OVERVIEW

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is divided into eight sections. First, a description of the markets and industries in which the Company's businesses operate. Next, key recent events that either have affected or will affect Patrick's future financial results are described. We then review our consolidated results and business segments with comparisons for the third quarter and nine months ended September 28, 2008 to the corresponding periods in 2007. Next, we discuss our financial condition and liquidity. The final sections address other key items and certain factors that can influence future results.

The outline for our MD&A is as follows:

OVERVIEW - MARKETS AND RELATED INDUSTRY PERFORMANCE

KEY RECENT EVENTS

Restructuring Initiatives
Majority Shareholder to Explore Disposition of Equity Interests in the Company

CRITICAL ACCOUNTING POLICIES

REVIEW OF CONSOLIDATED OPERATING RESULTS

Consolidated Results

REVIEW BY BUSINESS SEGMENT
General
Primary Manufactured Products
Distribution
Other Component Manufactured Products
Engineered Solutions

FINANCIAL CONDITION AND LIQUIDITY

Cash Flows

Financial Condition

Liquidity and Capital Resources

OTHER
Seasonality
Inflation

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

OVERVIEW - MARKETS AND RELATED INDUSTRY PERFORMANCE

The first nine months of 2008 marked a continuation of overall soft economic conditions, tight credit standards in the residential and manufactured housing industries, declining consumer confidence and discretionary spending, and volatile fuel prices, all of which had a negative impact on the Company's sales and a major impact on all three of the major markets the Company serves. Additionally, macroeconomic conditions have continued to deteriorate throughout all of 2008 from an overall credit perspective resulting in a constricted lending environment with restricted capacity and availability of capital. The Company expects the depressed conditions in the recreational vehicle (RV), manufactured housing (MH) and residential housing markets to continue through the fourth quarter of 2008 and the first half of 2009 as certain customers of the Company are closing and consolidating facilities, reducing workforce, reducing inventory levels, and reducing costs.

According to industry sources, the RV industry, which represents approximately 37% of the Company's year to date 2008 sales, experienced unit shipment declines of approximately 42% for the quarter and 25% year to date versus the comparable prior year period. The RV industry currently projects that unit shipment declines could range from 25% - 30% for full year 2008 compared to the 2007 levels.

The MH industry, which represents approximately 37% of the Company's year to date sales in 2008, saw industry unit shipments decline approximately 16% for the quarter and approximately 10% year to date versus the same periods in 2007. The Company currently estimates that unit shipments for full year 2008 could decline by as much as approximately 20% when compared to the 2007 levels.

Both the RV and MH industries as a whole continue to run at rates that reflect significant contraction on an annualized basis. Additionally, pricing on gypsum related commodity products that the Company sells into the MH industry was down approximately 27% year over year on manufactured products and approximately 20% on distribution products. Annual RV and MH unit shipments are expected to be lower in 2009 as high credit standards, increasing food and volatile fuel prices, employment downturns, and continued declines in household wealth and home prices continue to negatively impact the global economy.

The weak conditions in the MH industry dramatically impacted the Company's Distribution Segment, which saw sales decline from the prior year by approximately 27% for the quarter and 21% year to date, and operating profits decline approximately 56% and 62% for the quarter and year to date, respectively, as approximately 78% of the Company's sales in this segment are associated with the MH Industry.

The industrial and other markets represent approximately 26% of the Company's year to date sales in 2008. The residential housing market, which represents approximately 70% of the Company's industrial revenue base, continued to be impacted by depressed conditions as new housing starts for the first nine months of 2008 were down approximately 31% from the September 2007 seasonally adjusted rate (as reported by the U.S. Department of Commerce).

With the strategic acquisition of Adorn Holdings, Inc. ("Adorn") and the related integration synergies we have achieved, we believe that we continue to establish our platform for future growth and for creating shareholder value. We believe we are positioned to increase revenues in all of the markets that we serve upon improvement in the overall economic environment. The Company remains focused on maintaining contribution margins and continues to look for ways to reduce its fixed costs in order to maximize efficiencies and improve profitability. While market conditions are expected to remain depressed for the remainder of 2008 and into 2009, key focus areas include:

• capturing market share;
• maintaining a lean organizational structure in all manufacturing operations and our corporate functions;
• improving margins and reducing costs across the organization; and
• pursuing new business opportunities, new products or product line extensions.

Our capital plan for 2008 includes expenditures of up to approximately $4.5 million. In addition, we continue to work closely with our customers to maintain appropriate credit policies and keep our trade receivables at acceptable levels during these difficult economic times. Our management team remains focused on earnings targets, cash flow, and debt reduction as we move through the remainder of 2008 and into 2009.

KEY RECENT EVENTS

Restructuring Initiatives

In an effort to integrate our acquisition of Adorn with our existing businesses, we announced a restructuring plan in the second quarter of 2007 (the "2007 Plan") which included the closure of duplicate facilities, severance related to the elimination of redundant jobs, and various asset write-downs related to the consolidation of product lines. Asset write-downs include machinery and equipment, inventory, tooling, and other write-downs directly related to discontinued product lines. Beginning in the second quarter of 2007 and continuing through the end of the third quarter of 2008, the 2007 Plan eliminated an estimated 240 jobs.

The completion of the 2007 Plan in the third quarter of 2008 resulted in cumulative pretax charges totaling approximately $3.3 million. Expenses included workforce reduction and lease consolidation costs, asset write-downs, and other expenses necessary to implement the restructuring initiatives. We recorded approximately $2.96 million of restructuring and related expenses in cost of goods sold from the plan inception in second quarter 2007 through September 28, 2008, including $60,000 and $779,000 in the third quarter and nine months of 2008, respectively, related to the closing of one operation and one manufacturing cell and the consolidation of one of Patrick's manufacturing operations into an Adorn operation, and the consolidation of an Adorn operation and a Patrick operation into one of the Company's currently owned facilities from two separate leased facilities. In conjunction with these consolidations, the Company eliminated certain positions from the closed facilities.

In addition, the Company incurred $385,000 of restructuring charges which were included in selling, general and administrative expenses through September 28, 2008, including $25,000 and $202,000 for the third quarter and nine months ended September 28, 2008, respectively, related to severance costs as a result of the elimination of certain administrative positions.

Majority Shareholder to Explore Disposition of Equity Interests in the Company

On November 10, 2008, Tontine Capital Partners, L.P. and Tontine Capital Overseas Master Fund, L.P., (collectively "Tontine"), which together own approximately 57% of our common stock, filed with the Securities and Exchange Commission an amendment to Tontine's previously filed Schedule 13D with respect to its ownership of common stock of the Company (the "Schedule 13D/A"). In the Schedule 13D/A, Tontine stated that it will begin to explore alternatives for the disposition of its equity interests in the Company, which alternatives may include, without limitation: (a) dispositions of common stock through open market sales, underwritten offerings and/or privately negotiated sales by Tontine; (b) a sale of the Company; or

(c) distributions by Tontine of its equity interests in the Company to its investors. Tontine stated that it expects to engage in discussions with our management and Board of Directors in the evaluation of such alternatives. Tontine stated that, as part of this process, it (i) may encourage the Company to engage an investment banker or other financial advisor with respect to an underwritten offering of its equity interests, a sale of the Company or other strategic transaction involving the Company; (ii) may encourage third parties to consider an acquisition of its equity interests, an acquisition of the Company or other strategic transaction involving the Company; or (iii) may independently engage an investment banker or other financial advisor to assist it with respect to the analysis and execution of various alternatives in connection with its holdings. Tontine stated that, in deciding which alternative or alternatives to pursue, it will seek to maximize the value of its holdings in the Company, and accordingly, the disposition of its holdings will be effected over time and in an orderly fashion. Tontine stated that the timing, manner and aggregate amount of any such dispositions will be dependent on many factors, including, without limitation, market conditions, available prices and Tontine's ability to conduct sales in compliance with federal and state securities laws.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our significant accounting policies which are summarized in the footnotes to our Report on Form 10-Q for the period ended September 28, 2008 and our Annual Report on Form 10-K and 10-K/A for the year ended December 31, 2007.

REVIEW OF CONSOLIDATED OPERATING RESULTS

Consolidated Results - Third Quarter and Nine Months Ended September 28, 2008
Compared to 2007

General. The results of operations from the acquisitions of Adorn (acquired on
May 18, 2007) and American Hardwoods, Inc. (acquired on January 29, 2007) are
included for the full nine month period ended September 28, 2008 and since their
respective acquisition dates for the same period in 2007.

The following table sets forth the percentage relationship to net sales of
certain items in the Company's Condensed Consolidated Statements of Operations:

                                         Three Months         Nine Months
                                            Ended                Ended
                                     -------------------- --------------------
                                     Sept. 28, Sept. 30,  Sept. 28, Sept. 30,
                                       2008       2007      2008       2007
                                     --------- ---------- --------- ----------
Net sales                                   100.0% 100.0%        100.0% 100.0%
Cost of goods sold                            89.6   87.1          89.0   88.0
Restructuring charges                          0.1    0.4           0.2    0.4
Gross profit                                  10.3   12.5          10.8   11.6
Warehouse and delivery                         5.4    4.3           4.8    4.5
Selling, general, and administrative           7.2    6.2           6.6    6.5
Restructuring charges                            -      -           0.1    0.1
Amortization of intangible assets              0.4    0.3           0.4    0.2
Gain on sale of fixed assets                     -  (0.1)         (1.4)  (0.1)
Operating income (loss)                      (2.7)    1.8           0.3    0.4
Interest expense, net                          1.5    1.6           1.5    1.3
Income taxes (credit)                        (1.6)    0.1         (0.4)  (0.4)
Net income (loss)                            (2.6)    0.1         (0.8)  (0.5)

Net Sales. Net sales decreased $48.1 million or 35.2%, to $88.4 million in third quarter 2008 from $136.6 million in the comparable prior year period. For the nine months ended September 28, 2008, net sales decreased $18.6 million or 5.7%, to $309.2 million from $327.8 million in the prior year period. Net sales for both the quarter and year to date periods were negatively impacted as RV and MH retailers and manufacturers reduced inventory levels in response to increasing credit costs and economic trends continued to weaken in all three of the primary markets the Company serves (as discussed above).

Restructuring Charges - Segments. Immediately following the acquisition of Adorn on May 18, 2007, the Company initiated its restructuring actions. These activities were related to the first phase of the Adorn consolidation plan and included the closing and consolidation of Patrick operating units associated with the integration of the Adorn acquisition. The restructuring plan included workforce reductions, facility closures, and various asset write-downs. Asset write-downs included inventory, tooling, machinery and equipment due to duplication, and shut down of certain product lines.

Restructuring charges of $60,000 or 0.1% of net sales in third quarter 2008 were recorded in conjunction with the final phase of the Adorn consolidation plan and were related to the closing of a Patrick division in the Company's Other Component Manufactured Products segment and the consolidation of one of the divisions in the Company's Primary Manufactured Products segment from a leased facility into one of the Company's owned manufacturing facilities. Total restructuring charges (included as a separate line item in cost of goods sold) were $0.5 million or 0.4% of net sales in third quarter 2007.

In the first nine months of 2008, restructuring charges were $0.8 million, or 0.2% of net sales. The charges were recorded in conjunction with the final phase of the Adorn consolidation plan related to the closing of a Patrick division in the Company's Other Component Manufactured Products Segment and the consolidation of two divisions in the Company's Primary Manufactured Products Segment, one from a leased facility into one of the Company's owned manufacturing facilities, and the other into one of the Adorn manufacturing facilities. Comparatively, total restructuring charges in the first nine months of 2007 were approximately $1.5 million, or 0.4% of net sales. These activities were related to the first phase of the Adorn consolidation plan. The restructuring plan for the first nine months of 2007 included estimated Patrick workforce reductions of approximately 130 employees, all of which had been completed as of September 30, 2007, facility closures, and various asset write-downs.

Gross Profit. Gross profit decreased $7.9 million or 46.4%, to $9.2 million in third quarter 2008 from $17.1 million in 2007. As a percent of net sales, gross profit decreased to 10.3% in third quarter 2008 from 12.5% in the same period in 2007. The decrease in the percentage of net sales is attributable to certain fixed overhead costs remaining relatively constant despite lower sales volumes, and a shift to lower margin products that was partially offset by direct labor efficiencies of approximately 0.6% of net sales. As discussed above, restructuring charges related to the final phase of the Adorn consolidation plan decreased approximately $0.4 million to $0.1 million or 0.1% of net sales in third quarter 2008 compared to 0.4% of net sales in 2007. Additionally, other overhead costs including utilities and group insurance declined $0.7 million in the quarter compared to the prior year.

Gross profit decreased $4.6 million or 12.0%, to $33.3 million in the first nine months of 2008 from $37.9 million in the first nine months of 2007. As a percent of net sales, gross profit decreased to 10.8% in 2008 from 11.6% in 2007. As discussed above, on a year to date basis, restructuring charges decreased $0.7 million to $0.8 million or 0.2% of net sales, from $1.5 million or 0.4% of net sales in 2007. Contributions from the Adorn and American Hardwoods acquisitions partially offset the increase in cost of goods sold. Additionally, estimated purchasing synergies resulting from the Adorn acquisition were offset by an adjustment in the first quarter of 2008 to increase cost of goods sold and reduce inventory by approximately $0.7 million related to the misappropriation of Company assets and the underreporting of scrap at one of the Company's manufacturing facilities (see discussion below), and to a lesser extent, by labor inefficiencies as the Company adjusted to the rapidly declining market conditions and softening sales levels that began in the first quarter of 2008. Additionally, increases in fixed overhead costs including depreciation expense and utilities of approximately $1.2 million or 0.5% of net sales, were partially offset by improvements in other overhead costs including workers compensation and group and liability insurance of approximately $0.7 million.

On March 30, 2008, in conjunction with the performance of its physical inventory at a Patrick manufacturing facility, the Company discovered that certain procedures were not being followed in accordance with the Company's established policies. The Company conducted an internal investigation and discovered that certain members of the management team at that particular facility had engaged in collusive acts to circumvent various controls in order to misappropriate Company assets and concealed the misappropriation by underreporting scrap at the facility. As a result of the investigation and a second physical inventory, the Company recorded an adjustment to reduce inventory and increase cost of goods sold at this particular facility by approximately $0.7 million during the quarter ended March 30, 2008. The Company further performed a detailed analysis of its internal controls associated with the inventory and control thereof, and determined that appropriate controls were in place and working effectively, and that the level of collusion was significant enough to be able to circumvent the controls. The Company performed an analysis of the impact on prior periods and determined its effect was not material to those periods and therefore recorded the adjustment in its March 30, 2008 financial statements.

Warehouse and Delivery Expenses. Warehouse and delivery expenses decreased $1.2 million or 19.8%, to $4.7 million in third quarter 2008 from $5.9 million in third quarter 2007 primarily reflecting a reduction in delivery wages and freight charges of approximately $0.8 million. As a percentage of net sales, warehouse and delivery expenses were 5.4% and 4.3% in third quarter 2008 and 2007, respectively.

Warehouse and delivery expenses were $14.9 million for both the first nine months of 2008 and 2007. As a percentage of net sales, warehouse and delivery expenses increased to 4.8% in the first nine months of 2008 from 4.5% in the comparable period. Increased fuel, rental and common carrier charges of $0.6 million were partially offset by a reduction in delivery wages and freight charges of $0.4 million from period to period.

Efficiency improvements realized from the consolidation of Adorn related to delivery costs were partially offset by increased fuel costs, including surcharges, and common carrier charges, as customers are requiring similar numbers of deliveries but of smaller quantities, thus resulting in higher delivery cost per unit.

Selling, General, and Administrative (SG&A) Expenses. SG&A expenses decreased $2.1 million or 25.4%, to $6.4 million in third quarter 2008 from $8.5 million in third quarter 2007. As a percentage of net sales, SG&A expenses were 7.2% compared to 6.2% in 2007. The decrease in SG&A expenses is primarily attributable to our ongoing efforts to align operating costs with revenue as a result of the soft market conditions, and maximize efficiencies gained through headcount reduction synergies achieved from the Adorn acquisition. Administrative, office, and sales wages and related sales commissions declined approximately $1.7 million in third quarter 2008 compared to the prior year. SG&A expenses in 2008 and 2007 included stock compensation of $0.2 million and $0.4 million, respectively, related to attaining certain milestone objectives in conjunction with the Adorn consolidation plan. Third quarter 2007 also included a $0.2 million charge associated with the write-off of a potential overseas vertical expansion initiative and $0.2 million of severance and litigation costs. The decline in SG&A expenses was partially offset by a $0.7 million increase to the allowance for doubtful accounts in the third quarter of 2008 that was driven principally by certain customers of the Company that have closed or filed bankruptcy.

SG&A expenses decreased $0.8 million or 3.6%, to $20.4 million in the first nine months of 2008 from $21.2 million in the first nine months of 2007. As a percentage of net sales, SG&A expenses increased to 6.6% in 2008 from 6.5% in 2007. SG&A expenses in the first nine months of 2008 include the impact of $0.3 million in costs associated with certain vesting of employee retirement obligations incurred as a result of the change of control provisions associated with the completion of the previously announced rights offering on June 26, 2008, and $0.4 million related to attaining certain milestone objectives in conjunction with the Adorn consolidation plan. In the first nine months of 2008, we eliminated certain administrative salaried positions in an effort to continue to align our operating costs with revenues as discussed above. The decline in SG&A expenses was partially offset by a $0.8 million increase in the allowance for doubtful accounts in the first nine months of 2008.

In the first nine months of 2007, SG&A included charges of $0.8 million related to certain vesting of employee retirement obligations in conjunction with the Adorn transaction and related financing activities. In addition, the first nine months of 2007 included $0.5 million in incentives related to the acquisition and the consolidation plan, $1.0 million in severance and litigation settlement costs, and $0.2 million associated with the write-off of a potential overseas vertical expansion initiative. Since the Adorn acquisition occurred on May 18, 2007, only nineteen weeks of SG&A expenses related to the Adorn operation were included in nine months 2007 results.

The Company has remained focused on managing administrative overhead costs as evidenced by a reduction in both its salaried and hourly headcount by more than 330 people since the beginning of 2008 and by more than 700 people since the acquisition of Adorn on May 18, 2007.

Restructuring Charges-Corporate. The Company recorded restructuring charges of approximately $25,000 in third quarter 2008 and $0.2 million in the first nine months of 2008 for severance costs related to consolidation activities and for severance and benefits for a former officer who notified the Company of his intention to resign from all positions with the Company on June 27, 2008. The Company entered into a separation agreement which included severance payments. In the first nine months of 2007, the Company recorded $0.2 million in restructuring charges for severance packages and other contractual closing costs to be incurred in conjunction with various consolidation activities related to the acquisition integration plans.

Amortization of Intangible Assets. In conjunction with the Adorn acquisition in May 2007, the Company recognized $39.5 million in certain intangible assets which are being amortized over periods ranging from 5 to 19 years. Accordingly, the

Company recorded amortization expense in the third quarter of $0.4 million for both 2008 and 2007. For the nine month periods, amortization expense was $1.3 million for 2008 compared to $0.6 million in 2007.

Gain on Sale of Fixed Assets. A pretax gain of $4.2 million from the June 2008 sale of our idle Fontana, California facility was included in the nine months of 2008 results. The building that was sold formerly housed the Company's west coast molding division. In 2007, the Company consolidated the molding division into its Custom Vinyls facility, which is also located in Fontana. The consolidation was part of the Company's multiphase integration effort following the acquisition of Adorn. In addition, the year to date results include approximately $0.3 million in gains on the sale of excess equipment acquired in the Adorn acquisition and in the normal course of business.

Operating Income (Loss). The operating loss in third quarter 2008 was $2.4 million compared to operating income of $2.4 million in third quarter 2007. For the nine months, operating income decreased $0.3 million to $1.0 million in 2008 from $1.3 million in 2007. The decrease in operating income from period to period is attributable to the factors described above. Nine months 2008 results include the impact of a $4.5 million gain on the sale of an idle California facility and other idle machinery and equipment from the Adorn acquisition.

Interest Expense, Net. Interest expense decreased $0.8 million to $1.3 million in third quarter 2008 from $2.1 million in third quarter 2007. At the beginning of the third quarter of 2008, the Company repaid $14.8 million of principal on long-term debt that was incurred in 2007 in connection with financing the Adorn acquisition. During the third quarter, an additional $0.5 million of debt was also repaid.

Interest expense increased $0.6 million to $4.8 million in the first nine months of 2008 from $4.2 million in the first nine months of 2007. The increase is attributable to increased debt levels incurred in order to finance the Adorn and American Hardwoods acquisitions.

Income taxes (Credit). The effective tax rate was 37% for the third quarter and nine months ended September 28, 2008. For the comparable periods in 2007, the effective tax rate was 40%.

Net Income (Loss). The net loss was $2.3 million ($0.26 per diluted share) in third quarter 2008 compared to net income of $166,000 ($0.03 per diluted share) in third quarter 2007. For the nine month periods, the net loss was $2.3 million ($0.31 per diluted share) in 2008 compared to a net loss of $1.8 million ($0.32 per diluted share) in the same period in 2007.

Average Diluted Shares Outstanding. Average diluted shares outstanding increased 48.4% and 38.6% in third quarter 2008 and for the nine months of 2008, respectively, compared to the prior year. The increase principally reflects the completion on March 12, 2008 of the private placement of 1,125,00 shares of common stock, and the sale of 1,850,000 shares in connection with the June 26, 2008 rights offering.

REVIEW BY BUSINESS SEGMENT

General

We classify our businesses into four reportable business segments based on the . . .