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, 1998 Commission File Number 03922 PATRICK INDUSTRIES, INC. (Exact name of registrant as specified in its charter) INDIANA 351057796 (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, 1998: 5,898,266 PATRICK INDUSTRIES, INC. INDEX Page No. PART I: Financial Information Unaudited Condensed Balance Sheets March 31, 1998 & December 31, 1997 3 Unaudited Condensed Statements of Income Three Months Ended March 31, 1998 & 1997, 4 Unaudited Condensed Statements of Cash Flows Three Months Ended March 31, 1998 & 1997 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 1998 1997 ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,073,261 $ 3,765,171 Trade receivables 28,832,277 17,127,797 Inventories 33,797,894 34,602,154 Prepaid expenses 331,992 _608,611 Total current assets 66,035,424 56,103,733 PROPERTY AND EQUIPMENT, at cost 80,090,018 78,052,343 Less accumulated depreciation 31,076,975 29,830,987 49,013,043 48,221,356 INTANGIBLE AND OTHER ASSETS 7,689,443 7,862,419 Total assets $122,737,910 $112,187,508 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of longterm debt $ 1,138,517 $ 1,138,517 Accounts payable, trade 18,646,037 10,329,507 Accrued liabilities 5,109,397 4,455,005 Total current liabilities 24,893,951 15,923,029 LONGTERM DEBT, less current maturities 24,905,455 25,015,218 DEFERRED COMPENSATION OBLIGATIONS 1,509,002 1,416,002 DEFERRED TAX LIABILITIES 1,107,000 1,107,000 SHAREHOLDERS' EQUITY Common stock 21,918,322 21,896,822 Retained earnings 48,404,180 46,829,437 Total shareholders' equity 70,322,502 68,726,259 Total liabilities and shareholders' equity $122,737,910 $112,187,508 NOTE: The balance sheet at December 31, 1997 has been taken from the audited financial statements at that date. See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC. UNAUDITED CONDENSED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31 1998 1997 NET SALES $104,987,172 $ 96,935,710 COST AND EXPENSES Cost of Goods Sold $ 91,733,783 $ 84,979,168 Warehouse and Delivery Expenses 3,717,248 3,395,562 Selling, General, and Administrative Expenses 6,263,513 4,853,227 Interest Expense, Net 253,970 287,909 $ 101,968,514 $ 93,515,866 INCOME BEFORE INCOME TAXES $ 3,018,658 $ 3,419,844 INCOME TAXES 1,207,500 1,333,700 NET INCOME $ 1,811,158 $ 2,086,144 EARNINGS PER COMMON SHARE $ .31 $ .35 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,896,472 5,964,594 See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC. UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,811,158 $ 2,086,144 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,708,556 1,397,612 Deferred income taxes - - - (43,661) Other 113,120 62,558 Change in assets and liabilities: Decrease (Increase) in: Trade receivables (11,704,480) (12,394,022) Inventories 804,260 997,227 Prepaid expenses 276,619 (73,279) Increase (Decrease) in: Accounts payable and accrued liabilities 7,979,872 9,819,911 Income taxes payable 990,873 1,313,700 Net cash provided by operating activities 1,979,978 3,166,190 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (2,347,387) (3,494,664) Investment in marketable securities - - - (600,000) Other - - - 15,139 Net cash (Used in) investing activities (2,347,387) (4,079,525) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of common stock options 21,500 16,125 Principal payments on long-term debt (109,763) (107,421) Cash dividends paid (236,238) (237,954) Net Cash (Used In) investing activities (324,501) (329,250) Decrease in cash and cash equivalents (691,910) (1,242,585) Cash and cash equivalents, beginning 3,765,171 2,041,482 Cash and cash equivalents, ending $ 3,073,261 $ 798,897 Cash Payments for: Interest $ 78,822 $ 695,580 Income Taxes 291,627 95,000 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 March 31, 1998, and December 31, 1997, and the results of operations and cash flows for the three months ended March 31, 1998 and 1997. 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, 1997 audited financial statements. The results of operations for the three month periods ended March 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. 3. The inventories on March 31, 1998 and December 31, 1997 consist of the following classes:
March 31 December 31 1998 1997 Raw Materials $19,767,218 $19,710,068 Work in Process 989,700 1,170,054 Finished 3,990,677 5,089,861 Total Manufactured Goods $24,747,595 $25,969,983 Distribution Products 9,050,299 8,632,171 TOTAL INVENTORIES $33,797,894 $34,602,154
The inventories are stated at the lower of cost, First-In, First-Out (FIFO) method, or market. 4. Stock options outstanding are immaterial and had no effect on earnings per share. Application of Financial Standards Accounting Board Statement No. 128 had no effect on previously reported earnings per share. Earnings per common share for the three months ended March 31, 1998 and 1997 have been computed based on the weighted average common shares outstanding of 5,896,472, and 5,964,594 respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The Registrant's business has shown significant revenue growth since 1991, as net sales increased annually from $143 million to over $410 million in six years. Although the rate of growth in the year 1997 was 1.75%, the first quarter of 1998 showed an increase of 8.3% when compared to the previous years' first quarter. The increase in sales resulted from the continued strength of both the economy and the Manufactured Housing and Recreational Vehicle Industries. 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, 1998 1997 Net Sales 100.0% 100.0% Cost of Sales 87.4 87.7 Gross Profit 12.6 12.3 Warehouse and Delivery 3.5 3.5 Selling, General & Administrative 6.0 5.0 Operating Income 3.1 3.8 Net Income 1.7 2.2
RESULTS OF OPERATIONS Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997 Net Sales. Net sales increased by $8.1 million, or 8.3%, from $96.9 million in the quarter ended March 31, 1997 to $105.0 million in the quarter ended March 31, 1998. This sales increase was attributable to higher unit production in the Manufactured Housing and Recreational Vehicle Industries, and increased penetration in the other industries served by Registrant. The Registrant's sales are 62% to Manufactured Housing, 18% to Recreational Vehicles, and 20% to other industrial industries. Gross Profit. Gross Profit increased by approximately $1.3 million, or 10.9%, from $12.0 million in the first quarter of 1997, to $13.3 million in the same 1998 quarter. As a percentage of net sales, gross profit increased from 12.3% in the first quarter of 1997 to 12.6% in 1998. The increase in gross profit was due to certain manufacturing operations showing improvement over the same 1997 quarter, while highly competitive market pricing of many of Registrant's products continued in the first quarter of 1998. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased approximately $0.3 million, or 9.5%, from $3.4 million in 1997 to $3.7 million in the 1998 first quarter. As a percentage of net sales, warehouse and delivery expenses remained the same at 3.5%. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by approximately $1.4 million, or 29.1%, from $4.9 million in 1997, to $6.3 million in 1998. As a percentage of net sales, selling, general and administrative expenses increased from 5.0% in 1997 to 6.0% in 1998. Expense increases were partially attributable to new Management Information System expenses and additional personnel required due to the growth the Registrant has experienced over the last several years, and for management transition plans. Operating Income. Operating income decreased by approximately $0.4 million because of the increased selling, general and administrative expenses. As a percentage of net sales, operating income decreased from 3.8% in 1997 to 3.1% in the 1998 first quarter. Interest Expense, Net. Interest expense, net of interest income, decreased by approximately $34,000 in 1998 from $288,000 in 1997 to $254,000 in 1998. The Registrant's borrowing level was slightly lower in the 1998 first quarter and more funds were invested than in 1997. Net Income. Net income decreased by approximately $275,000 from $2.1 million in the 1997 first quarter to $1.8 million in 1998. This decrease is primarily attributable to the factors described above. 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. Interest Expense, Net. Interest expense, net of interest income, 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. 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 that began 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 unsecured Revolving Credit Agreement that provides loan availability of $10,000,000 with maturity in the year 2000. Pursuant to the private placement and 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 normal recurring capital expenditures as currently contemplated. The Registrant initiated an expansion project of approximately $6,000,000 in North Carolina in 1997. When completed in the second quarter of 1998, the Registrant anticipates obtaining municipal industrial revenue bond funding to cover the costs already incurred at March 31, 1998 of approximately $3,600,000 and any remaining costs up to $6,000,000 of this project. 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 moderate. Accordingly, the Registrant's sales and profits are generally highest in the second and third quarters. NEW ACCOUNTING STANDARDS In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FAS 131), which requires that a public business enterprise report financial and descriptive information about its reportable operating segments. This Statement is effective for fiscal years beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. This Statement need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application is to be reported in financial statements for interim periods in the second year of application. 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 8K (a) Exhibits 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, 1998 /S/Mervin D. Lung Mervin D. Lung (Chairman of the Board) Date May 12, 1998 /S/David D. Lung David D. Lung (President) Date May 12, 1998 /S/Keith V. Kankel Keith V. Kankel (Vice President Finance) (Principal Accounting Officer)