UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 (IRS Employer
incorporation or organization) identification No.)
1800 South 14th Street, P.O. Box 638, Elkhart, Indiana 46515
(Address of principal executive offices) (ZIP code)
Registrant's telephone number, including area code: (219) 294-7511
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X______ No ________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 11, 1996 (based upon the closing price on NASDAQ and an
estimate that 78.5% of the shares are owned by non-affiliates) was $ 56,316,208.
As of March 11, 1996, 5,978,366 shares of the Registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's Proxy Statement for its Annual
Meeting of Shareholders to be held on May 15, 1996 are
incorporated by reference into Parts III of this Form 10-K.
PART I
ITEM 1. BUSINESS
The Registrant is a leading manufacturer and supplier of building
products and materials to the manufactured housing and recreational vehicle
industries. In addition, the Registrant is expanding as a supplier to certain
other industrial markets, such as furniture manufacturing, marine and the
automotive aftermarket. The Registrant manufactures decorative vinyl and paper
panels, cabinet doors, countertops, aluminum extrusions, drawer sides and wood
adhesives. The Registrant is also an independent wholesale distributor of pre-
finished wall and ceiling panels, particleboard, hardboard siding, passage
doors, roofing products, building hardware, insulation and other related
products.
The Registrant has a nationwide network of distribution centers for
its products, thereby reducing intransit delivery time and cost to the regional
manufacturing plants of its customers. The Registrant believes that it is one
of the few suppliers to the manufactured housing and recreational vehicle
industries that has such a nationwide network. The Registrant maintains seven
manufacturing plants and two distribution facilities near its principal offices
in Elkhart, Indiana, and operates thirteen other warehouse and distribution
centers and seventeen other manufacturing plants in thirteen states.
Strategy
Over time, the Registrant has developed very strong working
relationships with its key customers. In so doing, the Registrant has oriented
its business and expansion to the needs of these customers. These customers
include most of the larger manufactured housing and recreational vehicle
manufacturers. The Registrant's customers generally demand high quality
standards and a high degree of flexibility from their suppliers. The result has
been that the Registrant focuses on maintaining and improving the quality of its
manufactured products, and has developed a nationwide manufacturing and
distribution presence in response to its customers' need for flexibility. As
the Registrant explores new markets and industries, it believes that this
nationwide network provides it with a strong foundation for expansion.
The Registrant continually seeks to improve its position as a leading
supplier to the manufactured housing and recreational vehicle industries and
other industries to which its products, manufacturing processes or sales and
distribution system are applicable. Currently, approximately 66% of the
Registrant's sales are to the manufactured housing industry and the remaining
34% is split between the Recreational Vehicle and other industries. These
industries, and the impact that they have on their suppliers, are characterized
by cyclical demand and production, small order quantities and short lead times.
These characteristics have an impact on the suppliers, many of whom tend to be
small, regional and specific product line companies. Management has identified
several tools which it expects to utilize to accomplish its operating
strategies, including the following:
Diversification into Additional Industries
While the Registrant continually seeks to improve its position as a
leading supplier to the manufactured housing and recreational vehicle
industries, it is also seeking to expand its product lines into other industrial
markets. Many of the Registrant's products such as its countertops, cabinet
doors and shelving have application in the furniture and cabinetry markets. In
addition, the manufacturing processes for the Registrant's aluminum extrusions
are easily applied to the production of products for the marine, automotive and
truck accessories markets and aftermarkets, and many other markets, and the
Registrant's adhesives are marketed for almost all industrial applications.
Because industrial order size tends to be for larger numbers of
units, the Registrant enjoys better production efficiencies for these orders.
The Registrant believes that diversification into additional industries will
reduce its vulnerability to the cyclicality of the Manufactured Housing and
Recreational Vehicle industries. In addition, the Registrant believes that its
nationwide manufacturing and distribution capabilities enable it to effectively
serve the manufactured housing and recreational vehicle industries and position
it for product expansion.
Expansion of Manufacturing Capacity
In the last 3 years, the Registrant has invested approximately $21.7
million to upgrade existing facilities and equipment and to build new
manufacturing facilities for its laminated paneling products, cabinet doors and
industrial adhesives. In addition, the Registrant has invested $4.5 million to
purchase existing businesses. The new capacity created by these investments has
enabled the Registrant to capture additional margins on its products by bringing
more efficiencies to its operations and will accommodate future growth in the
Registrant's product lines and markets.
Strategic Acquisitions and Expansion
The Registrant supplies a broad variety of building material products
and, with its nationwide manufacturing and distribution capabilities, is
well-positioned for the introduction of new products. The Registrant, from time
to time, considers the acquisition of additional product lines, facilities or
other assets to complement or expand its existing business. The Registrant
completed the acquisition of a cabinet door manufacturer in 1995. Sales from
this acquisition were approximately 1% of the Registrant's sales for 1995. In
1995 the Registrant expanded existing product lines with the opening of
laminating facilities in Phoenix, Arizona and Valdosta, Georgia; and wood
moulding operations in Elkhart, Indiana and Phoenix, Arizona; and a distribution
center in Valdosta, Georgia.
Principal Products
The Registrant distributes primarily prefinished wall and ceiling
panels, particleboard, hardboard siding, passage doors, building hardware,
insulation and other products. Through its manufacturing divisions, the
Registrant fabricates decorative vinyl and paper panels, cabinet doors,
countertops, wood mouldings, aluminum extrusions, drawer sides and wood
adhesives.
The product which during the last three years contributed more than
10% to total sales was pre-finished wall panels. The percentage contributions of
such class of product to total sales was 39.0%, 41.9%, and 40.5% for the years
ended December 31, 1995, 1994, and 1993 respectively.
The Registrant has no material patents, licenses, franchises, or
concessions and does not conduct significant research and development
activities.
Manufacturing Processes and Operations
The Registrant's laminating facilities utilize various materials
including gypsum, particleboard, plywood and fiberboard which are bonded by
adhesives or a heat process to a number of products including vinyl, paper, foil
and high pressure laminant. These laminated products are utilized to produce
furniture, shelving, wall, counter and cabinet products with a wide variety of
finishes and textures.
The Registrant's metals division utilizes sophisticated technology to
produce aluminum extrusions for framing and window applications. In addition,
the Registrant's metals division extrudes running boards, accessories for pick-
up trucks, marine industry products and construction-related materials.
The Registrant manufactures two distinct cabinet door product lines.
One product line is manufactured from raw lumber utilizing solid oak and other
hardwood materials. The Registrant's other line of doors is made of laminated
particleboard or plywood. The Registrant's doors are sold to the manufactured
housing and recreational vehicle industries, and continue to gain acceptance
with cabinet manufacturers and "ready-to-assemble" furniture manufacturers.
The Registrant s wood adhesive division, which supplies adhesives used
in all the Registrant s manufacturing processes and to outside industrial
customers, is a process of mixing non-toxic non-hazardous chemicals with water
to produce adhesives sold in tubes, pails, barrels, totes and rail tank cars.
Markets
The Registrant is engaged in the manufacturing and distribution of
building products and material for use primarily by the manufactured housing and
recreational vehicle industries and other industrial markets.
Manufactured Housing
The manufactured housing industry has historically served as a more
affordable alternative to the home buyer. Because of the relatively lower cost
of construction as compared to site-built homes, manufactured homes
traditionally have been one of the principal means for first-time home buyers to
overcome the obstacles of large down payments and higher monthly mortgage
payments. Manufactured housing also presents an affordable alternative to site-
built homes for retirees and others desiring a lifestyle in which home ownership
is less burdensome than in the case with site-built homes.
Manufactured homes are built in accordance with national and state
building codes. Manufactured homes are factory-built and pulled on a chassis or
other method to a site where they are installed, often permanently. Some
manufactured homes have design limitations imposed by the constraints of
efficient production and over-the-road transit. Delivery expense limits the
effective competitive shipping range of the manufactured homes to approximately
400 to 600 miles.
The Manufactured Housing industry is cyclical, and is affected by the
availability of alternative housing such as apartments, town houses and
condominiums. In addition, interest rates, availability of financing, regional
population and employment trends and general regional economic conditions affect
the sale of manufactured homes. The Manufactured Housing Institute reported
that during the four-year period ended December 31, 1991, shipments of
manufactured homes declined 26.6% to a total of approximately 171,000 units
nationally in 1991. The reported number of units increased sharply since 1991,
with increases in each of the last four years. The 1995 manufactured home unit
shipments were 340,000 or an increase of 99% since 1991.
These cycles have an historic precedent. The Registrant believes
that the factors responsible for the national decline included weakness in the
manufacturing, the agricultural and, in particular, the oil industry sectors.
These industry sectors have historically provided a significant portion of the
manufactured housing industry's customer base. Additionally, high vacancy rates
in apartments, high levels of repossession inventories and over-built housing
markets in certain regions of the country, resulted in fewer sales of new
manufactured homes in the past. Changes in these market characteristics have
caused the manufactured housing cycle to change positively.
Recreational Vehicles
The Recreational Vehicle industry has been characterized by cycles of
growth and contraction in consumer demand, reflecting prevailing general
economic conditions which affect disposable income for leisure time activities.
Fluctuations in interest rates and consumer confidence and concerns about the
availability and price of gasoline have had an adverse impact on recreational
vehicle sales. Recently the industry has been characterized by shifting demand
towards lower-priced, higher-value products which appeal to economy-minded,
value-conscious buyers.
Recreational vehicle classifications are based upon standards
established by the Recreational Vehicle Industry Association. The principal
types of recreational vehicles include conventional travel trailers, folding
camping trailers, fifth wheels, motor homes and van conversions. These
recreational vehicles are distinct from mobile homes, which are manufactured
housing designed for permanent and semi-permanent residential dwelling.
Conventional travel trailers and folding camping trailers are
non-motorized vehicles which are designed to be towed by passenger automobiles,
pick-up trucks or vans. They provide comfortable, self-contained living
facilities for short periods of time. Conventional travel trailers and folding
camping trailers are towed by means of a frame hitch attached to the towing
vehicle. Fifth wheel trailers, designed to be towed by pick-up trucks, are
constructed with a raised forward section that is attached to the bed area of
the pick-up truck. This allows for a bi-level floor plan and more living space
than a conventional travel trailer.
A motor home is a self-powered vehicle built on a motor vehicle
chassis. The interior typically includes a driver's area, kitchen, bathroom,
dining and sleeping areas. Motor homes are self-contained with their own
lighting, heating, cooking, refrigeration, sewage holding and water storage
facilities so that they can be occupied without being attached to utilities.
Although they are not designed for permanent or semi-permanent living, motor
homes do provide comfortable living facilities for short periods of time.
Van conversions are conventional vans modified for recreational or
other use.
Sales of recreational vehicle products have been cyclical. Shortages
of motor vehicle fuels and significant increases in fuel prices have had a
material adverse effect on the market for recreational vehicles in the past, and
could adversely affect demand in the future. The recreational vehicle industry
is also affected by the availability and terms of financing to dealers and
retail purchasers. Substantial increases in interest rates and decreases in the
general availability of credit have had an adverse impact upon the industry in
the past and may do so in the future. Recession and lack of consumer confidence
impacts adversely on the sale of leisure time products such as recreational
vehicles.
Other Markets
Many of the Registrant's products, such as its countertops, laminated
panels, cabinet doors and shelving, may be utilized in the furniture and
cabinetry markets. Also, its manufacturing processes of aluminum extrusions are
easily applied to the production of running boards and other accessories for
pick-up trucks and vans, and the Registrant's adhesives are marketed in
industrial adhesive markets.
While demand in these industries also fluctuates with general
economic cycles, the Registrant believes that these cycles are less severe than
those in the manufactured housing and recreational vehicle industries. As a
result, the Registrant believes that diversification into these new markets will
reduce its reliance on the markets it has traditionally served and will mitigate
the impact of their historical cyclical patterns on its operating results.
Marketing and Distribution
The Registrant's sales are to manufactured housing and recreational
vehicle manufacturers and other building products manufacturers. The Registrant
has approximately 3,000 customers. The Registrant had two customers, Fleetwood
Enterprises, Inc. and Skyline Corporation, who together accounted for 23.5% of
the Registrant's total sales in 1995 and 29.3% in 1994. Ten other customers
collectively accounted for approximately 29.4% of 1995 sales. The Registrant
believes it has good relationships with its customers.
Products for distribution are purchased in carload or truckload
quantities, warehoused and then resold for delivery, generally by
Registrant-owned trucks. Some of the Registrant's products are shipped directly
from the suppliers to the customers. The Registrant typically experiences a two
to four week delay between issuing its purchase orders and delivering of
products to the Registrant's warehouses or customers. The Registrant's
customers do not maintain long-term supply contracts, and the Registrant must
bear the risk of accurate advance estimation of customer orders. The Registrant
maintains a substantial inventory to satisfy these orders. The Registrant has
no significant backlog of orders.
The Registrant operates fifteen warehouse and distribution centers
and twenty-four manufacturing plants located in Alabama, Arizona, California,
Florida, Georgia, Idaho, Indiana, Kansas, Nevada, North Carolina, Oregon,
Pennsylvania, and Texas. Through the use of these facilities, the Registrant is
able to minimize its intransit delivery time and cost to the regional
manufacturing plants of its customers.
Suppliers
During the year ended December 31, 1995, the Registrant purchased
approximately 66% of its raw materials and distributed products from twenty
suppliers. The five largest suppliers accounted for approximately 33% of the
Registrant's purchases. Materials are primarily commodity products, such as
lauan, gypsum, aluminum, particleboard and other lumber products are available
from many suppliers. Alternate sources of supply are available for all of
Registrant's important materials.
Competition
The manufactured housing and recreational vehicle industries are
highly competitive with low barriers to entry. This level of competition
carries through to the suppliers to these industries. Competition is based
primarily on price, product features, quality and service. The Registrant has
several competitors in each of its classes of products, some of whom have
substantially greater financial resources than the Registrant. Some
manufacturers and suppliers of materials purchased by the Registrant also
compete with it and sell directly to the same industries. Most of the
Registrant's competitors compete with the Registrant on a regional basis. In
order for a competitor to compete with the Registrant on a national basis, the
Registrant believes that a substantial capital commitment and experienced
personnel would be required. The industrial markets in which the Registrant
continues to expand are also highly competitive.
Employees
As of December 31, 1995, the Registrant had 1,300 employees of which
1095 employees are engaged directly in production, warehousing, and delivery
operations, 49 in sales, and 156 in office and administrative activities. There
are five manufacturing plants and one distribution center covered by collective
bargaining agreements. The Registrant considers its relations with employees to
be good.
The Registrant provides group life, hospitalization, and major
medical plans under which the employee pays a portion of the cost.
ITEM 2. PROPERTIES AND EQUIPMENT
As of December 31, 1995, the Registrant maintains the following
warehouse, manufacturing and distribution facilities:
Ownership or
Location Use Area Sq. Ft. Lease Arrangement
Elkhart, IN Admin. Offices 10,000 Owned
Elkhart, IN Mfg&Dist(1)(3)(5) 133,600 Leased to 2005
Elkhart, IN Manufacturing(3) 20,000 Owned
Elkhart, IN Manufacturing(4) 190,500 Owned
Mishawaka, IN Manufacturing(4) 191,000 Owned, Subject to
Mortgage
Elkhart, IN Manufacturing (5) 42,000 Leased to 1998
Elkhart, IN Manufacturing(5) 40,400 Leased to 1997
Elkhart, IN Manufacturing(2) 31,000 Leased to 1999
Elkhart, IN Manufacturing(2) 30,000 Leased to 1997
Bristol, IN Mfg. & Dist.(1)(5) 62,000 Owned
Middlebury, IN Manufacturing(5) 18,000 Owned
Mt. Joy, PA Distribution(1) 58,500 Owned
Charlotte, NC Manufacturing(2) 46,800 Owned
Charlotte, NC Distribution(1) 36,000 Leased to 1995
Decatur, AL Manufacturing(2)(4) 41,000 Owned
Decatur, AL Distribution(2) 35,000 Owned
Decatur, AL Manufacturing(1) 52,000 Leased to 1997
Ocala, FL Mfg. & Dist.(1)(2) 35,200 Owned
Ocala, FL Manufacturing(3) 20,600 Leased to 1999
Ocala, FL Manufacturing(2) 15,000 Leased to 1997
Halstead, KS Distribution(1) 36,000 Owned
Waco, TX Distribution(1) 57,000 Leased to 1999
Waco, TX Manufacturing(2) 57,000 Leased to 1999
Fontana, CA Mfg. & Dist.(1)(2) 110,000 Owned,
Fontana, CA Manufacturing(2) 54,000 Leased to 1995
Woodburn, OR Manufacturing(3) 21,500 Owned
Woodburn, OR Mfg. & Dist.(1,2,3) 153,000 Owned, Subject to
Mortgage
Eatonton, GA Mfg. & Dist.(2) 48,300 Leased to 1995
Valdosta, GA Mfg. & Dist.(1)(2) 30,800 Owned
Boulder City, NV Manufacturing(5) 24,700 Leased to 1999
(1) Distribution center
(2) Vinyl/paper/foil laminating
(3) Cabinet doors
(4) Aluminum and adhesives
(5) Other
Additionally, the Registrant operates distribution centers out of
public warehouses in Phoenix, Arizona; Woodland, California; Boise, Idaho; and
Salem, Oregon. The Registrant also owns one other facility which is not being
utilized in its operations and is presently leased out for monthly rental of
$6,200. As of December 31, 1995, the Registrant owned or leased 30 trucks, 51
tractors, 68 trailers, 99 forklifts, 64 automobiles and a corporae aircraft.
All owned and leased facilities and equipment are in good condition and well
maintained.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is subject to claims and suits in the ordinary course
of business. In management's opinion, currently pending legal proceedings and
claims against the Registrant will not, individually or in the aggregate, have a
material adverse effect on the Registrant's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Registrant's common stock is traded on the NASDAQ/NMS under the
symbol PATK. The high and low trade prices of the Registrant's common stock as
reported on NASDAQ/NMS for each quarterly period during the last two years was
as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1995 13 - 8 1/4 12 1/8 - 9 1/4 14 1/4 - 10 3/4 14 1/2 - 11 3/4
1994 15 5/8 - 10 1/2 13 1/2 - 7 3/4 10 - 7 3/4 10 1/2 - 8
The quotations represent prices between dealers, do not include
retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions.
There were approximately 815 holders of Registrant's common stock as
of December 31, 1995 as taken from the transfer agent's shareholder listing.
The Registrant declared a first time regular quarterly dividend of
$.04 per common share starting June 30, 1995. Although this is a regular
quarterly dividend any future determination to pay cash dividends will be made
by the Board of Directors in light of the Registrant's earnings, financial
position, capital requirements and such other factors as the Board of Directors
deems relevant.
The Registrant declared a two-for-one stock split effective March 8,
1994. The stock prices above reflect that stock split.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for each of the
five years set forth below has been derived from financial statements examined
by McGladrey & Pullen, LLP, independent certified public accountants, certain of
which have been included elsewhere herein. The following data should be read in
conjunction with the Financial Statements and related Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein:
As of or for the Year Ended December 31,
1995 1994 1993 1992 1991
(dollars in thousands, except per share amounts)
Net Sales $362,519 $330,981 $258,557 $184,250 $143,008
Gross Profit 49,690 42,328 33,593 22,130 17,390
Warehouse & delivery
expenses 13,244 12,070 10,188 8,449 6,891
Selling, general, &
administrative
expenses 18,809 14,792 13,099 10,380 9,168
Interest expense,
and other,net (1,200) (940) (918) (1,133) (1,587)
Federal and state income
taxes (credits) 6,344 5,642 3,633 825 (93)
Net income (loss) $ 10,093 $ 8,884 $ 5,755 $ 1,343 $ (163)
Earnings (loss) per
common share (1) $ 1.70 $ 1.46 $ 1.11 $ .31 $ (.04)
Weighted average number
of shares
outstanding(1) 5,947 6,094 5,162 4,304 4,316
Cash Dividends, per
common share $ .12 --- --- --- ---
Working Capital $ 43,280 $ 35,011 $ 27,356 $ 15,035 $ 16,443
Total assets 95,916 87,269 67,990 49,935 44,856
Long-term debt 26,200 21,150 11,624 15,387 18,579
Stockholders' equity 52,989 43,439 36,460 19,195 17,780
(1) Adjusted to reflect the three-for-two stock split effected in the nature of
a stock dividend effective June 10, 1993 and the two-for-one stock split
effective March 8, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Registrant's business has shown revenue increases since 1991 as
the economy and the industries served by the Registrant improved. Net sales
have increased for 1994, 1993 and 1992 by 28%, 40% and 28% respectively.
In 1995, the Registrant continued to have revenue growth and recorded
its highest annual sales of $362.5 million. The increase in sales resulted from
the continued strengthening of the economy and increased production in the
Manufactured Housing industry. The increase in sales coupled with improvements
in operating margins has resulted in 1995 net income of $10.1 million, a 13.6%
increase over 1994.
The following table sets forth the percentage relationship to net
sales of certain items in the Registrant's statements of operations:
Year Ended
December 31,
1995 1994 1993
Net sales 100.0% 100.0% 100.0%
Cost of sales 86.3 87.2 87.0
Gross profit 13.7 12.8 13.0
Warehouse and delivery 3.7 3.6 3.9
Selling, general and administrative 5.2 4.5 5.1
Operating income 4.8 4.7 4.0
Net income 2.8 2.7 2.2
RESULTS OF OPERATIONS
Year Ended December 31, 1995 Compared to year Ended December 31, 1994
Net Sales. Net sales increased by $31.5 million, or 9.5%, from $331.0
million for the year ended December 31, 1994, to $362.5 million in the year
ended December 31, 1995. Sales increases were primarily attributable to
increases in units shipped by the Manufactured Housing industry. The
Manufactured Housing industry, which represents approximately 65% of
Registrant s sales, recorded an 11.7% increase in units shipped. The
Registrant s sales to the Recreational Vehicle industry were down as a percent
of total company sales as a result of unit decreases of 8% in 1995.
Gross Profit. Gross profit increased by $7.4 million, or 17.5%, from
$42.3 million in the fiscal year of 1994, to $49.7 million in the fiscal year
1995. As a percentage of net sales, gross profit increased from 12.8% in fiscal
year 1994 to 13.7% in 1995. This increase in gross profit resulted from more
stable prices of certain commodity raw products, increased efficiency of labor,
and improvement in worker s compensation insurance costs.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased $1.1 million or 9.7%, from $12.1 million in fiscal 1994, to $13.2
million in fiscal 1995. As a percentage of net sales, warehouse and delivery
expenses increased from 3.6% in fiscal 1994 to 3.7% in fiscal 1995. This
percentage increase is primarily due to additional delivery vehicles necessary
to support the increased sales volume.
Selling General and Administrative Expenses. Selling, general and
administrative expenses increased by $4.0 million, or 27.0%, from $14.8 million
in fiscal 1994, to $18.8 million in fiscal 1995. As a percentage of net sales,
selling, general and administrative expenses increased from 4.5% in fiscal 1994
to 5.2% in fiscal 1995. This percentage increase is primarily due to an
unusually large bad debt and increased administrative wages at the manufacturing
and distribution facilities.
Operating Income. Operating income increased by $2.1 million, or
13.5%, from $15.5 million in fiscal 1994, to $17.6 million in fiscal 1995. This
increase is primarily attributable to the $7.4 million increase in gross profit
somewhat offset by the increases in selling, general and administrative
expenses. As a percentage of sales, operating income increased from 4.7% in
fiscal 1994 to 4.8% in fiscal 1995.
Interest Expense. Interest expense increased by $260,000 from
$940,000 in fiscal 1994, to $1.2 million in fiscal 1995. This was due to higher
interest rates in 1995 and higher borrowing levels.
Net Income. Net income increased by $1.2 million from $8.9 million in
fiscal 1994, to $10.1 million in fiscal 1995. This increase in net income is
primarily attributable to the factors discussed above.
Year Ended December 31, 1994 Compared to year Ended December 31, 1993.
Net Sales. Net sales increased by $72.4 million, or 28.0%, from
$258.6 million for the year ended December 31, 1993, to $331.0 million in the
year ended December 31, 1994. This sales increase was primarily attributable to
increases in units produced by the Manufactured Housing, Recreational Vehicle
and other building products industries served by the Registrant and is further
evidence of the continuing improvement in these industries. The Manufactured
Housing and Recreational Vehicle industries account for 83% of Registrant s 1994
sales.
Gross Profit. Gross profit increased by $8.7 million, or 26.0%, from
$33.6 million in the fiscal year 1993, to $42.3 million in the fiscal year 1994.
As a percentage of net sales, gross profit decreased from 13.0% in fiscal year
1993 to 12.8% in 1994. This decrease in gross profit resulted from increased
prices of certain commodity raw products that the Registrant was not able to
pass on to customers because of competitive situations.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased $1.9 million or 18.5%, from $10.2 million in fiscal 1993, to $12.1
million in fiscal 1994. As a percentage of net sales, warehouse and delivery
expenses decreased from 3.9% in fiscal 1993 to 3.6% in fiscal 1994. This
percentage decrease is primarily due to increased sales volume.
Selling General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.7 million, or 12.9%, from $13.1 million
in fiscal 1993, to $14.8 million in fiscal 1994. As a percentage of net sales,
selling, general and administrative expenses decreased from 5.1% in fiscal 1993
to 4.5% in fiscal 1994. This percentage decrease is primarily due to increased
sales volume.
Operating Income. Operating income increased by $5.2 million, or
50.1%, from $10.3 million in fiscal 1993, to $15.5 million in fiscal 1994. This
increase is primarily attributable to the $8.7 million increase in gross profit.
As a percentage of sales, operating income increased from 4.0% in fiscal 1993 to
4.7% in fiscal 1994.
Interest Expense. Interest expense increased by only $22,000 from
$918,000 in fiscal 1993, to $940,000 in fiscal 1994. This was due to higher
interest rates in 1994 and lower borrowing levels because the net proceeds from
a 1993 public offering of common stock did not take place until August.
Net Income. Net income increased by $3.1 million from $5.8 million in
fiscal 1993, to $8.9 million in fiscal 1994. This increase in net income is
primarily attributable to the factors described 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 provided for a $10 million term loan with a
maturity in February, 1999 and a credit revolver loan of up to $13 million with
maturity in February, 1997. In September, 1995 with funds from the insurance
company 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.
That project was completed and all bond proceeds were expended by December,
1995.
The Registrant believes that cash generated from operations 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 historically have been seasonal and are generally at the
highest levels when the climate is temperate. Accordingly, the Registrant's
sales and profits were generally highest in the second and third quarters.
However, due to increases in production of manufactured housing and recreational
vehicles, the first and fourth quarters of 1994 and 1995 were unusual in their
high sales and gross profit levels during those winter months when compared to
historical trends.
NEW ACCOUNTING STANDARDS
The Registrant is not aware of any accounting standards which have been
issued but not yet adopted by the Registrant which would have a material impact
on its financial position or results of operations.
INFLATION
The Registrant does not believe that inflation had a material effect on
results of operations for the periods presented.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth in Item 14 (a) 1. on
page 18 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 15, 1996,
under the caption "Election of Directors," which information is hereby
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 15, 1996,
under the caption "Compensation of Executive Officers and Directors," which
information is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 15, 1996,
under the caption "Election of Directors," which information is hereby
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 15, 1996,
under the caption "Certain Transactions," which information is hereby
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
(a) 1. FINANCIAL STATEMENTS
Independent auditor's report F-1
Balance sheets -
December 31, 1995 and 1994 F-2
Statements of income-years ended
December 31, 1995, 1994, and 1993 F-3
Statements of stockholders' equity-
years ended December 31,
1995, 1994, 1993 F-4
Statements of cash flow-
years ended December 31,
1995, 1994, and 1993 F-5
Notes to the financial statements F-6-14
(a) 2. FINANCIAL STATEMENT SCHEDULES
Independent auditor's report
on supplemental schedule & consent F-15
Schedule II - Valuation and qualifying
accounts and reserves F-16
All other schedules have been omitted as not required, not applicable, not
deemed material or because the information is included in the Notes to Financial
Statements.
(a) 3. EXHIBITS
The exhibits listed in the accompanying Exhibit Index on pages 37, 38, and
39 are filed or incorporated by reference as part of this report.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed for the three months ended
December 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Mervin D. Lung
Mervin D. Lung, Chairman of the Board
and Chief Executive Officer
Pursuant to the Requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Mervin D. Lung Chairman of the Board, Chief March 28, 1996
Mervin D. Lung Executive Officer and Director
/s/ David D. Lung President, Chief Operating Officer March 28, 1996
David D. Lung and Director
/s/ Keith V. Kankel Vice President-Finance, March 26, 1996
Keith V. Kanke Principal Accounting Officer and Director
/s/ Thomas G. Baer Vice President-Operations March 28, 1996
Thomas G. Baer and Director
/s/ Harold E. Wyland Vice President-Sales March 28, 1996
Harold E. Wyland and Director
/s/ Clyde H. Keith Director March 28, 1996
Clyde H. Keith
/s/ Merlin D. Knispel Director March 28, 1996
Merlin D. Knispel
/s/ Dorothy M. Lung Director March 28, 1996
Dorothy M. Lung
/s/ John H. McDermott Director March 28, 1996
John H. McDermott
/s/ Robert C. Timmins Director March 28, 1996
Robert C. Timmins
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PATRICK INDUSTRIES, INC.
Elkhart, Indiana
We have audited the accompanying consolidated balance sheets of PATRICK
INDUSTRIES, INC. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1995. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PATRICK INDUSTRIES,
INC. and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
McGLADREY & PULLEN, LLP
Elkhart, Indiana
January 29, 1996
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,349,709 $ 666,986
Trade receivables 20,427,355 18,445,638
Inventories 35,462,152 36,087,900
Prepaid expenses 387,782 291,194
TOTAL CURRENT ASSETS 57,626,998 55,491,718
PROPERTY and EQUIPMENT, at cost 56,189,860 45,047,383
Less accumulated depreciation 23,140,702 21,225,209
33,049,158 23,822,174
Intangible and OTHER ASSETS 5,239,766 7,954,751
$ 95,915,922 $ 87,268,643
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 700,000 $ 1,724,000
Accounts payable, trade 9,589,103 14,916,309
Accrued liabilities 4,057,446 3,534,022
Income taxes payable - 306,332
TOTAL CURRENT LIABILITIES 14,346,549 20,480,663
LONG-TERM DEBT, less current maturities 26,200,000 21,150,000
DEFERRED COMPENSATION obligations 919,821 838,971
DEFERRED TAX LIABILITIES 1,461,000 1,360,000
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized
1,000,000 shares - -
Common stock, no par value; authorized
12,000,000 shares; issued 1995
5,966,866 shares; 1994 5,940,492 shares 21,626,489 21,457,167
Retained earnings 31,362,063 21,981,842
52,988,552 43,439,009
$ 95,915,922 $ 87,268,643
See Notes to Financial Statements.
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993
Net sales $ 362,519,418 $ 330,980,991 $ 258,557,115
Cost of goods sold 312,829,489 288,652,765 224,964,025
GROSS PROFIT 49,689,929 42,328,226 33,593,090
Operating expenses:
Warehouse and delivery 13,244,189 12,069,671 10,188,115
Selling, general, and administrative 18,809,458 14,792,359 13,099,496
32,053,647 26,862,030 23,287,611
OPERATING INCOME 17,636,282 15,466,196 10,305,479
Interest expense 1,199,742 940,167 917,866
INCOME BEFORE INCOME TAXES (CREDITS) 16,436,540 14,526,029 9,387,613
Federal and state income taxes 6,344,000 5,642,000 3,633,000
NET INCOME $ 10,092,540 $ 8,884,029 $ 5,754,613
Earnings per common share $ 1.70 $ 1.46 $ 1.11
See Notes to Financial Statements.
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
Preferred Common Retained
Stock Stock Earnings Total
Balance, December 31, 1992 $ - $ 10,623,482 $ 8,572,000 $ 19,195,482
Net income - - 5,754,613 5,754,613
Issuance of 1,640,000 shares of common stock - 10,786,162 - 10,786,162
Proceeds from the exercise of 219,076 stock
options including related tax benefit - 723,308 - 723,308
Balance, December 31, 1993 - 22,132,952 14,326,613 36,459,565
Net income - - 8,884,029 8,884,029
Proceeds from the exercise of 2,600 stock
options including related tax benefit - 5,421 - 5,421
Issuance of 30,000 shares of common stock
for stock award plan - 270,000 - 270,000
Repurchase and retirement of 265,700 shares
of common stock - (951,206) (1,228,800) (2,180,006)
Balance, December 31, 1994 - 21,457,167 21,981,842 43,439,009
Net income - - 10,092,540 10,092,540
Proceeds from the exercise of 26,374 stock
options including related tax benefit - 169,322 - 169,322
Cash dividends paid ($.12 per share) - - (712,319) (712,319)
Balance, December 31, 1995 $ - $ 21,626,489 $ 31,362,063 $ 52,988,552
See Notes to Financial Statements.
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,092,540 $ 8,884,029 $ 5,754,613
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 3,556,512 2,883,110 2,619,987
Other 183,054 (149,606) 12,116
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables (1,717,489) (2,849,614) (3,959,312)
Inventories 1,031,077 (6,628,546) (12,468,655)
Prepaid expenses (83,293) (110,006) (19,056)
Increase (decrease) in:
Accounts payable and accrued
liabilities (4,803,782) 2,023,342 5,080,183
Income taxes payable and deferred
income taxes (205,332) (30,168) (181,567)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 8,053,287 4,022,541 (3,161,691)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (11,866,492) (5,773,694) (4,086,218)
Acquisition of businesses, net of cash (3,346,596) (1,148,727) -
Cash held in escrow 4,584,738 (4,584,738) -
Other (225,217) 190,974 195,676
NET CASH (USED IN) INVESTING
ACTIVITIES (10,853,567) (11,316,185) (3,890,542)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under long-term debt agreements 24,000,000 21,666,666 -
Principal payments on long-term debt (19,974,000) (11,996,911) (4,175,000)
Proceeds from issuance of common
stock and options 169,322 5,421 11,509,470
Repurchase of common stock - (2,180,006) -
Cash dividends paid (712,319) - -
NET CASH PROVIDED BY FINANCING
ACTIVITIES 3,483,003 7,495,170 7,334,470
INCREASE IN CASH AND CASH
EQUIVALENTS 682,723 201,526 282,237
Cash and cash equivalents, beginning 666,986 465,460 183,223
Cash and cash equivalents, ending $ 1,349,709 $ 666,986 $ 465,460
See Notes to Financial Statements.
I. NATURE OF BUSINESS, USE OF ESTIMATES, AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company's operations consist primarily of the manufacture and distribution
of building products and materials for use primarily by the manufactured housing
and recreational vehicle industries for customers throughout the United States.
Credit is generally granted on an unsecured basis for terms of 30 days.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly-owned sub- sidiaries, Harlan Machinery Company, Inc. and Patrick
Doors, Inc., and its majority-owned subsidiary, Patrick Mouldings, L.L.C. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH EQUIVALENTS:
For purposes of the statement of cash flows, the Company considers all highly
liquid money market accounts to be cash equivalents.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out (FIFO) method)
or market.
PROPERTY AND EQUIPMENT:
Depreciation has been computed primarily by the straight-line method applied to
individual items based on estimated useful lives which generally range from 10
to 40 years for buildings and improvements and from 3 to 15 years for machinery
and equipment, transportation equipment, and leasehold improvements.
GOODWILL:
Goodwill, the excess of cost over the fair value of net assets acquired, is
amortized by the straight-line method over 15-year periods. At each balance
sheet date, management assesses whether there has been a permanent impairment in
the value of goodwill. In the event that an impairment is evident, the Company
records an expense for the impairment. Factors considered by management include
current operating results, anticipated future cash flows, trends, and prospects,
as well as the effects of obsolescence, demand, competition, and other economic
factors.
REVENUE RECOGNITION:
The Company ships product based on specific orders from customers. Shipments
are made by the Company only after receiving authorization from the customer and
revenue is recognized upon delivery.
EARNINGS PER COMMON SHARE:
Earnings per common share for the years ended December 31, 1995, 1994, and 1993
have been computed based on the weighted average number of shares outstanding of
5,946,948, 6,094,444, and 5,161,548 respectively.
II. BALANCE SHEET DATA
TRADE RECEIVABLES:
Trade receivables in the accompanying balance sheets at December 31, 1995 and
1994 are stated net of an allowance for doubtful accounts of $100,000 and
$165,000 respectively.
INVENTORIES:
1995 1994
Raw materials $ 23,105,916 $ 23,630,848
Work in process 877,805 738,439
Finished goods 3,197,561 3,618,587
Materials purchased for resale 8,280,870 8,100,026
$ 35,462,152 $ 36,087,900
PROPERTY AND EQUIPMENT:
1995 1994
Land and improvements $ 2,292,048 $ 2,270,680
Buildings and improvements 16,152,051 12,274,588
Machinery and equipment 32,254,155 26,484,031
Transportation equipment 3,331,637 3,142,927
Leasehold improvements 2,159,969 875,157
56,189,860 45,047,383
Less accumulated depreciation 23,140,702 21,225,209
$ 33,049,158 $ 23,822,174
INTANGIBLE AND OTHER ASSETS:
Goodwill, at amortized cost $ 3,294,276 $ 1,625,568
Cash held in escrow - 4,584,738
Other, primarily cash value of life insurance 1,945,490 1,744,445
$ 5,239,766 $ 7,954,751
ACCRUED LIABILITIES:
Payroll and related expenses $ 2,664,374 $ 2,049,484
Property taxes 811,155 636,135
Other 581,917 848,403
$ 4,057,446 $ 3,534,022
III. PLEDGED ASSETS AND LONG-TERM DEBT
Long-term debt and related collateral at December 31, 1995 and 1994 consist of
the following:
1995 1994
Senior Notes, insurance company $ 18,000,000 $ -
Indiana Development Finance Authority Bonds 3,300,000 3,600,000
State of Oregon Economic Development Revenue Bonds 5,600,000 6,000,000
Revolving credit agreement - 4,000,000
Term loan agreement - 9,250,000
Note payable, other - 24,000
26,900,000 22,874,000
Less current maturities 700,000 1,724,000
$ 26,200,000 $ 21,150,000
The senior notes require interest only at a fixed interest rate of 6.82% and are
unsecured. The annual principal installments of $2,571,428 commence on
September 15, 1999 and the final installment is due September 15, 2005. This
agreement requires that the Company maintain a minimum level of tangible net
worth, which has been complied with at December 31, 1995.
The Indiana Development Finance Authority Bonds are payable in annual
installments of $300,000 plus interest at a variable tax exempt bond rate, set
periodically to enable the bonds to be sold at par (3.11% at December 31, 1995).
The final installment is due November 1, 2006. The bonds are collateralized by
real estate and equipment purchased with the bond funds and are backed by a bank
standby letter of credit.
The State of Oregon Economic Development Revenue Bonds are payable in annual
installments of $400,000 plus interest at a variable tax exempt bond rate (3.9%
at December 31, 1995). The final installment is due December 2010. The bonds
are collateralized by real estate and equipment and are backed by a bank standby
letter of credit.
The Company has an unsecured revolving credit agreement which allows borrowings
up to $5,000,000 or a borrowing base defined in the agreement. Interest on this
note is at either prime or the Eurodollar rate plus 1% to 1.25%. In addition,
this agreement requires the Company to, among other things, maintain minimum
levels of tangible net worth, working capital, and debt to net worth. All
covenants have been complied with as of December 31, 1995. In addition, the
Company is contingently liable for standby letters of credit of $1,000,000 to
meet credit policies of certain suppliers.
Aggregate maturities of long-term debt for the years ending December 31, 1997
through 2000 are as follows: 1997 $700,000; 1998 $700,000; 1999 $3,271,428; and
2000 $3,271,428.
Based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the fair value of long-term debt
approximates the carrying value.
IV. EQUITY TRANSACTIONS
On July 28, 1993, the Company completed a stock offering and issued 1,640,000
shares of common stock in exchange for $10,786,162 (net of offering costs,
underwriting discounts, and commissions of $1,103,838).
Common stock sold to key employees through the exercise of stock options
resulted in a tax deduction for the Company equivalent to the taxable income
recognized by the employee. For financial reporting purposes, the tax benefit
resulting from this deduction, along with the proceeds from the exercise of the
options, is accounted for as an increase to common stock.
Effective June 1995, the Company implemented a quarterly cash dividend of $.04
per common share.
V. COMMITMENTS AND RELATED PARTY LEASES
The Company leases certain equipment and office, manufacturing, and warehouse
facilities under various noncancelable agreements which expire at various dates
through 2005. These agreements contain various renewal options and provide for
minimum annual rentals plus the payment of real estate taxes, insurance, and
normal maintenance on the properties. Certain of the leases are with the
chairman/major stockholder and expire at various dates through September 30,
2005.
The total minimum rental commitment at December 31, 1995 under the leases
mentioned above is approxi- mately $8,000,000 which is due approximately
$2,500,000 in 1996, $2,000,000 in 1997, $1,500,000 in 1998, and $1,000,000 in
both 1999 and 2000.
The total rental expense included in the statements of income for the years
ended December 31, 1995, 1994, and 1993 is approximately $3,000,000, $2,600,000,
and $1,900,000 respectively, of which approxi- mately $1,300,000, $1,100,000,
and $1,100,000 respectively was paid to the chairman/major stockholder.
VI. MAJOR CUSTOMERS
Net sales for the years ended December 31, 1995, 1994, and 1993 include sales to
two major customers, Fleetwood Enterprises, Inc. and Skyline Corporation, each
of which accounted for 10% or more of the total net sales of the Company for
those years. The percentage of total Company sales to one major customer was
11.3%, 13.8%, and 13.7%, and to the other was 12.2%, 15.5%, and 15.8% for the
years ended December 31, 1995, 1994, and 1993 respectively.
The trade receivable balances due from these two customers at December 31, 1995
and 1994 were not significant to the total trade receivables balance.
VII. INCOME TAX MATTERS
Federal and state income taxes for the years ended December 31, 1995, 1994, and
1993, all of which are domestic, consist of the following:
1995 1994 1993
Current:
Federal $ 5,185,000 $ 4,405,000 $ 2,978,000
State 1,058,000 964,000 577,000
Deferred 101,000 273,000 78,000
$ 6,344,000 $ 5,642,000 $ 3,633,000
The provisions for income taxes for the years ended December 31, 1995, 1994, and
1993 are different from the amounts that would otherwise be computed by applying
a graduated federal statutory rate of 34% to 35% to income before income taxes.
A reconciliation of the differences is as follows:
1995 1994 1993
Rate applied to pretax income $ 5,637,000 $ 4,984,000 $ 3,192,000
State taxes, net of federal
tax benefit 723,000 637,000 435,000
Permanent differences (16,000) 21,000 6,000
$ 6,344,000 $ 5,642,000 $ 3,633,000
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the current period plus or minus
the change during the period in deferred tax assets and liabilities.
The composition of the deferred tax assets and liabilities at December 31, 1995
and 1994 is as follows:
1995 1994
Gross deferred tax liability,
accelerated depreciation $ (2,382,000) $ (2,064,000)
Gross deferred tax assets:
Trade receivables allowance 38,000 63,000
Uniform inventory capitalization 276,000 224,000
Nondeductible accruals 226,000 93,000
Deferred compensation 353,000 319,000
Other 28,000 5,000
921,000 704,000
Net deferred tax (liabilities) $ (1,461,000) $ (1,360,000)
VIII. COMPENSATION PLANS
DEFERRED COMPENSATION OBLIGATIONS:
The Company has deferred compensation agreements with certain key employees.
The agreements provide for monthly benefits for ten years subsequent to
retirement, disability, or death. The Company has accrued an estimated
liability based upon the present value of an annuity needed to provide the
benefit payments.
BONUS PLAN:
The Company pays bonuses to certain management personnel. Historically, bonuses
are determined annually and are based upon corporate and divisional income
levels. The charge to operations amounted to approximately $2,124,000,
$1,959,000, and $1,357,000 for the years ended December 31, 1995, 1994, and 1993
respectively.
PROFIT-SHARING PLAN:
The Company has a qualified profit-sharing plan, more commonly known as a 401(k)
plan, for sub- stantially all of its employees with over one year of service and
who are at least 21 years of age. The plan provides for a percentage matching
contribution by the Company as defined in the agreement and in addition,
provides for a discretionary contribution annually as determined by the Board of
Directors. The amount of contributions for the years ended December 31, 1995,
1994, and 1993 was immaterial.
STOCK OPTION PLAN:
The Company has adopted a stock option plan with shares of common stock reserved
for options to key employees. These options were not included in computing
earnings per common share because the effect of their inclusion was immaterial.
Following is a summary of transactions of shares under option for the years
ended December 31, 1995 and 1994:
1995 1994
Outstanding, beginning of year 215,674 116,024
Granted during the year, exercisable
at $10.50 per share - 109,000
Canceled during the year (1,500) (6,750)
Exercised during the year (26,374) (2,600)
Outstanding, end of year 187,800 215,674
Eligible, end of year for exercise
currently at:
$2.085 per share 83,800 109,674
$10.50 per share 26,000 -
STOCK AWARD PLAN:
The Company has adopted a stock award plan for the five existing non-employee
directors. Grants awarded during May 1994 of 30,000 shares are subject to
forfeiture in the event the recipient terminates as a director within two years
from the date of grant.
IX. BUSINESS COMBINATION
On November 8, 1994, the Company acquired all of the stock of Harlan Machinery
Company, Inc., a manufacturer of laminating and other industrial equipment. The
purchase price of the acquired stock was $2,095,000. The excess of the total
acquisition cost over the fair value of the stock of $1,339,000 is being
amortized over fifteen years by the straight-line method. The acquisition has
been accounted for as a purchase and the results of operations since the date of
acquisition are included in the consolidated results of operations.
In January 1995, the Company purchased substantially all the assets of U.S.
Door, Inc., a manufacturer of wooden cabinet doors. The purchase price of the
acquired assets was $3,346,000. The excess of the total acquisition cost over
the fair value of the assets of $1,876,000 is being amortized over fifteen years
by the straight-line method. The acquisition has been accounted for as a
purchase and the results of operations since the date of acquisition are
included in the consolidated results of operations.
Summarized proforma financial information for the year ended December 31, 1994
as if the two acquisitions had occurred at the beginning of that year is as
follows:
Net sales $ 340,398,000
Net income 9,065,000
Earnings per share 1.49
X. CASH FLOWS INFORMATION
Supplemental information relative to the statements of cash flows for the years
ended December 31, 1995, 1994, and 1993 is as follows:
1995 1994 1993
Supplemental disclosures of
cash
flows information:
Cash payments for:
Interest $ 1,416,133 $ 844,608 $ 974,908
Income taxes $ 6,751,132 $ 5,872,168 $ 3,814,567
The changes in assets and liabilities in arriving at net cash provided by
operating activities in 1995 and 1994 are net of the purchases of U.S.
Door, Inc. and Harlan Machinery Company, Inc. respectively.
XI. UNAUDITED INTERIM FINANCIAL INFORMATION
Presented below is certain selected unaudited quarterly financial information
for the years ended December 31, 1995 and 1994 (dollars in thousands,
except share data):
Quarter Ended
March 31, June 30, September 30, December 31,
1995
Net sales $ 87,031 $ 92,559 $ 94,125 $ 88,804
Gross profit 11,970 12,495 13,212 12,013
Net income 2,316 2,663 2,842 2,272
Earnings per 0.39 0.45 0.48 0.38*
common share
Weighted average
number
of shares 5,940,809 5,943,492 5,947,431 5,955,722
outstanding
Quarter Ended
March 31, June 30, September 30, December 31,
1994
Net sales $ 76,898 $ 85,240 $ 86,011 $ 82,832
Gross profit 9,537 10,669 11,171 10,951
Net income 1,773 2,294 2,498 2,319
Earnings per 0.29 0.37 0.41 0.39*
common share
Weighted average
number
of shares 6,174,533 6,174,030 6,058,770 5,973,046
outstanding
* Includes a retro policy adjustment for favorable experience with workers'
compensation claims which resulted in an increase in net income of $.06
per share in the fourth quarter of each year.
INDEPENDENT AUDITOR'S REPORT ON THE
SUPPLEMENTAL SCHEDULE AND CONSENT
To The Board of Directors
PATRICK INDUSTRIES, INC.
Elkhart, Indiana
Our audits of the consolidated financial statements of Patrick Industries, Inc.
and subsidiaries included Schedule II, contained herein, for each of the years
in the three-year period ended December 31, 1995. Such schedule is presented
for purposes of complying with the Securities and Exchange Commission's rule and
is not a required part of the basic consolidated financial statements. In our
opinion, such schedule presents fairly the information set forth therein, in
conformity with generally accepted accounting principles.
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 33-29000) and in the related Prospectus of our
report, dated January 29, 1996, with respect to the consolidated financial
statements and schedule of Patrick Industries, Inc. and subsidiaries included in
this Annual Report on Form 10-K for the year then ended.
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
Elkhart, Indiana
January 29, 1996
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
DECEMBER 31, 1993, 1994, AND 1995
(IN THOUSANDS)
Balance At Deductions Balance At
Beginning Charged To From Close
Of Period Operations Reserves Of Period
Allowance for doubtful accounts
- deducted from trade receiv-
ables, in the balance sheets:
1993 $ 150,000 $ 143,676 $ 93,676 $ 200,000
1994 $ 200,000 $ 44,203 $ 79,203 $ 165,000
1995 $ 165,000 $ 940,978 $ 1,005,978 $ 100,000
INDEX TO EXHIBITS
Exhibit Number Exhibits
3(a) - Amended Articles of Incorporation of the
Registrant as further amended (filed as Exhibit 3(a)
to the Registrant's Form 10-K/A-1 amending its report
on Form 10-K for the fiscal year ended December 31,
1992 and incorporated herein by
reference)......................
3(b) -By-Laws of the Registrant (filed as Exhibit 3(b) to
the Registrant's Form 10-K/A-1 amending its report on
Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference)
.....................
10(a)** -Second Amendment to February 2, 1994 Credit
Agreement, dated as of June 26, 1995 among the
Registrant, NBD Bank, as agent, and NBD Bank, N.A.
.............
10(b)** -Note Agreement, dated September 1, 1995, between the
Registrant and Nationwide Life Insurance Company
..................
10(c)** -Commercial Lease and Option to Purchase dated as of
October 1, 1995 between Mervin Lung Building Company,
Inc., as lessor, and the Registrant, as lessee
..........
10(d) -First Amendment to Credit Agreement, dated as of
October 27, 1994 among the Registrant, NBD Bank, as
agent, and NBD Bank, N.A. (filed as Exhibit 10(a) to
the Registrant s Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by
reference)..............
10(e) -Loan Agreement dated as of December 1, 1994 between
the State of Oregon Economic Development Commission,
along with the Pledge and Security Agreement relating
thereto (filed as Exhibit 10(b) to the Registrant's
Form 10-K for the fiscal year ended December 31, 1994
and incorporated herein by reference)................
10(f) -Credit Agreement dated as of February 2, 1994 among
the Registrant, NBD Bank, as agent, and NBD Bank,
N.A. (filed as Exhibit 10(a) to the Registrant's Form
10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference)
.....................
10(g) -Loan Agreement dated as of November 1, 1991 between
the Registrant and the Indiana Development Finance
Authority, along with the Pledge and Security
Agreement relating thereto (filed as Exhibit 10(c) to
the Registrant's Form 10-K/A-1 amending its report on
Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference) ..............
*10(h) -Patrick Industries, Inc. 1987 Stock Option Program,
as amended (filed as Exhibit 10(e) to the
Registrant's Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by
reference) ............................
*10(i) -Patrick Industries, Inc. 401(k) Employee Savings
Plan (filed as Exhibit 10(a) to the Registrant's Form
10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference)
.....................
*10(j) -Form of Employment Agreements with Executive
Officers (filed as Exhibit 10(e) to the Registrant's
Form 10-K/A-1 amending its report on Form 10-K for
the fiscal year ended December 31, 1992 and
incorporated herein by reference) ...............
*10(k) -Form of Deferred Compensation Agreements with
Executive Officers (filed as Exhibit 10(f) to the
Registrant's Form 10-K/A-1 amending its report on
Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference)
.................................
10(l) -Commercial Lease and dated as of October 1, 1994
between Mervin D. Lung, as lessor, and the
Registrant, as lessee (filed as Exhibit 10(k) to the
Registrant s Form 10-K for the fiscal year ended
December 31, 1994) .........
10(m) -Commercial Lease dated September 1, 1994 between
Mervin D. Lung Building Company, Inc., as lessor, and
the Registrant, as lessee (filed as Exhibit 10(l) to
the Registrant's Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by
reference) .......
10(n) -Commercial Lease dated November 1, 1994 between
Mervin D. Lung Building Company, Inc., as lessor, and
the Registrant, as lessee (filed as Exhibit 10(m) to
the Registrant s Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by
reference)..............
12** -Computation of Operating Ratios ..............
21 -No significant subsidiaries .............
23 -Consent of accountants (included in Independent
auditor's report on supplemental schedule & consent
on page F-15) .............
27** Financial Data Schedule .............
*Management contract or compensatory plan or arrangement
**Filed herewith