Exhibit 99.3
 

 
Unaudited Pro Forma Condensed Combined Financial Statements

 
On October 26, 2012, Patrick Industries, Inc. (“Patrick” or the “Company”) acquired certain assets of Middlebury Hardwood Products, Inc. and Affiliate (collectively, “Middlebury Hardwoods”),  a manufacturer and distributor of hardwood cabinet doors, components, fascia and other hardwood products for the recreational vehicle, manufactured housing, and residential kitchen cabinet industries.
 
The unaudited pro forma condensed combined statement of income for the fiscal year ended December 31, 2011 gives effect to the acquisition as if it had been completed on January 1, 2011, the first day of Patrick’s 2011 fiscal year.  Patrick’s audited consolidated statement of income for the fiscal year ended December 31, 2011 has been combined with Middlebury Hardwoods’ audited consolidated statement of income for the fiscal year then ended.  The unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2012 combines the unaudited condensed consolidated statement of income of Patrick for the nine months ended September 30, 2012 and Middlebury Hardwoods’ unaudited condensed combined statement of income for the nine months ended September 29, 2012, and gives effect to the transaction as if it had been completed on January 1, 2011.
 
The unaudited pro forma condensed combined balance sheet as of September 30, 2012 gives effect to the acquisition as if it had been completed on such date and combines the unaudited condensed consolidated balance sheets of Patrick and Middlebury Hardwoods as of September 30, 2012 and September 29, 2012, respectively.

The historical consolidated financial statement information has been adjusted to give pro forma effect to events that are (i) directly attributable to the transaction, (ii) factually supportable and (iii) with respect to the statements of income, expected to have a continuing impact on the combined results. All pro forma financial statements use Patrick’s period-end dates and no adjustments were made to Middlebury Hardwoods’ information for its different period-end dates.

The unaudited pro forma condensed combined financial information was prepared in accordance with the regulations of the U.S. Securities and Exchange Commission. The pro forma adjustments reflecting the completion of the transaction are based upon the acquisition method of accounting in accordance with ASC 805 and upon the assumptions set forth in the notes to the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined balance sheet has been adjusted to reflect the preliminary allocation of the estimated purchase price to identifiable net assets acquired including an amount for goodwill representing the difference between the purchase price and the fair value of the identifiable net assets.  Amounts preliminarily allocated to tangible and intangible assets with definite lives may change, which could result in a material change in amortization of such assets.  The final allocation of the purchase price will be determined after completion of an analysis of the fair value of Middlebury Hardwoods’ assets and liabilities.  Accordingly, the final acquisition accounting adjustments may be materially different from the unaudited pro forma adjustments.
 
 
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  The cash portion of the purchase price of Middlebury Hardwoods was funded through borrowings under a five-year $80 million revolving secured senior credit facility established on October 24, 2012 (the “2012 Credit Facility”).  The 2012 Credit Facility replaced the Company’s previous asset-based revolving senior secured credit facility. The unaudited pro forma condensed combined financial statements reflect only the financing of the Middlebury Hardwoods acquisition under the 2012 Credit Facility.
 
 
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PATRICK INDUSTRIES, INC.
                          
Unaudited Pro Forma Condensed Combined Balance Sheet
                      
September 30, 2012
                          
                           
                           
                           
                           
         
Middlebury
                
(thousands)
  
Patrick
    
Hardwoods
    
Pro Forma
      
Pro Forma
  
   
Historical
    
Historical
    
Adjustments
      
Combined
  
ASSETS
                          
Current assets
                          
     Cash and cash equivalents
   $ 888     $ 25     $ (25 ) A   $ 126  
                      19,000   B        
                      (19,762 )   C        
     Trade receivables, net of allowance for doubtful
                                  
           accounts
     31,650       1,776       -         33,426  
     Inventories
     40,978       2,125       28   D     43,131  
     Prepaid expenses and other
     3,074       57       -         3,131  
          Total current assets
     76,590       3,983       (759 )       79,814  
Property, plant and equipment, net
     28,602       5,206       -         33,808  
Goodwill and other intangible assets, net
     20,033       -       13,502   E     33,535  
Deferred tax assets, net of valuation allowance
     4,430       -       -         4,430  
Deferred financing costs, net of accumulated amortization
     1,472       -       -         1,472  
Other non-current assets
     650       -       -         650  
           TOTAL ASSETS
   $ 131,777     $ 9,189     $ 12,743       $ 153,709  
                                   
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                  
Current liabilities
                                  
     Current maturities of long-term debt
   $ 1,000     $ 889     $ (889 )   F   $ 1,000  
     Note payable, bank
     -       647       (647 )   F     -  
     Accounts payable
     27,005       1,358       -         28,363  
     Accrued liabilities
     10,579       1,574       -         12,153  
           Total current liabilities
     38,584       4,468       (1,536 )       41,516  
Long-term debt, less current maturities and discount
     32,089       1,689       (1,689 )   F     51,089  
                      19,000   G        
Note payable, stockholder, less current maturities
     -       788       (788 )   F     -  
Deferred compensation and other
     3,438       -       -         3,438  
          TOTAL LIABILITIES
     74,111       6,945       14,987         96,043  
                                   
COMMITMENTS AND CONTINGENCIES
                                  
                                   
SHAREHOLDERS’ EQUITY
                                  
     Preferred stock
     -       -       -         -  
     Common stock
     55,498       124       (124 )   H     55,498  
     Accumulated other comprehensive loss
     (183 )     -       -         (183 )
     Additional paid-in-capital
     3,983       743       (743 )   H     3,983  
     Retained earnings (accumulated deficit)
     (1,632 )     1,234       (1,234 )   H     (1,632 )
     Noncontrolling interest
     -       143       (143 )   I     -  
          TOTAL SHAREHOLDERS’ EQUITY
     57,666       2,244       (2,244 )       57,666  
          TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 131,777     $ 9,189     $ 12,743       $ 153,709  
                                   
See accompanying notes to unaudited pro forma condensed combined financial statements.
                    
 
 
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PATRICK INDUSTRIES, INC.
                          
Unaudited Pro Forma Condensed Combined Statement of Operations
                
For the Year Ended December 31, 2011
                      
                           
                           
                         
(thousands except per share data)
        
Middlebury
              
    Patrick     Hardwoods     Pro Forma       Pro Forma  
   
Historical
    
Historical
    
Adjustments
      
Combined
  
NET SALES
   $ 307,822     $ 32,323     $ -       $ 340,145  
Cost of Goods Sold
     263,514       28,633       -         292,147  
        GROSS PROFIT
     44,308       3,690       -         47,998  
Operating Expenses:
                                  
  Warehouse & delivery
     13,645       438       -         14,083  
  Selling, general & administrative
     16,603       1,640       -         18,243  
  Amortization of intangible assets
     829       -       748   A     1,577  
  Gain on sale of fixed assets and acquisition of business
     (244 )     -       -         (244 )
     Total Operating Expenses
     30,833       2,078       748         33,659  
OPERATING INCOME
     13,475       1,612       (748 )       14,339  
      Interest expense, net
     4,469       289       (289 ) B     5,229  
                      760   C        
      Stock warrants revaluation
     699       -       -         699  
Income before income tax credit
     8,307       1,323       (1,219 )       8,411  
      Income tax credit
     (163 )     -       -         (163 )
NET INCOME
   $ 8,470       1,323       (1,219 )     $ 8,574  
      Noncontrolling interest in net income of consolidated
                                  
      variable interest entity
             (156 )     156   D        
Net Income to the Controlling Interest
           $ 1,167     $ (1,063 )          
                                   
                                   
Basic net income per common share
   $ 0.87                       $ 0.88  
Diluted net income per common share
   $ 0.83                       $ 0.84  
                                   
Weighted average shares outstanding -  Basic
     9,757                         9,757  
                                                                         Diluted
     10,156                         10,156  
                                   
See accompanying notes to unaudited pro forma condensed combined financial statements.
                    
 
 
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PATRICK INDUSTRIES, INC.
                          
Unaudited Pro Forma Condensed Combined Statement of Operations
                
For the Nine Months Ended September 30, 2012
                      
                           
                           
                     
(thousands except per share data)
                        
          Middlebury                
    Patrick     Hardwoods     Pro Forma       Pro Forma  
   
Historical
    
Historical
    
Adjustments
      
Combined
  
NET SALES
   $ 331,239     $ 28,627     $ -       $ 359,866  
Cost of Goods Sold
     280,063       25,008       -         305,071  
        GROSS PROFIT
     51,176       3,619       -         54,795  
Operating Expenses:
                                  
  Warehouse & delivery
     11,741       332       -         12,073  
  Selling, general & administrative
     16,256       1,507       -         17,763  
  Amortization of intangible assets
     992       -       561   A     1,553  
  Gain on sale of fixed assets and acquisition of business
     (237 )     -       -         (237 )
     Total Operating Expenses
     28,752       1,839       561         31,152  
OPERATING INCOME
     22,424       1,780       (561 )       23,643  
      Interest expense, net
     2,465       169       (169 ) B     3,035  
                      570   C        
      Stock warrants revaluation
     1,731       -       -         1,731  
Income before income tax credit
     18,228       1,611       (962 )       18,877  
      Income tax credit
     (6,650 )     -       -         (6,650 )
NET INCOME
   $ 24,878       1,611       (962 )     $ 25,527  
      Noncontrolling interest in net income of consolidated
                                  
      variable interest entity
             (130 )     130   D        
Net Income to the Controlling Interest
           $ 1,481     $ (832 )          
                                   
                                   
Basic net income per common share
   $ 2.38                       $ 2.44  
Diluted net income per common share
   $ 2.32                       $ 2.38  
                                   
Weighted average shares outstanding -  Basic
     10,473                         10,473  
                                                                         Diluted
     10,705                         10,705  
                                   
See accompanying notes to unaudited pro forma condensed combined financial statements.
                    
 
 
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PATRICK INDUSTRIES, INC.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
as of September 30, 2012 and for the year ended December 31, 2011
and for the nine months ended September 30, 2012
(thousands except per share information)
 
 
1.      Estimated Purchase Price
 
On October 26, 2012, Patrick acquired certain assets of Middlebury Hardwoods, a manufacturer and distributor of hardwood cabinet doors, components, fascia and other hardwood products for the recreational vehicle, manufactured housing, and residential kitchen cabinet industries.
 
The net cash purchase price for Middlebury Hardwoods was approximately $20.3 million at the acquisition date.  The acquisition was funded through borrowings under the Company’s 2012 Credit Facility and included the acquisition of accounts receivable, inventories, prepaid expenses, property, plant and equipment, and certain identifiable intangible assets.  Subsequent to the acquisition date, the net cash purchase price decreased by approximately $0.5 million to approximately $19.8 million reflecting certain working capital adjustments.

The preliminary allocation of the estimated purchase price is based on the estimated fair values of Middlebury Hardwoods’ assets acquired and liabilities assumed in the acquisition.  In addition, the purchase price allocation is based on Middlebury Hardwoods’ historical balance sheet as of September 29, 2012.  Purchase price allocations to net tangible assets and goodwill and other identifiable intangible assets acquired are as follows:

(thousands)
      
Net tangible assets (1)
   $ 6,260  
Goodwill and other identifiable intangible assets (2)
     13,502  
        Total cash net purchase price
   $ 19,762  
 
(1)
Purchase price allocations to net tangible assets are based on preliminary estimates of fair value calculations and should not be considered final.  The final calculation of fair value for the net tangible assets will be based on the Middlebury Hardwoods' balance sheet as of the October 26, 2012 acquisition date.
(2)
Purchase price allocations to goodwill and other identifiable intangible assets are based on preliminary estimates of fair value calculations and should not be considered final.  All such long-lived assets have been assigned preliminary estimated useful lives used to compute pro forma amortization charges included in the accompanying unaudited pro forma condensed combined statements of income.  The excess of the purchase price over the estimated fair value of identifiable net assets acquired has been classified as goodwill.

2.      Financing
 
The cash portion of the purchase price of the Middlebury Hardwoods acquisition was funded through borrowings under the 2012 Credit Facility.

 
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3.      Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments

A.
Eliminate Middlebury Hardwoods historical cash.
B.
Cash proceeds from borrowings under the 2012 Credit Facility to fund the Middlebury Hardwoods acquisition.
C.
Cash paid for the acquisition of Middlebury Hardwoods consisted of the following:
 
(thousands)
      
  Borrowings under 2012 Credit Facility
   $ 19,000  
  Cash on hand
     762  
        Total
   $ 19,762  
 
D.
Adjustment to step-up Middlebury Hardwoods’ inventories to fair value.
E.
Record the excess purchase price over the estimated fair value of identifiable net assets acquired that will be recorded as goodwill.  In addition, record the estimated fair value of the acquired identifiable intangible assets based on a preliminary appraisal.  The amount of intangible assets, estimated useful lives and amortization methodologies are subject to completion of the final appraisal.  Preliminary classification of intangible assets is as follows:
 
 
 
(thousands)
  
Value
  
 
Estimated Useful Life
Trademarks
   $ 410  
Indefinite
Customer relationships
     7,010  
  10 years
Non-compete agreements
     140  
    3 years
Net intangible assets included in pro forma adjustment
   $ 7,560    
 
F.
Record elimination of Middlebury Hardwoods debt upon closing of the transaction.
G.
Record borrowings under the 2012 Credit Facility to fund the cash portion of the purchase price of the Middlebury Hardwoods acquisition.
H.
Eliminate Middlebury Hardwoods historical common stock outstanding, additional paid-in-capital and retained earnings.
I.
Eliminate Middlebury Hardwoods historical non-controlling interest which represents the portion of equity in its affiliate that is not attributable, directly or indirectly, to Middlebury Hardwoods.
 
4.      Unaudited Pro Forma Condensed Combined Statements of Operations Adjustments
 
A.
Record amortization expense related to the estimated fair value of acquired identifiable finite-lived intangible assets using average estimated lives ranging from 3 to 10 years.  Upon completion of final intangible asset appraisals and classifications, actual amortization may differ from this calculation.
B.
Eliminate Middlebury Hardwoods historical interest expense.
C.
Record interest expense on the borrowings of $19.0 million under the 2012 Credit Facility to fund the Middlebury Hardwoods acquisition at the estimated base rate plus the applicable margin in effect at the time of borrowing.
D.
Eliminate Middlebury Hardwoods historical non-controlling interest in the net income of its affiliate.
 
 
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