FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 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 November 1, 1997: 5,895,766 PATRICK INDUSTRIES, INC. INDEX Page No. PART I: Financial Information Unaudited Condensed Balance Sheets September 30, 1997 & December 31, 1996 3 Unaudited Condensed Statements of Income Three Months Ended September 30, 1997 & 1996, and Nine Months Ended September 30, 1997 & 1996 4 Unaudited Condensed Statements of Cash Flows Nine Months Ended September 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) SEPTEMBER 30 DECEMBER 31 1997 1996 ASSETS CURRENT ASSETS Cash $ 743,759 $ 2,041,482 Investment in Marketable Securities --- 4,400,000 Accounts Receivable, Net 30,479,368 15,208,671 Inventories 39,011,176 39,342,506 Other 392,907 393,520 Total Current Assets $ 70,627,210 $ 61,386,179 PROPERTY AND EQUIPMENT, at cost $ 74,943,194 $ 65,630,289 Less Accumulated Depreciation 28,944,740 25,870,995 $ 45,998,454 $ 39,759,294 INTANGIBLE AND OTHER ASSETS $ 7,782,837 $ 5,460,793 Total Assets $ 124,408,501 $ 106,606,266 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current Maturities of Long-term Debt $ 1,138,517 $ 1,138,517 Accounts Payable 24,384,689 10,545,175 Accrued Expenses and Taxes Payable 3,429,659 4,056,031 Total Current Liabilities $ 28,952,865 $ 15,739,723 LONG-TERM DEBT, NET OF CURRENT MATURITIES $ 25,824,847 $ 26,151,527 DEFERRED COMPENSATION OBLIGATIONS $ 1,211,107 $ 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 45,172,610 40,157,165 Total Shareholders' Equity $ 67,069,682 $ 62,295,659 Total Liabilities and Shareholders' Equity $ 124,408,501 $ 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 NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 NET SALES $ 105,126,304 $ 105,686,233 $308,661,520 $306,849,116 COST AND EXPENSES Cost of Goods Sold $ 91,747,614 $ 91,206,330 $269,998,652 $266,172,613 Warehouse and Delivery Expenses 4,051,929 3,920,554 11,361,380 10,903,550 Selling and Administrative Expenses 5,611,317 4,915,825 15,879,957 15,074,356 Financial Expenses, Net 283,069 236,539 878,879 823,347 $ 101,693,929 $ 100,279,248 $298,118,868 $292,973,866 INCOME BEFORE INCOME TAXES $ 3,432,375 $ 5,406,985 $ 10,542,652 $ 13,875,250 INCOME TAXES 1,358,500 2,122,300 4,140,700 5,441,500 NET INCOME $ 2,073,875 $ 3,284,685 $ 6,401,952 $ 8,433,750 EARNINGS PER COMMON SHARE $ .35 $ .55 $ 1.08 $ 1.41 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,895,766 5,973,212 5,929,581 5,968,790 See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC. UNAUDITED CONDENSED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED SEPTEMBER 30 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 6,401,952 $ 8,433,750 Adjustment to Reconcile Net Income to Net Cash: Depreciation and Amortization 4,183,235 3,357,973 Other (220,675) (19,533) Change in Assets and Liabilities: Decrease (Increase) in: Accounts Receivable (14,587,386) (8,211,180) Inventories 1,485,830 (1,866,533) Other 11,530 242,614 Increase (Decrease) in: Accounts Payable and Accrued Expenses 12,811,087 7,801,741 Income Taxes Payable and Deferred Taxes 390,627 563,117 Deferred Compensation 141,750 111,607 Net Cash Provided by Operating Activities $ 10,617,950 $10,413,556 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures $ (8,456,178) $ (7,820,443) Acquisition of Business (5,810,400) --- Proceeds from Sales of Marketable Securities 4,400,000 --- Other (107,840) 90,558 Net Cash (Used in) Investing Activities $ (9,974,418) $ (7,729,885) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Options $ 16,125 $ 174,724 Principal Payments on Debt (326,680) --- Reacquisition of Common Stock (935,750) 1,479,476) Cash Dividends (708,302) (714,912) Other 13,352 9,269 Net Cash (Used in) Financing Activities $ (1,941,255) $ (2,010,395) Increase (Decrease) in Cash and Cash Equivalents $ (1,297,723) $ 673,276 CASH and CASH EQUIVALENTS, BEGINNING $ 2,041,482 $ 1,349,709 CASH and CASH EQUIVALENTS, ENDING $ 743,759 $ 2,022,985 CASH PAYMENTS FOR: Interest $ 1,505,061 $ 1,282,207 Income Taxes $ 4,080,073 $ 5,012,305 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 the financial position as of September 30, 1997, and December 31, 1996, and the results of operations and cash flows for the three months and the nine months ended September 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 and nine month periods ended September 30, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. 3. The inventories on September 30, 1997 and December 31, 1996 consist of the following classes:
September 30 December 31 1997 1996 Raw Materials $ 24,165,738 $ 24,204,345 Work in Process 1,543,963 1,029,127 Finished 3,927,482 5,311,075 Total Manufactured Goods $ 29,637,183 $ 30,544,547 Distribution Products 9,373,993 8,797,959 TOTAL INVENTORIES $ 39,011,176 $ 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 nine months ended September 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 5,895,766 for the three months and 5,929,581 for the nine months ended September 30, 1997 and 5,973,212 for the three months and 5,968,790 for the nine months ended September 30, 1996. 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 slowed in the fourth quarter of 1996 and in the first nine months of 1997 there was no growth. The following table sets forth the percentage relationship to net sales of certain items in the Registrant's Statements of Income:
Three Months Nine Months Ended September 30 Ended September 30 1997 1996 1997 1996 Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Sales 87.3 86.3 87.5 86.7 Gross Profit 12.7 13.7 12.5 13.3 Warehouse and Delivery 3.9 3.7 3.7 3.6 Selling, General & Administrative 5.3 4.7 5.1 4.9 Operating Income 3.5 5.3 3.7 4.8 Net Income 2.0 3.1 2.1 2.8
RESULTS OF OPERATIONS Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996 Net Sales. Net sales decreased by $0.6 million, or 0.5%, from $105.7 million for the quarter ended September 30, 1996 to $105.1 million in the quarter ended September 30, 1997. This small sales decrease was attributable to a 3.5% decrease in units shipped by the Manufactured Housing industry, which represents approximately 66% of Registrant s sales. The Registrant s sales to the Recreational Vehicle industry were somewhat higher in this years third quarter. The industry, which represents approximately 16% of Registrant s sales, was experiencing a slight decrease in total units shipped but remained strong in shipments of the units that utilize Registrant s products. Gross Profit. Gross profit decreased by approximately $1.1 million, or 7.6%, from $14.5 million in the third quarter of 1996, to $13.4 million in the same quarter of 1997. As a percentage of sales, gross profit was lower by 1.0%. This decrease was attributable to reduced volumes in certain operations, competitive market pressure on product pricing, and increased costs of health insurance and workers compensation insurance. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased by $0.1 million, or 3.4%, from $3.9 million in 1996, to $4.0 million in the third quarter of 1997. As a percentage of net sales, warehouse and delivery expenses increased from 3.7% to 3.9%. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately $0.7 million, or 14.1%, from $4.9 million in 1996, to $5.6 million in 1997. As a percentage of net sales, these expenses increased from 4.7% to 5.3% in the third quarter of 1997 compared to 1996. These expenses were higher because of increased health insurance, workers compensation insurance, and computer and software costs. Operating Income. Operating income decreased by approximately $1.9 million because of the decreased sales and the increased operating expenses as percentages of sales. As a percentage of sales, operating income decreased from 5.3% to 3.5% in the 1997 third quarter. Financial Expense, Net. Financial expense, net increased by almost $47,000. The Registrant s borrowing levels were about the same during most of the 1997 third quarter compared to 1996, but invested funds were lower. Net Income. Net income decreased by $1.2 million from $3.3 million in 1996 to $2.1 million in 1997 for the third quarter ended September 30. This decrease from 3.1% of sales to 2.0% is attributable to the factors described above. Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996 Net Sales. Net sales increased by $1.9 million, or 0.6%, from $306.8 million for the nine months ended September 30, 1996, to $308.7 million in the nine months ended September 30, 1997. This small sales increase was attributable to more than 3% decrease in the first nine months in units shipped by the Manufactured Housing industry, which represents approximately 66% of Registrant s sales. The Registrant s sales to the Recreational Vehicle industry were higher in this years first nine months because the industry, which represents approximately 16% of Registrant s sales, was experiencing a slight increase in units shipped of the units that utilize Registrants products. The first quarter in the 1997 first nine months was the only quarter of increased sales over the previous year periods. Gross Profit. Gross profit decreased by approximately $2.0 million, or 5.0%, from $40.7 million in the first nine months of 1996, to $38.7 million in the same period of 1997. As a percentage of sales, gross profit decreased from 13.3% in the first nine months of 1996 to 12.5% in 1997. 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 by approximately $0.5 million, or 4.2%, from $10.9 million in 1996, to $11.4 million in the first nine months of 1997. As a percentage of sales, warehouse and delivery expenses increased from 3.6% in 1996 to 3.7% in 1997. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by approximately $0.8 million, or 5.3%, in the 1997 first nine months, from $15.1 million to $15.9 million. As a percentage of net sales, these expenses increased from 4.9% to 5.1% in the first nine months of 1997 compared to 1996. Operating Income. Operating income decreased by approximately $3.3 million, or 22.3% from $14.7 million in 1996 to $11.4 million in 1997, because of the lower sales and the higher operating expenses. As a percentage of sales, operating income decreased from 4.8% to 3.7% in the 1997 first nine months. Financial Expense, Net. Financial expense, net increased by approximately $56,000. The Registrant s borrowing levels were about the same during the first nine months of 1997 compared to 1996, but invested funds were lower. Net Income. Net income decreased by approximately $2.0 million from $8.4 million in 1996 to $6.4 million in 1997 for the nine months ended September 30. 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 and seven annual principal repayments beginning September 15, 1999. These funds were used to reduce existing bank debt and for working capital needs. Pursuant to the Note Agreement, the Registrant is required to maintain certain financial ratios, all of which are currently complied with. 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 used the balance of its marketable securities and additional cash to acquire the assets of United Shade, Inc. in September of 1997. 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 None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule (b) A Form 8-K (Item 5) was filed on August 20, 1997 regarding the announcement that Registrant is no longer considering a proposal for the acquisition of all of its shares. A second Form 8-K (Item 5) was filed on September 8, 1997 regarding the announcement of the acquisition of United Shade, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PATRICK INDUSTRIES, INC. (Registrant) Date November 12, 1997 /S/Mervin D. Lung Mervin D. Lung (Chairman of the Board) Date November 12, 1997 /S/David D. Lung David D. Lung (President) Date November 12, 1997 /S/Keith V. Kankel Keith V. Kankel (Vice President Finance) (Principal Accounting Officer)