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, 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 July 31, 1997: 5,895,766 PATRICK INDUSTRIES, INC. INDEX Page No. PART I: Financial Information Unaudited Condensed Balance Sheets June 30, 1997 & December 31, 1996 3 Unaudited Condensed Statements of Income Three Months Ended June 30, 1997 & 1996, and Six Months Ended June 30, 1997 & 1996 4 Unaudited Condensed Statements of Cash Flows Six Months Ended June 30, 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) JUNE 30 DECEMBER 31 1997 1996 ASSETS CURRENT ASSETS Cash $ 257,981 $ 2,041,482 Investment in Marketable Securities 4,900,000 4,400,000 Accounts Receivable, Net 27,437,599 15,208,671 Inventories 37,934,664 39,342,506 Other 432,140 393,520 Total Current Assets $ 70,962,384 $ 61,386,179 PROPERTY AND EQUIPMENT, at cost $ 71,323,930 $ 65,630,289 Less Accumulated Depreciation 28,175,686 25,870,995 $ 43,148,244 $ 39,759,294 INTANGIBLE AND OTHER ASSETS $ 5,125,156 $ 5,460,793 Total Assets $ 119,235,784 $ 106,606,266 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Maturities of Long-term Debt $ 1,138,517 $ 1,138,517 Accounts Payable 20,058,167 10,545,175 Accrued Expenses and Taxes Payable 4,359,786 4,056,031 Total Current Liabilities $ 25,556,470 $ 15,739,723 LONG-TERM DEBT, NET OF CURRENT MATURITIES $ 25,934,477 $ 26,151,527 DEFERRED COMPENSATION OBLIGATIONS $ 1,163,857 $ 1,069,357 DEFERRED INCOME TAX CREDITS $ 1,350,000 $ 1,350,000 SHAREHOLDERS' EQUITY Common Stock $ 21,897,072 $ 22,138,494 Retained Earnings 43,333,908 40,157,165 Total Shareholders' Equity $ 65,230,980 $ 62,295,659 Total Liabilities and Shareholders' Equity $ 119,235,784 $ 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 SIX MONTHS ENDED JUNE 30 JUNE 30 1997 1996 1997 1996 NET SALES $ 106,599,506 $107,395,342 $203,535,216 $201,162,883 COST AND EXPENSES Cost of Goods Sold $ 93,271,870 $ 92,952,138 $178,251,038 $174,966,283 Warehouse and Delivery Expenses 3,913,889 3,618,343 7,309,451 6,982,996 Selling and Administrative Expenses 5,415,413 5,233,875 10,268,640 10,158,531 Financial Expenses, Net 307,901 289,927 595,810 586,808 $ 102,909,073 $102,094,283 $196,424,939 $192,694,618 INCOME BEFORE INCOME TAXES $ 3,690,433 $ 5,301,059 $ 7,110,277 $ 8,468,265 INCOME TAXES 1,448,500 2,096,700 2,782,200 3,319,200 NET INCOME $ 2,241,933 $ 3,204,359 $ 4,328,077 $ 5,149,065 EARNINGS PER COMMON SHARE $ .38 $ 0.54 $ .73 $ .86 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,929,140 5,965,951 5,946,769 5,966,554 See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC. UNAUDITED CONDENSED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 4,328,077 $ 5,149,066 Adjustment to Reconcile Net Income to Net Cash: Depreciation and Amortization 2,725,881 2,185,143 Deferred Income Taxes - - - 49,000 Other (41,097) (13,729) Change in Assets and Liabilities: Decrease (Increase) in: Accounts Receivable (12,228,928) (6,178,020) Inventories 1,407,842 1,590,235 Other (38,620) 259,735 Increase (Decrease) in: Accounts Payable and Accrued Expenses 9,321,841 7,608,535 Income Taxes Payable 496,829 798,614 Deferred Compensation 94,500 73,678 Net Cash Provided by (Used in) Operating Activities $ 6,066,325 $ 11,522,257 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures $ (5,750,567) $ (5,281,613) Investment in Marketable Securities (500,000) (4,400,000) Other 10,545 97,633 Net Cash (Used in) Investing Activities $ (6,240,022) $ (9,583,980) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Options $ 16,125 174,724 Principal Payments on Debt (217,050) - - - Reacquisition of Common Stock (935,750) (1,080,288) Cash Dividends (473,129) (477,058) Net Cash Provided by (Used In) Financing Activities $ (1,609,804) $ (1,382,622) Increase (Decrease) in Cash and Cash Equivalents $ (1,783,501) $ 555,655 CASH and CASH EQUIVALENTS, BEGINNING $ 2,041,482 $ 1,349,709 CASH and CASH EQUIVALENTS, ENDING $ 257,981 $ 1,905,364 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, 1997, and December 31, 1996, and the results of operations and cash flows for the three months and the six months ended June 30, 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 and six months periods ended June 30, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. 3. The inventories on June 30, 1997 and December 31, 1996 consist of the following classes:
June 30 December 31 1997 1996 Raw Materials $ 23,724,808 $ 24,204,345 Work in Process 1,334,765 1,029,127 Finished 3,496,584 5,311,075 Total Manufactured Goods $ 28,556,157 $ 30,544,547 Distribution Products 9,378,507 8,797,959 TOTAL INVENTORIES $ 37,934,664 $ 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 and six months ended June 30, 1997 and 1996 have been computed based on the weighted average number of shares of common stock. The weighted average number of shares outstanding was 5,929,140 for the three months and 5,946,769 for the six months ended June 30, 1997 and 5,965,951 for the three months and 5,966,554 for the six months ended June 30, 1996. 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 six months 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 economy and the industries served by the Registrant improved starting in 1991 as net sales increased annually from $143 million to over $403 million in 1996. This revenue growth showed lower increases in the fourth quarter of 1996 and decreases in the first six months of 1997. 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 1997 1996 1997 1996 Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Sales 87.5 86.6 87.6 87.0 Gross Profit 12.5 13.4 12.4 13.0 Warehouse and Delivery 3.7 3.4 3.6 3.5 Selling, General & Administrative 5.1 4.9 5.0 5.0 Operating Income 3.8 5.1 3.8 4.5 Net Income 2.1 3.0 2.1 2.6
RESULTS OF OPERATIONS Quarter Ended June 30, 1997 Compared to Quarter Ended June 30, 1996 Net Sales. Net sales decreased by $0.8 million, or .7%, from $107.4 million for the quarter ended June 30, 1996, to $106.6 million in the quarter ended June 30, 1997. This sales decrease was attributable to a 2.9% decrease in units shipped by the Manufactured Housing industry, which represents approximately 67% of the Registrant's sales. The Registrant's sales to the Recreational Vehicle industry were the same in this years second quarter as compared to the 1996 second quarter. The industry, which represents approximately 16% of Registrant's sales, was experiencing a slight decrease in units shipped. Gross Profit. Gross profit decreased by approximately $1.1 million, or 7.7%, from $14.4 million in the second quarter of 1996, to $13.3 million in the same 1997 quarter. As a percentage of net sales, gross profit decreased from 13.4% in 1996 to 12.5% in the 1997 second quarter. This decrease was attributable to reduced volumes in certain operations and competitive market pressure on product pricing. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased approximately $295,000, or 8.2%, from $3.6 million in 1996, to $3.9 million in the second quarter of 1997. As a percentage of net sales, warehouse and delivery expenses increased from 3.4% in 1996 to 3.7% in the 1997 second quarter. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by approximately $181,000, or 3.5%, from $5.2 million in 1996, to $5.4 million in 1997. As a percentage of net sales, selling, general and administrative expenses increased from 4.9% in 1996 to 5.1% in the second quarter of 1997. Operating Income. Operating income decreased by approximately $1,593,000 because of the decreased sales and the increased operating expenses as percentages to sales. As a percentage of sales, operating income decreased from 5.2% in 1996 to 3.8% in the 1997 second quarter. Financial Expenses, Net. Financial expenses, net increased by approximately $18,000 from $290,000 in 1996 to $308,000 in the second quarter of 1997. The Registrant's borrowing levels in the 1997 period were about the same as in 1996, but invested funds were lower. Net Income. Net income decreased by approximately $962,000 from $3.2 million in 1996 to $2.2 million in 1997 for the second quarter ended June 30. This decrease is attributable to the factors described above. Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996 Net Sales. Net sales increased by $2.3 million, or 1.2%, from $201.2 million for the six months ended June 30, 1996, to $203.5 million in the six months ended June 30, 1997. This small increase was attributable to the 2.9% decline in production in the Manufactured Housing industry in the first six months of this year. That industry represents approximately 67% of the Registrant's total sales. The Recreational Vehicle industry, which represents approximately 16% of total sales of the Registrant, was also not able to show production increases in the 1997 first six months. Gross Profit. Gross profit decreased by $.9 million, or 3.5%, from $26.2 million in the first six months of 1996, to $25.3 million in the same period in 1997. As a percentage of net sales, gross profit decreased from 13.0% in the first six months of 1996 to 12.4% in 1997. This decrease in the gross profit percentage was the result of lower volume in certain operations and highly competitive market pricing on the Registrant's products. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased approximately $326,000, or 4.7%, from $7.0 million in 1996, to $7.3 million in the first six months of 1997. As a percentage of net sales, warehouse and delivery expenses increased from 3.5% for 1996 to 3.6% in 1997. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $110,000, or 1.1%, from $10.2 million in 1996, to $10.3 million in 1997. As a percentage of net sales, selling, general and administrative expenses remained the same at 5.0% in 1996 and 1997. Operating Income. Operating income decreased by approximately $1,349,000, or 14.9%, from $9.1 million in 1996, to $7.7 million in 1997. This decrease is primarily attributable to the $.9 million decrease in gross profit. As a percentage of sales, operating income decreased from 4.5% in 1996 to 3.8% in 1997. Financial Expenses, Net. Financial expenses, net increased by $9,000 from $587,000 in 1996, to $596,000 in 1997. This increase was due to lower levels of invested funds. Net Income. Net income decreased by $821,000 from $5.1 million in 1996, to $4.3 million in 1997. This decrease 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. 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 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, 1997. (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 Thomas G. Baer 5,484,259 20,306 Merlin D. Knispel 5,484,259 20,306 David D. Lung 5,480,459 24,106 2. Not applicable. (d) Not applicable. Item 5. Other Information As previously announced in news releases on July 3 and July 24, 1997, the Registrant has received a proposal for the acquisition of all of the shares of the Registrant's common stock. Although there are no assurances that any agreement will be reached, discussions are continuing and the Board of Directors is still considering the proposal. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports filed 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 8, 1997 /S/Mervin D. Lung Mervin D. Lung (Chairman of the Board) Date August 7, 1997 /SDavid D. Lung David D. Lung (President) Date August 8, 1997 /S/Keith V. Kankel Keith V. Kankel (Vice President Finance) (Principal Accounting Officer)