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 March 31, 1997 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 April 30, 1997: 5,965,266 PATRICK INDUSTRIES, INC. INDEX Page No. PART I: Financial Information Unaudited Condensed Balance Sheets March 31, 1997 & December 31, 1996 3 Unaudited Condensed Statements of Income Three Months Ended March 31, 1997 & 1996, 4 Unaudited Condensed Statements of Cash Flows Three Months Ended March 31, 1997 & 1996 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) MARCH 31 DECEMBER 31 1997 1996 ASSETS CURRENT ASSETS Cash $ 798,897 $ 6,441,482 Investment in Marketable Securities 5,000,000 --- Accounts Receivable, Net 27,602,693 15,208,671 Inventories 38,345,279 39,342,506 Other 466,799 393,520 Total Current Assets $ 72,213,668 $ 61,386,179 PROPERTY AND EQUIPMENT, at cost $ 68,980,268 $ 65,630,289 Less Accumulated Depreciation 27,058,814 25,870,995 $ 41,921,454 $ 39,759,294 INTANGIBLE AND OTHER ASSETS $ 5,402,646 $ 5,460,793 Total Assets $ 119,537,768 $ 106,606,266 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Maturities of Long-term Debt $ 1,138,517 $ 1,138,517 Accounts Payable 21,330,905 10,545,175 Accrued Expenses and Taxes Payable 4,441,322 4,056,031 Total Current Liabilities $ 26,910,744 $ 15,739,723 LONG-TERM DEBT, NET of CURRENT MATURITIES $ 26,044,106 $ 26,151,527 DEFERRED COMPENSATION OBLIGATIONS $ 1,116,607 $ 1,069,357 DEFERRED INCOME TAX CREDITS $ 1,306,339 $ 1,350,000 SHAREHOLDERS' EQUITY Common Stock $ 22,154,619 $ 22,138,494 Retained Earnings 42,005,353 40,157,165 Total Stockholders' Equity $ 64,159,972 $ 62,295,659 Total Liabilities and Stockholders' Equity $ 119,537,768 $ 106,606,266 NOTE: The balance sheet at December 31, 1996 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 MARCH 31 1997 1996 NET SALES $96,935,710 $93,767,541 COST AND EXPENSES Cost of Goods Sold $84,979,168 $82,014,145 Warehouse and Delivery Expenses 3,395,562 3,364,653 Selling and Administrative Expenses 4,853,227 4,924,656 Financial Expenses, Net 287,909 296,881 $93,515,866 $90,600,335 INCOME BEFORE INCOME TAXES $ 3,419,844 $ 3,167,206 INCOME TAXES 1,333,700 1,222,500 NET INCOME $ 2,086,144 $ 1,944,706 EARNINGS PER COMMON SHARE $ .35 $ .33 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,964,594 5,967,157 See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC. UNAUDITED CONDENSED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED MARCH 31 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 2,086,144 $ 1,944,706 Adjustment to Reconcile Net Income to Net Cash: Depreciation and Amortization 1,397,612 1,061,881 Other (28,353) (378) Change in Assets and Liabilities: Decrease (Increase) in: Accounts Receivable (12,394,022) (5,868,551) Inventories 997,227 1,601,926 Other (73,279) 167,706 Increase (Decrease) in: Accounts Payable and Accrued Expenses 9,836,649 3,756,025 Income Taxes Payable and Deferred Taxes 1,313,700 1,008,568 Deferred Compensation 47,250 35,749 Net Cash Provided by (Used in) Operating Activities $ 3,182,928 $ 3,707,632 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures $ (3,494,664) $ (1,458,961) Investment in Marketable Securities (600,000) - - - Other 15,139 23,273 Net Cash (Used in) Investing Activities $ (4,079,525) $ (1,435,688) CASH FLOWS FROM FINANCING ACTIVITIES Cash Dividend $ (237,954) $ (238,439) Proceeds from Options 16,125 23,978 Principal Payments on Debt (107,421) - - - Reacquisition of Common Stock - - - (356,250) Other (16,738) 80,549 Net Cash Provided by (Used In) Financing Activities $ (345,988) $ (490,162) Increase (Decrease) in Cash and Cash Equivalents $ (1,242,585) $ 1,781,782 CASH and CASH EQUIVALENTS, BEGINNING $ 2,041,482 $ 1,349,709 CASH and CASH EQUIVALENTS, ENDING $ 798,897 $ 3,131,491 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 March 31, 1997, and December 31, 1996, and the results of operations and cash flows for the three months ended March 31, 1997 and 1996. 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, 1996 audited financial statements. The results of operations for the three months periods ended March 31, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. 3. The inventories on March 31, 1997 and December 31, 1996 consist of the following classes:
March 31 December 31 1997 1996 Raw Materials $22,861,972 $24,204,345 Work in Process 1,602,117 1,029,127 Finished 3,444,790 5,311,075 Total Manufactured Goods $27,908,879 $30,544,547 Distribution Products 10,436,400 8,797,959 TOTAL INVENTORIES $38,345,279 $39,342,506
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 ended March 31, 1997 and 1996 have been computed based on the weighted average number of shares of common stock outstanding of 5,964,594 and 5,967,157 respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No. 128 requires the presentation of both basic earnings per share and diluted earnings per share. Basic earnings per share will be computed by dividing net income by the weighted-average number of common shares outstanding. SFAS No. 128 will be effective for the Company's 1997 annual report. If SFAS No. 128 had been in effect during the first quarter of 1997, there would have been no change in basic earnings per share. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The Registrant's business has shown significant revenue growth since 1991, with annual sales increasing from $143 million to $403 million in five years. This revenue growth showed lower increases in the fourth quarter of 1996 and the first quarter of 1997 than had been recorded in prior years. The following table sets forth the percentage relationship to net sales of certain items in the Registrant's Statements of Operations:
Quarterly Ended March 31, 1997 1996 1995 Net Sales 100.0% 100.0% 100.0% Cost of Sales 87.7 87.5 86.3 Gross Profit 12.3 12.5 13.7 Warehouse and Delivery 3.5 3.6 3.7 Selling, General & Administrative 5.0 5.2 5.3 Operating Income 3.8 3.7 4.7 Net Income 2.2 2.1 2.7
RESULTS OF OPERATIONS Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996 Net Sales. Net sales increased by $3.1 million, or 3.4%, from $93.8 million in the quarter ended March 31, 1996 to $96.9 million in the quarter ended March 31, 1997. This sales increase was attributable to higher sales penetration in the Industrial and Recreational Vehicle industries. The Registrant's sales are 66% to Manufactured Housing, 16% to Recreational Vehicles, and 18% to other industrial industries. Gross Profit. Gross Profit increased by approximately $200,000, or 1.7%, from $11.7 million in the first quarter of 1996, to $11.9 million in the same 1997 quarter. As a percentage of net sales, gross profit decreased from 12.5% in the first quarter of 1996 to 12.3% in 1997. This decrease in gross profit was due to highly competitive market pricing of most of Registrant's products in the first quarter of 1997. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased approximately $31,000 or 0.9%, remaining at $3.4 million for both first quarters. As a percentage of net sales, warehouse and delivery expenses decreased from 3.6% in the 1996 first quarter to 3.5% in 1997. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by approximately $71,000, or 1.5%, from $4.9 million in 1996, to $4.8 million in 1997. As a percentage of net sales, selling, general and administrative expenses decreased from 5.2% in 1996 to 5.0% in 1997. Operating Income. Operating income increased by approximately $243,000 because of the increased gross profit and the overall reduction of operating expenses remaining about the same as in 1996. As a percentage of net sales, operating income increased from 3.7% in 1996 to 3.8% in the 1997 first quarter. Financial Expense, Net. Interest expense decreased by approximately $9,000 in 1997 from 297,000 in 1996 to $288,000 in 1997. The Registrant's borrowing level was slightly lower in the 1997 first quarter and more funds were invested than in 1996. Net Income. Net income increased by approximately $141,000 from $1.9 million in the 1996 first quarter to $2.0 million in 1997. This increase is primarily attributable to the factors described above. Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995 Net Sales. Net sales increased by $6.7 million, or 7.7%, from $87.0 million for the quarter ended March 31, 1995, to $93.8 million in the quarter ended March 31, 1996. This sales increase was attributable to 7% increases 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 down as a percent of total company sales as a result of a slight decline in units produced in that industry, which represents approximately 16% of Registrant's sales. Gross Profit. Gross profit decreased by approximately $217,000, or 1.8%, from $11.9 million in the first quarter of 1995, to $11.7 million in the same 1996 quarter. As a percentage of net sales, gross profit decreased from 13.7% in first quarter 1995 to 12.5% in 1996. This decrease in gross profit was the result of lower volume and higher inventory costs in the Registrant's aluminum extrusion division and lower volume, moving, and start-up costs at the new Oregon facility. The Registrant also experienced competitive market pricing of certain products in the first quarter of 1996. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased approximately $114,000, or 3.5%, from $3.3 million in 1995, to $3.4 million in the first quarter of 1996. As a percentage of net sales, warehouse and delivery expenses decreased from 3.7% in 1995 to 3.6% in the 1996 first quarter. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by approximately $348,000, or 7.6%, from $4.5 million in 1995, to $4.9 million in 1996. As a percentage of net sales, selling, general and administrative expenses decreased from 5.3% in 1995 to 5.2% in 1996. Operating Income. Operating income decreased by approximately $680,000 because of the reduced gross profit and increases in warehouse and delivery, and selling, general and administrative expenses. As a percentage of sales, operating income decreased from 4.7% in 1995 to 3.7% in the 1996 first quarter. Financial Expense, Net. Interest expense decreased by approximately $51,000 from $348,000 in 1995 to $297,000 in the first quarter of 1996. The Registrant's borrowing levels in the 1996 period were slightly higher but at lower rates. Net Income. Net income decreased by approximately $371,000 from $2.3 million in 1995 to $1.9 million in 1996 for the first quarter ended March 31. This decrease is 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 had a bank financing agreement (the Credit Agreement) with NBD Bank, N.A. for a term loan and a revolver loan. 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. The Revolving Credit Agreement was amended on February 13, 1997 and provides revolver loan availability of $10,000,000 with maturity in three years. 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 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 None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10 Credit Agreement dated as of February 2, 1997 among the Registrant and NBD Bank 27 Financial Data Schedule (b) There were no Reports filed on Form 8-K 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 May 12, 1997 /S/Mervin D. Lung Mervin D. Lung (Chairman of the Board) Date May 12, 1997 /S/David D. Lung David D. Lung (President) Date May 12, 1997 /S/Keith V. Kankel Keith V. Kankel (Vice President Finance) (Principal Accounting Officer)