FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998 Commission File Number 0-3922
PATRICK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1057796
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
1800 South 14th Street, Elkhart, IN 46516
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (219) 294-7511
NONE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Shares of Common Stock Outstanding as of July 31, 1998: 5,933,266
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
Unaudited Condensed Balance Sheets
June 30, 1998 & December 31, 1997 3
Unaudited Condensed Statements of Income
Three Months Ended June 30, 1998 & 1997, and
Six Months Ended June 30, 1998 & 1997 4
Unaudited Condensed Statements of Cash Flows
Six Months Ended June 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 10
Signatures 11
PART I: FINANCIAL INFORMATION
<TABLE>
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
<CAPTION>
(Unaudited) (Note)
JUNE 30 DECEMBER 31
1998 1997
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 526,488 $ 3,765,171
Trade receivables 31,868,681 17,127,797
Inventories 38,933,334 34,602,154
Prepaid expenses 359,579 608,611
Total current assets $ 71,688,082 $ 56,103,733
PROPERTY AND EQUIPMENT, at cost $ 81,071,409 $ 78,052,343
Less accumulated depreciation 31,094,303 29,830,987
$ 49,977,106 $ 48,221,356
INTANGIBLE AND OTHER ASSETS $ 8,653,748 $ 7,862,419
Total assets $ 130,318,936 $ 112,187,508
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,138,517 $ 1,138,517
Accounts payable, trade 23,257,374 10,329,507
Accrued liabilities 5,325,129 4,455,005
Total current liabilities $ 29,721,020 $ 15,923,029
LONG-TERM DEBT, less current maturities $ 24,785,067 $ 25,015,218
DEFERRED COMPENSATION OBLIGATIONS $ 1,602,002 $ 1,416,002
DEFERRED TAX LIABILITIES $ 1,107,000 $ 1,107,000
SHAREHOLDERS' EQUITY
Common stock $ 22,439,197 $ 21,896,822
Retained earnings 50,664,650 46,829,437
$ 73,103,847 $ 68,726,259
Total liabilities and shareholders' equity $ 130,318,936 $ 112,187,508
NOTE: The balance sheet at December 31, 1997 has been taken from the audited
financial statements at that date and condensed.
See accompanying notes to Unaudited Condensed Financial Statements.
</TABLE>
<TABLE>
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET SALES $117,731,176 $106,599,506 $222,718,348 $203,535,216
COST AND EXPENSES
Cost of goods sold $102,268,713 $ 93,271,870 $194,002,496 $178,251,038
Warehouse and delivery expenses 4,059,689 3,913,889 7,776,937 7,309,451
Selling, general, and administrative expenses 6,976,003 5,415,413 13,239,516 10,268,640
Interest expense, net 264,905 307,901 518,875 595,810
$113,569,310 $102,909,073 $215,537,824 $196,424,939
INCOME BEFORE INCOME TAXES $ 4,161,866 $ 3,690,433 $ 7,180,524 $ 7,110,277
INCOME TAXES 1,664,700 1,448,500 2,872,200 2,782,200
NET INCOME $ 2,497,166 $ 2,241,933 $ 4,308,324 $ 4,328,077
EARNINGS PER COMMON SHARE $ .42 $ .38 $ .73 $ .73
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,915,206 5,929,140 5,905,890 5,946,769
See accompanying notes to Unaudited Condensed Financial Statements.
</TABLE>
<TABLE>
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,308,324 $ 4,328,077
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,524,364 2,725,881
Other 204,183 53,403
Change in assets and liabilities:
Decrease (Increase) in:
Trade receivables (13,978,204) (12,228,928)
Inventories (3,712,782) 1,407,842
Prepaid expenses 271,408 (38,620)
Increase in:
Accounts payable and accrued liabilities 12,979,587 9,321,841
Income taxes payable 494,919 496,829
Net cash provided by operating activities 4,091,799 6,066,325
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,174,394) (5,750,567)
Investment in marketable securities - - - (500,000)
Acquisition of business (2,581,490) (286,840)
Other 3,238,683) (1,783,501)
Cash and cash equivalents, beginning 3,765,171 2,041,482
Cash and cash equivalents, ending $ 526,488 $ 257,981
See accompanying notes to Unaudited Condensed Financial Statements.
</TABLE>
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 June
30, 1998, and December 31, 1997, and the results of operations and cash flows
for the three months and the six months ended June 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
months and six months periods ended June 30, 1998 and 1997 are not
necessarily indicative of the results to be expected for the full year.
3. The inventories on June 30, 1998 and December 31, 1997 consist of the
following classes:
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
<S> <C> <C>
Raw materials $23,207,598 $19,710,068
Work in process 835,425 1,170,054
Finished 4,121,492 5,089,861
Total manufactured goods $28,164,515 $25,969,983
Distribution products 10,768,819 8,632,171
TOTAL INVENTORIES $38,933,334 $34,602,154
</TABLE>
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 six months ended June 30, 1998 and 1997
have been computed based on the weighted average common shares
outstanding of 5,905,890 and 5,946,769 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 six
months of 1998 showed an increase of 9.4% when compared to the previous
years' first half. 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:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 86.9 87.5 87.1 87.6
Gross Profit 13.1 12.5 12.9 12.4
Warehouse and Delivery 3.4 3.7 3.5 3.6
Selling, General & Administrative 5.9 5.1 5.9 5.0
Operating Income 3.8 3.7 3.5 3.8
Net Income 2.1 2.1 1.9 2.1
</TABLE>
RESULTS OF OPERATIONS
Quarter Ended June 30, 1998 Compared to Quarter Ended June 30, 1997
Net Sales. Net sales increased by $11.1 million, or 10.4%, from $106.6
million for the quarter ended June 30, 1997, to $117.7 million in the quarter
ended June 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 in the 1997 sales. The sales of the acquired companies
represented 3.7% of the sales increase. The Registrant's sales in the
quarter were 62% to Manufactured Housing, 20% to Recreational Vehicle, and
18% to other industries.
Gross Profit. Gross profit increased by approximately $2.1 million, or
16.0%, from $13.3 million in the second quarter of 1997, to $15.4 million in
the same 1998 quarter. As a percentage of net sales, gross profit increased
from 12.5% in 1997 to 13.1% in the second quarter of 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 normal
gross profits.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased approximately $146,000, or 3.7%, from $3.9 million in 1997, to $4.1
million in the second quarter of 1998. As a percentage of net sales,
warehouse and delivery expenses decreased from 3.7% in 1997 to 3.4% in the
1998 second quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.6 million, or 28.8%, from $5.4
million in 1997, to $7.0 million in 1998. As a percentage of net sales,
selling, general and administrative expenses increased from 5.1% in 1997 to
5.9% in the second 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 plans.
Operating Income. Operating income increased by approximately $428,000
because of the increased sales and the increased gross profits. As a
percentage of sales, operating income remained the same at 3.8% for both
second quarters.
Interest Expense, Net. Interest expense, net decreased by approximately
$43,000 from $308,000 in 1997 to $265,000 in the second quarter of 1998. The
Registrant's borrowing levels during the 1998 period were lower than those in
1997.
Net Income. Net income increased by approximately $255,000 from $2.2
million in 1997 to $2.5 million in 1998 for the second quarter ended June 30.
This increase is attributable to the factors described above. Net income
also remained the same as a percentage of net sales.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Net Sales. Net sales increased by $19.2 million, or 9.4%, from $203.5
million for the six months ended June 30, 1997, to $222.7 million in the six
months ended June 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 in the 1997 sales. The sales of the acquired companies
represented 2.9% of the sales increase. The Registrant's sales in the first
six months were 61% to Manufactured Housing, 20% to Recreational Vehicle, and
19% to other industries.
Gross Profit. Gross profit increased by $3.4 million, or 13.6%, from
$25.3 million in the first six months of 1997, to $28.7 million in the same
period in 1998. As a percentage of net sales, gross profit increased from
12.4% in the first six months of 1997 to 12.9% 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 normal
gross profits.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased approximately $467,000, or 6.4%, from $7.3 million in 1997, to $7.8
million in the first six months of 1998. As a percentage of net sales,
warehouse and delivery expenses decreased from 3.6% for 1997 to 3.5% in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $2.9 million, or 28.9%, from $10.3
million in 1997, to $13.2 million in 1998. As a percentage of net sales,
selling, general and administrative expenses increased from 5.0% 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 plans.
Operating Income. Operating income remained the same in dollars in the
1998 second quarter as compared to 1997, but as a percentage of sales,
operating income decreased from 3.8% in 1997 to 3.5% in 1998.
Interest Expense, Net. Interest expense, net decreased by $77,000 from
$596,000 in 1997, to $519,000 in 1998. This decrease was due to lower
borrowings during the first six months of 1998.
Net Income. Net income remained the same in 1998 as it was in the 1997
period. As a percentage of net sales, net income decreased from 2.1% in 1997
to 1.9% in 1998. 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 Registrant has committed approximately $5,500,000 for the purchase of new
hardware and software systems, hiring of additional personnel, and training.
As of June 30, 1998, a majority of the Registrant's information systems were
compliant with the Year 2000 and the remaining information systems are
expected to be compliant by the fourth quarter of 1999. As of June 30, 1998,
the Registrant has incurred approximately $5,000,000 of the $5,500,000
committed to the project.
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.
Pursuant to the private placement and the Credit Agreement, the Registrant
is required to maintain certain financial ratios, all of which are currently
complied with.
The Registrant believes that cash generated from operations and borrowings
under its credit agreements will be sufficient to fund its working capital
requirements and normal recurring capital expenditures as currently
contemplated. The Registrant initiated an expansion project of approximately
$6,000,000 in North Carolina in 1997. The project was completed in July,
1998, and in August the Registrant anticipates obtaining a municipal
industrial revenue bond in the amount of $5,000,000 to restore working
capital used to finance the project.
SEASONALITY
Manufacturing operations in the Manufactured Housing and Recreational
Vehicle industries historically have been seasonal and are generally at the
highest levels when the climate is moderate. Accordingly, the Registrant's
sales and profits are generally highest in the second and third quarters.
NEW ACCOUNTING STANDARDS
In June, 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (FAS 131), which requires
that a public business enterprise report financial and descriptive
information about its reportable operating segments. This Statement is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years is to be
restated. This Statement need not be applied to interim financial statements
in the initial year of its application, but comparative information for
interim periods in the initial year of application is to be reported in
financial statements for interim periods in the second year of application.
INFLATION
The Registrant does not believe that inflation had a material effect on
results of operations for the periods presented.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of the Registrant was held on
May 15, 1998.
(b) Not applicable.
(c) 1. Set forth below is the tabulation of the votes on each
nominee for election as a director:
<TABLE>
<CAPTION>
WITHHOLD
NAME FOR AUTHORITY
<S> <C> <C>
Mervin D. Lung 4,992,683 13,184
Keith V. Kankel 4,986,701 19,166
John H. McDermott 4,994,566 11,301
Harold E. Wyland 4,990,866 15,001
2. Not applicable.
(d) Not applicable.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) There were no reports filed on Form 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATRICK INDUSTRIES, INC.
(Registrant)
Date August 6, 1998 /S/Mervin D. Lung
Mervin D. Lung
(Chairman of the Board)
Date August 7, 1998 /SDavid D. Lung
David D. Lung
(President)
Date August 6, 1998 /S/Keith V. Kankel
Keith V. Kankel
(Vice President Finance)
(Principal Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 526,488
<SECURITIES> 0
<RECEIVABLES> 32,258,681
<ALLOWANCES> 390,000
<INVENTORY> 38,933,334
<CURRENT-ASSETS> 71,688,082
<PP&E> 81,071,409
<DEPRECIATION> 31,094,303
<TOTAL-ASSETS> 130,318,936
<CURRENT-LIABILITIES> 1,138,517
<BONDS> 0
0
0
<COMMON> 22,439,197
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 130,318,936
<SALES> 117,731,176
<TOTAL-REVENUES> 117,731,176
<CGS> 102,268,713
<TOTAL-COSTS> 113,304,405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 264,905
<INCOME-PRETAX> 4,161,866
<INCOME-TAX> 1,664,700
<INCOME-CONTINUING> 2,497,166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,497,166
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
