FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998 Commission File Number 03922
PATRICK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 351057796
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
1800 South 14th Street, Elkhart, IN 46516
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (219) 294-7511
NONE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Shares of Common Stock Outstanding as of April 30, 1998: 5,898,266
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
Unaudited Condensed Balance Sheets
March 31, 1998 & December 31, 1997 3
Unaudited Condensed Statements of Income
Three Months Ended March 31, 1998 & 1997, 4
Unaudited Condensed Statements of Cash Flows
Three Months Ended March 31, 1998 & 1997 5
Notes to Unaudited Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II: Other Information 10
Signatures 11
PART I: FINANCIAL INFORMATION
<TABLE>
PATRICK INDUSTRIES, INC. CONDENSED BALANCE SHEETS
<CAPTION>
(Unaudited) (Note)
MARCH 31 DECEMBER 31
1998 1997
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,073,261 $ 3,765,171
Trade receivables 28,832,277 17,127,797
Inventories 33,797,894 34,602,154
Prepaid expenses 331,992 _608,611
Total current assets 66,035,424 56,103,733
PROPERTY AND EQUIPMENT, at cost 80,090,018 78,052,343
Less accumulated depreciation 31,076,975 29,830,987
49,013,043 48,221,356
INTANGIBLE AND OTHER ASSETS 7,689,443 7,862,419
Total assets $122,737,910 $112,187,508
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of longterm debt $ 1,138,517 $ 1,138,517
Accounts payable, trade 18,646,037 10,329,507
Accrued liabilities 5,109,397 4,455,005
Total current liabilities 24,893,951 15,923,029
LONGTERM DEBT, less current maturities 24,905,455 25,015,218
DEFERRED COMPENSATION OBLIGATIONS 1,509,002 1,416,002
DEFERRED TAX LIABILITIES 1,107,000 1,107,000
SHAREHOLDERS' EQUITY
Common stock 21,918,322 21,896,822
Retained earnings 48,404,180 46,829,437
Total shareholders' equity 70,322,502 68,726,259
Total liabilities and shareholders' equity $122,737,910 $112,187,508
NOTE: The balance sheet at December 31, 1997 has been taken from the audited financial statements at that date.
See accompanying notes to Unaudited Condensed Financial Statements.
</TABLE>
<TABLE>
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1998 1997
<S> <C> <C>
NET SALES $104,987,172 $ 96,935,710
COST AND EXPENSES
Cost of Goods Sold $ 91,733,783 $ 84,979,168
Warehouse and Delivery Expenses 3,717,248 3,395,562
Selling, General, and Administrative Expenses 6,263,513 4,853,227
Interest Expense, Net 253,970 287,909
$ 101,968,514 $ 93,515,866
INCOME BEFORE INCOME TAXES $ 3,018,658 $ 3,419,844
INCOME TAXES 1,207,500 1,333,700
NET INCOME $ 1,811,158 $ 2,086,144
EARNINGS PER COMMON SHARE $ .31 $ .35
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 5,896,472 5,964,594
See accompanying notes to Unaudited Condensed Financial Statements.
</TABLE>
<TABLE>
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,811,158 $ 2,086,144
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,708,556 1,397,612
Deferred income taxes - - - (43,661)
Other 113,120 62,558
Change in assets and liabilities:
Decrease (Increase) in:
Trade receivables (11,704,480) (12,394,022)
Inventories 804,260 997,227
Prepaid expenses 276,619 (73,279)
Increase (Decrease) in:
Accounts payable and accrued liabilities 7,979,872 9,819,911
Income taxes payable 990,873 1,313,700
Net cash provided by operating activities 1,979,978 3,166,190
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,347,387) (3,494,664)
Investment in marketable securities - - - (600,000)
Other - - - 15,139
Net cash (Used in) investing activities (2,347,387) (4,079,525)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of common stock options 21,500 16,125
Principal payments on long-term debt (109,763) (107,421)
Cash dividends paid (236,238) (237,954)
Net Cash (Used In) investing activities (324,501) (329,250)
Decrease in cash and cash equivalents (691,910) (1,242,585)
Cash and cash equivalents, beginning 3,765,171 2,041,482
Cash and cash equivalents, ending $ 3,073,261 $ 798,897
Cash Payments for:
Interest $ 78,822 $ 695,580
Income Taxes 291,627 95,000
See accompanying notes to Unaudited Condensed Financial Statements.
</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 the financial position as
of March 31, 1998, and December 31, 1997, and the results of operations and
cash flows for the three months ended March 31, 1998 and 1997.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in Registrant's December 31, 1997
audited financial statements. The results of operations for the three
month periods ended March 31, 1998 and 1997 are not necessarily indicative
of the results to be expected for the full year.
3. The inventories on March 31, 1998 and December 31, 1997 consist of the
following classes:
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
<S> <C> <C>
Raw Materials $19,767,218 $19,710,068
Work in Process 989,700 1,170,054
Finished 3,990,677 5,089,861
Total Manufactured Goods $24,747,595 $25,969,983
Distribution Products 9,050,299 8,632,171
TOTAL INVENTORIES $33,797,894 $34,602,154
</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 three months ended March 31, 1998 and
1997 have been computed based on the weighted average common shares
outstanding of 5,896,472, and 5,964,594 respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
GENERAL
The Registrant's business has shown significant revenue growth since 1991,
as net sales increased annually from $143 million to over $410 million in six
years. Although the rate of growth in the year 1997 was 1.75%, the first
quarter of 1998 showed an increase of 8.3% when compared to the previous years'
first quarter. The increase in sales resulted from the continued strength of
both the economy and the Manufactured Housing and Recreational Vehicle
Industries.
The following table sets forth the percentage relationship to net sales of
certain items in the Registrant's Statements of Operations:
<TABLE>
<CAPTION>
Quarterly Ended
March 31,
1998 1997
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 87.4 87.7
Gross Profit 12.6 12.3
Warehouse and Delivery 3.5 3.5
Selling, General & Administrative 6.0 5.0
Operating Income 3.1 3.8
Net Income 1.7 2.2
</TABLE>
RESULTS OF OPERATIONS
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
Net Sales. Net sales increased by $8.1 million, or 8.3%, from $96.9
million in the quarter ended March 31, 1997 to $105.0 million in the quarter
ended March 31, 1998. This sales increase was attributable to higher unit
production in the Manufactured Housing and Recreational Vehicle Industries, and
increased penetration in the other industries served by Registrant. The
Registrant's sales are 62% to Manufactured Housing, 18% to Recreational
Vehicles, and 20% to other industrial industries.
Gross Profit. Gross Profit increased by approximately $1.3 million, or
10.9%, from $12.0 million in the first quarter of 1997, to $13.3 million in the
same 1998 quarter. As a percentage of net sales, gross profit increased from
12.3% in the first quarter of 1997 to 12.6% in 1998. The increase in gross
profit was due to certain manufacturing operations showing improvement over the
same 1997 quarter, while highly competitive market pricing of many of
Registrant's products continued in the first quarter of 1998.
Warehouse and Delivery Expenses. Warehouse and delivery expenses increased
approximately $0.3 million, or 9.5%, from $3.4 million in 1997 to $3.7 million
in the 1998 first quarter. As a percentage of net sales, warehouse and delivery
expenses remained the same at 3.5%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately $1.4 million, or 29.1%, from
$4.9 million in 1997, to $6.3 million in 1998. As a percentage of net sales,
selling, general and administrative expenses increased from 5.0% in 1997 to 6.0%
in 1998. Expense increases were partially attributable to new Management
Information System expenses and additional personnel required due to the growth
the Registrant has experienced over the last several years, and for management
transition plans.
Operating Income. Operating income decreased by approximately $0.4 million
because of the increased selling, general and administrative expenses. As a
percentage of net sales, operating income decreased from 3.8% in 1997 to 3.1% in
the 1998 first quarter.
Interest Expense, Net. Interest expense, net of interest income, decreased
by approximately $34,000 in 1998 from $288,000 in 1997 to $254,000 in 1998. The
Registrant's borrowing level was slightly lower in the 1998 first quarter and
more funds were invested than in 1997.
Net Income. Net income decreased by approximately $275,000 from $2.1
million in the 1997 first quarter to $1.8 million in 1998. This decrease is
primarily attributable to the factors described above.
Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996
Net Sales. Net sales increased by $3.1 million, or 3.4%, from $93.8
million in the quarter ended March 31, 1996 to $96.9 million in the quarter
ended March 31, 1997. This sales increase was attributable to higher sales
penetration in the Industrial and Recreational Vehicle industries. The
Registrant's sales are 66% to Manufactured Housing, 16% to Recreational
Vehicles, and 18% to other industrial industries.
Gross Profit. Gross Profit increased by approximately $200,000, or 1.7%,
from $11.7 million in the first quarter of 1996, to $11.9 million in the same
1997 quarter. As a percentage of net sales, gross profit decreased from 12.5%
in the first quarter of 1996 to 12.3% in 1997. This decrease in gross profit
was due to highly competitive market pricing of most of Registrant's products in
the first quarter of 1997.
Warehouse and Delivery Expenses. Warehouse and delivery expenses increased
approximately $31,000 or 0.9%, remaining at $3.4 million for both first
quarters. As a percentage of net sales, warehouse and delivery expenses
decreased from 3.6% in the 1996 first quarter to 3.5% in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by approximately $71,000, or 1.5%, from $4.9
million in 1996, to $4.8 million in 1997. As a percentage of net sales,
selling, general and administrative expenses decreased from 5.2% in 1996 to 5.0%
in 1997.
Operating Income. Operating income increased by approximately $243,000
because of the increased gross profit and the overall reduction of operating
expenses remaining about the same as in 1996. As a percentage of net sales,
operating income increased from 3.7% in 1996 to 3.8% in the 1997 first quarter.
Interest Expense, Net. Interest expense, net of interest income, decreased
by approximately $9,000 in 1997 from $297,000 in 1996 to $288,000 in 1997. The
Registrant's borrowing level was slightly lower in the 1997 first quarter and
more funds were invested than in 1996.
Net Income. Net income increased by approximately $141,000 from $1.9
million in the 1996 first quarter to $2.0 million in 1997. This increase is
primarily attributable to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's primary capital requirements are to meet working capital
needs, support its capital expenditure plans, and meet debt service
requirements.
The Registrant, in September, 1995, issued to an insurance company in a
private placement $18,000,000 of senior unsecured notes. The ten year notes
bear interest at 6.82%, with semi-annual interest payments that began in 1996
and seven annual principal repayments beginning September 15, 1999. These funds
were used to reduce existing bank debt and for working capital needs.
The Registrant has a bank financing unsecured Revolving Credit Agreement
that provides loan availability of $10,000,000 with maturity in the year 2000.
Pursuant to the private placement and the Credit Agreement, the Registrant
is required to maintain certain financial ratios, all of which are currently
complied with.
The Registrant believes that cash generated from operations and borrowings
under its credit agreements will be sufficient to fund its working capital
requirements and normal recurring capital expenditures as currently
contemplated. The Registrant initiated an expansion project of approximately
$6,000,000 in North Carolina in 1997. When completed in the second quarter of
1998, the Registrant anticipates obtaining municipal industrial revenue bond
funding to cover the costs already incurred at March 31, 1998 of approximately
$3,600,000 and any remaining costs up to $6,000,000 of this project.
SEASONALITY
Manufacturing operations in the Manufactured Housing and Recreational
Vehicle industries historically have been seasonal and are generally at the
highest levels when the climate is moderate. Accordingly, the Registrant's
sales and profits are generally highest in the second and third quarters.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (FAS 131), which requires
that a public business enterprise report financial and descriptive information
about its reportable operating segments. This Statement is effective for fiscal
years beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This Statement
need not be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in financial statements for interim periods in
the second year of application.
INFLATION
The Registrant does not believe that inflation had a material effect on
results of operations for the periods presented.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
27 Financial Data Schedule
(b) There were no Reports filed on Form 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATRICK INDUSTRIES, INC.
(Registrant)
Date May 12, 1998 /S/Mervin D. Lung
Mervin D. Lung
(Chairman of the Board)
Date May 12, 1998 /S/David D. Lung
David D. Lung
(President)
Date May 12, 1998 /S/Keith V. Kankel
Keith V. Kankel
(Vice President Finance)
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,073,261
<SECURITIES> 0
<RECEIVABLES> 29,052,277
<ALLOWANCES> 220,000
<INVENTORY> 33,797,894
<CURRENT-ASSETS> 66,035,424
<PP&E> 80,090,018
<DEPRECIATION> 31,076,975
<TOTAL-ASSETS> 122,737,910
<CURRENT-LIABILITIES> 1,138,517
<BONDS> 0
0
0
<COMMON> 21,918,322
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 122,737,910
<SALES> 104,987,172
<TOTAL-REVENUES> 104,987,172
<CGS> 91,733,783
<TOTAL-COSTS> 101,714,544
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253,970
<INCOME-PRETAX> 3,018,658
<INCOME-TAX> 1,207,500
<INCOME-CONTINUING> 1,811,158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,811,158
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
