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 June 30, 1996 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 July 31, 1996: 5,993,766 PATRICK INDUSTRIES, INC. INDEX Page No. PART I: Financial Information Unaudited Condensed Balance Sheets June 30, 1996 & December 31, 1995 3 Unaudited Condensed Statements of Income Three Months Ended June 30, 1996 & 1995, and Six Months Ended June 30, 1996 & 1995 4 Unaudited Condensed Statements of Cash Flows Six Months Ended June 30, 1996 & 1995 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) JUNE 30 DECEMBER 31 1996 1995 ASSETS CURRENT ASSETS Cash $ 6,305,364 $ 1,349,709 Accounts Receivable, Net 26,605,375 20,427,355 Inventories 33,871,917 35,462,152 Other 128,047 387,782 Total Current Assets $ 66,910,703 $ 57,626,998 PROPERTY AND EQUIPMENT, at cost $ 60,856,466 $ 56,189,860 Less Accumulated Depreciation 24,585,958 23,140,702 $ 36,270,508 $ 33,049,158 INTANGIBLE AND OTHER ASSETS $ 5,458,217 $ 5,239,766 Total Assets $ 108,639,428 $ 95,915,922 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Maturities of Long-term Debt $ 700,000 $ 700,000 Accounts Payable 16,829,964 9,589,103 Accrued Expenses and Taxes Payable 5,221,811 4,057,446 Total Current Liabilities $ 22,751,775 $ 14,346,549 LONG-TERM DEBT, LESS CURRENT MATURITIES $ 26,200,000 $ 26,200,000 DEFERRED COMPENSATION OBLIGATIONS AND OTHER $ 1,028,908 $ 919,821 DEFERRED TAX LIABILITIES $ 1,510,000 $ 1,461,000 SHAREHOLDERS' EQUITY Common Stock $ 21,114,675 $ 21,626,489 Retained Earnings 36,034,070 31,362,063 Total Shareholders' Equity $ 57,148,745 $ 52,988,552 Total Liabilities and Shareholders' Equity $ 108,639,428 $ 95,915,922 NOTE: The balance sheet at December 31, 1995 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 SIX MONTHS ENDED JUNE 30 JUNE 30 1996 1995 1996 1995 NET SALES $107,395,342 $92,559,763 $201,162,883 $179,590,484 COST AND EXPENSES Cost of Goods Sold $ 92,952,138 $80,063,957 $174,966,283 $155,124,058 Warehouse and Delivery Expenses 3,618,343 3,294,961 6,982,996 6,545,330 Selling and Administrative Expenses 5,233,875 4,473,013 10,158,531 9,049,187 Financial Expenses, Net 289,927 361,618 586,808 709,382 $ 102,094,283 $88,193,549 $192,694,618 $171,427,957 INCOME BEFORE INCOME TAXES $ 5,301,059 $ 4,366,214 $ 8,468,265 $ 8,162,527 INCOME TAXES 2,096,700 1,702,800 3,319,200 3,183,400 NET INCOME $ 3,204,359 $ 2,663,414 $ 5,149,065 $ 4,979,127 EARNINGS PER COMMON SHARE $ .53 $ .45 $ .86 $ .84 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,965,951 5,943,492 5,966,554 5,942,157 See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC. UNAUDITED CONDENSED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 31 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 5,149,065 $ 4,979,127 Adjustment to Reconcile Net Income to Net Cash: Depreciation and Amortization 2,185,144 1,587,458 Other (13,729) (23,967) Change in Assets and Liabilities: Decrease (Increase) in: Accounts Receivable (6,178,020) (4,018,320) Inventories 1,590,235 (1,821,313) Other 259,735 (38,137) Increase (Decrease) in: Accounts Payable and Accrued Expenses 7,608,535 276,525 Income Taxes Payable and Deferred Taxes 847,614 235,224 Deferred Compensation 73,678 53,160 Net Cash Provided by Operating Activities $ 11,522,257 $ 1,229,757 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures $ (5,281,613) $ (5,452,835) Acquisition of Assets of U.S. Door - - - (3,346,596) Change in Cash Held in Escrow - - - 2,015,201 Other 97,633 42,363 Net Cash (Used in) Investing Activities $ (5,183,980) $(6,741,867) CASH FLOWS FROM FINANCING ACTIVITIES Net Borrowings Under Debt Agreements - - - $ 6,000,000 Sale of Common Stock 174,724 6,255 Principal Payments on Debt - - - (524,000) Reacquisition of Common Stock (1,080,288) - - - Cash Dividends (477,058) (237,034) Net Cash Provided by (Used In) Financing Activities $ (1,382,622) $ 5,245,221 Increase (Decrease) in Cash and Cash Equivalents $ 4,955,655 $ (266,889) CASH and CASH EQUIVALENTS, BEGINNING $ 1,349,709 $ 666,986 CASH and CASH EQUIVALENTS, ENDING $ 6,305,364 $ 400,097 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 June 30, 1996, and December 31, 1995, and the results of operations and cash flows for the three months and the six months ended June 30, 1996 and 1995. 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, 1995 audited financial statements. The results of operations for the three months and six months periods ended June 30, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. 3. The inventories on June 30, 1996 and December 31, 1995 consist of the following classes: June 30 December 31 1996 1995 Raw Materials $20,827,787 $23,105,916 Work in Process 800,205 877,805 Finished 2,947,038 3,197,561 Total Manufactured Goods $24,575,030 $27,181,282 Distribution Products 9,296,887 8,280,870 TOTAL INVENTORIES $33,871,917 $35,462,152 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 six months ended June 30, 1996 and 1995 have been computed based on the weighted average number of shares of common stock. The weighted average number of shares outstanding was 5,965,951 for the three months and 5,966,554 for the six months ended June 30, 1996 and 5,943,492 for the three months and 5,942,157 for the six months ended June 30, 1995. 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 annually from $184 million in 1992 to over $362 million in 1995. The following table sets forth the percentage relationship to net sales of certain items in the Registrant's Statements of Operations:
Three Months Six Months Ended June 30 Ended June 30 1996 1995 1996 1995 Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Sales 86.5 86.5 87.0 86.4 Gross Profit 13.5 13.5 13.0 13.6 Warehouse and Delivery 3.4 3.6 3.5 3.6 Selling, General & Administrative 4.9 4.8 5.0 5.0 Operating Income 5.2 5.1 4.5 5.0 Net Income 3.0 2.9 2.6 2.8
RESULTS OF OPERATIONS Quarter Ended June 30, 1996 Compared to Quarter Ended June 30, 1995 Net Sales. Net sales increased by $14.8 million, or 16.0%, from $92.6 million for the quarter ended June 30, 1995, to $107.4 million in the quarter ended June 30, 1996. This sales increase was attributable to a 12% increase in units shipped by the Manufactured Housing industry, which represents approximately 68% of the Registrant s sales. The Registrant s sales to the Recreational Vehicle industry were higher in this years second quarter because the industry, which represents approximately 16% of Registrant s sales, was experiencing a slight increase in units shipped. Gross Profit. Gross profit increased by approximately $1.9 million, or 15.6%, from $12.5 million in the second quarter of 1995, to $14.4 million in the same 1996 quarter. As a percentage of net sales, gross profit remained about the same as the second quarter of 1995. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased approximately $323,000, or 9.8%, from $3.3 million in 1995, to $3.6 million in the second quarter of 1996. As a percentage of net sales, warehouse and delivery expenses decreased from 3.6% in 1995 to 3.4% in the 1996 second quarter. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by approximately $761,000, or 17.0%, from $4.5 million in 1995, to $5.2 million in 1996. As a percentage of net sales, selling, general and administrative expenses remained about the same. Operating Income. Operating income increased by approximately $863,000 because of the increased sales and the operating expenses remaining steady as percentages to sales. As a percentage of sales, operating income increased from 5.1% in 1995 to 5.2% in the 1996 second quarter. Interest Expense. Interest expense decreased by approximately $72,000 from $362,000 in 1995 to $290,000 in the second quarter of 1996. The Registrant s borrowing levels in the 1996 period were slightly lower and at lower rates. Net Income. Net income increased by approximately $541,000 from $2.7 million in 1995 to $3.2 million in 1996 for the second quarter ended June 30. This increase is attributable to the factors described above. Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Net Sales. Net sales increased by $21.6 million, or 12.0%, from $179.6 million for the six months ended June 30, 1995, to $201.2 million in the six months ended June 30, 1996. This sales increase was attributable to a 10.5% increase in units shipped by the Manufactured Housing industry, which represents 68% of the Registrant s total sales. The Registrant s sales to the Recreational Vehicle industry were about the same in both six month periods and represent about 16% of total sales. Gross Profit. Gross profit increased by $1.7 million, or 7.1%, from $24.5 million in the first six months of 1995, to $26.2 million in the same period in 1996. As a percentage of net sales, gross profit decreased from 13.6% in the first six months of 1995 to 13.0% in 1996. This decrease in the gross profit percentage was the result of first quarter lower volume and higher raw material costs of sales in the Registrant s aluminum extrusion division, plant relocation costs at the new Oregon facility, and highly competitive market pricing of certain products. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased approximately $438,000, or 6.7%, from $6.6 million in 1995, to $7.0 million in the first six months of 1996. As a percentage of net sales, warehouse and delivery expenses decreased from 3.6% for 1995 to 3.5% in 1996. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $1.1 million, or 12.3%, from $9.1 million in 1995, to $10.2 million in 1996. As a percentage of net sales, selling, general and administrative expenses remained the same at 5.0% in 1995 and 1996. Operating Income. Operating income increased by approximately $183,000, or 2.1%, from $8.9 million in 1995, to $9.1 million in 1996. This increase is primarily attributable to the $1.7 million increase in gross profit. As a percentage of sales, operating income decreased from 5.0% in 1995 to 4.5% in 1996. Interest Expense. Interest expense decreased by $123,000 from $709,000 in 1995, to $587,000 in 1996. This decrease was due to lower interest rates and borrowing levels. Net Income. Net income increased by $170,000 from $5.0 million in 1995, to $5.2 million in 1996. 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 in 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 believes that cash generated from operations and borrowings under its credit agreements will be sufficient to fund its working capital requirements and ordinary 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 are generally highest in the second and third quarters. 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 (a) The Annual Meeting of Shareholders of the Registrant was held on May 15, 1996. (b) Not applicable. (c) 1. Set forth below is the tabulation of the votes on each nominee for election as a director:
WITHHOLD NAME FOR AUTHORITY Clyde H. Keith 5,173,295 34,634 Dorothy M. Lung 5,173,195 34,734 Robert C. Timmins 5,173,295 34,634
2. Not applicable. (d) Not applicable. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K: None 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 August 13, 1996 /s/ Mervin D. Lung Mervin D. Lung (Chairman of the Board) Date August 13, 1996 /s/ David D. Lung David D. Lung (President) Date August 12, 1996 /s/ Keith V. Kankel Keith V. Kankel (Vice President Finance) (Principal Accounting Officer)