Summary Thesis: Patrick Industries has gone through a painful, decade-long transition from being a predominantly manufactured housing

g supplier to a recreational vehicle supplier with a much better long term outlook Cost-cutting measures and product mix have helped the company attain more normal operating margins though there is still room for improvement Management is well incentivized and has shifted the focus to growth from cost cutting and balance sheet repair Valuation is attractive and the company is largely unknown given lack of sell-side coverage and size

Summary Valuation & Financials:

Market Summary ($ in millions) Price 3/2/13 Shares Market Cap Net Debt Enterprise Value Summary Financials Revenues EBITDA EBIT EPS

PATK 14.00 10.9 $152 49 202 2012 $437.4 34.1 28.3 $1.38 2012 PF $488.4 38.1 31.6 $1.69 Consensus 2013 2014 $527.0 42.0 35.5 $1.79 $570.0 47.4 40.9 $2.09

Valuation EV / EBITDA EV / EBIT P/E

2012 PF 5.3x 6.4x 8.3x

2013 4.8x 5.7x 7.8x

Trading Statistics Daily Volume (millions) Daily Value Short Interest Days to Cover % of Float 0.14 $2.0 0.44 3.1x 7.6%

Patrick Industries has gone through a painful, decade-long transition from being a predominantly manufactured housing supplier to a recreational vehicle supplier with a much better long term outlook On the surface, it appears that Patrick Industries is a no-growth industrial company with sales having stagnated near $300 million from 2001 until 2011. However, a more detailed look shows that while consolidated sales have remained flat, the composition of the sales has shifted substantially. In 2001, over half of the companys sales came from an industry with a very poor outlook (manufactured housing). The MH industry was severely inflated in the late 1990s due to condition s similar to the housing crisis a decade later reckless lenders, overproduction and artificially stimulated demand. Logically, the industry went into free-fall once the tide went out and the company found itself over-exposed to an industry that was rapidly shrinking. In that light, the fact that the company has been able to maintain its sales level is a rather heroic performance in its own right.

Sales Drivers Prior Year Sales Acquisitions / Divestitures Adorn American Hardwood Quality Hardwood Blazon Praxis + AIA Dcor + Praxis + AIA + Performance Graphics + Gustafson + Creative Wood Subtotal Reported Year Sales (1) Implied Organic Change Organic Growth Rate Industry Weighted Average (2) Company Industry Breakdown % RV % MH % Industrial Total Industry Growth Rate RV Industry Units MH Unit Shipments (3) New Housing Starts

2001 $361.6 361.6 293.1 (68.5) -19.0% -15.1%

2002 $293.1 293.1 308.8 15.7 5.3% 0.2%

2003 $308.8 308.8 274.7 (34.1) -11.0% -8.2%

2004 $274.7 274.7 301.6 26.9 9.8% 4.7%

2005 $301.6 301.6 323.4 21.8 7.2% 8.7%

2006 $323.4 323.4 347.6 24.2 7.5% -8.2%

2007 $347.6 NA NA 347.6 370.2 NM NM -17.5%

2008 $370.2 370.2 325.2 (45.0) -12.2% -24.5%

2009 $325.2 325.2 212.5 (112.7) -34.6% -35.0%

2010 $212.5 NA 15.0 227.5 278.2 50.7 23.9% 27.4%

2011 $278.2 11.8 7.7 NM 297.7 307.8 10.1 3.6% 2.2%

9M12 $229.5 46.5 276.0 331.2 55.2 24.1% 13.3%

24% 51% 25% 100%

30% 47% 23% 100%

31% 41% 28% 100%

31% 41% 28% 100%

28% 45% 27% 100%

28% 44% 28% 100%

35% 37% 28% 100%

37% 45% 18% 100%

44% 37% 19% 100%

58% 28% 14% 100%

61% 24% 15% 100%

69% 19% 12% 100%

-14% -23% NA

21% -13% NA

3% -22% NA

15% 0% NA

6% 12% 6%

2% -20% NA

-10% -19% -25%

-33% -14% -33%

-30% -39% -39%

46% 0% 6%

4% -3% 3%

11% 13% 27%

(1) As reported in the current year annual report unadjusted for future acquisitions and divestitures. (2) Average of RV, MH and housing industry growth weighted by the company's exposure to each industry. (3) 2005 was driven by FEMA and replacement demand from Hurricane Katrina.

10 Lean Years: Company was overexposed to MH industry at the peak

Next 10 Years? Company industry outlook now more positive

Patrick Industries v.2012 has a much healthier outlook than Patrick Industries v.2001. The companys largest industry exposure now is to the RV industry, with the remaining roughly one-third exposed to MH and housing. We discuss the industry outlooks below and in the appendix: Recreational Vehicles: The RV industry has recovered from the financial crisis to more normalized levels of supply and demand. Tight consumer credit conditions are keeping a lid on euphoria and conditions are just south of normal but healthy. Industry backlogs are up and supply discipline exists with the industry operating as an oligopoly between Thor Industries, Forest River (owned by Berkshire Hathaway) and privately-held Jayco. Demographics are also a tailwind with many Baby Boomers (the most natural buyers of RVs) entering retirement. Overall, the industry is expected to grow modestly1 in 2013.

Manufactured Housing: As mentioned, the MH underwent a painful, decade-long contraction but there are signs of the industry bottoming or even recovering from current levels. First, industry shipments have now stabilized at 50k units after yearly sharp declines. Second, for the 20 years prior to the MH bubble of the late 1990s, MH units averaged 20% of new housing starts (though they are not included in the new starts data). In the last few years of stable MH units, the industry has represented 10% of new housing starts and it appears that 2012 will be the first year of industry growth with estimated growth of 6%. Lastly, the companys exposure to the MH industry is now less than 20%, compared with over 50% a decade ago. So, it appears that the MH has bottomed or may grow and at the very least, it is no lo nger an anchor on the companys performance. Housing: The housing industry underwent an enormous correction and is now recovering. Further recovery in housing starts to normalized levels should produce growth in the companys Industrial segment which is largely levered to residential construction with a few month lag.

See the Recreational Vehicle Industry Association website for details on industry shipments, forecasts (http://www.rvia.org/?esid=indicators) and demographic factors (http://www.rvia.org/?esid=trends). 3

Cost-cutting measures and product mix have helped the company attain more normal operating margins though there is still room for improvement For most of its history, Patrick Industries operating with subpar operating margins as its cost structure was bloated and its sales were decreasing. The company began an aggressive cost cutting initiative in 2007 focused on plant consolidation and closure, increased efficiency and fixed cost reduction. Following the Adorn acquisition in 2007, the company closed or consolidated eight unprofitable facilities, reduced headcount by 230 and combined purchasing initiatives to drive efficiencies. The cost savings began bearing fruit in 2009 and the gross margin initiatives in 2011 as the companys sales recovered. The evolution of the operating margins can be seen below:
2001 Revenue Growth Gross Margin Warehouse & Delivery (% of Sales) SG&A (% of Sales) EBIT Margin 2002 5.4% 12.7% 4.6% 7.6% 0.4% 2003 (11.0)% 11.7% 4.7% 6.7% 0.3% 2004 9.8% 11.9% 4.5% 6.8% 0.6% 2005 7.2% 11.8% 4.3% 6.3% 1.2% 2006 (6.3)% 12.6% 4.6% 6.5% 1.5% 2007 22.2% 13.1% 5.1% 7.2% 0.8% 2008 (12.2)% 11.3% 5.1% 8.0% (1.7)% 2009 (34.6)% 10.8% 4.8% 5.7% 0.2% 2010 30.9% 10.7% 4.2% 5.0% 1.5% 2011 10.6% 14.4% 4.4% 5.4% 4.6% 2012 42.1% 15.0% 3.6% 4.9% 6.5%

11.6% 4.9% 8.5% (1.8)%

2009 MD&A

2011 MD&A

Despite the impressive margin improvements, there is still room for improvement. The closest peer for Patrick Industries is Drew Industries. In the simplest sense, on a typical $25,000 RV, Drew provides $2,700 of content and Patrick provides roughly $800. While there is some minor overlap, Drew provides more exterior and support components like chassis, exterior windows, entry doors and suspension systems while Patrick Industries is more focused on the interior products such as vinyl and paper panels, countertops, backsplashes, and cabinet doors. The components2 of an RV are highlighted below:

DW 10K: http://www.sec.gov/Archives/edgar/data/763744/000143774912003598/drew_ars-041012.htm 4

Given their very similar business models and based on Drews historical margin performance, we believe that Patrick Industries can improve upon its current operating margin level now that its business mix is more reliant on RV market and less on the manufactured housing market:

Lastly, we think that the margins are sustainable given the estimated growth in the industry and because of the RV OEMs reliance on suppliers. RV manufacturers like Thor Industries do not want to bring component manufacturing in-house and are happy to buy products from suppliers like Drew Industries and Patrick Industries.

There is also limited competitive risk because of the high cost of distribution. It is not economically feasible to foreign manufacturers to compete with suppliers that are located strategically close to the OEMs. The cost of distribution as a barrier to entry can be illustrated by looking at Winnebagos production strategy:

Winnebago is largely vertically integrated because their manufacturing facilities in Iowa make it prohibitively expensive to source components from industry suppliers which are located around Elkart, Indiana the RV capital3 of the world. We believe an OEM would prefer to outsource the production because it would create a better operating model as witnessed by the financial performance of Thor compared to Winnebago during the industry downturn:

http://www.etruth.com/article/20130228/BUSINESS/702289956 5

Indeed, one of Thors key selling points is that the company has been profitable every year since its inception including through the depths of the financial crisis. Therefore, we think there is limited risk of an OEM bringing component production in-house and limited risk of foreign competitors competing based on lower labor costs or other factors. Management is well incentivized and has shifted the focus to growth from cost cutting and balance sheet repair CEO Todd Cleveland (age 44) joined the company when Patrick acquired Adorn Holdings in 2007 and became CEO in February 2009. Cleveland had been with Adorn for 17 years and served as CEO for the last three years. He has aggressively pushed the company to cut costs and, recently, to re-focus on growth through both organic initiatives and acquisitions. Cleveland owns 450k shares of stock (4% of shares outstanding) worth $6.3 million, compared to a salary of less than $300k. Valuation is attractive and the company is largely unknown given lack of sell-side coverage and size Given the fact that Patrick Industries had underperformed for so long, the stock was off many investors radars given that its market cap was less than $100 million and the float was even less with Jeff Gendells Tontine Capital Management owning nearly 50% of the shares. Even today, despite being the 2 nd largest RV supplier, the company is virtually unknown among investors with only two analysts covering the stock4 and an investor relations effort that includes no earnings calls, investment presentations or conference appearances. Regardless of those issues, we believe that Patrick Industries should be valued similarly to Drew Industries5.
Actual 2012 Net Sales Cost of Goods Sold Gross Profit Operating Expenses (1) EBIT Interest Expense, Net (2) Other (3) Pre Tax Income Taxes (4) Net Income Shares EPS Share Price P/E LTM Revenue Growth Gross Margin EBIT Margin Tax Rate $437.4 (371.6) 65.7 (37.4) 28.3 (4.0) (1.7) 22.6 6.8 29.4 10.6 $2.76 PF Adjust. (5) $51.0 (43.3) 7.7 (4.4) 3.3 3.3 3.3 PF 2012 $488.4 (415.0) 73.4 (41.8) 31.6 (3.3) 28.3 (9.9) 18.4 10.9 $1.69 14.00 8.3x Margin Upside (6) $488.4 (398.8) 89.5 (51.0) 38.6 (3.3) 35.3 (12.3) 22.9 10.9 $2.10 14.00 6.7x DW 2012 $901.1 (732.5) 168.7 (107.6) 61.0 (0.3) 60.7 (20.5) 40.3 22.8 $1.76 37.07 21.0x 32.3% 18.7% 6.8% 33.7% PATK Valuation Target Multiple 2012 PF EPS Target Price Change from Current 14.0x $1.69 23.65 69%

42.1% 15.0% 6.5%

15.0% 6.5% 35.0%

18.3% 7.9% 35.0%

(1) Operating expenses excludes intangible amortization and gain/loss on sale of business. (2) PF interest represents run-rate expense after repayment of debt in 2012. (3) Stock warrant revaluation expense. Ignored in PF as the warrants are included in the share count. (4) 2012 actual benefit from tax valuation allowance reversal. PF assumes 35% tax rate. (5) PF adjustments for $80 million in annualized revenues from acquisitions completed in 2012 less $29 million reported in sales. Assumes that the margins on the incremental sales are equal to 2012 consolidated figures with no incremental margins or fixed cost leverage. (6) Based on 10 year average margin for DW consolidated.
4 5

EVA Dimensions and Sidoti both specialize in providing little depth of coverage across many small cap stocks. Both companies now have the majority of their sales tied to the RV market with less than 20% to the MH industry. 6

Another aspect that has caused the stock to be dislocated has been stock selling by the companys largest shareholder. Tontine sold some stock above $18 per share in November 2012 and distributed 276k shares of stock to its investors to meet redemptions6 in January. So when Patrick reported earnings on February 21 and despite announcing that sales grew 36% and operating earnings grew 58%, the stock fell 17% to under $12 likely as many Tontine LPs sought liquidity for the in-kind shares given to them. Generally having a large shareholder sell stock is not a good sign for a stock, but a detailed look at Tontines ownership history suggests that a) Tontine buying and selling has generally not been a great indicator of future stock performance, b) some of the selling may perhaps be for uneconomic reasons (such as meeting redemptions as mentioned above) and c) for whatever reason, Tontine has actually held most of its position in Patrick Industries despite a substantial reduction in total reported assets, turning Patrick from a virtually non-factor to the largest position in the portfolio. While we have not spoken with Tontine, for these reasons, we are not concerned about future share sales from this shareholder. In fact, future sales may actually be beneficial as they increase the float and liquidity of the stock.
Jeffrey Gendell Ownership PATK Shares Held (in millions) 1Q Increase 2Q Decrease 3Q 4Q Tontine Total 13F Assets 1Q 2Q 3Q 4Q PATK Average Share Price 1Q 2Q 3Q 4Q Full Year EPS P/E Tontine Position 1Q 2Q 3Q 4Q Tontine Position - % of Assets 1Q 2Q 3Q 4Q 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

0.1 0.2 0.3 0.3

0.3 0.4 1.3 1.3

1.3 1.3 1.3 1.3

1.3 2.3 2.3 2.3

3.5 5.2 5.2 5.2

5.2 5.2 5.2 5.2

5.2 5.2 5.2 5.2

5.2 5.3 5.3 5.0

5.0 4.3 4.2 4.0

4.0

NA NA NA NA

NA NA NA NA

NA NA NA 10,030

$12,193 13,832 13,656 10,698

$11,456 10,603 6,525 706

$1,223 577 1,246 1,407

$1,259 971 955 1,043

$1,151 1,077 701 327

$467 407 466 399

NA NA NA NA

$9.18 10.72 10.76 10.22 $0.13 78.6x

$10.20 9.27 9.74 10.67 $0.35 28.2x

$11.05 12.15 11.95 12.39 $0.37 31.8x

$11.67 13.35 14.91 11.19 ($0.42) NM

$8.39 6.76 7.02 1.56 ($0.97) NM

$0.48 0.64 2.51 2.36 ($0.36) NM

$2.74 2.80 2.13 1.93 ($0.11) NM

$2.13 2.31 2.03 2.69 $0.57 4.0x

$6.97 11.85 13.32 17.14 $1.38 8.9x

$15.46

$1.69 9.1x

$1 2 3 3

$4 4 13 14

$15 16 16 16

$15 31 34 26

$29 35 36 8

$2 3 13 12

$14 14 11 10

$11 12 11 13

$35 51 56 68

$61 -

NA NA NA NA

NA NA NA NA

NA NA NA 0%

0% 0% 0% 0%

0% 0% 1% 1%

0% 1% 1% 1%

1% 1% 1% 1%

1% 1% 2% 4%

7% 13% 12% 17%

NA NA NA NA

Lastly, the day after the earnings were released, the company announced7 a $10mm stock repurchase program. We view this as a sign of confidence by the management team regarding the companys value and outlook.

6 7

http://www.sec.gov/Archives/edgar/data/76605/000110465913000753/a13-2194_1sc13da.htm http://www.sec.gov/Archives/edgar/data/76605/000143774913001903/patk20130221_8kex99-2.htm 7

Risks An investment in Patrick Industries isnt without risks. Customer concentration: Not surprising in an industry where three player control 70% of the market, Patrick Industries does have significant customer concentration with its #1 and #2 RV customers accounting for 32% and 17% of total sales, respectively. THO does not want to go integrated Economic sensitivity: The RV, MH and housing industries are extremely economically sensitive and are driven by credit availability and customer confidence. To the extent that the US enters another recession, all three industries will be affected. This risk may be somewhat mitigated given that current industry levels are well below historical trends. Tontine ownership: As discussed above. RV dealership inventories: There have been some concerns about RV industry wholesale shipments exceeding retail sales8 and some noted short sellers have used these concerns to focus on Thor Industries. Thor has responded that inventory levels are right-sized and that there has been healthy discipline by both wholesale and retail lenders. While there may be some slow down as retail sales catch up with wholesale inventory levels, we think the long term trends of the RV industry are healthy and the short thesis relates more to THO and its valuation specifically.

Barrons Dec 22, 2012: Mystery: Who's Buying All Those RVs? 8

Comparable Company Analysis:

Share Price Patrick Industries Inc. RV OEM's & Suppliers Drew Industries Inc. Thor Industries Inc. Winnebago Industries, Inc. Average Median 14.00

Market Cap 152

Enterprise Value 202

EV / EBITDA 2013 2014 4.8x 4.3x

P/E 2013 7.8x 2014 6.7x

2013 Est. Sales Growth 21.1%

2013 EBITDA Margin 7.9%

2014 EPS Growth 16.1%

ROIC 24.6%

Debt / EBITDA 1.2x

37.07 37.72 19.49

842 1,998 548

832 1,783 504

7.5x 7.2x 13.1x 9.3x 7.5x

6.6x 6.2x 10.3x 7.7x 6.6x

17.0x 13.0x 24.1x 18.0x 17.0x

14.5x 10.8x 20.1x 15.2x 14.5x

13.1% 21.3% 29.2% 21.2% 21.3%

11.3% 7.3% 6.0% 8.2% 7.3%

17.2% 20.0% 19.8% 19.0% 19.8%

19.5% 16.6% 15.1% 17.1% 16.6%

-0.1x -0.9x -1.1x -0.7x -0.9x

Large Ticket Consumer Discretionary Peers Polaris Industries, Inc. 86.77 Brunswick Corporation 36.30 Average Source: Capital IQ and consensus estimates.

5,939 3,274

5,622 3,559

8.9x 8.4x 8.7x

7.7x 7.2x 7.5x

16.8x 15.0x 15.9x

14.5x 13.9x 14.2x

12.3% 3.0% 7.7%

18.0% 12.0% 15.0%

16.5% 8.1% 12.3%

46.2% 33.3% 39.8%

-0.5x 0.7x 0.1x

Company Financials
Summary Financials 2001 Net Sales Cost of Goods Sold Gross Profit Warehouse & Delivery SG&A EBIT (1) Interest Expense / Income Other Pre Tax Income Taxes Net Income Minority Interest Shares EPS $293 (259) 34 (14) (25) (5) (1) (6) 2 (4) 2002 $309 (270) 39 (14) (24) 1 (1) 0 (0) 0 2003 $275 (242) 32 (13) (18) 1 (1) 0 (0) 0 2004 $302 (266) 36 (14) (20) 2 (1) 1 (0) 1 2005 $323 (285) 38 (14) (20) 4 (1) 3 (1) 2 2006 $303 (265) 38 (14) (20) 4 (2) 3 (1) 2 2007 $370 (322) 48 (19) (27) 3 (7) (4) 1 (2) 2008 $325 (288) 37 (17) (26) (6) (6) (12) 4 (8) 2009 $213 (190) 23 (10) (12) 0 (6) 1 (5) 2 (3) 2010 $278 (249) 30 (12) (14) 4 (6) (0) (2) 1 (1) 2011 $308 (264) 44 (14) (17) 14 (4) (1) 9 (3) 6 2012 $437 (372) 66 (16) (22) 28 (4) (2) 23 (8) 15 2012 PF $488 (415) 73 (18) (24) 32 (3) 28 (10) 18

4.5 ($0.91)

4.7 $0.06

5.5 $0.02

4.6 $0.13

4.7 $0.35

5.0 $0.37

5.7 ($0.42)

8.0 ($0.97)

9.2 ($0.36)

9.9 ($0.11)

10.2 $0.57

10.6 $1.38

10.9 $1.69

(1) EBIT ignores intangible amortization and gain/losses on sale of businesses. 2001 Gross Margin Warehouse & Delivery (% of Sales) SG&A (% of Sales) EBIT Margin Cash Flow Statement Net Income D&A Core CFFO Capex FCF Acquisitions FCF Post Acquisitions 11.6% 4.9% 8.5% (1.8)% 2002 12.7% 4.6% 7.6% 0.4% 2003 11.7% 4.7% 6.7% 0.3% 2004 11.9% 4.5% 6.8% 0.6% 2005 11.8% 4.3% 6.3% 1.2% 2006 12.6% 4.6% 6.5% 1.5% 2007 13.1% 5.1% 7.2% 0.8% 2008 11.3% 5.1% 8.0% (1.7)% 2009 10.8% 4.8% 5.7% 0.2% 2010 10.7% 4.2% 5.0% 1.5% 2011 14.4% 4.4% 5.4% 4.6% 2012 15.0% 3.6% 4.9% 6.5% 2012 PF 15.0% 3.6% 4.9% 6.5%

(4) 8 3 (2) 2 2 -

0 6 6 (4) 2 2

0 6 6 (5) 1 1

1 5 6 (11) (5) (5)

2 4 6 (9) (3) (3)

2 4 6 (7) (2) (2)

(2) 5 3 (2) 1 (86) (85)

(8) 6 (1) (4) (6) (6) -

(3) 5 2 (0) 1 1

(1) 4 3 (1) 2 (6) (4)

6 4 10 (2) 7 (7) 0

15 6 20 (3) 17 17

18 6 25 (4) 21 21

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Additional RV and MH Industry Materials

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