UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 (IRS Employer
incorporation or organization) identification No.)
1800 South 14th Street, P.O. Box 638, Elkhart, Indiana 46515
(Address of principal executive offices) (ZIP code)
Registrant's telephone number, including area code: (219) 294-7511
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
(Title of each class)
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 ________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 10, 1997 (based upon the closing price on NASDAQ and an
estimate that 78.9% of the shares are owned by non-affiliates) was $76,482,168.
As of March 10, 1997, 5,965,266 shares of the Registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's Proxy Statement for its Annual
Meeting of Shareholders to be held on May 15, 1997 are
incorporated by reference into Parts III of this Form 10-K.
PART I
ITEM 1. BUSINESS
The Registrant is a leading manufacturer and supplier of building
products and materials to the manufactured housing and recreational vehicle
industries. In addition, the Registrant is a supplier to certain other
industrial markets, such as furniture manufacturing, marine and the automotive
aftermarket. The Registrant manufactures decorative vinyl and paper panels,
cabinet doors, countertops, aluminum extrusions, drawer sides, wood adhesives,
and laminating machines. The Registrant is also an independent wholesale
distributor of pre-finished wall and ceiling panels, particleboard, hardboard
siding, passage doors, roofing products, building hardware, insulation and other
related products.
The Registrant has a nationwide network of distribution centers for its
products, thereby reducing intransit delivery time and cost to the regional
manufacturing plants of its customers. The Registrant believes that it is one
of the few suppliers to the manufactured housing and recreational vehicle
industries that has such a nationwide network. The Registrant maintains nine
manufacturing plants and two distribution facilities near its principal offices
in Elkhart, Indiana, and operates twelve other warehouse and distribution
centers and sixteen other manufacturing plants in thirteen states.
Strategy
Over time, the Registrant has developed very strong working
relationships with its customers. In so doing, the Registrant has oriented its
business and expansion to the needs of these customers. These customers include
all of the larger manufactured housing and most of the recreational vehicle
manufacturers. The Registrant's customers generally demand high quality
standards and a high degree of flexibility from their suppliers. The result has
been that the Registrant focuses on maintaining and improving the quality of its
manufactured products, and has developed a nationwide manufacturing and
distribution presence in response to its customers' need for flexibility. As
the Registrant explores new markets and industries, it believes that this
nationwide network provides it with a strong foundation for expansion.
The Registrant continually seeks to improve its position as a leading
supplier to the manufactured housing and recreational vehicle industries and
other industries to which its products, manufacturing processes or sales and
distribution system are applicable. Currently, approximately 69% of the
Registrant's sales are to the manufactured housing industry and the remaining
31% is split between the Recreational Vehicle and other industries. These
industries, and the impact that they have on their suppliers, are characterized
by cyclical demand and production, small order quantities and short lead times.
These characteristics have an impact on the suppliers, many of whom tend to be
small, regional and specific product line companies.
Management has identified several tools which it expects to utilize to
accomplish its operating strategies, including the following:
Diversification into Additional Industries
While the Registrant continually seeks to improve its position as a
leading supplier to the manufactured housing and recreational vehicle
industries, it is also seeking to expand its product lines into other industrial
markets. Many of the Registrant's products such as its countertops, cabinet
doors and shelving have applications in the furniture and cabinetry markets. In
addition, the manufacturing processes for the Registrant's aluminum extrusions
are easily applied to the production of products for the marine, automotive and
truck accessories markets and aftermarkets, and many other markets, and the
Registrant's adhesives are produced for almost all industrial applications.
Because industrial order size tends to be for larger numbers of units,
the Registrant enjoys better production efficiencies for these orders. The
Registrant believes that diversification into additional industries will reduce
its vulnerability to the cyclical nature of the Manufactured Housing and
Recreational Vehicle industries. In addition, the Registrant believes that it's
nationwide manufacturing and distribution capabilities enable it to effectively
serve it's customers and position it for product expansion.
Expansion of Manufacturing Capacity
In the last 3 years, the Registrant has invested approximately $28.8
million to upgrade existing facilities and equipment and to build new
manufacturing facilities for its laminated paneling products, cabinet doors and
industrial adhesives. In addition, the Registrant has invested $4.5 million to
purchase existing businesses. The new capacity created by these investments has
enabled the Registrant to capture additional margins on its products by bringing
more efficiencies to its operations and will accommodate future growth in the
Registrant's product lines and markets.
Strategic Acquisitions and Expansion
The Registrant supplies a broad variety of building material products
and, with its nationwide manufacturing and distribution capabilities, is
well-positioned for the introduction of new products. The Registrant, from time
to time, considers the acquisition of additional product lines, facilities or
other assets to complement or expand its existing business. In 1994 the
Registrant acquired a company that manufactures laminating presses and in 1995
the Registrant completed the acquisition of a cabinet door manufacturer. In
1996 the Registrant expanded existing product lines and capacity with the
opening of it's new manufacturing and distribution complex in Woodburn, Oregon.
Principal Products
The Registrant distributes primarily prefinished wall and ceiling
panels, particleboard, hardboard siding, passage doors, building hardware,
insulation and other products. Through its manufacturing divisions, the
Registrant fabricates decorative vinyl and paper panels, cabinet doors,
countertops, wood mouldings, aluminum extrusions, drawer sides, wood adhesives
and laminating presses.
Pre-finished wall panels contributed more than 10% to total sales. The
percentage contributions of this class of product to total sales was 42.0%,
39.0%, and 41.9% for the years ended December 31, 1996, 1995, and 1994
respectively.
The Registrant has no material patents, licenses, franchises, or
concessions and does not conduct significant research and development
activities.
Manufacturing Processes and Operations
The Registrant's laminating facilities utilize various materials
including gypsum, particleboard, plywood and fiberboard which are bonded by
adhesives or a heating process to a number of products including vinyl, paper,
foil and high pressure laminate. These laminated products are utilized to
produce furniture, shelving, wall, counter and cabinet products with a wide
variety of finishes and textures.
The Registrant's metals division utilizes sophisticated technology to
produce aluminum extrusions for framing and window applications. In addition,
the Registrant's metals division extrudes running boards, accessories for
pick-up trucks, marine industry products and construction-related materials.
The Registrant manufactures two distinct cabinet door product lines.
One product line is manufactured from raw lumber utilizing solid oak and other
hardwood materials. The Registrant's other line of doors is made of laminated
particleboard or plywood. The Registrant's doors are sold to the manufactured
housing and recreational vehicle industries, and continue to gain acceptance
with cabinet manufacturers and "ready-to-assemble" furniture manufacturers.
The Registrant's wood adhesive division, which supplies adhesives used in
all the Registrant's manufacturing processes and to outside industrial
customers, uses a process of mixing non-toxic non-hazardous chemicals with water
to produce adhesives sold in tubes, pails, barrels, totes and rail tank cars.
Markets
The Registrant is engaged in the manufacturing and distribution of
building products and material for use primarily by the manufactured housing and
recreational vehicle industries and other industrial markets.
Manufactured Housing
The manufactured housing industry has historically served as a more
affordable alternative to the home buyer. Because of the relatively lower cost
of construction as compared to site-built homes, manufactured homes
traditionally have been one of the principal means for first-time home buyers to
overcome the obstacles of large down payments and higher monthly mortgage
payments. Manufactured housing also presents an affordable alternative to
site-built homes for retirees and others desiring a lifestyle in which home
ownership is less burdensome than in the case with site-built homes.
Manufactured homes are built in accordance with national and state
building codes. Manufactured homes are factory-built and transported to a site
where they are installed, often permanently. Some manufactured homes have
design limitations imposed by the constraints of efficient production and
over-the-road transit. Delivery expense limits the effective competitive
shipping range of the manufactured homes to approximately 400 to 600 miles.
The Manufactured Housing industry is cyclical, and is affected by the
availability of alternative housing such as apartments, town houses and
condominiums. In addition, interest rates, availability of financing, regional
population, employment trends, and general regional economic conditions affect
the sale of manufactured homes. The Manufactured Housing Institute reported
that during the four-year period ended December 31, 1991, shipments of
manufactured homes declined 26.6% to a total of approximately 171,000 units
nationally in 1991. The reported number of units increased sharply since 1991,
with increases in each of the last five years. Manufactured home unit shipments
in 1996 were 363,000, which is an increase of 192,000 units or 112% since 1991.
These cycles have an historic precedent. The Registrant believes that
the factors responsible for the national decline prior to 1992 included weakness
in the manufacturing, the agricultural and, in particular, the oil industry
sectors. These industry sectors have historically provided a significant portion
of the manufactured housing industry's customer base. Additionally, high
vacancy rates in apartments, high levels of repossession inventories and
over-built housing markets in certain regions of the country, resulted in fewer
sales of new manufactured homes in the past. Changes in these market
characteristics have caused the manufactured housing cycle to change positively.
Recreational Vehicles
The Recreational Vehicle industry has been characterized by cycles of
growth and contraction in consumer demand, reflecting prevailing general
economic conditions which affect disposable income for leisure time activities.
Fluctuations in interest rates, consumer confidence, and concerns about the
availability and price of gasoline, in the past, have had an adverse impact on
recreational vehicle sales. Recently the industry has been characterized by
shifting demand towards lower-priced, higher-value products which appeal to
economy-minded, value-conscious buyers.
Recreational vehicle classifications are based upon standards
established by the Recreational Vehicle Industry Association. The principal
types of recreational vehicles include conventional travel trailers, folding
camping trailers, fifth wheels, motor homes and van conversions. These
recreational vehicles are distinct from mobile homes, which are manufactured
houses designed for permanent and semi-permanent residential dwelling.
Conventional travel trailers and folding camping trailers are
non-motorized vehicles which are designed to be towed by passenger automobiles,
pick-up trucks or vans. They provide comfortable, self-contained living
facilities for short periods of time. Conventional travel trailers and folding
camping trailers are towed by means of a frame hitch attached to the towing
vehicle. Fifth wheel trailers, designed to be towed by pick-up trucks, are
constructed with a raised forward section that is attached to the bed area of
the pick-up truck. This allows for a bi-level floor plan and more living space
than a conventional travel trailer.
A motor home is a self-powered vehicle built on a motor vehicle chassis.
The interior typically includes a driver's area, kitchen, bathroom, dining and
sleeping areas. Motor homes are self-contained with their own lighting,
heating, cooking, refrigeration, sewage holding and water storage facilities.
Although they are not designed for permanent or semi-permanent living, motor
homes do provide comfortable living facilities for short periods of time.
Van conversions are conventional vans modified for recreational or other
use.
Sales of recreational vehicle products have been cyclical. Shortages of
motor vehicle fuels and significant increases in fuel prices have had a material
adverse effect on the market for recreational vehicles in the past, and could
adversely affect demand in the future. The recreational vehicle industry is
also affected by the availability and terms of financing to dealers and retail
purchasers. Substantial increases in interest rates and decreases in the
general availability of credit have had a negative impact upon the industry in
the past and may do so in the future. Recession and lack of consumer confidence
generally results in a decrease in the sale of leisure time products such as
recreational vehicles.
Other Markets
Many of the Registrant's products, such as its countertops, laminated
panels, cabinet doors and shelving, may be utilized in the furniture and
cabinetry markets. The Registrant's aluminum extrusion process is easily
applied to the production of running boards and other accessories for pick-up
trucks and vans, and the Registrant's adhesives are marketed in industrial
adhesive markets.
While demand in these industries also fluctuates with general economic
cycles, the Registrant believes that these cycles are less severe than those in
the manufactured housing and recreational vehicle industries. As a result, the
Registrant believes that diversification into these new markets will reduce its
reliance on the markets it has traditionally served and will mitigate the impact
of their historical cyclical patterns on its operating results.
Marketing and Distribution
The Registrant's sales are to manufactured housing and recreational
vehicle manufacturers and other building products manufacturers. The Registrant
has approximately 3,000 customers. The Registrant has two customers, Fleetwood
Enterprises, Inc. and Skyline Corporation, who together accounted for 21.8% of
the Registrant's total sales in 1996 and 23.5% in 1995. Ten other customers
collectively accounted for approximately 33.0% of 1996 sales. The Registrant
believes it has good relationships with its customers.
Products for distribution are purchased in carload or truckload
quantities, warehoused and then sold and delivered by Registrant. Some of the
Registrant's products are shipped directly from the suppliers to the customers.
The Registrant typically experiences a two to four week delay between issuing
its purchase orders and delivering of products to the Registrant's warehouses or
customers. The Registrant's customers do not maintain long-term supply
contracts, and therefore the Registrant must bear the risk of accurate advance
estimation of customer orders. The Registrant maintains a substantial inventory
to satisfy these orders. The Registrant has no significant backlog of orders.
The Registrant operates fourteen warehouse and distribution centers and
twenty-five manufacturing plants located in Alabama, Arizona, California,
Florida, Georgia, Idaho, Indiana, Kansas, Nevada, North Carolina, Oregon,
Pennsylvania, and Texas. Through the use of these facilities, the Registrant is
able to minimize its intransit delivery time and cost to the regional
manufacturing plants of its customers.
Suppliers
During the year ended December 31, 1996, the Registrant purchased
approximately 69% of its raw materials and distributed products from twenty
different suppliers. The five largest suppliers accounted for approximately 41%
of the Registrant's purchases. Materials are primarily commodity products, such
as lauan, gypsum, aluminum, particleboard and other lumber products which are
available from many suppliers. Alternate sources of supply are available for
all of Registrant's important materials.
Competition
The manufactured housing and recreational vehicle industries are highly
competitive with low barriers to entry. This level of competition carries
through to the suppliers to these industries. Competition is based primarily on
price, product features, quality and service. The Registrant has several
competitors in each of its classes of products. Some manufacturers and
suppliers of materials purchased by the Registrant also compete with it and sell
directly to the same industries. Most of the Registrant's competitors compete
with the Registrant on a regional basis. In order for a competitor to compete
with the Registrant on a national basis, the Registrant believes that a
substantial capital commitment and experienced personnel would be required. The
industrial markets in which the Registrant continues to expand are also highly
competitive.
Employees
As of December 31, 1996, the Registrant had 1,497 employees of which
1,286 employees are engaged directly in production, warehousing, and delivery
operations, 45 in sales, and 166 in office and administrative activities. There
are five manufacturing plants and one distribution center covered by collective
bargaining agreements. The Registrant considers its relationships with its
employees to be good.
The Registrant provides group life, hospitalization, and major medical
plans under which the employee pays a portion of the cost.
ITEM 2. PROPERTIES AND EQUIPMENT
As of December 31, 1996, the Registrant maintained the following warehouse,
manufacturing and distribution facilities:
<TABLE>
<CAPTION>
Ownership or
Location Use Area Sq. Ft. Lease Arrangement
<S> <C> <C> <C>
Elkhart, IN Manufacturing(5) 40,400 Leased to 1997
Middlebury, IN Manufacturing(5) 18,000 Owned
Elkhart, IN Mfg&Dist(1)(3)(5) 133,600 Leased to 2005
Elkhart, IN Manufacturing(3) 20,000 Owned
Elkhart, IN Manufacturing (5) 42,000 Leased to 1998
Elkhart, IN Manufacturing(2) 31,000 Leased to 1999
Elkhart, IN Manufacturing(2) 30,000 Leased to 1997
Bristol, IN Mfg. & Dist.(1)(5) 62,000 Owned
Decatur, AL Distribution(2) 35,000 Owned
Decatur, AL Mfg. & Dist.(1)(2) 52,000 Leased to 1997
Decatur, AL Manufacturing(2)(4) 41,000 Owned
Eatonton, GA Manufacturing(2) 48,300 Leased to 1998
Valdosta, GA Mfg. & Dist.(1)(2) 30,800 Owned
Charlotte, NC Distribution(1) 36,000 Leased to 1997
Charlotte, NC Manufacturing(2) 46,800 Owned
Halstead, KS Distribution(1) 36,000 Owned
Waco, TX Distribution(1) 57,000 Leased to 1999
Waco, TX Manufacturing(2) 57,000 Leased to 1999
Mt. Joy, PA Distribution(1) 58,500 Owned
Ocala, FL Manufacturing(3) 20,600 Leased to 1999
Ocala, FL Manufacturing(3) 15,000 Leased to 1998
Ocala, FL Mfg. & Dist.(1)(2) 35,200 Owned
Fontana, CA Mfg. & Dist.(1)(2) 110,000 Owned
Fontana, CA Manufacturing(2) 71,755 Owned
Phoenix, AZ Manufacturing (3) 43,600 Leased to 1997
Phoenix, AZ Manufacturing (2) 36,000 Leased to 1997
Phoenix, AZ Manufacturing (5) 15,700 Leased to 1999
Woodburn, OR Manufacturing(3) 21,500 Owned
Woodburn, OR Mfg. & Dist.(1,2,3) 153,000 Owned, Subject to Mortgage
Mishawaka, IN Manufacturing(4) 191,000 Owned, Subject to Mortgage
Elkhart, IN Manufacturing(4) 190,500 Owned
Boulder City, NV Manufacturing(5) 24,700 Leased to 1999
Elkhart, IN Admin. Offices 10,000 Owned
(1) Distribution center
(2) Vinyl/paper/foil laminating
(3) Cabinet doors
(4) Aluminum and adhesives
(5) Other
</TABLE>
Additionally, the Registrant operates distribution centers out of public
warehouses in Woodland, California and Boise, Idaho. The Registrant also owns
one other facility which is not being utilized in its operations and is
presently leased out for monthly rental of $7,000. As of December 31, 1996, the
Registrant owned or leased 33 trucks, 59 tractors, 84 trailers, 124 forklifts,
50 automobiles and a corporate aircraft. All owned and leased facilities and
equipment are in good condition and well maintained.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is subject to claims and suits in the ordinary course of
business. In management's opinion, currently pending legal proceedings and
claims against the Registrant will not, individually or in the aggregate, have a
material adverse effect on the Registrant's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Registrant's common stock is traded on the NASDAQ/NMS under the
symbol PATK. The high and low trade prices of the Registrant's common stock as
reported on NASDAQ/NMS for each quarterly period during the last two years was
as follows:
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C>
1996 15 1/4 - 11 14 3/4 - 12 1/4 15 3/8 - 12 1/4 16 1/2 - 14
1995 13 - 8 1/4 12 1/8 - 9 1/4 14 1/4 - 10 3/4 14 1/2 - 11
</TABLE>
The quotations represent prices between dealers, do not include retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
There were approximately 830 holders of the Registrant's common stock as
of December 31, 1996 as taken from the transfer agent's shareholder listing.
The Registrant declared a first time regular quarterly dividend of $.04
per common share starting June 30, 1995 and continued it through December 31,
1996. Although this is a regular quarterly dividend any future determination to
pay cash dividends will be made by the Board of Directors in light of the
Registrant's earnings, financial position, capital requirements and such other
factors as the Board of Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for each of the five years set
forth below has been derived from financial statements examined by McGladrey &
Pullen, LLP, independent certified public accountants, certain of which have
been included elsewhere herein. The following data should be read in
conjunction with the Financial Statements and related Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein:
<TABLE>
<CAPTION>
As of or for the Year Ended December 31,
1996 1995 1994 1993 1992
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales $403,511 $362,519 $330,981 $258,557 $184,250
Gross Profit 53,362 49,690 42,328 33,593 22,130
Warehouse and delivery
expenses 14,645 13,244 12,070 10,188 8,449
Selling, general, and
administrative expenses 19,909 18,809 14,792 13,099 10,380
Interest expense, net 1,078 1,200 940 918 1,133
Income taxes 6,929 6,344 5,642 3,633 825
Net income 10,800 10,093 8,884 5,755 1,343
Earnings per common share (1) 1.81 1.70 1.46 1.11 .31
Weighted average common
shares outstanding(1) 5,967 5,947 6,094 5,162 4,304
Cash Dividends, per
common share .16 .12 --- --- ---
Working Capital 45,646 43,280 35,011 27,356 15,035
Total assets 106,606 95,916 87,269 67,990 49,935
Long-term debt 26,152 26,200 21,150 11,624 15,387
Shareholders' equity 62,296 52,989 43,439 36,460 19,195
(1) Adjusted to reflect the three-for-two stock split effected in the nature
of a stock dividend effective June 10, 1993 and the two-for-one stock split
effective March 8, 1994.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Registrant's business has shown significant revenue growth since
1991, with net sales increasing from $143 million to $403 million in five years.
In 1996, the Registrant again achieved record annual sales of $403.5
million. The increase in sales resulted from the continued strength of the
economy and increased production in the manufactured housing industry. The
revenue gains, resulting in increased gross profits, has enabled the Registrant
to achieve 1996 net income of $10.8 million.
The following table sets forth the percentage relationship to net sales
of certain items in the Registrant's statements of operations:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996 1995 1994
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 86.8 86.3 87.2
Gross profit 13.2 13.7 12.8
Warehouse and delivery 3.6 3.7 3.6
Selling, general and administrative 4.9 5.2 4.5
Operating income 4.7 4.8 4.7
Net income 2.7 2.8 2.7
</TABLE>
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to year Ended December 31, 1995
Net Sales. Net sales increased by $41.0 million, or 11.3%, from $362.5
million for the year ended December 31, 1995, to $403.5 million in the year
ended December 31, 1996. This sales increase was attributable to a 6.9%
increase in 1996 units shipped by the manufactured housing industry. This
industry represents approximately 69% of the Registrant's sales. The
Registrant's sales to the recreational vehicle industry were higher this year
because the industry was experiencing a slight increase in units shipped of the
units that utilize the Registrant's products. The recreational vehicle industry
sales as a percent of the Registrant's total sales were 15%, down .05% from 1995
because of increased manufactured housing industry sales. The Registrant's
sales to furniture, marine and other industries was approximately 16% of total
sales which was also less than in 1995 due to the increased manufactured housing
sales.
Gross Profit. Gross profit increased by approximately $3.7 million, or
7.4%, from $49.7 million in the fiscal year 1995, to $53.4 million in 1996. As
a percentage of sales, gross profit was lower by 0.5% due to increases in labor,
building and equipment depreciation, and workers compensation and group
insurance costs.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased by approximately $1.4 million, or 10.6%, from $13.2 million in fiscal
1995, to $14.6 million in 1996. This is 0.1% less as a percentage of net sales
than in 1995. The increase in dollars is due to the increased sales.
Selling, General and Administrative Expenses. Selling, General and
administrative expenses increased by $1.1 million, or 5.8%, in 1996, from $18.8
million in 1995 to $19.9 million in 1996. As a percentage of net sales, these
expenses decreased from 5.2% in 1995 to 4.9% in 1996.
Operating Income. Operating income increased by approximately $1.2
million, from $17.6 million in 1995 to $18.8 million, because of the increased
sales resulting in increased gross profits and the operating expenses being
lower as percentages of sales. As a percentage of sales, operating income
decreased from 4.8% to 4.7% in the year 1996 as compared to 1995.
Interest Expense. Interest expense, net of interest income, decreased by
approximately $122,000. The Registrant's borrowing levels were slightly lower
during most of 1996 compared to 1995, and temporary investments were higher.
Net Income. Net income increased by approximately $707,000 from $10.1
million in 1995 to $10.8 million in 1996. This increase is attributable to the
factors described above.
Year Ended December 31, 1995 Compared to year Ended December 31, 1994
Net Sales. Net sales increased by $31.5 million, or 9.5%, from $331.0
million for the year ended December 31, 1994, to $362.5 million in the year
ended December 31, 1995. Sales increases were primarily attributable to
increases in units shipped by the Manufactured Housing industry. The
Manufactured Housing industry, which represents approximately 66% of
Registrant's sales, recorded an 11.7% increase in units shipped. The
Registrant's sales to the Recreational Vehicle industry were down as a percent
of total company sales as a result of unit decreases of 8% in 1995.
Gross Profit. Gross profit increased by $7.4 million, or 17.5%, from
$42.3 million in the fiscal year of 1994, to $49.7 million in the fiscal year
1995. As a percentage of net sales, gross profit increased from 12.8% in fiscal
year 1994 to 13.7% in 1995. This increase in gross profit resulted from more
stable prices of certain commodity raw products, increased efficiency of labor,
and improvement in worker's compensation insurance costs.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased $1.1 million or 9.7%, from $12.1 million in fiscal 1994, to $13.2
million in fiscal 1995. As a percentage of net sales, warehouse and delivery
expenses increased from 3.6% in fiscal 1994 to 3.7% in fiscal 1995. This
percentage increase is primarily due to additional delivery vehicles necessary
to support the increased sales volume.
Selling General and Administrative Expenses. Selling, general and
administrative expenses increased by $4.0 million, or 27.0%, from $14.8 million
in fiscal 1994, to $18.8 million in fiscal 1995. As a percentage of net sales,
selling, general and administrative expenses increased from 4.5% in fiscal 1994
to 5.2% in fiscal 1995. This percentage increase is primarily due to an
unusually large bad debt and increased administrative wages at the manufacturing
and distribution facilities.
Operating Income. Operating income increased by $2.1 million, or 13.5%,
from $15.5 million in fiscal 1994, to $17.6 million in fiscal 1995. This
increase is primarily attributable to the $7.4 million increase in gross profit
somewhat offset by the increases in selling, general and administrative
expenses. As a percentage of sales, operating income increased from 4.7% in
fiscal 1994 to 4.8% in fiscal 1995.
Interest Expense. Interest expense increased by $260,000 from $940,000
in fiscal 1994, to $1.2 million in fiscal 1995. This was due to higher interest
rates in 1995 and higher borrowing levels.
Net Income. Net income increased by $1.2 million from $8.9 million in
fiscal 1994, to $10.1 million in fiscal 1995. This increase in net income is
primarily attributable to the factors discussed 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 had a bank financing agreement (the Credit Agreement) with
NBD Bank, N.A. The Credit Agreement provided for a $10 million term loan with a
maturity in February, 1999 and a credit revolver loan of up to $13 million with
maturity in February, 1997. 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. In October, 1995, the bank financing
agreement was amended reducing the credit revolver loan availability to
$5,000,000. The Revolving Credit Agreement was amended on February 13, 1997 and
provides 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 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 were generally highest in the second and third quarters.
NEW ACCOUNTING STANDARDS
The Registrant is not aware of any accounting standards which have been
issued but not yet adopted by the Registrant which would have a material impact
on its financial position or results of operations.
INFLATION
The Registrant does not believe that inflation had a material effect on
results of operations for the periods presented.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth in Item 14 (a) 1. on
page 18 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 15, 1997,
under the caption "Election of Directors," which information is hereby
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 15, 1997,
under the caption "Compensation of Executive Officers and Directors," which
information is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 15, 1997,
under the caption "Election of Directors," which information is hereby
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 15, 1997,
under the caption "Certain Transactions," which information is hereby
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
(a) 1. FINANCIAL STATEMENTS
Independent auditor's report F-1
Balance sheets -
December 31, 1996 and 1995 F-2
Statements of income-years ended
December 31, 1996, 1995, and 1994 F-3
Statements of shareholders' equity-
years ended December 31,
1996, 1995, 1994 F-4
Statements of cash flow-
years ended December 31,
1996, 1995, and 1994 F-5
Notes to the financial statements F-6-14
(a) 2. FINANCIAL STATEMENT SCHEDULES
Independent auditor's report
on supplemental schedule & consent F-15
Schedule II - Valuation and qualifying
accounts and reserves F-16
All other schedules have been omitted as not required, not applicable, not
deemed material or because the information is included in the Notes to Financial
Statements.
(a) 3. EXHIBITS
The exhibits listed in the accompanying Exhibit Index on pages 37, 38, and
39 are filed or incorporated by reference as part of this report.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed for the three months ended
December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 25, 1997.
PATRICK INDUSTRIES, INC
By /s/ Mervin D. Lung
Mervin D. Lung, Chairman of the
Board and Chief Executive
Officer
Pursuant to the Requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Mervin D. Lung Chairman of the Board, Chief March 25, 1997
Mervin D. Lung Executive Officer and Director
/s/ David D. Lung President, Chief Operating Officer March 25, 1997
David D. Lung and Director
/s/ Keith V. Kankel Vice President-Finance, March 25, 1997
Keith V. Kankel Principal Accounting Officer and Director
/s/ Thomas G. Baer Vice President-Operations and Director March 25, 1997
Thomas G. Baer
/s/ Harold E. Wyland Vice President-Sales and Director March 25, 1997
Harold E. Wyland
/s/ Clyde H. Keith Director March 25, 1997
Clyde H. Keith
/s/ Merlin D. Knispel Director March 25, 1997
Merlin D. Knispel
/s/ Dorothy M. Lung Director March 25, 1997
Dorothy M. Lung
/s/ John H. McDermott Director March 25, 1997
John H. McDermott
/s/ Robert C. Timmins Director March 25, 1997
Robert C. Timmins
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PATRICK INDUSTRIES, INC.
Elkhart, Indiana
We have audited the accompanying consolidated balance sheets of
PATRICK INDUSTRIES, INC. and Subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of PATRICK INDUSTRIES, INC. and Subsidiaries as of
December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
Elkhart, Indiana
January 31, 1997
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
1996 1995
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,041,482 $ 1,349,709
Investment in marketable securities 4,400,000 -
Trade receivables 15,208,671 20,427,355
Inventories 39,342,506 35,462,152
Prepaid expenses 393,520 387,782
Total current assets 61,386,179 57,626,998
Property and Equipment, net 39,759,294 33,049,158
Intangible and Other Assets 5,460,793 5,239,766
$ 106,606,266 $ 95,915,922
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of
long-term debt $ 1,138,517 $ 700,000
Accounts payable, trade 10,545,175 9,589,103
Accrued liabilities 4,056,031 4,057,446
Total current liabilities 15,739,723 14,346,549
Long-Term Debt, less current
maturities 26,151,527 26,200,000
Deferred Compensation Obligations 1,069,357 919,821
Deferred Tax Liabilities 1,350,000 1,461,000
Commitments and Contingencies
Shareholders' Equity
Preferred stock, no par value; authorized
1,000,000 shares - -
Common stock, no par value; authorized
12,000,000 shares; issued 1996
5,963,766 shares;
1995 5,966,866 shares 22,138,494 21,626,489
Retained earnings 40,157,165 31,362,063
62,295,659 52,988,552
$ 106,606,266 $ 95,915,922
See Notes to Financial Statements.
</TABLE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales $ 403,510,956 $ 362,519,418 $ 330,980,991
Cost of goods sold 350,149,363 312,829,489 288,652,765
Gross profit 53,361,593 49,689,929 42,328,226
Operating expenses:
Warehouse and delivery 14,644,949 13,244,189 12,069,671
Selling, general, and
administrative 19,909,274 18,809,458 14,792,359
34,554,223 32,053,647 26,862,030
Operating income 18,807,370 17,636,282 15,466,196
Interest expense, net 1,078,206 1,199,742 940,167
Income before income
taxes (credits) 17,729,164 16,436,540 14,526,029
Federal and state
income taxes 6,929,000 6,344,000 5,642,000
Net income $ 10,800,164 $ 10,092,540 $ 8,884,029
Earnings per
common share $ 1.81 $ 1.70 $ 1.46
See Notes to Financial Statements.
</TABLE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Preferred Common Retained
Stock Stock Earnings Total
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ - $ 22,132,952 $ 14,326,613 $ 36,459,565
Net income - - 8,884,029 8,884,029
Proceeds from the exercise of
2,600 stock options including
related tax benefit - 5,421 - 5,421
Issuance of 30,000 shares of
common stock for stock award plan - 270,000 - 270,000
Repurchase and retirement of 265,700
shares of common stock - (951,206) (1,228,800) (2,180,006)
Balance, December 31, 1994 - 21,457,167 21,981,842 43,439,009
Net income - - 10,092,540 10,092,540
Proceeds from the exercise of
26,374 stock options including
related tax benefit - 169,322 - 169,322
Dividends on common stock ($.12 per
share) - - (712,319) (712,319)
Balance, December 31, 1995 - 21,626,489 31,362,063 52,988,552
Net income - - 10,800,164 10,800,164
Proceeds from the exercise of
84,800 stock options including
related tax benefit - 545,474 - 545,474
Issuance of 30,000 shares of common
stock for stock award plan - 393,750 - 393,750
Repurchase and retirement of 117,900
shares of common stock - (427,219) (1,052,257) (1,479,476)
Dividends on common stock ($.16 per
share) - - (952,805) (952,805)
Balance, December 31, 1996 $ - $ 22,138,494 $ 40,157,165 $ 62,295,659
See Notes to Financial Statements.
</TABLE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 10,800,164 $ 10,092,540 $ 8,884,029
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 4,506,768 3,556,512 2,883,110
Deferred income taxes (111,000) 101,000 273,000
Other 488,557 183,054 (149,606)
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables 5,218,684 (1,717,489) (2,849,614)
Inventories (3,880,354) 1,031,077 (6,628,546)
Prepaid expenses (5,738) (83,293) (110,006)
Increase (decrease) in:
Accounts payable and accrued
liabilities 954,657 (4,803,782) 2,023,342
Income taxes payable - 306,332) (303,168)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 17,971,738 8,053,287 4,022,541
Cash Flows From Investing Activities
Capital expenditures (9,811,116) (11,866,492) (5,773,694)
Investment in marketable securities (4,400,000) - -
Acquisition of businesses, net of cash - (3,346,596) (1,148,727)
Cash held in escrow - 4,584,738 (4,584,738)
Other (264,539) (225,217) 190,974
NET CASH (USED IN) INVESTING
ACTIVITIES (14,475,655) (10,853,567) (11,316,185)
Cash Flows From Financing Activities
Borrowings under long-term debt agreements - 24,000,000 21,666,666
Principal payments on long-term debt (917,503) (19,974,000) (11,996,911)
Proceeds from exercise of common
stock options 545,474 169,322 5,421
Repurchase of common stock (1,479,476) - (2,180,006)
Cash dividends paid (952,805) (712,319) -
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (2,804,310) 3,483,003 7,495,170
INCREASE IN CASH AND CASH
EQUIVALENTS 691,773 682,723 201,526
Cash and cash equivalents, beginning 1,349,709 666,986 465,460
Cash and cash equivalents, ending $ 2,041,482 $ 1,349,709 $ 666,986
See Notes to Financial Statements.
</TABLE>
NOTE 1. NATURE OF BUSINESS, USE OF ESTIMATES, AND SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF BUSINESS:
The Company's operations consist primarily of the manufacture
and distribution of building products and materials for use
primarily by the manufactured housing and recreational vehicle
industries for customers throughout the United States. Credit
is generally granted on an unsecured basis for terms of 30 days.
USE OF ESTIMATES:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
Patrick Industries, Inc. and its wholly-owned subsidiaries,
Harlan Machinery Company, Inc. and Patrick Door, Inc., and its
majority-owned subsidiary, Patrick Mouldings, L.L.C. ("the
Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS:
The Company has cash on deposit in financial institutions in
amounts which, at times, may be in excess of insurance coverage
provided by the Federal Deposit Insurance Corporation.
For purposes of the statement of cash flows, the Company
considers all overnight repurchase agreements to be cash
equivalents.
MARKETABLE SECURITIES:
The Company has investments in marketable debt securities which
it has classified as available-for-sale securities. Management
determines the classification of the securities at the time they
are acquired and evaluates the appropriateness of such
classifications at each balance sheet date. Available-for-sale
securities are stated at fair value, and unrealized holding
gains and losses, net of deferred tax effects, are reported as a
separate component of shareholders' equity.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out
(FIFO) method) or market.
PROPERTY AND EQUIPMENT:
Property and equipment is recorded at cost. Depreciation has
been computed primarily by the straight-line method applied to
individual items based on estimated useful lives which generally
range from 10 to 40 years for buildings and improvements and
from 3 to 15 years for machinery and equipment, transportation
equipment, and leasehold improvements.
GOODWILL:
Goodwill, the excess of cost over the fair value of net assets
acquired, is amortized by the straight-line method over 15-year
periods. At each balance sheet date, management assesses
whether there has been a permanent impairment in the value of
goodwill. In the event that an impairment is evident, the
Company records an expense for that impairment. Factors
considered by management include current operating results,
anticipated future cash flows, trends, and prospects, as well as
the effects of obsolescence, demand, competition, and other
economic factors.
REVENUE RECOGNITION:
The Company ships product based on specific orders from
customers. Shipments are made by the Company only after
receiving authorization from the customer and revenue is
recognized upon delivery.
EARNINGS PER COMMON SHARE:
Earnings per common share for the years ended December 31, 1996,
1995, and 1994 have been computed based on the weighted average
common shares outstanding of 5,967,489, 5,946,948, and 6,094,444
respectively.
NOTE 2. INVESTMENT IN MARKETABLE SECURITIES
During the year ended December 31, 1996, the Company purchased
marketable debt securities in the total amount of $4,400,000.
These available-for-sale debt securities mature in 2024 and 2026
and bear interest at a weekly adjusted variable rate which was
5.55% at December 31, 1996. The securities are stated at fair
value which was equal to their cost at December 31, 1996.
NOTE 3. BALANCE SHEET DATA
TRADE RECEIVABLES:
Trade receivables in the accompanying balance sheets at December
31, 1996 and 1995 are stated net of an allowance for doubtful
accounts of $80,000 and $100,000 respectively.
INVENTORIES:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials $ 24,204,345 $ 23,105,916
Work in process 1,029,127 877,805
Finished goods 5,311,075 3,197,561
Materials purchased for resale 8,797,959 8,280,870
$ 39,342,506 $ 35,462,152
PROPERTY AND EQUIPMENT:
Land and improvements $ 3,084,374 $ 2,292,048
Buildings and improvements 18,107,574 16,152,051
Machinery and equipment 38,649,613 32,254,155
Transportation equipment 3,404,977 3,331,637
Leasehold improvements 2,383,751 2,159,969
65,630,289 56,189,860
Less accumulated depreciation 25,870,995 23,140,702
$ 39,759,294 $ 33,049,158
INTANGIBLE AND OTHER ASSETS:
Goodwill, at amortized cost $ 3,080,202 $ 3,294,276
Other, primarily cash value
of life insurance 2,380,591 1,945,490
$ 5,460,793 $ 5,239,766
ACCRUED LIABILITIES:
Payroll and related expenses $ 2,885,859 $ 2,664,374
Property taxes 639,280 811,155
Other 530,892 581,917
$ 4,056,031 $ 4,057,446
</TABLE>
NOTE 4. PLEDGED ASSETS AND LONG-TERM DEBT
Long-term debt and related collateral at December 31, 1996 and
1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Senior Notes, insurance company $ 18,000,000 $ 18,000,000
Indiana Development Finance
Authority Bonds 3,000,000 3,300,000
State of Oregon Economic Development
Revenue Bonds 5,200,000 5,600,000
Other 1,090,044 -
27,290,044 26,900,000
Less current maturities 1,138,517 700,000
$ 26,151,527 $ 26,200,000
</TABLE>
NOTES TO FINANCIAL STATEMENTS
The senior notes bear interest at a fixed rate of 6.82% and are
unsecured. The annual principal installments of $2,571,428
commence on September 15, 1999 and the final installment is due
September 15, 2005. This agreement requires that the Company
maintain a minimum level of tangible net worth.
The Indiana Development Finance Authority Bonds are payable in
annual installments of $300,000 plus interest at a variable tax
exempt bond rate, set periodically to enable the bonds to be
sold at par (3.82% at December 31, 1996). The final installment
is due November 1, 2006. The bonds are collateralized by real
estate and equipment purchased with the bond funds and are
backed by a bank standby letter of credit.
The State of Oregon Economic Development Revenue Bonds are
payable in annual installments of $400,000 plus interest at a
variable tax exempt bond rate (3.75% at December 31, 1996). The
final installment is due December 1, 2010. The bonds are
collateralized by real estate and equipment purchased wiht the
bond funds and are backed by a bank standby letter of credit.
The Company has an unsecured revolving credit agreement which
allows borrowings up to $5,000,000 or a borrowing base defined
in the agreement. Interest on this note is at either prime or
the Eurodollar rate plus 1% to 1.25%. In addition, this
agreement requires the Company to, among other things, maintain
minimum levels of tangible net worth, working capital, and debt
to net worth. In addition, the Company is contingently liable
for standby letters of credit of $1,350,000 to meet credit
policies of certain suppliers.
Aggregate maturities of long-term debt for the years ending
December 31, 1998 through 2001 are as follows: 1998 $1,137,689;
1999 $3,485,265; 2000 $3,271,428; and 2001 $3,271,428.
Based on the borrowing rates currently available to the Company
for loans with similar terms and average maturities, the fair
value of the long-term debt instruments approximates their
carrying value.
Interest expense for the years ended December 31, 1996, 1995,
and 1994 was approximately $1,670,000, $1,420,000, and $940,000
respectively
NOTE 5. EQUITY TRANSACTIONS
Common stock sold to key employees through the exercise of stock
options resulted in a tax deduction for the Company equivalent
to the taxable income recognized by the employee. For financial
reporting purposes, the tax benefit resulting from this
deduction, along with the proceeds from the exercise of the
options, is accounted for as an increase to common stock.
Effective June 1995, the Company implemented a quarterly cash
dividend of $.04 per common share.
NOTE 6. COMMITMENTS AND RELATED PARTY LEASES
The Company leases office, manufacturing, and warehouse
facilities and certain equipment under various noncancelable
agreements which expire at various dates through 2005. These
agreements contain various renewal options and provide for
minimum annual rentals plus the payment of real estate taxes,
insurance, and normal maintenance on the properties. Certain of
the leases are with the chairman/major shareholder and expire at
various dates through September 30, 2005.
The total minimum rental commitment at December 31, 1996 under
the leases mentioned above is approximately $9,901,000, which
is due approximately $2,578,000 in 1997, $2,068,000 in 1998,
$1,556,000 in 1999, $1,110,000 in 2000, $802,000 in 2001, and
$1,787,000 thereafter.
The total rent expense included in the statements of income for
the years ended December 31, 1996, 1995, and 1994 is
approximately $3,400,000, $3,000,000, and $2,600,000
respectively, of which approximately $1,300,000, $1,300,000,
and $1,100,000 respectively was paid to the chairman/major
shareholder.
NOTE 7. MAJOR CUSTOMERS
Net sales for the years ended December 31, 1996, 1995, and 1994
include sales to two major customers, Skyline Corporation and
Fleetwood Enterprises, Inc., each of which accounted for 10% or
more of the total net sales of the Company for those years. The
percentage of total Company sales to one major customer was
10.6%, 11.3%, and 13.8%, and to the other was 11.2%, 12.2%, and
15.5% for the years ended December 31, 1996, 1995, and 1994
respectively.
The balances due from these two customers at December 31, 1996
and 1995 were not significant to the total trade receivables
balance.
NOTE 8. INCOME TAX MATTERS
Federal and state income taxes for the years ended December 31,
1996, 1995, and 1994, all of which are domestic, consist of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ 6,016,000 $ 5,185,000 $ 4,405,000
State 1,024,000 1,058,000 964,000
Deferred (111,000) 101,000 273,000
$ 6,929,000 $ 6,344,000 $ 5,642,000
</TABLE>
The provisions for income taxes for the years ended December 31,
1996, 1995, and 1994 are different from the amounts that would
otherwise be computed by applying a graduated federal statutory
rate of 34% to 35% to income before income taxes. A
reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Rate applied to pretax income $ 6,197,000 $ 5,637,000 $ 4,984,000
State taxes, net of federal
tax benefit 701,000 723,000 637,000
Permanent differences 31,000 (16,000) 21,000
$ 6,929,000 $ 6,344,000 $ 5,642,000
</TABLE>
Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable
or refundable for the current period plus or minus the change
during the period in deferred tax assets and liabilities.
The composition of the deferred tax assets and liabilities at
December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Gross deferred tax liability,
accelerated depreciation $ (2,634,000) $ (2,382,000)
Gross deferred tax assets:
Trade receivables allowance 31,000 38,000
Inventory capitalization 337,000 276,000
Nondeductible accruals 431,000 226,000
Deferred compensation 412,000 353,000
Other 73,000 28,000
1,284,000 921,000
Net deferred tax liabilities $ (1,350,000) $ (1,461,000)
</TABLE>
NOTE 9. COMPENSATION PLANS
DEFERRED COMPENSATION OBLIGATIONS:
The Company has deferred compensation agreements with certain
key employees. The agreements provide for monthly benefits for
ten years subsequent to retirement, disability, or death. The
Company has accrued an estimated liability based upon the
present value of an annuity needed to provide the future benefit
payments.
BONUS PLAN:
The Company pays bonuses to certain management personnel.
Historically, bonuses are determined annually and are based upon
corporate and divisional income levels. The charge to
operations amounted to approximately $2,196,000, $2,124,000, and
$1,959,000 for the years ended December 31, 1996, 1995, and 1994
respectively.
PROFIT-SHARING PLAN:
The Company has a qualified profit-sharing plan, more commonly
known as a 401(k) plan, for sub- stantially all of its employees
with over one year of service and who are at least 21 years of
age. The plan provides for a matching contribution by the
Company as defined in the agreement and, in addition, provides
for a discretionary contribution annually as determined by the
Board of Directors. The amount of contributions for the years
ended December 31, 1996, 1995, and 1994 was immaterial.
STOCK OPTION PLAN:
The Company has adopted a stock option plan with shares of
common stock reserved for options to key employees. These
options were not included in computing earnings per common share
because the effect of their inclusion was immaterial.
Following is a summary of transactions of granted shares under
option for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Outstanding, beginning of year 187,800 215,674
Canceled during the year (5,000) (1,500)
Exercised during the year (84,800) (26,374)
Outstanding, end of year 98,000 187,800
Eligible, end of year for exercise
currently at:
$2.085 per share - 83,800
$10.75 per share 45,000 26,000
</TABLE>
As permitted under generally accepted accounting principles, the
Company's present accounting with respect to the recognition and
measurement of stock-based employee compensation costs,
primarily related to the Company's stock option plan, is in
accordance with APB Opinion No. 25, which generally requires
that compensation costs be recognized for the difference, if
any, between the quoted market price of the stock and the amount
an employee must pay to acquire the stock. The Company has
adopted the provisions of FASB Statement No. 123 which
prescribes a fair-value based method of measurement that results
in the disclosure of computed compensation costs for essentially
all awards of stock-based compensation to employees. This
requirement is to be applied prospectively to any options
granted. No options were granted during the years ended
December 31, 1996 and 1995 and, therefore, there is no pro forma
net income effect.
STOCK AWARD PLAN:
The Company has adopted a stock award plan for the five existing
nonemployee directors. Grants awarded during May 1996 of 30,000
shares are subject to forfeiture in the event the recipient
terminates as a director within two years from the date of
grant. The related compensation expense is being recognized
over the two-year vesting period.
NOTE 10. BUSINESS COMBINATION
On November 8, 1994, the Company acquired all of the stock of
Harlan Machinery Company, Inc., a manufacturer of laminating and
other industrial equipment. The purchase price of the acquired
stock was $2,095,000. The excess of the total acquisition cost
over the fair value of the stock of $1,339,000 is being
amortized over fifteen years by the straight-line method. The
acquisition has been accounted for as a purchase and the results
of operations since the date of acquisition are included in the
consolidated statements of operations.
In January 1995, the Company purchased substantially all the
assets of U.S. Door, Inc., a manufacturer of wooden cabinet
doors. The purchase price of the acquired assets was
$3,346,000. The excess of the total acquisition cost over the
fair value of the assets of $1,876,000 is being amortized over
fifteen years by the straight-line method. The acquisition has
been accounted for as a purchase and the results of operations
since the date of acquisition are included in the consolidated
statements of operations.
Summarized pro forma financial information for the year ended
December 31, 1994 as if the two acquisitions had occurred at the
beginning of that year is as follows:
Net sales $ 340,398,000
Net income 9,065,000
Earnings per share 1.49
NOTE 11. CASH FLOWS INFORMATION
Supplemental information relative to the statements of cash
flows for the years ended December 31, 1996, 1995, and 1994 is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Supplemental disclosures of cash
flows information:
Cash payments for:
Interest $ 1,583,112 $ 1,416,133 $ 844,608
Income taxes $ 7,379,844 $ 6,751,132 $ 5,872,168
Supplemental schedule of noncash
investing and financing activities:
Equipment contracts incurred
for use of equipment $ 1,307,547 $ - $ -
</TABLE>
The changes in assets and liabilities in arriving at net cash
provided by operating activities in 1995 and 1994 are net of the
purchases of U.S. Door, Inc. and Harlan Machinery Company, Inc.
respectively.
NOTE 12. UNAUDITED INTERIM FINANCIAL INFORMATION
Presented below is certain selected unaudited quarterly
financial information for the years ended December 31, 1996 and
1995 (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31,
1996
<S> <C> <C> <C> <C>
Net sales $ 93,768 $ 107,395 $ 105,686 $ 96,662
Gross profit 11,753 14,443 14,480 12,685
Net income 1,945 3,204 3,285 2,366
Earnings per common share 0.33 0.53 0.55 0.40
Weighted average common
shares outstanding 5,967,157 5,965,951 5,973,212 5,963,614
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31,
1995
<S> <C> <C> <C> <C>
Net sales $ 87,031 $ 92,559 $ 94,125 $ 88,804
Gross profit 11,970 12,495 13,212 12,013
Net income 2,316 2,663 2,842 2,272
Earnings per common share 0.39 0.45 0.48 0.38*
Weighted average common
shares outstanding 5,940,809 5,943,492 5,947,431 5,955,722
*Includes a retro policy adjustment for favorable experience with
workers' compensation claims which resulted in an increase in
net income of $.06 per share in the fourth quarter of the year.
</TABLE>
INDEPENDENT AUDITOR'S REPORT ON THE
SUPPLEMENTAL SCHEDULE AND CONSENT
To the Board of Directors
Patrick Industries, Inc.
Elkhart, Indiana
Our audits of the consolidated financial statements of Patrick
Industries, Inc. and Subsidiaries included Schedule II,
contained herein, for each of the years in the three-year period
ended December 31, 1996. Such schedule is presented for
purposes of complying with the Securities and Exchange
Commission's rule and is not a required part of the basic
consolidated financial statements. In our opinion, such
schedule presents fairly the information set forth therein, in
conformity with generally accepted accounting principles.
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (File No. 333-04187) and in
the related Prospectus of our report, dated January 31, 1997,
with respect to the consolidated financial statements and
schedule of Patrick Industries, Inc. and Subsidiaries included
in this Annual Report on Form 10-K for the year then ended.
/s/ McGladrey & Pullen LLP
McGLADREY & PULLEN, LLP
Elkhart, Indiana
January 31, 1997
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
December 31, 1994, 1995, and 1996
<TABLE>
<CAPTION>
Balance At Deductions Balance At
Beginning Charged To From Close
Of Period Operations Reserves Of Period
Allowance for doubtful accounts
- deducted from trade receiv-
ables, in the balance sheets:
<S> <C> <C> <C> <C>
1994 $ 200,000 $ 44,203 $ 79,203 $ 165,000
1995 $ 165,000 $ 940,978 $ 1,005,978 $ 100,000
1996 $ 100,000 $ 42,307 $ 62,307 $ 80,000
</TABLE>
INDEX TO EXHIBITS
Exhibit Number Exhibits
3(a) -Amended Articles of Incorporation of the Registrant
as further amended (filed as Exhibit 3(a) to the
Registrant's Form 10-K/A-1 amending its report on
Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference) ...........
3(b) -By-Laws of the Registrant (filed as Exhibit 3(b) to
the Registrant's Form 10-K/A-1 amending its report on
Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference) ...........
3(c) -Preferred Share Purchase Rights Agreement (filed
April 3, 1996 on Form 8-A and incorporated herein by
reference) ...........
10(a) -Second Amendment to February 2, 1994 Credit
Agreement, dated as of June 26, 1995 among the
Registrant, NBD Bank, as agent, and NBD Bank, N.A.
(filed as Exhibit 10(a) to the Registrant's Form 10-K
for the fiscal year ended December 31, 1995 and
incorporated herein by reference) ...........
10(b) -Note Agreement, dated September 1, 1995, between the
Registrant and Nationwide Life Insurance Company
(filed as Exhibit 10(b) to the Registrant's Form 10-K
for the fiscal year ended December 31, 1995 and
incorporated herein by reference) ...........
10(c) -Commercial Lease and Option to Purchase dated as of
October 1, 1995 between Mervin Lung Building Company,
Inc., as lessor, and the Registrant, as lessee (filed
as Exhibit 10(c) to the Registrant's Form 10-K for
the fiscal year ended December 31, 1995 and
incorporated herein by reference) ...........
10(d) -First Amendment to Credit Agreement, dated as of
October 27, 1994 among the Registrant, NBD Bank, as
agent, and NBD Bank, N.A. (filed as Exhibit 10(a) to
the Registrant's Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by
reference) ...........
10(e) -Loan Agreement dated as of December 1, 1994 between the State
of Oregon Economic Development Commission, along with the
Pledge and Security Agreement relating thereto (filed as
Exhibit 10(b) to the Registrant's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by
reference) ...........
10(f) -Credit Agreement dated as of February 2, 1994 among the
Registrant, NBD Bank, as agent, and NBD Bank, N.A. (filed as
Exhibit 10(a) to the Registrant's Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by
reference) ...........
10(g) -Loan Agreement dated as of November 1, 1991 between the
Registrant and the Indiana Development Finance Authority, along
with the Pledge and Security Agreement relating thereto (filed
as Exhibit 10(c) to the Registrant's Form 10-K/A-1 amending its
report on Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference) .....
*10(h) -Patrick Industries, Inc. 1987 Stock Option Program, as amended
(filed as Exhibit 10(e) to the Registrant=s Form 10-K for the
fiscal year ended December 31, 1994 and incorporated herein by
reference) ...........
*10(i) -Patrick Industries, Inc. 401(k) Employee Savings Plan (filed
as Exhibit 10(a) to the Registrant's Form 10-K for the fiscal
year ended December 31, 1993 and incorporated herein by
reference) ...........
*10(j) -Form of Employment Agreements with Executive Officers (filed
as Exhibit 10(e) to the Registrant's Form 10-K/A-1 amending its
report on Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference) .....
*10(k) -Form of Deferred Compensation Agreements with Executive
Officers (filed as Exhibit 10(f) to the Registrant's Form
10-K/A-1 amending its report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by
reference) ...........
10(l) -Commercial Lease and dated as of October 1, 1994 between
Mervin D. Lung, as lessor, and the Registrant, as lessee (filed
as Exhibit 10(k) to the Registrant's Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference) ...........
10(m) -Commercial Lease dated September 1, 1994 between Mervin D.
Lung Building Company, Inc., as lessor, and the Registrant, as
lessee (filed as Exhibit 10(l) to the Registrant's Form 10-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference) ...........
10(n) -Commercial Lease dated November 1, 1994 between Mervin D. Lung
Building Company, Inc., as lessor, and the Registrant, as
lessee (filed as Exhibit 10(m) to the Registrant's Form 10-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference) ...........
12** -Computation of Operating Ratios ...........
23 -Consent of accountants (included in Independent auditor's
report on supplemental schedule & consent on page F-15) .....
27** -Financial Data Schedule ...........
*Management contract or compensatory plan or arrangement
**Filed herewith
Exhibit 12
PATRICK INDUSTRIES, INC.
Statement of Computation of Operating Ratios
Operating ratios which appear in this Form 10-K, including gross profit,
warehouse and delivery expenses, selling, general and administrative expenses,
operating income and net income were computed by dividing the respective amounts
by net sales for the periods indicated.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,041,458
<SECURITIES> 0
<RECEIVABLES> 15,288,671
<ALLOWANCES> 80,000
<INVENTORY> 39,342,506
<CURRENT-ASSETS> 61,386,179
<PP&E> 65,630,289
<DEPRECIATION> 25,870,995
<TOTAL-ASSETS> 106,606,266
<CURRENT-LIABILITIES> 15,739,723
<BONDS> 0
0
0
<COMMON> 22,138,494
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 106,606,266
<SALES> 403,510,956
<TOTAL-REVENUES> 403,510,956
<CGS> 350,149,363
<TOTAL-COSTS> 384,703,586
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,078,206
<INCOME-PRETAX> 17,729,164
<INCOME-TAX> 6,929,000
<INCOME-CONTINUING> 10,800,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,800,164
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.81
</TABLE>
