UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 199
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from .................. to ..................
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
incorporation or organization) Identification No.)
1800 South 14th Street, Elkhart, IN 46516
(Address of principal executive offices)
(ZIP Code)
(219) 294-7511
(Registrant's telephone number, including area code)
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 6, 1998: 5,872,066
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
Unaudited Condensed Balance Sheets
September 30, 1998 & December 31, 1997 3
Unaudited Condensed Statements of Income
Three Months Ended September 30, 1998 & 1997, and
Nine Months Ended September 30, 1998 & 1997 4
Unaudited Condensed Statements of Cash Flows
Nine Months Ended September 30, 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 11
Signatures 12
PART I: FINANCIAL INFORMATION
PATRICK INDUSTRIES, INC. CONDENSED BALANCE SHEETS
(Unaudited) (Note)
SEPTEMBER 30 DECEMBER 31
1998 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents ..................... $ 1,556,251 $ 3,765,171
Trade receivables ............................. 32,914,915 17,127,797
Inventories ................................... 41,169,760 34,602,154
Prepaid expenses .............................. 166,250 608,611
------------ ------------
Total current assets .................... $ 75,807,176 $ 56,103,733
------------ ------------
PROPERTY AND EQUIPMENT, at cost .................. $ 83,045,900 $ 78,052,343
Less accumulated depreciation .................... 32,458,555 29,830,987
------------ ------------
$ 50,587,345 $ 48,221,356
------------ ------------
INTANGIBLE AND OTHER ASSETS ...................... $ 8,603,579 $ 7,862,419
------------ ------------
Total assets ............................ $134,998,100 $112,187,508
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt .......... $ 4,146,275 $ 1,138,517
Accounts payable, trade ....................... 20,186,336 10,329,507
Accrued liabilities ........................... 5,803,524 4,455,005
------------ ------------
Total current liabilities ............... $ 30,136,135 $ 15,923,029
------------ ------------
LONG-TERM DEBT, less current maturities .......... $ 26,828,572 $ 25,015,218
------------ ------------
DEFERRED COMPENSATION OBLIGATION ................. $ 1,695,002 $ 1,416,002
------------ ------------
DEFERRED TAX LIABILITIES ......................... $ 1,107,000 $ 1,107,000
------------ ------------
SHAREHOLDERS' EQUITY
Common stock .................................. $ 22,353,771 $ 21,896,822
Retained Earnings ............................. 52,877,620 46,829,437
------------ ------------
$ 75,231,391 $ 68,726,259
------------ ------------
Total liabilities and shareholders' equity .. $134,998,100 $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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997 1998 1997
NET SALES $119,070,180 $105,126,304 $341,788,528 $308,661,520
------------ ------------ ------------ ------------
COST AND EXPENSES
Cost of goods sold $103,175,971 $ 91,747,614 $297,178,467 $269,998,652
Warehouse and delivery expenses 4,234,302 4,051,929 12,011,239 11,361,380
Selling, general, and administrative
expenses 6,814,571 5,611,317 20,054,087 15,879,957
Interest expense, net 304,972 283,069 823,847 878,879
------------ ------------ ------------ ------------
$114,529,816 $ 101,693,929 $330,067,640 $298,118,868
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES $ 4,540,364 $ 3,432,375 $ 11,720,888 $ 10,542,652
INCOME TAXES 1,816,200 1,358,500 4,688,400 4,140,700
NET INCOME $ 2,724,164 $ 2,073,875 $ 7,032,488 $ 6,401,952
============ ============= ============ ============
EARNINGS PER COMMON SHARE $ .46 $ .35 $ 1.19 $ 1.08
============ ============= ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,925,865 5,895,766 5,912,622 5,929,581
See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,032,488 $ 6,401,952
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,313,673 4,183,235
Other 302,375 (78,925)
Change in assets and liabilities:
Decrease (Increase) in:
Trade receivables (15,024,438) (14,587,386)
Inventories (5,949,208) 1,485,830
Prepaid expenses 464,737 11,530
Increase (Decrease) in:
Accounts payable and accrued liabilities 10,233,776 12,824,439
Income taxes payable 648,187 390,627
------------ ------------
Net cash provided by operating activities $ 3,021,590 $ 10,631,302
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures $ (6,528,966) $ (8,767,107)
Investment in marketable securities - - - 4,400,000
Acquisition of business (2,581,490) (5,810,400)
Other 57,270 203,089
------------ ------------
Net cash (used in) investing activities $ (9,053,186) $ (9,974,418)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under long-term debt agreements $ 5,214,483 $ - - -
Principal payments on long-term debt (393,371) (326,680)
Proceeds from exercise of common stock options 80,625 16,125
Repurchase of common stock (370,771) (935,750)
Cash dividends paid (708,290) (708,302)
------------ -------------
Net cash provided by (used in) financing activities $ 3,822,676 $ (1,954,607)
------------ ------------
Decrease in cash and cash equivalents $ (2,208,920) $ (1,297,723)
Cash and cash equivalents, beginning $ 3,765,171 $ 2,041,482
------------ ------------
Cash and cash equivalents, ending $ 1,556,251 $ 743,759
============ ============
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
September 30, 1998, and December 31, 1997, and the results of operations
and cash flows for the three months and the nine months ended September 30,
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 and
nine month periods ended September 30, 1998 and 1997 are not necessarily
indicative of the results to be expected for the full year.
3. The inventories on September 30, 1998 and December 31, 1997 consist of the
following classes:
September 30 December 31
1998 1997
Raw materials $24,126,115 $19,710,068
Work in process 1,017,196 1,170,054
Finished 4,828,633 5,089,861
----------- ----------
Total manufactured goods $29,971,944 $25,969,983
Distribution products 11,197,816 8,632,171
------------ -----------
TOTAL INVENTORIES $41,169,760 $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 September 30, 1998 and
1997 have been computed based on the weighted average common shares
outstanding of 5,925,865 and 5,895,766 respectively.
Earnings per common share for the nine months ended September 30, 1998 and
1997 have been computed based on the weighted average common shares
outstanding of 5,912,622 and 5,929,581 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 nine
months of 1998 showed an increase of 10.7% when compared to the previous years'
first nine months. 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:
Three Months Nine Months
Ended September 30 Ended September 30
1998 1997 1998 1997
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 86.7 87.3 87.0 87.5
Gross Profit 13.3 12.7 13.0 12.5
Warehouse and Delivery 3.6 3.9 3.5 3.7
Selling, General & Administrative 5.7 5.3 5.9 5.1
Operating Income 4.0 3.5 3.6 3.7
Net Income 2.3 2.0 2.1 2.1
RESULTS OF OPERATIONS
Quarter Ended September 30, 1998 Compared to Quarter Ended September 30,
1997
Net Sales. Net sales increased by $14.0 million, or 13.3%, from $105.1
million for the quarter ended September 30, 1997, to $119.1 million in the
quarter ended September 30, 1998. This sales increase was attributable to
increases in the number of units produced in both the Manufactured Housing and
Recreational Vehicle industries, to whom the Registrant is a major supplier. The
Registrant's sales in the quarter were 62% to Manufactured Housing, 19% to
Recreational Vehicle, and 19% to other industries.
Gross Profit. Gross profit increased by approximately $2.5 million, or
18.8%, from $13.4 million in the third quarter of 1997, to $15.9 million in the
same 1998 quarter. As a percentage of net sales, gross profit increased from
12.7% in 1997 to 13.3% in the third quarter of 1998. The increase in gross
profit was due to certain manufacturing operations showing improvement in volume
and operating efficiencies over the same 1997 period. In certain markets highly
competitive pricing continues to have a negative impact on gross profits making
several of the Registrant's manufacturing operations unprofitable in this
period.
Warehouse and Delivery Expenses. Warehouse and delivery expenses increased
approximately $182,000, or 4.5%, from $4.1 million in 1997, to $4.2 million in
the third quarter of 1998. As a percentage of net sales, warehouse and delivery
expenses decreased from 3.9% in 1997 to 3.6% in the 1998 third quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.2 million, or 21.4%, from $5.6 million
in 1997, to $6.8 million in 1998. As a percentage of net sales, selling, general
and administrative expenses increased from 5.3% in 1997 to 5.7% in the third
quarter of 1998. Expense increases were partially attributable to new management
information system expenses, additional personnel required due to the growth the
Registrant has experienced over the last several years, and for management
transition expenses.
Operating Income. Operating income increased by approximately $1.1 million
because of the increased sales and the increased gross profits. As a percentage
of sales, operating income increased from 3.5% in the 1997 third quarter to 4.0%
in the same 1998 period.
Interest Expense, Net. Interest expense, net increased by approximately
$22,000 from $283,000 in 1997 to $305,000 in the third quarter of 1998. The
Registrant's borrowing levels during the 1998 period were approximately the same
while invested cash was lower.
Net Income. Net income increased by approximately $650,000 from $2.1
million in 1997 to $2.7 million in 1998 for the third quarter ended September
30. This increase is attributable to the factors described above.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Net Sales. Net sales increased by $33.1 million, or 10.7%, from $308.7
million for the nine months ended September 30, 1997, to $341.8 million in the
nine months ended September 30, 1998. This sales increase was attributable to
increases in the number of units produced in both the Manufactured Housing and
Recreational Vehicle industries, and to the acquisition of two companies whose
sales were not included in the total nine months 1997 sales. The sales of the
acquired companies represented 2.9% of the sales increase. The Registrant's
sales in the first nine months were 62% to Manufactured Housing, 19% to
Recreational Vehicle, and 19% to other industries.
Gross Profit. Gross profit increased by $5.9 million, or 15.4%, from $38.7
million in the first nine months of 1997, to $44.6 million in the same period in
1998. As a percentage of net sales, gross profit increased from 12.5% in the
first nine months of 1997 to 13.0% in 1998. The increase in gross profit was due
to certain manufacturing operations showing improvement in volume and
efficiencies over the same 1997 period. In certain markets highly competitive
pricing continues to have a negative impact on gross profits making several of
the Registrant's manufacturing operations unprofitable in the period.
Warehouse and Delivery Expenses. Warehouse and delivery expenses increased
approximately $650,000, or 5.7%, from $11.4 million in 1997, to $12.0 million in
the first nine months of 1998. As a percentage of net sales, warehouse and
delivery expenses decreased from 3.7% for 1997 to 3.5% in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $4.2 million, or 26.3%, from $15.9 million
in 1997, to $20.1 million in 1998. As a percentage of net sales, selling,
general and administrative expenses increased from 5.1% for 1997 to 5.9% in
1998. Expense increases were partially attributable to new management
information system expenses, additional personnel required due to the growth the
Registrant has experienced over the last several years, and for management
transition expenses.
Operating Income. Operating income increased by approximately $1.1 million
because of the increased sales and the increased gross profits. As a percentage
of sales, operating income decreased from 3.7% in 1997 to 3.6% in 1998.
Interest Expense, Net. Interest expense, net decreased by $55,000 from
$879,000 In 1997, to $824,000 In 1998. This decrease was due to lower borrowings
during the first nine months of 1998.
Net Income. Net income increased by approximately $631,000, from $6.4
million in 1997 to $7.0 million in 1998. As a percentage of net sales, net
income remained the same as in 1997. This is primarily attributable to the
factors described above.
YEAR 2000 ISSUE
The Registrant began a new management information system implementation
project in the first quarter of 1996, which when fully implemented, will result
in the Registrant's information systems being Year 2000 compliant. The project
was started because of the need to upgrade all hardware and software to meet
capacity and information needs at present and for the future. The Year 2000
issue for internal information systems will be resolved since the new hardware
and software is compliant when implemented.
The Registrant at present has successfully implemented this Year 2000
compliant system in all accounting, finance, general ledger, and distribution
operations. Implementation has also been completed at two wood related
operations and four of ten laminating operations. The remaining laminating
operations will be completed in the fourth quarter of this year and the first
quarter of 1999. All other operations will be implemented in 1999 with
anticipated completion in October.
In the event that the scheduled implementations get delayed, contingency
plans allow basic conversion of existing software to the new system so it would
be Year 2000 compliant prior to the year 2000 in all remaining areas.
The Registrant has developed a Year 2000 plan to address risk assessment in
areas other than information technology. The Plan Committee is examining all
automated plant systems and external parties with whom the Registrant interacts.
This assessment is scheduled to be completed in the first quarter of 1999. The
Registrant's contingency plans for external party compliance are to replace any
telecommunications and other equipment that cannot be made compliant. A risk
assessment of customers, vendors, and service providers is underway and will be
on-going. At present the assessment shows that the ones responding are either
compliant or will be compliant in a timely manner.
The total cost of Year 2000 activities cannot be specifically determined
because the internal information system project was planned for management and
operation purposes and Year 2000 compliance was a benefit of that system. The
expenditures of implementing the new information hardware and software systems
has been $2.87 million in 1996, $1.93 million in 1997, and $0.8 million through
October, 1998. Approximately $0.5 million will be expended to complete the
project by December, 1999. The costs of assessment of external party compliance
is minimal and costs of replacement of telecommunications and other equipment
would be part of normal scheduled upgrades.
SALE OF PROPERTY
The Registrant has a vacant facility tentatively sold with closing
anticipated in the fourth quarter of this year, or in the first quarter of 1999.
This sale would result in a one-time gain that would add from $.05 to $.07 per
share to the earnings in the quarter sold.
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 an unsecured bank Revolving Credit Agreement that
provides loan availability of $10,000,000 with maturity in the year 2000.
The Registrant has Industrial Revenue Bond Agreements for expansion
projects in Indiana (1991), Oregon (1994), and North Carolina (1998). At
September 30, 1998 these bond obligations totaled $12,500,000, with annual
payments until 2006, 2009, and 2010, respectively.
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 recurring 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 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" (FAS131), 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
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, 1998 /S/Mervin D. Lung
----------------------------
Mervin D. Lung
(Chairman of the Board)
Date November 12, 1998 /S/David D. Lung
----------------------------
David D. Lung
(President)
Date November 12, 1998 /S/Keith V. Kankel
---------------------------
Keith V. Kankel
(Vice President Finance)
(Principal Accounting
Officer)