In the opinion of Patrick Industries, Inc. (“Patrick” or the “Company”), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Company’s financial position as of March 29,June 28, 2015 and December 31, 2014, and its results of operations and cash flows for the three and six months ended March 29,June 28, 2015 and March 30,June 29, 2014.

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. 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 Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The December 31, 2014 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 firstsecond quarter and six months ended March 29,June 28, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015.

In preparation of Patrick’s condensed consolidated financial statements as of and for the second quarter and six months ended March 29,June 28, 2015, 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 for potential recognition or disclosure in the consolidated financial statements. See Notes 6, 8 and 13 for events that occurred subsequent to the balance sheet date.

The number of shares and per share amounts have been retroactively adjusted to reflect the three-for-two stock split of the Company's common stock, which was effected in the form of a common stock dividend paid on May 29, 2015.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued new accounting guidance on revenue from contracts with customers, which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principal of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

The guidance permits two methods of transition upon adoption: full retrospective and modified retrospective. Under the full retrospective method, prior periods would be restated under the new revenue standard, providing a comparable view across all periods presented. Under the modified retrospective method, prior periods would not be restated. Rather, revenues and other disclosures for periods prior to the effective date would be provided in the notes to the financial statements as previously reported under the current revenue standard.

The guidance was originally effective for annual and interim periods beginning after December 15, 2016 and early adoption was not permitted. In AprilJuly 2015, the FASB proposedissued final revised guidance that if adopted, defers the effective date of the revenue recognition standard to be for annual and interim periods beginning after December 15, 2017. Under the proposedfinal revised guidance, an entity would, however, be permitted to elect to adopt the amendments as of the original effective date. The impact from the adoption of this guidance on the Company's Condensed Consolidated Financial Statementscondensed consolidated financial statements cannot be determined at this time. The Company is also working to determine the appropriate method of transition to the guidance.

Stock Compensation 

In June 2014, the FASB issued revised guidance on accounting for share-based payments that will require that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. The revised guidance is effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the provisions of this guidance and has not yet determined the impact, if any, that the implementation of this guidance will have on its results of operations orcondensed consolidated financial condition.statements.

Debt Issuance Costs

In April 2015, the FASB issued guidance that would require that debt issuance costs related to a recognized debt liability be presented in the statement of financial position as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is effective for financial statements issued for annual and interim periods beginning after December 15, 2015 and early adoption is permitted.

The guidance should be applied on a retrospective basis in which the statement of financial position of each period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (i.e., debt issuance cost asset and the debt liability). Upon adoption of the new guidance, assets related to deferred financing/debt issuance costs will be reclassed and presented net of debt outstanding.

Inventory

In July 2015, the FASB issued new accounting guidance for measuring the value of inventory. The Companycore principal of the guidance is currently evaluatingthat an entity should measure inventory at the provisionslower of thiscost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance does not apply to inventory that is being measured using the Last-In, First-Out (LIFO) or the retail inventory method.

The guidance is effective for financial statements issued for annual and has not yet determined the impact, if any, that the implementationinterim periods beginning after December 15, 2016 on a prospective basis. Early adoption is permitted. The adoption of this guidance will not have a material impact on its results of operations orthe Company’s condensed consolidated financial condition.statements.

4.GOODWILL ANDOTHERINTANGIBLE ASSETS       

Goodwill and other intangible assets are allocated to the Company’s reporting units at 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 in the fourth quarter (or under certain circumstances more frequently as warranted). Goodwill impairment testing is performed at the reporting unit level, one level below the business segment. segment.The Company’s Manufacturing segment includes goodwill originating from the acquisitions of Gravure Ink (acquired in the Adorn Holdings, Inc. acquisition), Quality Hardwoods Sales (“Quality Hardwoods”), A.I.A. Countertops, LLC (“AIA”), Infinity Graphics, Décor Mfg., LLC (“Décor”), Creative Wood Designs, Inc. (“Creative Wood”), Middlebury Hardwood Products, Inc. (“Middlebury Hardwoods”), Frontline Mfg., Inc. (“Frontline”), Premier Concepts, Inc. (“Premier”), Precision Painting Group (“Precision”), Foremost Fabricators, LLC (“Foremost”), PolyDyn3, LLC (“PolyDyn3”), Charleston Corporation (“Charleston”), and Better Way Partners, LLC d/b/a Better Way Products (“Better Way”), and Structural Composites of Indiana, Inc. (“SCI”). While Gravure Ink, AIA, Infinity Graphics, Décor, Creative Wood, Middlebury Hardwoods, Frontline, Premier, Precision, Foremost, PolyDyn3, Charleston, and Better Way and SCI remain reporting units of the Company for which impairment is assessed, Quality Hardwoods is assessed for impairment as part of the Company’s hardwood door reporting unit. The Company’s Distribution segment includes goodwill originating from the acquisitions of Blazon International Group (“Blazon”), John H. McDonald Co., Inc. d/b/a West Side Furniture (“West Side”), and Foremost, which remain reporting units for which impairment is assessed.

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 firstsecond quarter and six months ended MarchJune 28, 2015 and June 29, 20152014 related to goodwill, indefinite-lived intangible assets or finite-lived intangible assets. There have been no material changes to the method of evaluating impairment related to goodwill, and indefinite-lived intangible assets or finite-lived intangible assets during the first quartersix months of 2015.

In February 2015, the Company acquired the business and certain assets of Better Way. The purchase was determined to be a business combination and the intangible assets recorded as a result of the acquisition included (in thousands): customer relationships - $11,505;$15,935; trademarks - $1,882;$3,340; non-compete agreements - $2,534;$630; and goodwill - $15,477.$11,177. The goodwill recognized in this transaction is expected to be deductible for income tax purposes. Better Way is included in the Manufacturing segment. See Note 5 for further details.

In May 2015, the Company acquired the business and certain assets of SCI. The purchase was determined to be a business combination and the intangible assets recorded as a result of the acquisition included (in thousands): customer relationships - $9,301; trademarks - $1,723; non-compete agreements - $363; and goodwill - $6,744. The goodwill recognized in this transaction is expected to be deductible for income tax purposes. SCI is included in the Manufacturing segment. See Note 5 for further details.

Goodwill

Changes in the carrying amount of goodwill for the threesix months ended March 29,June 28, 2015 by segment are as follows:

OtherIntangible Assets

Other intangible assets are comprised of customer relationships, non-compete agreements and trademarks. 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 29,June 28, 2015, the other intangible assets balance of $63.9$77.2 million is comprised of $10.9$14.1 million of trademarks which have an indefinite life, and therefore, no amortization expense has been recorded, and $53.0$63.1 million pertaining to customer relationships and non-compete agreements which are being amortized over periods ranging from two to 19 years.

For the finite-lived intangible assets attributable to the 2015 acquisitionacquisitions of Better Way and SCI, the useful life pertaining to non-compete agreements and customer relationships was five years and three years, respectively, and the useful life pertaining to customer relationships for both of these acquisitions was 10 years, respectively. Trademarks have an indefinite life, and therefore, no amortization expense has been recorded.years.

Other intangible assets, net consist of the following as of March 29,June 28, 2015 and December 31, 2014:

Changes in the carrying value of other intangible assets for the threesix months ended March 29,June 28, 2015 by segment are as follows:

5.ACQUISITIONS

General

The Company completed a total of four acquisitions in 2014 and one acquisitiontwo acquisitions in the first quartersix months of 2015 as discussed below. Each of the acquisitions was funded through borrowings under the Company’s credit facility in existence at the time of acquisition. Assets acquired and liabilities assumed in the individual acquisitions were recorded on the Company’s condensed consolidated statements of financial position at their estimated fair values as of the respective dates of acquisition.

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 value of leveraging 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. Intangible asset values were estimated using income based valuation methodologies. See Note 4 for information regarding the amortization periods assigned to finite-lived intangible assets.

For the firstsecond quarter ended March 29June 28, 2015, revenue and operating income of approximately $6.5$13.8 million and $0.8$2.2 million, respectively, was included in the Company’s condensed consolidated statements of income pertaining to the businesstwo businesses acquired in 2015. There were no businesses acquired in the first quarterThe comparable six months period included revenue and operating income of 2014.approximately $20.3 million and $3.0 million, respectively. Acquisition-related costs associated with the businessbusinesses acquired in 2015 were immaterial.

For both the second quarter and six months ended June 29, 2014, revenue of approximately $1.6 million was included in the Company’s condensed consolidated statements of income pertaining to the two businesses acquired in the second quarter of 2014. Operating income for both the comparable periods was immaterial. Acquisition-related costs associated with the businesses acquired in 2014 were immaterial.

2015 AcquisitionAcquisitions

SCI

In May 2015, the Company acquired the business and certain assets of Ligonier, Indiana-based SCI, a manufacturer of custom molded fiberglass large front and rear caps and roofs, primarily used in the RV market, and specialty fiberglass components for the transportation, marine and other industrial markets, for a net purchase price of approximately $20.1 million.

The acquisition of SCI provides the opportunity for the Company to further expand its presence in the fiberglass components market and increase its product offerings, market share and per unit content. The results of operations for SCI 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 expected to be finalized in the second half of 2015. The following summarizes the estimated fair values of the assets acquired and the liabilities assumed as of the date of acquisition:

Better Way

In February 2015, the Company acquired the business and certain assets of Better Way, a manufacturer of fiberglass front and rear caps, marine helms and related fiberglass components primarily used in the RV, marine, and transit vehicle markets, for a net purchase price of approximately $39.6$40.4 million.

The acquisition of Better Way, with operating facilities located in New Paris, Bremen and Syracuse, Indiana, provides the opportunity for the Company to further expand its presence in the fiberglass components market and increase its product offerings, market share and per unit content. The results of operations for Better Way 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 expected to be finalized in the secondthird quarter of 2015. The following summarizes the estimated fair values of the assets acquired and the liabilities assumed as of the date of acquisition:

2014 Acquisitions

Precision Painting Group

In June 2014, the Company acquired the business and certain assets of four related companies based in Bremen, Indiana and Elkhart, Indiana: Precision Painting, Inc., Carrera Custom Painting, Inc., Millennium Paint, Inc., and TDM Transport, Inc. (collectively referred to as “Precision Painting Group” or “Precision”), for a net purchase price of $16.0 million. The Precision Painting Group is comprised of three full service exterior full body painting operations that offer exterior painting and interior refurbishing for both OEMs and existing RV and fleet owners, and a transportation operation that services their in-house customers.

This acquisition provided the opportunity for the Company to establish a presence in the RV exterior full body painting market and increase its product offerings, market share and per unit content. The results of operations for Precision are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition. The following summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition:

Foremost

In June 2014, the Company acquired the business and certain assets of Goshen, Indiana-based Foremost, a fabricator and distributor of fabricated aluminum products, fiber reinforced polyester (“FRP”) sheet and coil, and custom laminated products primarily used in the RV market, for a net purchase price of $45.4 million.

This acquisition provided the opportunity for the Company to establish a presence in the laminated and fabricated roll formed aluminum products market and increase its product offerings, market share and per unit content. The results of operations for Foremost are included in the Company’s condensed consolidated financial statements and the Manufacturing and Distribution operating segments from the date of acquisition. The following summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition:

PolyDyn3

In September 2014, the Company acquired the business and certain assets of Elkhart, Indiana-based PolyDyn3, a custom fabricator of simulated wood and stone products such as headboards, fireplaces, ceiling medallions, columns and trims, for the RV market, for a net purchase price of $1.3 million.

This acquisition provided the opportunity for the Company to bring in-house new production capabilities and product lines that were previously represented through one of the Company’s Distribution segment business units, and increase its product offerings, market share and per unit content. The results of operations for PolyDyn3 are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition. The following summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition:

Charleston

In November 2014, the Company acquired the business and certain assets of Bremen, Indiana-based Charleston, a manufacturer of fiberglass and plastic components primarily used in the RV, marine, and vehicle aftermarket industries, for a net purchase price of $9.5 million.

This acquisition provided the opportunity for the Company to further expand its presence in the fiberglass components market and increase its product offerings, market share and per unit content. The results of operations for Charleston are included in the Company’s condensed consolidated financial statements and the Manufacturing operating segment from the date of acquisition. The following summarizes the fair values of the assets acquired and the liabilities assumed as of the date of acquisition:

Pro Forma Information 

The following pro forma information for the first quarterssecond quarter and six months ended June 28, 2015 and June 29, 2014 assumes the Better Way acquisitionand SCI acquisitions (which waswere acquired in February 2015) and the Precision, Foremost acquisitionand Charleston acquisitions (which waswere acquired in June 2014) occurred as of the beginning of the year immediately preceding each such acquisition. The pro forma information contains the actual operating results of Better Way, SCI, Precision, Foremost and Foremost,Charleston, 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. There were no actual operating results in the second quarter and six months of 2014 related to the acquisition of Foremost since Foremost was acquired on the last business day of the second quarter ended June 29, 2014. Pro forma information related to the acquisition of PolyDyn3 in 2014 is not included in the table below, as its financial results were not considered significant to the Company’s operating results for the periods presented.

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. In addition, the pro forma information includes amortization expense, of (i) $0.2 million and $0.4 million forin the first quarter ended March 30, 2015 and March 29, 2014, respectively,aggregate, related to intangible assets acquired in connection with each transaction of (i) $0.2 million and $0.7 million for the Better Way acquisition,second quarter and six months ended June 28, 2015, respectively, and (ii) $0.5$0.7 million related to intangible assets acquired in the Foremost acquisitionand $1.4 million for the firstsecond quarter and six months ended March 30, 2014. Pro forma information related to the other businesses acquired in 2015 andJune 29, 2014, is not included in the table below, as their financial results were not considered significant to the Company’s operating results for the periods presented.respectively.

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.

6.STOCK-BASEDSTOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with fair value recognition provisions. The Company recorded compensation expense of $1.0$1.2 million and $0.7$0.9 million for the firstsecond quarters ended March 29,June 28, 2015 and March 30,June 29, 2014, respectively, for its stock-based compensation plans on the condensed consolidated statements of income. For the comparable six months periods, the Company recorded $2.2 million and $1.6 million, 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. The Board of Directors (the “Board”) approved the following share grants in 2014: 34,0002014 under the Company’s 2009 Omnibus Incentive Plan (the “Plan”): 51,000 shares on February 12, 2014, 65,66898,502 shares on February 18, 2014, 10,56015,840 shares on May 22, 2014, and 296444 shares on September 30, 2014. In addition, on February 18, 2014, the Board approved the issuance of a total of 44,00166,002 restricted stock units (“RSUs”) under the Company’s 2009 Omnibus Incentive Plan (the “Plan”), of which 14,66722,000 of those RSUs were granted on that same date.

The Board approved the following share grantgrants under the Plan in the first quartersix months of 2015: 85,086127,629 shares on February 16, 2015, 300 shares on April 1, 2015, and 12,064 shares on May 19, 2015. In addition, on March 30, 2015, the beginning of the Company’s fiscal second quarter, the Board approved a share grant of 200 shares and granted an additional 14,66722,001 RSUs under the Plan as discussed above.

As of March 29,June 28, 2015, there was approximately $8.9$8.2 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 23.621.0 months.

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 pagepages 28 and 29 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 CONSOLIDATEDOPERATINGRESULTS

FirstSecond Quarter and Six Months Ended March 29,June 28, 2015 Compared to 2014

REVIEW BY BUSINESS SEGMENT

FirstSecond Quarter and Six Months Ended March 29,June 28, 2015 Compared to 2014

Unallocated Corporate Expenses

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Capital Resources

Summary of Liquidity and Capital Resources

CRITICAL ACCOUNTING POLICIES

OTHER

Seasonality

Inflation

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

OVERVIEW OF MARKETS AND RELATED INDUSTRY PERFORMANCE

Summary

The second quarter and first quartersix months of 2015 reflected a continuation of steady growth in the recreational vehicle (“RV”) market, which includes growth in both towable and motorized units, and improving conditions in the industrial markets, as evidenced by year over year growth in new housing starts. In addition, the manufactured housing (“MH”) industry also saw a year-over-year shipment improvement in the second quarter and first quartersix months of 2015 and experienced seasonally typical sales activity.

We are seeing resilience, in particularbelieve overall original equipment manufacturer (“OEM”) and dealer sentiment in the RV market, with whatindustry remains positive as we believelook forward to be upside potentialthe 2016 model changes in the immediate future based on current indicators including positiveanticipation of consistent retail traffic on dealer retail lots, retail sales and wholesale shipment statistics trending similar to recent years, and overall balance related to dealer inventory levels when compared to original equipment manufacturer (“OEM”) production levels. Additionally, the MH industry appears to be gaining modest strength, as expected, and both our MH and industrial businesses continue to outperform the markets. Overall, we have continued to capture market share through our strategic acquisitions, product line extensions,addition of new business, and the introduction of new product initiatives. We expect the three primary markets that we serve to experience steady growth in the remainder of 2015 with full year seasonal patterns tracking trends consistent with the prior year.and innovative products.

RV Industry

The RV industry, which is our primary market and comprised 78%77% of the Company’s first quartersix months 2015 sales, continued to strengthen as evidenced by higher OEM production levels and wholesale unit shipments versus the prior year. According to the Recreational Vehicle Industry Association (“RVIA”), wholesale shipment levels reached 97,074105,579 units in the firstsecond quarter of 2015, representing an increase of approximately8%approximately3% versus the prior year period, and resulted in year-over-year shipment increases in all but one quarter since the fourth quarter of 2009. The RV industry experienced strong monthly increases in wholesaleIn the first six months of 2015, shipment levels inreached 202,653 units, an increase of approximately 6% over 2014.

In the firstsecond quarter of 2015, comparedwe started to the prior year quarter, continuing the strength in order rates experienced in the latter half of the fourth quarter of 2014 that also exceeded expected seasonal patterns. We believe that this changing seasonal pattern reflected the OEMs’ goal to mitigate potential weather and transportation delays in the first quarter of 2015 in anticipation of expected retail demand following the strong dealer show season in the third and fourth quarters of 2014, while also better balancing their production schedules in order to maintain efficiencies. Overall OEM and dealer sentimentsee a shift in the RV industry remains positivetowards a larger concentration of entry level and lower priced units, which has nominally impacted content per unit growth. As a result of this mix shift, we may continue to see some content volatility in the short-term. However, this mix shift primarily affects certain of our more commodity-based product lines, which generally carry lower gross margins. Further, we believe this mix shift is reflective of younger and first-time consumers entering the market, as supported by recent dealer surveys, thus broadening the market’s foundation and extending the opportunity for longer-term industry growth potential. Additionally, we head into the heightbelieve our commitment to quality customer service and our large complement of the selling season in anticipation of strong retail traffic on dealer lotsinnovative product lines at various price points position us to address our customers’ changing needs and expected continued year over year growth.buying patterns.

IndustryAs it relates to the correlation between retail inventories and overall production levels, industry reports and dealer surveys continue to indicate that RV dealer inventory levels continue to beare in line with retail demand. We expect to see quarterly revenue growth fordemand with consistent retail traffic on dealer lots through the remainder of 2015 compared to 2014 exclusivefirst half of the revenue contribution of the acquisitions we completed in 2014 and in the first quarter of 2015.

We believe that, based on the factors mentioned above, as well as favorable demographic trends,year. Despite the RV industry hasapproaching prior wholesale production peaks, we continue to believe the future looks promising for the RV industry based on a number of factors including: positive long-term outlook asindustry demographic trends with younger buyers and an increasing number of baby boomers reaching retirement age, readily available financing, new and innovative products coming to market, an improving overall economic conditions continueenvironment, and the value of the RV lifestyle related to improve.spending quality time with families. On a macroeconomic level, as consumer confidence has improvedgenerally trended higher over the last five years, there havehas been a related consistent trended year-over-year increasesincrease in RV shipments for the same time period. StrongThe strong demographic indicators mentioned above point to a generally positive long-term outlook not only with the increasing number of baby boomers reaching retirement age, but also with increasing RV demand in the 35-54 demographic age group. We anticipate that RV industry growth will continue into the remainder of 2015 when compared to the prior year,market, barring any global, political or other factors that negatively impact consumer confidence for an extended period of time.

MH Industry

The MH industry represented approximately 12%13% of the Company’s first quartersix months 2015 sales. TheAs estimated by the Company, estimates that wholesale unit shipments in the MH industry increased approximately 11%4% in the second quarter of 2015 and 8% in the first quartersix months of 2015 compared tofrom the comparable prior year quarter, representing the strongest quarterly improvement in wholesale unit shipment levels since the third quarter of 2013. While we do not anticipate significantperiods. We continue to believe there is meaningful growth potential in the MH market based on current wholesale shipment level trends and pent up demand created by the buildup in the near term,multi-family housing and apartment capacity. However, we believe there is opportunity for moderate year-over-year growth, with limited downside risk, based on volumes returning to their historical relationship with new housing starts and assuming the availability of credit and recalibration of quality credit standards. On average over the last 40 years, approximately three-fourths of total residential housing starts have been single-family housing starts, while wholesale unit shipment levels in the MH industry have averaged approximately 10% of the level of single-family housing starts over the last 10 years.

Factors that may favorably impact production levels further in this industry include quality credit standards in the residential housing market, favorable changes in financing laws, higher interest rates on traditional residential housing loans, and improved conditions in the asset-backed securities markets for manufactured housing loans. Although there is still overhanghas several hurdles to overcome related to the factors that negatively impacted demand in the MH industry in recent years, including the lack of financing alternatives, current credit standards and credit availability,requirements, slow job growth, and access to the asset backed securities market. We expect to see continued year over year improvement with limited risk in certain area, excess residential housing inventories, wethe near term and believe that there is also longer termthe potential for this industry asmarket to grow at a much higher rate in the future, especially given historical trends when compared to residential housing demand recovers. Additionally, manufactured housing provides a cost effective alternative for those individualsstarts. Also, while we do not currently anticipate significant growth in this market in the second half of 2015, we do believe we are well positioned to capitalize on the upside potential of the MH market and families seeking to establish or re-establish home ownership, or whose credit ratings have been impacted byare optimistic about the economicfuture of this industry, especially given the combination of our nationwide geographic footprint, available capacity in our current MH concentrated locations, and job environment over the past several years. We also believe manufactured housing to be an attractive option for those who have migrated to temporary and multi-family housing alternatives.our current content per unit levels.

Industrial Market

The industrial market, which accounted for 10% of our first quartersix months 2015 sales and is comprised primarily of the kitchen cabinet industry, retail and commercial fixture market, office and household furniture market and regional distributors, is primarily impacted by macroeconomic conditions and more specifically, conditions in the residential housing market. The Company’s industrial sales have increased over the last several years, reflecting both acquisition and organic growth, the addition of new sales territories, and a focus on opportunities in the commercial markets. We estimate approximately 51%50% of our industrial revenue base was directly tied to the residential housing market in the first quartersix months of 2015 with the remaining 49%50% in the retail and commercial markets, mainly in the retail fixtures and office and institutional furnishings markets. New housing starts in the second quarter and first quartersix months of 2015 increased approximately 4% when16% and 11%, respectively, compared to the first quarter of 2014prior year periods (as reported by the U.S. Department of Commerce) and we saw our industrial sales increase approximately 23% as a result of both acquisition and organic growth.. In addition, a portion of our sales improvement in the industrial markets in the first quartersix months of 2015 was the result of the unusually harsh weather we experienced in 2014,benefited primarily from continued market share gains, particularly in the Midwest, which delayed manyoffice and institutional furniture markets as well as improved sales to the retail projects during that timeframe.and commercial fixtures markets. Our sales to the industrial market generally lag new residential housing starts by six to nine months.

In order to offset some of the impacts of the weakness in the residential housing market in recent years, we have focused on diversification efforts, strategic acquisitions, and increased penetration into the commercial and multi-family housing markets with the addition of new sales territories and personnel. Additionally, we have targeted certain sales efforts towards market segments that are less directly tied to new single and multi-family home construction, including the marine, retail fixture, and office, furniture, and countertop markets. As a result, we have seen a shift in our product mix, which has had a positive impact on revenues from the industrial markets. In addition, we believe that projected continued low interest rates, overall expected economic improvement, and pent up demand are some of the drivers that will continue to positively impact the housing industry for the next several years.   

Second Half2015 Outlook

In general,

We expect the three primary markets that we serve experienced steadyto continue to experience quarter-over-quarter growth infor the firstremainder of 2015 compared to 2014. As we head into the third quarter of 2015 whichand the RV dealer show season in the September timeframe, we expect to continue throughoutsee seasonal patterns relatively consistent with prior years including sequential softening in the remainderthird quarter of 2015. The2015 as dealers await the new product lines for 2016.

As the RV lifestyle continues to attract new buyers to the market, the RVIA currently forecasts that RV unit shipment levels for fiscal full yearin 2015 will increase approximately 6%7% when compared to the full year 2014. In addition, we anticipate a further increase in production levels in the MH industry in 2015, reflecting improvement in the overall economy and consistent with the improvement in single-family residential housing starts as projected by the National Association of Home Builders (the “NAHB”) for the full year 2015. Based on the industry’s current annualized run rates, the Company projects wholesale MH unit shipments for full year 2015 to increase by approximately 10% compared to 2014. New housing starts in 2015 are estimated to improve by approximately 10%7% year-over-year (as forecasted by the NAHB as of March 31,June 30, 2015) consistent with improving overall economic conditions.

We believe we are well-positioned to increase revenues in each of the primary markets we serve as the overall economy continues to improve. While our visibility related to longer-term industry conditions is limited to approximately six months, we expect to continue to see quarterly year-over-year revenue growth for the remainder of fiscal year 2015, exclusive of the revenue contribution of the acquisitions we completed in 2014 and in the first quarter of 2015.

We willcontinue to review our operations on a regular basis, balance appropriate risks and opportunities, and maximize efficiencies to support the Company’s long-term strategic growth goals. Our team remains focused on strategic acquisitions in our existing businesses and similar markets, capturing market share and increasing our per unit content, keeping costs aligned with revenue, maximizing operating efficiencies, talent management, and the execution of our organizational strategic agenda. Key focus areas for the remainder of 2015 include strategic revenue growth, improved operating income and net income, earnings per share, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and free cash flow. Additional focus areas include:

In conjunction with our organizational strategic agenda, we will continue to make targeted capital investments to support new business and leverage our operating platform. In the first quartersix months of 2015, capital expenditures were approximately $1.9$3.2 million versus $0.9$2.4 million in the first quartersix months of 2014. The current capital plan for full year 2015 includes expenditures approximating $8.0 million, and includes the ongoing replacement of our Enterprise Resource Planning (“ERP”) system at our operating divisions that have not yet been converted, thestrategic replacement and upgrading of production equipment to ensure that our facilities have the capacity, capabilities and technology to facilitate our growth plans, the ongoing replacement of our Enterprise Resource Planning (“ERP”) system at our operating divisions that have not yet been converted, which is progressing in accordance with plans, and other strategic capital and maintenance improvements.

REVIEW OF CONSOLIDATED OPERATING RESULTS

FirstSecond Quarterand Six MonthsEndedMarch 29,June 28, 2015Compared to 2014

The following table sets forth the percentage relationship to net sales of certain items on the Company’s condensed consolidated statements of income.

Net Sales. Net sales in the firstsecond quarter of 2015 increased $53.3$45.6 million or 31.3%24.3%, to $223.4$233.5 million from $170.1$187.9 million in the firstsecond quarter of 2014. The increase was primarily attributable to a 35%26% increase in the Company’s revenue from the RV industry, an 18% increase in revenuerevenues from the MH industry, and a 23%20% increase in revenuerevenues from the industrial markets.

The Company estimates organic growthNet sales in the first quartersix months of 2015 at approximately 9%increased $98.9 million or 27.6%, or $15.5to $456.9 million offrom $358.0 million in the total revenue increase.prior year period. The remaining $37.8 million of the revenueincrease was primarily attributable to a 30% increase in the Company’s revenue from the RV industry, an 18% increase in revenues from the MH industry, and a 21% increase in revenues from the industrial markets.

The sales improvement in both the second quarter and first quartersix months of 2015 reflects the contribution of Better Way Partners, LLC d/b/a Better Way Products (“Better Way”) which was acquired in February 2015, as well the contribution of thelargely reflected thecontributions from six acquisitions completed in 2014: Precision Painting, Inc., Carrera Custom Painting, Inc., Millennium Paint, Inc.,2014 and TDM Transport, Inc. (collectively, “Precision”)2015 in June 2014; Foremost Fabricators, LLC (“Foremost”) in June 2014; PolyDyn3 LLC (“PolyDyn3”) in September 2014; and Charleston Corporation (“Charleston”) in November 2014.

The organic sales increase in the first quarter of 2015 is primarily attributableaddition to: (i) increased RV, MH, and Industrial market penetration, (ii) improved retail fixtures and office and institutional furnishings and retail and commercial fixtures sales in the industrial market, and (iii) an increase in wholesale unit shipments in the RV and MH industries. Our sales to the industrial market sector, which is primarily tied to the residential housing and commercial and retail fixture markets, generally lag new residential housing starts by approximately six to nine months. Partially offsetting this revenue growth, particularly in the RV industry, in both the second quarter and first six months of 2015, were the mix shift towards a larger concentration of entry level and lower priced units, which nominally impacted content per unit growth, and price declines in certain more commodity-oriented raw materials passed on to customers that we utilize in our manufacturing processes.

The Company’s RV content per unit (on a trailing twelve-month basis) for the firstsecond quarter of 2015 increased approximately 19%21% to $1,629$1,707 from $1,364$1,410 for the firstsecond quarter of 2014. The MH content per unit (on a trailing twelve-month basis) increased approximately 8%13% to an estimated $1,723$1,797 from $1,599$1,592 for the comparable 2014 period.

The RV industry, which represented 78%75% and 77% of the Company’s sales in the second quarter and first quartersix months of 2015, respectively, saw wholesale unit shipments increase by approximately8%approximately 3% and 6%, respectively, in that periodthose periods compared to 2014. The Company estimates that the MH industry, which represented 12%14% and 13% of the Company’s sales in the second quarter and first quartersix months of 2015, respectively, experienced an 11%estimated 4% and 8% increase in wholesale unit shipments in the first quarter of 2015,those periods, respectively, compared to the prior year period.periods. The industrial market sector accounted for approximately 11% and 10% of the Company’s sales in the second quarter and first quarter of 2015.six months 2015, respectively. We estimate that approximately 51%50% of our industrial revenue base in the first quarter of 2015 was directly tiedis linked to the residential housing market, which experienced an increase in new housing starts of approximately 4%16% in the second quarter of 2015 and 11% in the first quartersix months of 2015 compared to the prior year periods (as reported by the U.S. Department of Commerce). We expect to continue to see quarterly year-over-year revenue growth in the remainder of fiscal year 2015, exclusive of the revenue contributions of the acquisitions completed in 2014 and in the first quarter of 2015.

Cost of Goods Sold.Cost of goods sold increased $45.0$37.1 million or 31.5%23.7%, to $188.0$193.1 million in firstsecond quarter 2015 from $143.0$156.0 million in 2014.As a percentage of net sales, cost of goods sold increaseddecreased during the firstsecond quarter of 2015 to 84.2%82.7% from 84.0%83.1% in 2014.2014.For the first six months of 2015, cost of goods sold increased $82.1 million or 27.4%, to $381.1 million from $299.0 million in the prior year period. For the first six months of 2015, cost of goods sold as a percentage of net sales decreased to 83.4% from 83.5% in the prior year period.

Cost of goods sold as a percentage of net sales was negatively impactedpositively impact during the second quarter and first quartersix months of 2015 primarily by: (i) acquisitions completed in the prior year with gross margins lower than historical consolidated gross margins,increased revenues relative to our overall fixed overhead costs, (ii) the timingimpact of the integrationtiming of acquisitions completed during 2014 and 2015, (iii) price declines in the first quarter of 2015,certain more commodity-oriented raw materials, and (iii) additional direct ship distribution business in the third and fourth quarters of 2014 which generally carries lower gross margins than our other distribution business.(iv) ongoing process changes that primarily improved material yields. In addition, changingincreased demand in certain market sectors can result in fluctuating costs of certain commodities ofmore commodity-oriented raw materials and other products that we utilize and distribute from quarter-to-quarter.

Gross Profit.Gross profit increased $8.3$8.6 million or 30.4%26.9%, to $35.4$40.4 million in firstsecond quarter 2015 from $27.1$31.8 million in firstsecond quarter 2014. For the six months periods, gross profit increased $16.8 million or 28.5%, to $75.8 million in 2015 from $59.0 million in 2014. As a percentage of net sales, gross profit decreasedincreased to 15.8%17.3% in firstsecond quarter 2015 from 16.0%16.9% in the same period in 2014.2014, and increased to 16.6% in the first six months of 2015 from 16.5% in the prior year period. The improvement in gross profit dollars and as a percentage of net sales in the second quarter and first quartersix months of 2015 compared to 2014 reflected the positive impact of increased revenues both from organic sources and from acquisitions, while the decrease infactors discussed above under “Cost of Goods Sold,” including the positive contribution to gross profit of acquisition-related revenue growth as a percentage of net sales is attributable to the factors describednoted above.

Economic or industry-wide factors affecting the profitability of our RV, MH, and industrial businesses include the costs of commodities used to manufacture our products and the competitive environment that can cause gross margins to fluctuate from quarter-to-quarter and year-to-year.

Exclusive of any commodity pricing fluctuations, competitive pricing dynamics, or other circumstances outside of our control, we expectanticipate full year gross margins in 2015 to be generally consistent withwill improve from those in 2014 with the potential to increase as a result of operating leverage from continued expected sales growth, partially offset by lower gross margins on certain acquisitions completed in 2014 when compared to historical consolidated gross margins.

Warehouse and Delivery Expenses. Warehouse and delivery expenses increased $0.6$0.2 million or 8.9%2.5%, to $6.7$6.8 million in firstsecond quarter 2015 from $6.1$6.6 million in firstsecond quarter 2014. For the six months, warehouse and delivery expenses increased $0.7 million or 5.6%, to $13.5 million in 2015 from $12.8 million in 2014. As a percentage of net sales, warehouse and delivery expenses were 2.9% in second quarter 2015 compared to 3.5% in second quarter 2014. For the comparable six months periods, warehouse and delivery expenses were 3.0% and 3.6% in the first quarter of net sales for 2015 and 2014, respectively.

The decrease in warehouse and delivery expenses as a percentage of net sales in the second quarter of 2015 and first six months of 2015 primarily reflected the impact of market share gains related to increased direct ship business in our Distribution segment, a reduction in fuel costs, the impact of acquisitions completed in 2014 and 2015 with lower delivery expenses as a percentage of net sales when compared to the consolidated percentage, and more efficient utilization per delivery truckload.

Selling, General and Administrative (SG&A) Expenses. SG&A expenses increased $3.0$2.4 million or 35.5%28.0%, to $11.5$11.2 million in firstsecond quarter 2015 from $8.5$8.8 million in firstsecond quarter 2014. For the six months, SG&A expenses increased $5.4 million or 31.7%, to $22.7 million in 2015 from $17.3 million in 2014. The net increase in SG&A expenses in the second quarter and first quartersix months of 2015 compared to the prior year periodperiods primarily reflected the impact of additional headcount and administrative expenses associated with recent acquisitions and increased stock-based and incentive compensation expense designed to attract and retain key employees. As a percentage of net sales, SG&A expenses were 5.1%4.8% in second quarter 2015 compared to 4.7% in second quarter 2014. For the comparable six months periods, SG&A expenses were 5.0% and 5.0% in the first quarter4.8% of net sales for 2015 and 2014, respectively.

Amortization of Intangible AssetsAssets..Amortization of intangible assets increased $0.9$1.1 million and $2.0 million in the second quarter and first quartersix months of 2015, respectively, compared to the prior year period,periods, primarily reflecting the impact of businesses acquiredthe acquisitions completed in June2014 (Precision and Foremost), in September 2014 (PolyDyn3), in November 2014 (Charleston) and in February 2015 (Better Way).the first half of 2015. In the aggregate, in conjunction with the 2014 and 2015 acquisitions, the CompanyrecognizedCompany recognized an estimated $37.6$49.8 million in certain finite-lived intangible assets that are being amortized over periods ranging from two to 10 years.

Operating Income.Operating income increased $3.8$4.9 million or 32.3%31.3%, to $15.6$20.4 million in firstsecond quarter 2015 from $11.8$15.5 million in the prior year. For the six months, operating income increased $8.6 million or 31.7%, to $35.9 million from $27.3 million in 2014. The change in operating income is primarily attributable to the items discussed above.

Interest expense, net.Interest expense increased $0.3$0.4 million to $0.8$0.9 million in the firstsecond quarter of 2015 from $0.5 million in the prior year quarter reflectingyear. For the six months, interest expense increased $0.6 million to $1.7 million from $1.1 million in 2014. The change in interest expense reflects increased borrowings primarily to fund acquisitions and increased working capital needs in the second quarter and first quartersix months of 2015.

Income Taxes.The Company recorded income taxes at an estimated effective tax rate of 38.0% in the second quarter and first quartersix months of 2015 and 38.5% in the first quarter of 2014.comparable 2014 periods. As we continue to refine our federal and state income tax estimates, which are impacted by permanent differences impacting the effective tax rate and shifts in apportionment factors among states as a result of recent acquisition activity and other factors, we could experience further fluctuations in our combined effective income tax rate from period to period and for the remainder of 2015.

In the first quartersix months of 2015 and 2014, the Company realized excess tax benefits of approximately $1.2 million$1.2million and $1.0$1.1 million, respectively, related to stock-based compensation, which had not been recorded as deferred tax assets at December 31, 2014 and 2013, respectively. These tax benefits were recorded to shareholders’ equity upon realization in the first quartersix months of 2015 and 2014 at the then estimated combined federal and state statutory tax rate.

Net Income. Net income for firstsecond quarter 2015 increased 32.7%was $12.1 million or $0.78 per diluted share compared to $9.2 million from $6.9 million in the prior year period. Net incomeor $0.57 per diluted share for 2014. For the comparable periods increased 39.1% to $0.89first six months, net income was $21.2 million or $1.37 per diluted share in 2015 from $0.64compared to $16.1 million or $1.00 per diluted share for 2014. The changes in 2014.net income for both the second quarter and first six months of 2015 reflect the impact of the items previously discussed.

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 and production/distribution process.

The Company’s reportable business segments are as follows:

Manufacturing – The Company’s lamination operations utilize various materials, such as lauan, medium-density fiberboard (“MDF”), gypsum, and particleboard, which are bonded by adhesives or a heating process to a number of products, including vinyl, paper, foil, and high-pressure laminates. These products are utilized to produce furniture, shelving, wall, counter, and cabinet products with a wide variety of finishes and textures. This segment also includes a cabinet door division, a fiberglass bath fixtures division, a hardwood furniture division, a vinyl printing division, a solid surface, granite, and quartz countertop fabrication division, an exterior graphics division, an RV painting division, a fabricated aluminum products division, a simulated wood and stone products division, and a fiberglass and plastic components division. Patrick’s major manufactured products also include wrapped vinyl, paper and hardwood profile mouldings, interior passage doors, and slotwall panels and components.

Distribution – The Company distributes pre-finished wall and ceiling panels, drywall and drywall finishing products, electronics, wiring, electrical and plumbing products, fiber reinforced polyester products, cement siding, interior passage doors, roofing products, laminate and ceramic flooring, shower doors, furniture, fireplaces and surrounds, interior and exterior lighting products, and other miscellaneous products.

FirstSecond Quarter and Six MonthsEndedMarch 29,June 28, 2015 Compared to 2014

General

Sales pertaining to the Manufacturing and Distribution segments as stated in the following discussions include intersegment sales. 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 to consolidated operating income is presented in Note 11 to the Condensed Consolidated Financial Statements.