers. We believe that overall dealer sentiment at recent RV shows thus far in 2019 has been positive and retail traffic and sales are off to a solid start to the year.

The Company has been able to continue to increase its content per unit in all markets despite the additional headwinds related to inclement weather in many parts of the country, uncertainty regarding the near-term direction of interest rates, uncertainty around tariffs, and commodity cost volatility. Industry fundamentals and demographics within each of our end markets remain strong. In addition, we carried a higher operating cost structure compared to revenues through the first quarter of 2019 in anticipation of expected improving retail demand in all four of our primary markets as we enter the traditionally stronger spring and summer selling seasons.

Our diversified market penetration in the marine and our residential and commercial industrial markets, which we have been strategically targeting, has helped to offset wholesale shipment declines in the first quarter of 2019 in our two largest market sectors, RV and manufactured housing ("MH"). At the same time, we achieved organic revenue growth in the first quarter of 2019 and realized savings related to synergistic opportunities resulting from acquisitions we have made in the last two years.

RV Industry

The RV industry is our primary market and comprised 55% and 56% of the Company’s sales in the third quarter and first ~~quarter~~nine months of ~~2019.~~2019, respectively. Sales from the RV industry decreased 9%13% and 12% in the third quarter and first ~~quarter~~nine months of 2019, respectively, compared to the prior year ~~quarter.~~periods.

According to the Recreation Vehicle Industry Association (“RVIA”), wholesale shipments totaled ~~99,976~~93,357 units in the ~~first~~third quarter of 2019, a decline of ~~27%~~13% compared to ~~137,086~~107,130 units in the ~~first~~third quarter of ~~2018. Both towable units and motorized units, which accounted~~2018, while for ~~87% and 13%, respectively,~~the first nine months of ~~first quarter~~ 2019, wholesale ~~units, were down 27% compared to~~unit shipments decreased 18% versus the prior year ~~quarter.~~

~~We continue to believe~~period. Based on actual retail sales data through August, the Company estimates that retail unit shipments declined 6% and 7%, respectively, for the ~~future~~third quarter of 2019 and first nine months of 2019 versus the comparable prior year periods. With estimated retail ~~demand trajectory remains positive based on new and younger buyers and the emergence of incremental repeat buyers~~unit shipments outpacing wholesale unit shipments in the ~~channel, increased participation by millennials, the continued shift to smaller travel trailers,~~third quarter and ~~overall economic conditions. In addition, used~~first nine months of 2019, RV ~~inventory levels remain generally low with rising prices, supporting the demand for new RVs~~dealer inventories declined in ~~the long-term.~~

both periods. The RVIA’s latest published expectations for fiscal 2019 project wholesale unit shipments to ~~range from~~be approximately ~~445,000 units to 476,000~~401,000 units, representing ~~low-to-high-single digit percentage declines~~a decline of 17% from 2018. ~~We currently anticipate that~~On the retail side, the Company expects RV retail unit shipments to decline at a mid-to-high single digit rate in 2019. For the full year 2019, RV dealer inventories ~~will continue~~are expected to ~~normalize as we progress through~~decline by more than 50,000 units, positioning the ~~second quarter of 2019 and will support a~~industry to return to a more direct relationship between wholesale ~~shipment levels aligned more closely with~~unit shipments and retail ~~demand in~~unit shipments for the ~~latter half of the second quarter and into the third quarter of 2019.~~upcoming 2020 selling season.

We have continued to capture market share through our strategic acquisitions, line extensions, and the introduction of new and innovative products and have a favorable view of growth for the RV industry based on a number of factors including:

~~Attractive industry demographic trends with new and younger buyers entering the market and baby boomers reaching retirement age;~~

~~Readily available financing and improving consumer credit;~~

~~New and innovative products coming to market;~~

~~Consumer confidence;~~

~~Increased strength in the overall economic environment, including lower unemployment rates, improving trends in wages and improving consumer confidence levels; and~~

~~The value of the travel and leisure lifestyle related to spending quality time with families.~~

Marine Industry

Sales to the marine industry, which represented approximately ~~15%~~13% and 14% of the Company's consolidated net sales in the third quarter and first ~~quarter~~nine months of 2019, respectively, decreased 7% and increased ~~99%~~34% compared to the third quarter and first ~~quarter~~nine months of ~~2018.~~

We anticipate that the marine market is poised to continue its recovery with the potential for a long runway of slow and steady growth as OEMs in this market continue to offer more value-added content and increased comfort and convenience on boats, consistent with the marine leisure lifestyle experience. Our marine portfolio companies are comprised of a high quality brand platform that is generating significant organic growth opportunities. The Company's combination of design, engineering, manufacturing and fabrication capabilities, along with its growing geographic footprint and comprehensive product offerings to its customers in the marine market, provides continuing opportunities for fully integrated solutions and additional content for the marine OEMs.

All indicators currently point toward another solid year in the marine industry with a growth rate in powerboat retail unit shipments for fiscal 2019 of low-to-mid-single digits based on long-term fundamental demand, aging boats in service, and the related replacement cycle, and positive consumer economic metrics.

2018, respectively. For the third quarter and first ~~quarter~~nine months of 2019, overall marine retail unit shipments in the powerboat sector, which is the Company's primary marine market, increased approximately 2% and decreased approximately 7%5%, respectively, with aluminum fishing sales decreasing 5% and 11% in the third quarter and first nine months of 2019, respectively; pontoon sales increasing 11% and decreasing ~~14%~~1%, respectively; fiberglass sales decreasing 1% and 3%, ~~respectively, fiberglass decreasing 4%,~~respectively; and ski and wake sales increasing ~~13%. Retail sales~~12% and 4%, respectively.

Adverse weather and flooding in certain regions of the country impacted marine retail unit shipments in the first half of 2019, particularly in the pontoon and aluminum fishing categories. Reflecting this retail softness in the first half of 2019, we saw inventory recalibration by marine dealers in the third quarter of 2019, which we believe contributed to a decline in wholesale unit shipments in the quarter despite the increase in overall retail unit shipments. Factoring in the impact of weather in the first half of 2019 and the related dealer inventory re-calibration, we anticipate that the powerboat sector of this market ~~are seasonal and are traditionally strongest~~will experience a retail unit percentage decline in the ~~second~~low-to-mid single digits for fiscal 2019 and ~~third quarters. This market continues to make~~ a steady recovery, with single-digit annual average growth rates since 2010. Moreover, according to industry sources, the average age of boats in service is approximately 24 to 25 years compared to a 30-year estimated useful life, and approximately one million boats are expected to be retired over the next four years. The increased age of boats in service, low channel inventories, and continued positive demographics all point to anticipated growthwholesale unit percentage decline in the ~~marine market.~~high-single digits.

MHManufactured Housing ("MH") Industry

Sales to the MH industry, which represented ~~17%~~19% and 18% of the Company’s sales in the third quarter and first ~~quarter~~nine months of 2019, respectively, increased ~~70%~~61% and 62% compared to the respective prior ~~year.~~year periods. Based on industry

data from the Manufactured Housing Institute, ~~and the Company's estimate for the month of March,~~ MH wholesale unit shipments increased by approximately 2% and decreased by approximately ~~10%~~5% in the third quarter and first nine months of 2019, respectively. Manufactured housing was negatively impacted in the first ~~quarter~~half of ~~2019. Similar to the fourth quarter of 2018, manufactured housing continues to be negatively impacted~~2019 by wet weather conditions in certain regions of the country where moving inventory and setting foundations and houses ~~have been difficult. Nevertheless, demographic trends within the~~were difficult, and as a result our current estimates indicate an overall percentage decline in MH ~~market indicate strong expected demand patterns related to first time home buyers and those looking to downsize.~~

~~The Company believes it is well-positioned to capitalize on pent up demand and the significant upside potential of the MH market~~wholesale unit shipments for fiscal 2019 in the long-term, especially given the increasing attractiveness of the single-family manufactured housing option and the combination of its nationwide geographic footprint, available capacity in current MH concentrated locations, and current content per unit 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 spread in 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.low-to-mid single digits.

Industrial Market

The industrial market is comprised primarily of the kitchen cabinet industry, hospitality market, retail and commercial fixtures market, office and household furniture market and regional distributors. Sales to this market represented 13% and 12% of our consolidated sales in the third quarter and first ~~quarter~~nine months of 2019, respectively, and ~~increased 5%~~were virtually unchanged in the third quarter and the first ~~quarter~~nine months of 2019 compared to ~~the~~ prior year ~~period.~~

periods. Overall, our revenues in these markets are focused on the residential housing, hospitality, high-rise housing and office, commercial construction and institutional furniture markets. ~~Single and multifamily residential housing starts declined 5% and 19%, respectively, for the first quarter of 2019, with combined new housing starts down 10% in the quarter. Interest rate~~

increases and tariffs in the past year have created some headwinds, but potential demand remains strong given the lack of affordable housing capacity and inventories. We believe these factors present opportunities for continued pent up demand along with improving consumer credit, strong jobs and wage growth, and demographic trends related to new buyers and those looking to downsize, and are aligned well with our core housing and industrial market model.

~~The industrial market is primarily impacted by macroeconomic conditions and more specifically, conditions in the residential housing market.~~ We estimate that approximately 60% of our industrial business is directly tied to the residential housing market, with the remaining 40% directly tied to the non-residential and commercial markets. ~~The Company believes there is a direct correlation between the demand for its products~~

Combined new housing starts increased 4% in the third quarter of 2019 compared to the prior year quarter, with single family housing starts increasing 4% and multifamily residential starts increasing 6% for the same period. For the first nine months of 2019, single family housing ~~market and~~starts decreased 2%, while multifamily housing starts were virtually flat, with combined housing starts decreasing 1%. Our industrial products are generally among the last components installed in new ~~residential housing~~unit construction and ~~remodeling activities. Sales to the industrial market generally lag~~as such our related sales typically trail new ~~residential~~ housing starts by four to six months. Because of this lag in the relationship between new housing starts and our sale of related industrial products, we expect our industrial sales to ~~nine months.~~

~~Fiscal Year 2019 Outlook~~

~~The 16 acquisitions we completed~~benefit in ~~total~~the next two quarters from recent growth in 2017 and 2018 continue to present organic growth opportunities and synergies to further increase market share gains, expand geographically, establish best practices across all of our brands, and service our customers at the highest level.residential housing starts. We ~~continue to~~ expect a ~~return to a more normalized pattern of RV wholesale unit production in alignment with retail demand for fiscal year 2019.~~

Based on its most recent forecast, the RVIA expects the percentage decline in RV wholesale unit shipments for fiscal 2019 to range from low-single digits to high-single digits compared to full year 2018 reflecting the continued recalibration of dealer inventory levels. On the retail side, the Company expects RV retail unit shipments to be in the range of flat to a low-single digit ~~percentage decline in 2019 with potential upside based on subsiding headwinds related to interest rates, tariffs, commodity prices, consumer confidence, and equity market volatility.~~

In the marine market, we anticipate that the retail unit growth rate in the powerboat sector of this market will be in the range of low-to-mid single digits in 2019 based on the increasing age of boats in service, balanced channel inventories, and continued positive demographics.

~~On the MH side, we are currently forecasting low-to-mid single digit growth rates in wholesale unit shipments for 2019, and a low single-digit~~ growth rate in new housing starts overall and expect to continue to increase our content and market share in both of these market sectors beyond the general industry expectations as a result of increasing market penetration, strategic geographic expansions, and cross selling opportunities.for fiscal 2019.

Our team remains focused on strategic acquisitions in our existing, similar or complementary businesses, expanding operations in targeted regional territories, capturing market share and increasing our per unit content, keeping costs aligned with revenue, maximizing operating efficiencies, focusing on strategic capital expenditures to achieve cost reductions, labor efficiencies and increased capacity, talent management, engagement and retention, and the execution of our organizational strategic agenda.

In conjunction with our organizational strategic agenda, we plan to continue to make targeted capital investments to support new business and leverage our operating platform. The current capital plan for full year 2019 includes expenditures of approximately $30 million related primarily to strategic investments in geographic expansions, the strategic replacement and upgrading of production equipment to improve efficiencies and increase capacity, new process and product development, and other strategic capital and maintenance improvements.

REVIEW OF CONSOLIDATED OPERATING RESULTS

~~First~~ ThirdQuarter and Nine Months Ended ~~March 31,~~September 29, 2019 Compared to ~~First Quarter Ended April 1,~~ 2018

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


	First Quarter Ended				Third Quarter Ended				Nine Months Ended
	March 31, 2019		April 1, 2018		September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	82.5		82.3		81.6		81.5		81.9		81.6
Gross profit	17.5		17.7		18.4		18.5		18.1		18.4
Warehouse and delivery expenses	4.0		3.1		4.2		3.4		4.2		3.2
Selling, general and administrative expenses	6.2		5.8		6.0		5.8		5.8		5.7
Amortization of intangible assets	1.5		1.3		1.6		1.5		1.5		1.4
Operating income	5.9		7.6		6.6		7.8		6.6		8.1
Interest expense, net	1.5		0.8		1.5		1.3		1.5		1.0
Income taxes	1.0		1.3		1.3		1.6		1.3		1.7
Net income	3.4		5.4		3.8		4.9		3.9		5.4

Net Sales. Net sales in the ~~first~~third quarter of 2019 ~~increased $56.4~~decreased $8.9 million, or ~~10%~~2%, to ~~$608.2~~$566.2 million from ~~$551.8~~$575.1 million in the ~~first~~third quarter of 2018. The Company's net sales decreased in two of its primary markets, with a decrease in RV market sales of 13% and a decrease in marine market sales of 7%, while industrial market sales were virtually flat and MH market sales increased 61% when compared to the prior year quarter.

Net sales in the first nine months of 2019 increased $55.8 million, or 3%, to $1.79 billion from $1.73 billion in the prior year period. The Company's net sales increased in ~~three~~two of its primary markets in the first ~~quarter~~nine months of 2019 with increases of ~~99% in marine, 70%~~62% in MH and 5%34% in marine, while industrial market sales were virtually unchanged and RV market sales decreased 12% compared to 2018.

The consolidated net sales decrease in the third quarter of 2019 primarily reflected decreases in OEM wholesale unit shipments in the RV and marine industries, partly offset by ~~a decline~~an increase in revenue from the acquisition of 9%LaSalle Bristol ("LaSalle"), completed in ~~RV market sales.~~

the fourth quarter of 2018. The consolidated net sales increase in the first ~~quarter~~nine months of 2019 ~~primarily reflected~~was mostly attributed to the contribution of revenue from ~~nine acquisitions completed in fiscal year 2018, with no~~LaSalle.

Revenue attributable to acquisitions completed in the first nine months of 2019 was immaterial for both the third quarter and first nine months of 2019. In addition to the contributions of the 2018 acquisitions, increases in sales reflected increased penetration through geographic and product expansion efforts in the marine and MH markets. In the first quarter of 2018, we acquired Metal Moulding Corporation, Aluminum Metals Company, LLC, IMP Holdings, LLC d/b/a/ Indiana Marine Products, and Collins & Company, Inc. The revenueRevenue attributable to ~~these four~~ acquisitions completed in ~~the~~ first ~~quarter~~nine months of 2018 was ~~$12.6 million.~~$82.4 million and $160.0 million for the third quarter and first nine months of 2018, respectively.

The Company’s RV content per wholesale unit (on a trailing twelve-month basis) for the ~~first~~third quarter of 2019 increased approximately ~~30%~~9% to ~~$3,131~~$3,132 from ~~$2,414~~$2,875 for the ~~first~~third quarter of 2018. ~~The marine~~Marine content per retail unit (on a trailing twelve-month basis) for the ~~first~~third quarter of 2019 increased approximately ~~118%~~54% to an estimated ~~$1,490~~$1,624 from ~~$683~~$1,054 for the ~~first~~third quarter of 2018. MH content per wholesale unit (on a trailing twelve-month basis) for the ~~first~~third quarter of 2019 increased approximately ~~42%~~65% to an estimated ~~$3,389~~$4,327 from ~~$2,382~~$2,628 for the ~~first~~third quarter of 2018.

Cost of Goods Sold. Cost of goods sold ~~increased $47.6~~decreased $6.6 million, or ~~10%~~1%, to ~~$501.7~~$461.9 million in the ~~first~~third quarter of 2019 from ~~$454.1~~$468.5 million in 2018. As a percentage of net sales, cost of goods sold increased during the third quarter of 2019 to 81.6% from 81.5% in 2018. For the first nine months of 2019, cost of goods sold increased $51.4 million, or 4%, to $1,464.1 million from $1,412.6 million in 2018. As a percentage of net sales, cost of goods sold increased during the first ~~quarter~~nine months of 2019 to ~~82.5%~~81.9% from ~~82.3%~~81.6% in 2018.

Cost of goods sold as a percentage of net sales was impacted during the third quarter and first ~~quarter~~nine months of 2019 by: (i) ~~decreased RV revenue relative to~~higher overall fixed overhead ~~costs;~~costs relative to RV and marine revenue; (ii) the lower ~~distribution~~ margin ~~sales~~ profile of LaSalle, ~~Bristol ("LaSalle"),~~ which was acquired in the fourth quarter of 2018 and (iii) ~~inventory sold~~a temporary disruption in ~~the first quarter of 2019 which reflected higher input costs incurred in the latter part of 2018 relative~~operations and associated inefficiencies related to the current commodities market. Part of the increase in the cost of goods sold percentage was offset by leveraging fixed costs in the marine and industrial sectors and by the Company's acquisitions over the last 18 to 24 months that have a lower cost of goods sold percentage profile.cybersecurity incident, discussed below. 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 ~~and distributed. The timing~~in the production of ~~the Company's pass through of input cost increases and decreases to its customers may not coincide with the period in which such costs are incurred in inventory.~~

our products.

Gross Profit. Gross profit ~~increased $8.7~~decreased $2.4 million, or 9%2%, to ~~$106.5~~$104.3 million in the ~~first~~third quarter of 2019 from ~~$97.8~~$106.7 million in 2018. For the first nine months of 2019, gross profit increased $4.3 million, or 1%, to $323.5 million from $319.2 million in 2018. As a percentage of net sales, gross profit decreased to ~~17.5%~~18.4% in the ~~first~~third quarter of 2019 from ~~17.7%~~18.5% in the same period in 2018, and decreased to 18.1% for the first nine months of 2019 from 18.4% in the same period in 2018. The ~~improvement~~changes in gross profit ~~dollars and the impact to the~~as a percentage of net sales in the third quarter and first ~~quarter~~nine months of 2019 compared to the same periods in 2018 ~~reflected~~reflect the impact of the factors discussed above under “Cost of Goods Sold”.

Economic or industry-wide factors affecting the profitability of our RV, MH, marine and industrial businesses include the costs of commodities and the labor used to manufacture our products as well as the competitive environment that can cause gross margins to fluctuate from quarter-to-quarter and year-to-year. Material and labor costs are the primary factors determining our cost of products sold, and any future increases in raw material or labor costs would impact our profit margins negatively if we were unable to raise the selling prices to our customers for our products by corresponding amounts. Historically, we have generally been able to pass along cost increases to customers.

Warehouse and Delivery Expenses. Warehouse and delivery expenses increased ~~$7.0~~$4.1 million, or ~~41%~~21%, to ~~$24.0~~$23.9 million in the ~~first~~third quarter of 2019 from ~~$17.0~~$19.8 million in 2018. For the first nine months in 2019, warehouse and delivery expenses increased $18.7 million, or 34%, to $74.2 million from $55.5 million in 2018. As a percentage of net sales, warehouse and delivery expenses were ~~4.0%~~4.2% in the ~~first~~third quarter of 2019 compared to ~~3.1%~~3.4% in the third quarter of 2018 and 4.2% in the first ~~quarter~~nine months of 2019 compared to 3.2% the first nine months of 2018. The ~~expense~~ increase in expense in the third quarter and first ~~quarter~~nine months of 2019 compared to the prior year ~~period~~periods was primarily attributable ~~to increased sales volumes and~~ to the impact of certain acquisitions completed in 2018 that had higher warehouse and delivery expenses as a percentage of net sales when compared to the consolidated percentage. For the first nine months of 2019 compared to the prior year period, increased sales volumes also contributed to the increase in warehouse and delivery expense. In addition, the Company's shipments to ~~the~~ OEMs in the third quarter and first ~~quarter~~nine months of 2019 were generally in lower volume and higher frequency, and as a result transportation costs relative to sales levels of products delivered increased as a percentage of net sales.

Selling, General and Administrative ~~(SG&A)~~("SG&A") Expenses. SG&A expenses increased ~~$5.9~~$0.5 million, or ~~18%~~2%, to ~~$37.7~~$33.8 million in the ~~first~~third quarter of 2019 from ~~$31.8~~$33.3 million in 2018. For the first nine months of 2019, SG&A expenses increased $5.4 million, or 5%, to $104.4 million from $99.0 million in 2018. As a percentage of net sales, SG&A expenses were ~~6.2%~~6.0% in the ~~first~~third quarter of 2019 compared to 5.8% in the ~~first~~third quarter of 2018 and 5.8% in the first nine months of 2019 compared to 5.7% in 2018.

The increase in SG&A expenses ~~as a percentage of net sales~~ in the third quarter and first ~~quarter~~nine months of 2019 compared to ~~the prior year period~~2018 is primarily ~~reflected:~~due to: (i) ~~the impact of additional headcount~~an increase in professional service fees and ~~administrative expenses~~other costs associated with ~~recent acquisitions;~~the cyber security event discussed below; (ii) a loss on extinguishment of debt associated with the ~~additional investment in and costs related to an expansion~~amendment of ~~certain leadership roles to support our continued strategic growth plans in 2019 and beyond~~the Company's credit facility and (iii) the impact of certain acquisitions completed in 2018 that had higher SG&A expenses as a percentage of net sales when compared to the consolidated percentage. Partially offsetting these factors was a decrease in incentive compensation and sales commissions.

Amortization of Intangible Assets. Amortization of intangible assets increased ~~$1.9~~$0.3 million, or 4%, in the ~~first~~third quarter of 2019 compared to the prior year quarter, and increased $1.3 million, or 5%, in the first nine months of 2019 compared to the prior year period. The increase in the third quarter and first nine months of 2019 compared to the prior year periods primarily ~~reflecting~~reflects the impact of businesses acquired in ~~2018. In the aggregate, in conjunction with the~~ 2018, ~~acquisitions, the Company recognized an estimated $121.9 million in certain finite-lived~~partly offset by purchase accounting adjustments to intangible assets ~~that are being amortized over periods ranging from three~~and the associated impact to ~~10 years.~~amortization expense.

Operating Income. Operating income decreased ~~$6.0~~$7.3 million, or ~~14%~~16%, to ~~$35.8~~$37.4 million in the ~~first~~third quarter of 2019 from ~~$41.8~~$44.7 million in 2018. For the first nine months of 2019, operating income decreased $21.1 million, or 15%, to $118.5 million from $139.5 million in the prior year period. As a percentage of net sales, operating income was ~~5.9%~~6.6% in the ~~first~~third quarter of 2019 versus ~~7.6%~~7.8% in the same period in ~~2018.~~2018 and 6.6% for the first nine months of 2019 versus 8.1% in the prior year period. Operating income in the third quarter and first nine months of 2019 attributable to acquisitions completed in the first nine months of 2019 was immaterial. Operating income in the third quarter and the first nine months of 2018 included ~~$1.3~~$8.8 million and $17.3 million, respectively, attributable to ~~the~~ acquisitions completed in ~~that period.~~the first nine months of 2018. The change in operating income and operating margin is primarily attributable to the items discussed above.

Interest Expense, Net. Interest expense increased ~~$4.6~~$1.3 million, or 17%, to ~~$9.0~~$8.6 million in the ~~first~~third quarter of 2019 from ~~$4.4~~$7.3 million in the prior year. For the first nine months of 2019, interest expense increased $8.2 million, or 46%, to $26.2 million from $18.0 million in the prior year period. The increase in interest expense reflects: (i) increased borrowings related to 2018 acquisitions, ~~and~~ (ii) increases in the average interest rate on the variable rate portion of the Company's debt, which reflects increases in LIBOR in the third quarter and first ~~quarter~~nine months of 2019 compared to the prior ~~year.~~year periods and (iii) an increase in the Company's overall average interest rate resulting from the issuance of the Company's 7.5% Senior Notes due 2027 (the "Senior Notes") in the third quarter of 2019.

Income Taxes. Income tax expense decreased $1.9 million, or 21%, to $7.5 million from $9.4 million in the prior year period. For the first nine months of 2019, income tax expense decreased $6.0 million, or 21%, to $22.7 million from $28.7 million in the prior year period. For the third quarter of 2019, the effective tax rate was ~~22.3%~~26.0% compared to ~~19.6%~~25.3% in the comparable 2018 period. For the first nine months of 2019, the effective tax rate was 24.6% compared to 23.6% for the prior year period. The effective tax rate for the periods presented includes the impact of the recognition of excess tax benefits on share-based compensation that were recorded as a reduction to income tax expense upon realization. Amounts recorded include ~~$0.8~~$0.9 million inand $2.2 million for the ~~first quarter of~~nine-month 2019 and ~~$2.1 million in~~2018 periods, respectively, with no amounts for the first quarter of 2018. Excluding the impact relating to the share-based payment awards in the first quarter of 2019 and any additional impact in the remainder of 2019, and excluding the impact of one-time tax items, we anticipate our full year 2019 effective tax rate to be between 25% and 26%.comparable quarterly periods.

The Company's combined effective income tax rate from period to period and for the full year 2019 could further fluctuate due to: (i) refinements in federal and state income tax estimates, which are impacted by the availability of tax credits; (ii)

permanent differences impacting the effective tax rate; (iii) shifts in apportionment factors among states as a result of recent acquisition activity and other factors and (iv) the timing of the recognition of excess tax benefits related to the vesting of share-based payments awards as previously discussed.

Net Income. Net income for the ~~first~~third quarter of 2019 was ~~$20.8~~$21.3 million, or ~~$0.90~~$0.92 per diluted share, compared to ~~$30.1~~$27.9 million, or ~~$1.20~~$1.15 per diluted share for 2018. For the first nine months of 2019, net income was $69.6 million, or $2.99 per diluted share, compared to $92.9 million, or $3.77 per diluted share for 2018. The changes in net income for the third quarter and first ~~quarter~~nine months of 2019 compared to prior year periods reflect the impact of the items previously discussed.

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. 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. You should not consider these metrics in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP.

REVIEW BY BUSINESS SEGMENT

The Company has determined that its reportable segments are those based on its method of internal reporting, which segregates its businesses ~~by product category~~based on the manner in which its Chief Operating Decision Maker allocates resources, evaluates financial results, and ~~production/distribution process.~~determines compensation.

The Company’s reportable business segments are as follows:

Manufacturing – This segment includes the following: laminated products that are utilized to produce furniture, shelving, walls, countertops, and cabinet products, cabinet doors, fiberglass bath fixtures and tile systems, hardwood furniture, vinyl printing, decorative vinyl and paper laminated panels, solid surface, granite, and quartz countertop fabrication, RV painting, fabricated aluminum products, fiberglass and plastic components, softwoods lumber, custom cabinetry, polymer-based flooring, electrical systems components including instrument and dash panels, wrapped vinyl, paper and hardwood profile mouldings, interior passage doors, air handling products, slide-out trim and fascia, thermoformed shower surrounds, specialty bath and closet building products, fiberglass and plastic helm systems and components products, wiring and wire harnesses, boat covers, towers, tops and frames, aluminum fuel tanks, CNC molds and composite parts, slotwall panels and components and other products.

Distribution – The Company distributes pre-finished wall and ceiling panels, drywall and drywall finishing products, electronics and audio systems components, appliances, wiring, electrical and plumbing products, fiber reinforced polyester products, cement siding, raw and processed lumber, interior passage doors, roofing products, laminate and ceramic

flooring, tile, shower doors, furniture, fireplaces and surrounds, interior and exterior lighting products, and other miscellaneous products, in addition to providing transportation and logistics services.

~~First~~ ThirdQuarter and Nine Months Ended ~~March 31,~~September 29, 2019 Compared to ~~First Quarter Ended April 1,~~ 2018

General

In the discussion that follows, sales attributable to the Company’s operating 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 operating segments. A reconciliation of consolidated operating income is presented in Note 15 to the Notes to Condensed Consolidated Financial Statements.

First Quarter Ended
(thousands) March 31, 2019 April 1, 2018
Sales

Manufacturing $ 433,404
$ 445,282
Distribution 183,699
116,588
Gross Profit

Manufacturing 76,827

81,587
Distribution 28,973

17,875
Operating Income

Manufacturing 44,437
52,923
Distribution 8,291
7,290



	Third Quarter Ended				Nine Months Ended
(thousands)	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Sales
Manufacturing	$	407,814	$	453,396	$	1,283,824	$	1,371,552
Distribution	167,552		131,022		531,312		390,602
Gross Profit
Manufacturing	73,700		86,015		231,227		262,824
Distribution	27,965		21,974		87,738		63,668
Operating Income
Manufacturing	42,353		54,887		135,577		172,799
Distribution	9,041		7,606		28,132		25,092

Manufacturing

Sales. Sales decreased ~~$11.9~~$45.6 million, or 3%10%, to ~~$433.4~~$407.8 million in the ~~first~~third quarter of 2019 from ~~$445.3~~$453.4 million in 2018. For the first nine months of 2019, sales decreased $87.7 million, or 6%, to $1,283.8 million from $1,371.6 million in the prior year period. This segment accounted for approximately 71% and 70% of the Company’s consolidated net sales for the third quarter and first ~~quarter~~nine months of 2019 and ~~79%~~77% and 78% for the third quarter and first ~~quarter~~nine months of 2018. The sales decrease in the ~~first~~third quarter of 2019 largely reflected a decrease in wholesale unit shipments in the RV and MHmarine industries, and in ~~retail shipments~~the RV, MH and marine industries in the ~~marine industry.~~ first nine months of 2019.

Revenue in the third quarter and first ~~quarter~~nine months of ~~2018 included $10.3 million~~2019 was immaterial related to acquisitions completed in the first ~~three~~nine months of 2019. Revenue in the third quarter and first nine months of 2018 included $51.8 million and $99.0 million, respectively, related to acquisitions completed in the first nine months of 2018.

Gross Profit. Gross profit decreased ~~$4.8~~$12.3 million, or 6%14%, to ~~$76.8~~$73.7 million in the ~~first~~third quarter of 2019 from ~~$81.6~~$86.0 million in the ~~first~~third quarter of 2018. For the first nine months of 2019, gross profit decreased $31.6 million, or 12%, to $231.2 million from $262.8 million in 2018. As a percentage of sales, gross profit decreased to ~~17.7%~~18.1% in the ~~first~~third quarter of 2019 from ~~18.3%~~19.0% in 2018 and decreased to 18.0% in the first nine months of 2019 from 19.2% in 2018.

Gross profit decreased during the third quarter and first ~~quarter~~nine months of 2019 compared to the corresponding prior year periods primarily due ~~to: (i)~~to decreased revenue relative to overall fixed overhead ~~costs and (ii) inventory sold in the first quarter of 2019 which reflected higher input costs incurred in the latter part of 2018 relative to the current commodities market.~~costs.

Operating Income. Operating income decreased ~~16%~~$12.5 million, or 23%, to ~~$44.4~~$42.4 million in the ~~first~~third quarter of 2019 from ~~$52.9~~$54.9 million in the prior year. ~~In addition~~For the first nine months of 2019, operating income decreased $37.2 million, or 22%, to ~~the gross profit decline discussed above, operating expenses increased $3.7~~$135.6 million from $172.8 million in 2018. The overall decrease in operating income in the third quarter and first ~~quarter~~nine months of 2019 ~~mostly attributed to an increase in SG&A expense due to an increase in head count.~~ primarily reflects the items discussed above.

Operating income in the third quarter and first ~~quarter~~nine months of ~~2018 included $1.2 million~~2019 attributable to ~~three manufacturing~~ acquisitions completed in the first nine months of 2019 was immaterial, and operating income in the third quarter and first nine months of 2018 included $7.0 million and $12.9 million, respectively, attributable to acquisitions completed in the first nine months of 2018.

Distribution

Sales. Sales increased ~~$67.1~~$36.5 million, or ~~58%~~28%, to ~~$183.7~~$167.5 million in the ~~first~~third quarter of 2019 from ~~$116.6~~$131.0 million in 2018. For the first nine months of 2019, sales increased $140.7 million, or 36%, to $531.3 million from $390.6 million in 2018. This segment accounted for approximately ~~30%~~29% and ~~21%~~30%, respectively, of the Company’s consolidated net sales for the third quarter and first ~~quarter~~nine months of 2019, and 23% and 22%, respectively, for the third quarter and first nine months of 2018. The sales increase in the third quarter and first ~~quarter~~nine months of 2019 compared to the prior ~~period quarter~~year periods was largely attributed to the revenue contribution of ~~the distribution business~~LaSalle, which was acquired during the fourth quarter of 2018. Revenue in the third quarter and first ~~quarter~~nine months of 2018 included ~~$2.3~~$30.6 million and $61.0 million, respectively, related to ~~the one distribution acquisition~~acquisitions completed in the first ~~quarter~~nine months of 2018.

Gross Profit. Gross profit increased ~~$11.1~~$6.0 million, or 27%, to ~~$29.0~~$28.0 million in the ~~first~~third quarter of 2019 from ~~$17.9~~$22.0 million in the ~~first~~third quarter of 2018. For the first nine months of 2019, gross profit increased $24.0 million, or 38%, to $87.7 million from $63.7 million in 2018. As a percentage of sales, gross profit ~~increased~~decreased to ~~15.8%~~16.7% in the ~~first~~third quarter of 2019 from ~~15.3%~~16.8% in the ~~first~~third quarter of 2018 and increased to 16.5% for the first nine months of 2019 from 16.3% for the first nine months of 2018. The decrease in gross profit margin in the third quarter of 2019 compared to the third quarter of 2018 is primarily ~~reflecting~~attributed to higher overall fixed costs relative to RV and MH distribution product revenue. The increase in gross profit margin for the first nine months of 2019 compared to 2018 primarily reflects the impact of acquisitions completed during ~~2018 which had higher margin product lines.~~2018.

Operating Income. Operating income increased ~~$1.0~~$1.4 million, or 19%, to ~~$8.3~~$9.0 million in the ~~first~~third quarter of 2019 from ~~$7.3~~$7.6 million in the prior year. For the first nine months of 2019, operating income increased $3.0 million, or 12%, to $28.1 million from $25.1 million for the first nine months of 2018. Operating income in the third quarter and first ~~quarter~~nine months of 2018 included ~~$0.1~~$1.8 million and $4.4 million, respectively, related to ~~the one~~ distribution ~~acquisition~~acquisitions completed in ~~that quarter.~~the first nine months of 2018. The overall net improvement in operating income in the third quarter and first ~~quarter~~nine months of 2019 primarily reflects the items discussed above.

~~Unallocated Corporate Expenses~~

Unallocated corporate expenses in the first quarter of 2019 decreased $3.4 million to $7.9 million from $11.3 million in the prior year period. The decrease in unallocated corporate expenses in the first quarter of 2019 compared to the first quarter of 2018 was largely attributable to a decrease in accrued incentive compensation.

LIQUIDITY AND CAPITAL RESOURCES

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 $2.1~~decreased $5.4 million to ~~$27.9~~$122.0 million in the first ~~quarter~~nine months of 2019 from ~~$25.8~~$127.4 million in the first ~~quarter~~nine months of 2018 primarily due to: a decrease in net income of $23.3 million, partly offset by (i) an increase inof depreciation and amortization of ~~$4.2 million;~~$6.6 million, (ii) an increase in ~~non-cash interest~~stock based compensation expense, ~~from the~~ amortization of ~~convertible notes~~ debt discount, ~~of $0.4 million; (iii) an increase in stock-based compensation expense of $0.3 million; (iv) a decrease in use of cash from~~deferred income taxes and other operating ~~cash flows~~items of ~~$1.1~~$5.0 million and ~~(vi)~~(iii) a ~~decrease in the use~~net source of cash from changes in operating assets and liabilities ~~net~~ of ~~acquisitions of businesses, of $5.5 million, partially offset by a decrease in net income of $9.2~~$6.3 million.

Investing Activities

Net cash used in investing activities decreased ~~$93.7~~$270.9 million to ~~$9.8~~$40.1 million in the first ~~quarter~~nine months of 2019 from ~~$103.5~~$311.0 million in the first ~~quarter~~nine months of 2018 primarily due to: ~~(i)~~ a decrease in cash used in business acquisitions of ~~$94.6~~$267.7 million and ~~(ii) an increase in proceeds from the sale of property, equipment and other investing activities of $1.4 million, partially offset by an increase~~a decrease in capital expenditures of ~~$2.4~~$3.8 million.

The Company's current operating model forecasts capital expenditures for fiscal 2019 of approximately $30 million related primarily to strategic investments in geographic expansions, the strategic replacement and upgrading of production equipment to improve efficiencies and increase capacity, new process and product development, and other strategic capital and maintenance improvements.million.

Financing Activities

Cash flows from financing activities are one of the Company's primary sources of liquidity through borrowings ~~effective June 5, 2018~~ under athe Company's credit facility ~~(the "2018 Credit Facility") consisting of a revolving credit loan (the "2018 Revolver")~~as well as convertible and ~~a term loan (the "2018 Term Loan").~~senior note issuances in 2018 and 2019, respectively.

Net cash flows ~~used~~provided by financing activities ~~increased $91.5~~decreased $153.2 million to ~~$16.5~~$27.9 million in the first ~~quarter~~nine months of 2019 from ~~a source of cash of $75.0~~$181.1 million in the first ~~quarter~~nine months of 2018 primarily due to: (i) cash used for net repayments on the Company's credit facility of $253.6 million in the first nine months of 2019 compared to a source of cash from net borrowings on the Company's credit facility of $107.1 million in the first nine months of 2018; (ii) gross proceeds of $172.5 million from the ~~first~~third quarter 2018 issuance of 1% Convertible Senior Notes due 2023 (the "Convertible Notes") with no comparable amount in the first ~~quarter~~nine months of 2019; ~~(ii)~~(iii) a source of cash in the first ~~quarter~~nine months of 2018 of $18.1 million from the related sale of warrants with no comparable amount in the first ~~quarter~~nine months of ~~2019; (iii)~~2019 and (iv) a use of cash of $4.4 million in the first ~~quarter~~nine months of 2019 from payment of contingent consideration resulting from a business acquisition with no comparable amount in the first ~~quarter~~nine months of ~~2018; and (iv) an increase in cash used for the vesting of stock-based awards, net of shares tendered for taxes of $0.6 million.~~2018. Partially offsetting these items were: (i) ~~a decrease~~the issuance of $300 million of Senior Notes in ~~use~~the first nine months of ~~cash from net repayments under~~2019 with no comparable amount in the ~~2018 Credit Facility~~first nine months of ~~$54.2 million;~~ 2018; (ii) a use of cash in the first ~~quarter~~nine months of 2018 of $31.5 million from the purchase of Convertible Notes hedges with no comparable amount in the first ~~quarter of 2019; (iii) a use of cash from stock repurchases under stock buyback program of $13.5 million in the first quarter of 2018 with no comparable amount in the first quarter~~nine months of 2019 and ~~(iv)~~(iii) a decrease in the use of cash for ~~deferred financing payments~~stock repurchases of ~~$5.1 million.~~$71.4 million in the first nine months of 2019 from the prior year period.

See Notes 9, 10 14 and 16 of the Notes to Condensed Consolidated Financial Statements for further information on the Company's indebtedness, derivative financial instruments ~~income taxes,~~ and stock repurchases, respectively.

Summary of Liquidity and Capital Resources

The Company's existing cash and cash equivalents, cash generated from operations, and available borrowings under its ~~2018~~current credit facility (the "2019 Credit ~~Facility~~Facility") 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 ~~2018~~2019 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 ~~2018~~2019 Credit ~~Agreement. In~~Facility (the "2019 Credit Agreement").

As of and for the ~~first quarter of~~September 29, 2019 reporting date, the Company was in compliance with its financial debt covenants as required under the terms of the ~~2018~~2019 Credit Agreement. ~~See~~The required maximum consolidated total leverage ratio and the required minimum consolidated fixed charge coverage ratio compared to the actual amounts as of September 29, 2019 and for the fiscal period then ended are as follows:

The indenture associated with the Senior Notes places restrictions on the Company’s ability to, among other items, (i) incur additional indebtedness or issue certain preferred shares; (ii) pay dividends, redeem stock or make other distributions; (iii) make investments; (iv) transfer or sell assets; and (v) merge or consolidate. The Senior Note 9indenture also provides for customary events of default, which could require the Senior Notes to ~~Condensed Consolidated Financial Statements for additional information.~~become due and payable immediately, and also contains customary covenant provisions with which the Company is in compliance as of September 29, 2019.

Working capital requirements vary from period to period depending on manufacturing volumes primarily related to the RV, MH and marine industries as well as the industrial markets we serve, the timing of deliveries, and the payment cycles of customers. 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.

Borrowings under the ~~2018 Revolver~~revolving credit loan (the "2019 Revolver") and the ~~2018~~term loan (the "2019 Term ~~Loan,~~Loan") comprising the 2019 Credit Facility, which are subject to variable rates of interest, ~~were~~are subject to a maximum total borrowing limit of ~~$900.0~~$650.0 million (effective ~~June 5, 2018)~~September 17, 2019). See Note 9 of the Notes to the Condensed Consolidated Financial Statements for further information. See Note 10 of the Notes to Condensed Consolidated Financial Statements for information on interest rate swaps used to partially hedge variable interest rates under the ~~2018~~2019 Revolver and ~~2018~~2019 Term Loan. The unused availability under the ~~2018~~2019 Credit Facility as of ~~March 31,~~September 29, 2019 was ~~$419.6~~$411.1 million.

CRITICAL ACCOUNTING POLICIES

~~In the first quarter of 2019, we adopted Accounting Standards Update 2016-02, "Leases (Topic 842)". See Note 12 to the Notes to Condensed Consolidated Financial Statements for further information.~~ There have been no ~~other~~ material changes to our ~~significant~~critical accounting policies which are summarized in the MD&A ~~and Notes to the Consolidated Financial Statements~~ in our Annual Report on Form 10-K for the year ended December 31, 2018.

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, 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, and from time to time, the impact of severe weather conditions on the timing of industry-wide wholesale shipments.

Cyber Security Incident

At the end of the third quarter of 2019, the Company experienced a highly-sophisticated third-party malware cyberattack that impacted certain of the Company's administrative and production servers and resulted in a disruption of administrative and network operations for approximately two business days. In response to the attack, the Company immediately took steps to ensure customer commitments were honored and to remediate the attack to minimize the disruption. Further, although the Company has programs in place to detect, contain and respond to data security incidents, the Company began an investigation of the attack, including engaging external forensic and other IT experts, and is in the process of implementing further security measures and processes designed to prevent unauthorized access to its information systems and mitigate cybersecurity related risks. Estimated after-tax costs incurred in the third quarter of 2019 related to the cyberattack were approximately $1.5 million, which included incremental consulting and professional fees, administrative, operating, and production inefficiencies, and equipment replacement and repair. No additional material costs are expected to be incurred in future quarters related to the cyber incident.

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 the 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 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 except as required by law. ~~Factors~~Information about certain risks that ~~may~~could affect our business and cause actual results to differ from those expressed or implied in the ~~Company’s operations and prospects~~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, 2018, and in the Company's Form 10-Qs for subsequent quarterly periods, which are filed with the SEC and are available on the SEC’s website at www.sec.gov.



ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Debt Obligations under Credit Agreement

At ~~March 31,~~September 29, 2019, our total debt obligations under our ~~2018~~2019 Credit Agreement were under LIBOR-based interest rates. A ~~100 basis~~100-basis point increase in the underlying LIBOR and prime rates would result in additional annual interest cost of approximately ~~$2.8~~$0.4 million, assuming average borrowings, including the ~~2018~~2019 Term Loan, subject to variable rates of ~~$280.0~~$35.0 million, which was the amount of such borrowings outstanding at ~~March 31,~~September 29, 2019 subject to variable rates. The ~~$280.0~~$35.0 million excludes ~~the reclassification of~~ deferred financing costs related to the ~~2018~~2019 Term Loan and $200.0 million of borrowings outstanding under the ~~2018~~2019 Credit Facility that are hedged at a fixed interest rate through interest rate swaps.

Inflation

The prices of key raw materials, consisting primarily of lauan, gypsum, particleboard, aluminum, softwoods lumber, and petroleum-based products are influenced by demand and other factors specific to these commodities, such as the price of oil, rather than being directly affected by inflationary pressures. Prices of certain commodities have historically been volatile and continued to fluctuate in the first ~~three~~nine months of 2019. During periods of rising commodity prices, we have generally been able to pass the increased costs to our customers in the form of surcharges and price increases. However, there can be no assurance future cost increases, if any, can be partially or fully passed on to customers, or that the timing of such sales price increases will match raw material cost increases. We do not believe that inflation had a material effect on results of operations for the periods presented.



ITEM 4.	CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains “disclosure controls and procedures”, as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934, as amended (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and the Company’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the ~~first~~third quarter ended ~~March 31,~~September 29, 2019 or subsequent to the date the Company completed its evaluation, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Items 1, 3, 4 and 5 of Part II are not applicable and have been omitted.



ITEM 1A.	RISK FACTORS

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.



ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None.

(b) None.

Period
Total Number of Shares Purchased ⁽¹⁾

Average Price
Paid Per Share ⁽¹⁾

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽²⁾
January 1 - January 27, 2019 54,817
$ 36.46
—
$ 30,306,041
January 28 - March 3, 2019 25,246
47.64
—
30,306,041
March 4 - March 31, 2019 —
—
—
30,306,041
80,063
—



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share ⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽²⁾
July 1 - July 28, 2019	—	$	—	—	$	30,306,041
July 29 - September 1, 2019	69,399	37.00		68,122	27,794,558
September 2 - September 29, 2019	30,079	35.65		30,079	26,722,195
	99,478			98,201

(1) ~~Represents~~Amount includes 1,277 shares of common stock purchased by the Company in August 2019 for the sole purpose of satisfying the minimum tax withholding obligations of employees upon the vesting of stock awards held by the employees.

(2) See Note 16 to the Notes to Condensed Consolidated Financial Statements for additional information about the Company's stock repurchase program.



ITEM 6.	EXHIBITS



Exhibits (1)	Description
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer
32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer and Chief Financial Officer
101	Interactive Data Files. The following materials are filed electronically with this Quarterly Report on Form 10-Q:



	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Schema Document
	101.CAL	XBRL Taxonomy Calculation Linkbase Document
	101.DEF	XBRL Taxonomy Definition Linkbase Document
	101.LAB	XBRL Taxonomy Label Linkbase Document
	101.PRE	XBRL Taxonomy Presentation Linkbase Document



104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	PATRICK INDUSTRIES, INC.
	(Registrant)

Date: ~~May 9,~~November 7, 2019	By:	/s/ Todd M. Cleveland
		Todd M. Cleveland
		Chief Executive Officer




Date: ~~May 9,~~November 7, 2019	By:	/s/ Joshua A. Boone
		Joshua A. Boone
		Vice President-Finance and Chief Financial Officer

4039



	Three Months Ended
(thousands)	March 31, 2019			April 1, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	20,849		$	30,068
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,543			11,325
Stock-based compensation expense	3,947			3,696
Amortization of convertible notes debt discount	1,671			1,246
Deferred income taxes	1,281			1,410
Other	(233		)	(1,304		)
Change in operating assets and liabilities, net of acquisitions of businesses:
Trade receivables	(54,188		)	(48,443		)
Inventories	1,224			(8,557		)
Prepaid expenses and other assets	5,216			2,136
Accounts payable, accrued liabilities and other	32,574			34,231
Net cash provided by operating activities	27,884			25,808
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(10,005		)	(7,641		)
Proceeds from sale of property, equipment and other investing activities	1,372			(6		)
Business acquisitions, net of cash acquired	(1,222		)	(95,861		)
Net cash used in investing activities	(9,855		)	(103,508		)
CASH FLOWS FROM FINANCING ACTIVITIES
Term debt repayments	(1,250		)	(3,941		)
Borrowings on revolver	213,523			331,058
Repayments on revolver	(220,855		)	(389,855		)
Stock repurchases under buyback program	—			(13,470		)
Proceeds from convertible notes offering	—			172,500
Purchase of convertible notes hedges	—			(31,481		)
Proceeds from sale of warrants	—			18,147
Payments related to vesting of stock-based awards, net of shares tendered for taxes	(3,222		)	(2,586		)
Payment of deferred financing costs	(253		)	(5,367		)
Payment of contingent consideration from a business acquisition	(4,416		)	—
Other financing activities	3			(1		)
Net cash (used in) provided by financing activities	(16,470		)	75,004
Increase (decrease) in cash and cash equivalents	1,559			(2,696		)
Cash and cash equivalents at beginning of year	6,895			2,767
Cash and cash equivalents at end of period	$	8,454		$	71



Unrealized Loss Recognized in AOCI
First Quarter Ended
March 31, 2019		April 1, 2018
$	3,027	$	—

Consolidated total leverage ratio (12-month period)

Consolidated fixed charge coverage ratio (12-month period)