FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1995 Commission File Number 0-3922 PATRICK INDUSTRIES, INC. (Exact name of registrant as specified in its charter) INDIANA 35-1057796 (State or other jurisdiction of (I.R.S. Employer incorporated or organization) Identification No.) 1800 South 14th Street, Elkhart, IN 46516 (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code (219) 294-7511 NONE Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Shares of Common Stock Outstanding as of November 1, 1995: 5,951,866 PATRICK INDUSTRIES, INC. INDEX Page No. PART I: Financial Information Unaudited Condensed Balance Sheets September 30, 1995 & December 31, 1994 3 Unaudited Condensed Statements of Income Three Months Ended September 30, 1995 & 1994, and Nine Months Ended September 30, 1995 & 1994 4 Unaudited Condensed Statements of Cash Flows Nine Months Ended September 30, 1995 & 1994 5 Notes to Unaudited Condensed Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II: Other Information 10 Signatures 11 PART I: FINANCIAL INFORMATION PATRICK INDUSTRIES, INC. CONDENSED BALANCE SHEETS
(Unaudited) (Note) SEPTEMBER 30 DECEMBER 31 1995 1994 ASSETS CURRENT ASSETS Cash $ 601,369 $ 666,986 Accounts Receivable, Net 27,390,890 18,445,638 Inventories 34,340,074 36,087,900 Other 298,481 291,194 Total Current Assets $ 62,630,814 $55,491,718 INVESTMENTS AND OTHER ASSETS $ 7,164,646 $ 7,954,751 PROPERTY AND EQUIPMENT $ 53,235,137 $45,047,383 LESS ACCUMULATED DEPRECIATION 22,434,342 21,225,209 $ 30,800,795 $23,822,174 Total Assets $100,596,255 $87,268,643 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Maturities of Long- term Debt $ 700,000 $ 1,724,000 Accounts Payable 15,394,431 14,916,309 Accrued Expenses and Taxes Payable 4,322,214 3,840,354 Total Current Liabilities $ 20,416,645 $20,480,663 LONG-TERM DEBT, LESS CURRENT MATURITIES $ 26,900,000 $21,150,000 DEFERRED COMPENSATION OBLIGATIONS $ 918,621 $ 838,971 DEFERRED TAX LIABILITIES $ 1,550,000 $ 1,360,000 SHAREHOLDERS' EQUITY Common Stock $ 21,482,870 $21,457,167 Retained Earnings 29,328,119 21,981,842 Total Shareholders' Equity $ 50,810,989 $43,439,009 Total Liabilities and Shareholders' Equity $100,596,255 $87,268,643 NOTE: The balance sheet at December 31, 1994 has been taken from the audited financial statements at that date and condensed. See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC. UNAUDITED CONDENSED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1995 1994 1995 1994 NET SALES $94,125,637 $86,011,213 $273,716,121 $248,148,702 COST AND EXPENSES Cost of Goods Sold $80,913,172 $74,840,589 $236,037,230 $216,771,418 Warehouse and Delivery 3,436,484 3,173,078 9,981,814 9,075,136 Selling and Administrative 4,801,757 3,673,039 13,850,944 10,892,299 Financial Expenses, Net 316,132 228,718 1,025,514 646,720 $89,467,545 $81,915,424 $260,895,502 $237,385,573 INCOME BEFORE INCOME TAXES $ 4,658,092 $ 4,095,789 $ 12,820,619 $10,763,129 INCOME TAXES 1,816,000 1,597,300 5,000,000 4,197,600 NET INCOME $ 2,842,092 $ 2,498,489 $ 7,820,619 $ 6,565,529 EARNINGS PER COMMON SHARE $ .48 $ .41 $ 1.32 $ 1.07 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,947,431 6,058,770 5,943,991 6,135,353 See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC. UNAUDITED CONDENSED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED SEPTEMBER 30 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 7,820,619 $ 6,565,529 Adjustment to Reconcile Net Income to Net Cash: Depreciation and Amortization 2,472,907 2,175,306 Other (142,038) (126,742) Change in Assets and Liabilities: Decrease (Increase) in: Accounts Receivable (8,681,024) (6,412,931) Inventories 2,153,155 (8,242,065) Other 6,008 (139,443) Increase (Decrease) in: Accounts Payable and Accrued Expenses 907,474 6,479,863 Income Taxes Payable and Deferred Taxes 242,508 246,214 Deferred Compensation 79,650 74,160 Net Cash Provided by Operating Activities $ 4,859,259 $ 619,891 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures $(8,833,410) $(3,502,805) Acquisition of Assets of U.S. Door (3,346,596) --- Change in Cash Held in Escrow 2,603,959 --- Other 373,810 46,611 Net Cash (Used in) Investing Activities $(9,202,237) $(3,456,194) CASH FLOWS FROM FINANCING ACTIVITIES Net Borrowings Under Debt Agreements $18,000,000 $ 5,250,000 Sale of Common Stock 25,703 286,521 Principal Payments on Debt (13,274,000) (1,030,245) Reacquisition of Common Stock --- (1,917,874) Cash Dividends (474,342) --- Net Cash Provided by Financing Activities $ 4,277,361 $ 2,588,402 (Decrease) in Cash and Cash Equivalents $ (65,617) $ (247,901) CASH and CASH EQUIVALENTS, BEGINNING $ 666,986 $ 465,460 CASH and CASH EQUIVALENTS, ENDING $ 601,369 $ 217,559 See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of the Registrant, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly financial position as of September 30, 1995, and December 31, 1994, and the results of operations and cash flows for the three months and the nine months ended September 30, 1995 and 1994. 2. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in Registrant's December 31, 1994 audited financial statements. The results of operations for the three months and nine months periods ended September 30, 1995 and 1994 are not necessarily indicative of the results to be expected for the full year. 3. The inventories on September 30, 1995 and December 31, 1994 consist of the following classes: September 30 December 31 1995 1994 Raw Materials $22,630,329 $23,630,848 Work in Process 840,036 738,439 Finished 2,677,042 3,618,587 Total Manufactured Goods $26,147,407 $27,987,874 Distribution Products 8,192,667 8,100,026 TOTAL INVENTORIES $34,340,074 $36,087,900 The inventories are stated at the lower of cost, First-In, First-Out (FIFO) method, or market. 4. The earnings per common share for the three months and nine months ended September 30, 1995 and 1994 have been computed based on the weighted average number of shares of common stock. The weighted average number of shares outstanding was 5,947,431 for the three months and 5,943,991 for the nine months ended September 30, 1995 and 6,058,770 for the three months and 6,135,353 for the nine months ended September 30, 1994. The number of shares reflect the results of the March 8, 1994 two for one Stock Split. 5. On January 30, 1995, the Registrant purchased substantially all of the assets of U.S. Door, a manufacturer of wooden cabinet doors in Phoenix, Arizona, for $3,346,500. The transaction was accounted for as a purchase. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The economy and the industries served by the Registrant improved starting in 1992 as net sales increased by 28% over 1991, and in 1993 net sales increased 40% over 1992. In 1994, the Registrant continued its growth and recorded its highest annual sales of $331 million. The following table sets forth the percentage relationship to net sales of certain items in the Registrant's Statements of Income: Three Months Nine Months Ended September 30 Ended September 30 1995 1994 1995 1994 Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Sales 86.0 87.0 86.2 87.4 Gross Profit 14.0 13.0 13.8 12.6 Warehouse and Delivery 3.7 3.7 3.7 3.6 Selling, General & Administrative 5.1 4.3 5.1 4.4 Operating Income 5.2 5.0 5.0 4.6 Net Income 3.0 2.9 2.9 2.7 RESULTS OF OPERATIONS Quarter Ended September 30, 1995 Compared to Quarter Ended September 30, 1994 Net Sales. Net sales increased by $8.1 million, or 9.4% in this year's third quarter over the same 1994 period. This increase was primarily attributable to production unit increases in the Manufactured Housing industry, from whom the Registrant records 65% of its sales. Gross Profit. Gross profit increased by $2.0 million, or 18.3% and as a percentage of net sales increased from 13.0% in 1994 to 14.0% in this year's third quarter. This increase in gross profit resulted from more stabilized raw material costs and improvement in Workers Compensation insurance costs. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased by $0.26 million, or 8.3%. This is the same 3.7% as a percentage to net sales as the third quarter of 1994. The increase in dollars is due primarily to the increase in sales. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $1.1 million, or 30.7%, in the 1995 third quarter. This increase is primarily the result of increased wages at the manufacturing and distribution facilities and an increase in bad debt expense. As a percentage of net sales, these expenses increased from 4.3% to 5.1% in the third quarter of 1995 as compared to 1994. Operating Income. Operating income increased by $0.65 million, or 15%, from the third quarter of 1994 to the same 1995 quarter. This is due primarily to the increase in gross profit somewhat offset by the increases in Selling, General and Administrative Expenses. As a percentage of net sales, operating income increased from 5.0% in the 1994 third quarter to 5.2% in the 1995 third quarter. Interest Expense. Interest expense was higher in the 1995 third quarter because of higher rates and higher borrowing levels than in 1994. Net Income. Net income increased in the 1995 third quarter by $0.34 million, or 13.7% when compared to the same 1994 quarter. This increase is primarily due to the factors discussed above. Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30, 1994 Net Sales. Net sales increased by $25.6 million, or 10.3%, from the nine months ended September 30, 1994, to the first nine months of 1995. This sales increase was primarily attributable to production unit increases in the Manufactured Housing industry and Registrant sales to its other building products industries. The Manufactured Housing industry, which accounts for 65% of Registrant s sales, is producing at a rate 12% ahead of 1994. Gross Profit. Gross profit increased by $6.3 million, or 20%, in the first nine months of 1995 over 1994. As a percentage of net sales, gross profit increased from 12.6% in the 1994 nine months to 13.8% in the 1995 nine months. This increase in gross profit resulted from improvement in labor efficiency, more stabilized commodity markets, more favorable purchasing practices of the Registrant s raw materials, and an improvement in Workers Compensation insurance costs. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased $0.9 million, or 10%, from $9.1 million in the first nine months of 1994, to $10 million in the 1995 nine months. This increase is primarily the result of increased sales. As a percentage of net sales, warehouse and delivery expenses increased from 3.6% in the first nine months of 1994 to 3.7% in the 1995 nine months. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $2.9 million, or 27.1%, from $10.9 million in the first nine months of 1994, to $13.8 million in the 1995 nine months. Such increase is primarily a result of increased wages at the manufacturing and distribution facilities and an increase in bad debt expense. As a percentage of net sales, selling, general and administrative expenses increased from 4.4% in the first nine months of 1994 to 5.1% in the 1995 nine months. Operating Income. Operating income increased by $2.4 million, or 21.3%, from $11.4 million in the first nine months of 1994, to $13.8 million in the 1995 nine months. This increase is primarily attributable to the increase in gross profit, somewhat offset by the increases in selling, general and administrative expenses. As a percentage of sales, operating income increased from 4.6% in the first nine months of 1994 to 5.0% in the 1995 nine months. Interest Expense. Interest expense increased $0.37 million in the first nine months of 1995 due to higher borrowing balances and higher interest rates during the comparable periods. Net Income. Net income increased by $1.25 million, or 19.1%, from $6.6 million in the 1994 nine months, to $7.8 million in the first nine months of 1995. This increase in net income is primarily attributable to the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES The Registrant's primary capital requirements are to meet working capital needs, support its capital expenditure plans and meet debt service requirements. The Registrant, in September, 1995, issued to an insurance company in a private placement $18,000,000 of senior unsecured notes. The ten year notes bear interest at 6.82%, with semi-annual interest payments beginning March 15, 1996 and seven annual principal repayments beginning September 15, 1999. These funds were used to reduce existing bank debt and for working capital needs. The Registrant has a bank financing agreement (the Credit Agreement) with NBD Bank, N.A. The Credit Agreement provides for a $10 million term loan with a maturity in February 1999 and a credit revolver loan of up to $13 million which matures in February 1997. In September, 1995 with funds from the private placement, the Registrant prepaid the term loan in full and paid the revolver outstanding balance. On October 31, 1995 the bank financing agreement was amended reducing the credit revolver loan availability to $5,000,000. Pursuant to the Credit Agreement, the Registrant is required to maintain certain financial ratios, all of which are currently complied with. The Registrant also financed in late 1994 the acquisition of land, building, and equipment in Oregon with a $6,000,000 industrial revenue bond. At September 30, 1995, $4.0 million of the bond proceeds have been used for construction of the project and $2.0 million was held in escrow for future payments on the project. The Registrant believes that cash generated from operations, bond proceeds held in escrow and borrowings under its credit agreements will be sufficient to fund its working capital requirements and capital expenditures as currently contemplated. SEASONALITY Manufacturing operations in the manufactured housing and recreational vehicle industries tend to be seasonal and are generally at the highest levels when the climate is temperate. Accordingly, the Registrant's sales and profits are generally highest in the second and third quarters. However, due to dramatic increases in production of manufactured housing and recreational vehicles, the first quarter of 1994 and 1995 and the fourth quarters of 1993 and 1994 were unusual in their high sales and gross profit levels during those winter months when compared to prior years. INFLATION The Registrant does not believe that inflation had a material effect on results of operations for the periods presented. PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27 Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PATRICK INDUSTRIES, INC. (Registrant) Date November 13, 1995 /S/Mervin D. Lung Mervin D. Lung (Chairman of the Board) Date November 10, 1995 /S/David D. Lung David D. Lung (President) Date November 10, 1995 /S/Keith V. Kankel Keith V. Kankel (Vice President Finance) (Principal Accounting Officer)