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, 1996 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 April 30, 1996: 5,921,466 PATRICK INDUSTRIES, INC. INDEX Page No. PART I: Financial Information Unaudited Condensed Balance Sheets March 31, 1996 & December 31, 1995 Unaudited Condensed Statements of Income Three Months Ended March 31, 1996 & 1995, Unaudited Condensed Statements of Cash Flows Three Months Ended March 31, 1996 & 1995 Notes to Unaudited Condensed Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations PART II: Other Information Signatures PART I: FINANCIAL INFORMATION PATRICK INDUSTRIES, INC. CONDENSED BALANCE SHEETS (Unaudited) (Note) MARCH 31 DECEMBER 31 1996 1995 ASSETS CURRENT ASSETS Cash and Temporary Investments $ 3,131,491 $ 1,349,709 Accounts Receivable, Net 26,295,906 20,427,355 Inventories 33,860,226 35,462,152 Other 220,076 387,782 Total Current Assets $ 63,507,699 $57,626,998 PROPERTY AND EQUIPMENT, at cost $ 57,057,563 $56,189,860 Less Accumulated Depreciation 23,557,675 23,140,702 $ 33,499,888 $33,049,158 INTANGIBLE AND OTHER ASSETS $ 5,161,298 $ 5,239,766 Total Assets $102,168,885 $95,915,922 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Maturities of Long-term Debt $ 700,000 $ 700,000 Accounts Payable 13,331,340 9,589,103 Accrued Expenses and Taxes Payable 5,053,879 4,057,446 Total Current Liabilities $ 19,085,219 $14,346,549 LONG-TERM DEBT, LESS CURRENT MATURITIES $ 26,200,000 $26,200,000 DEFERRED COMPENSATION OBLIGATIONS AND OTHER $ 1,036,119 $ 919,821 DEFERRED TAX LIABILITIES $ 1,485,000 $ 1,461,000 SHAREHOLDERS' EQUITY Common Stock $ 21,294,217 $21,626,489 Retained Earnings 33,068,330 31,362,063 Total Stockholders' Equity $ 54,362,547 $52,988,552 Total Liabilities and Stockholders' Equity $102,168,885 $95,915,922 NOTE: The balance sheet at December 31, 1995 has been taken from the audited financial statements at that date and condensed. See accompanying notes to Unaudited Condensed Financial Statements. PATRICK INDUSTRIES, INC. UNAUDITED CONDENSED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31 1996 1995 NET SALES $93,767,541 $87,030,721 COST AND EXPENSES Cost of Goods Sold $82,014,145 $75,060,101 Warehouse and Delivery Expenses 3,364,653 3,250,369 Selling and Administrative Expenses 4,924,656 4,576,174 Financial Expenses, Net 296,881 347,764 $90,600,335 $83,234,408 INCOME BEFORE INCOME TAXES $ 3,167,206 $ 3,796,313 INCOME TAXES 1,222,500 1,480,600 NET INCOME $ 1,944,706 $ 2,315,713 EARNINGS PER COMMON SHARE $ .33 $ .39 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,967,157 5,940,809 See accompanying notes to Unaudited Condensed Financial Statements. PATRICK INDUSTRIES, INC. UNAUDITED CONDENSED STATEMENTS OF CASH FLOW THREE MONTHS ENDED MARCH 31 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 1,944,706 $ 2,315,713 Adjustment to Reconcile Net Income to Net Cash: Depreciation and Amortization 1,061,881 769,601 Other (378) (21,000) Change in Assets and Liabilities: Decrease (Increase) in: Accounts Receivable (5,868,551) (3,919,057) Inventories 1,601,926 (1,931,992) Other 167,706 118,262 Increase (Decrease) in: Accounts Payable and Accrued Expenses 3,756,025 2,393,052 Income Taxes Payable and Deferred Taxes 1,008,568 1,461,100 Deferred Compensation 35,749 26,670 Net Cash Provided by Operating Activities $ 3,707,632 $ 1,212,349 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures $ (1,458,961) $(2,592,202) Acquisition of Assets of U.S. Door - - - (3,346,596) Change in Cash Held in Escrow - - - 1,269,431 Proceeds from Sale of Assets 750 21,000 Other 22,523 18,688 Net Cash (Used in) Investing Activities $(1,435,688) $(4,629,679) CASH FLOWS FROM FINANCING ACTIVITIES Cash Dividend $ (238,439) $ - - - Net Borrowings Under Debt Agreements - - - 3,500,000 Sale of Common Stock 23,978 6,255 Principal Payments on Debt - - - (274,000) Reacquisition of Common Stock (356,250) - - - Other 80,549 - - - Net Cash Provided by (Used In) Financing Activities $ (490,162) $ 3,232,255 Increase (Decrease) in Cash and Cash Equivalents $ 1,781,782 $ (185,075) CASH and CASH EQUIVALENTS, BEGINNING $ 1,349,709 $ 666,986 CASH and CASH EQUIVALENTS, ENDING $ 3,131,491 $ 481,911 See accompanying notes to Unaudited Condensed Financial Statements. PATRICK INDUSTRIES, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of the Registrant, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly financial position as of March 31, 1996, and December 31, 1995, and the results of operations and cash flows for the three months ended March 31, 1996 and 1995. 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, 1995 audited financial statements. The results of operations for the three months periods ended March 31, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. 3. The inventories on March 31, 1996 and December 31, 1995 consist of the following classes: March 31 December 31 1996 1995 Raw Materials $21,527,255 $23,105,916 Work in Process 1,001,192 877,805 Finished 2,877,248 3,197,561 Total Manufactured Goods $25,405,695 $27,181,282 Distribution Products 8,454,531 8,280,870 TOTAL INVENTORIES $33,860,226 $35,462,152 The inventories are stated at the lower of cost, First-In, First-Out (FIFO) method, or market. 4. The earnings per common share for the three months ended March 31, 1996 and 1995 have been computed based on the weighted average number of shares of common stock outstanding of 5,967,157 and 5,940,809 respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The economy and the industries served by the Registrant improved starting in 1992 as net sales increased annually from $184 million in 1992 to over $362 million in 1995. The following table sets forth the percentage relationship to net sales of certain items in the Registrant's Statements of Operations: Quarterly Ended March 31, 1995 1994 1993 Net Sales 100.0% 100.0% 100.0% Cost of Sales 87.5 86.3 87.6 Gross Profit 12.5 13.7 12.4 Warehouse and Delivery 3.6 3.7 3.7 Selling, General & Administrative 5.2 5.3 4.6 Operating Income 3.7 4.7 4.1 Net Income 2.1 2.7 2.3 RESULTS OF OPERATIONS Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995 Net Sales. Net sales increased by $6.7 million, or 7.7%, from $87.0 million for the quarter ended March 31, 1995, to $93.8 million in the quarter ended March 31, 1996. This sales increase was attributable to a 7% increase in units shipped by the Manufactured Housing industry, which represents approximately 68% of the Registrant's sales. The Registrant's sales to the Recreational Vehicle industry were down as a percent of total company sales as a result of a slight decline in units produced in that industry, which represents approximately 16% of Registrant's sales. Gross Profit. Gross profit decreased by approximately $217,000, or 1.8%, from $11.9 million in the first quarter of 1995, to $11.7 million in the same 1996 quarter. As a percentage of net sales, gross profit decreased from 13.7% in first quarter 1995 to 12.5% in 1996. This decrease in gross profit was the result of lower volume and higher raw material costs of sales in the Registrant's aluminum extrusion division, and lower sales volume and plant relocation costs at the new Oregon facility. The Registrant also experienced highly competitive market pricing of certain products in the first quarter of 1996. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased approximately $114,000 or 3.5%, from $3.3 million in 1995, to $3.4 million in the first quarter of 1996. As a percentage of net sales, warehouse and delivery expenses decreased from 3.7% in 1995 to 3.6% in the 1996 first quarter. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by approximately $348,000, or 7.6%, from $4.5 million in 1995, to $4.9 million in 1996. As a percentage of net sales, selling, general and administrative expenses decreased from 5.3% in 1995 to 5.2% in 1996. Operating Income. Operating income decreased by approximately $680,000 because of the reduced gross profit and increases in warehouse and delivery, and selling, general and administrative expenses. As a percentage of sales, operating income decreased from 4.7% in 1995 to 3.7% in the 1996 first quarter. Interest Expense. Interest expense decreased by approximately $51,000 from $348,000 in 1995 to $297,000 in the first quarter of 1996. The Registrant's borrowing levels in the 1996 period were slightly higher but at lower rates. Net Income. Net income decreased by approximately $371,000 from $2.3 million in 1995 to $1.9 million in 1996 for the first quarter ended March 31. This decrease is attributable to the factors described above. Quarter Ended March 31, 1995 Compared to Quarter Ended March 31, 1994 Net Sales. Net sales increased by $10.1 million, or 13.2%, from $76.9 million for the quarter ended March 31, 1994, to $87.0 million in the quarter ended March 31, 1995. This sales increase was attributable to increases in units produced by the manufactured housing, recreational vehicle and other building products industries served by the Registrant, and increased demand for Registrant's products. This increase, although less as a percentage than the previous two years first quarters, is further evidence of the continuing improvement in these industries. Gross Profit. Gross profit increased by $2.4 million, or 25.5%, from $9.5 million in the first quarter 1994, to $11.9 million in the first quarter 1995. As a percentage of net sales, gross profit increased from 12.4% in first quarter 1994 to 13.7% in 1995. This increase in gross profit resulted from fewer cost increases of certain of the Registrant's products during the period compared to 1994, and certain inventory items having cost below market cost. Warehouse and Delivery Expenses. Warehouse and delivery expenses increased $0.4 million or 13.1%, from $2.9 million in 1994, to $3.3 million in the first quarter 1995. As a percentage of net sales, warehouse and delivery expenses remained the same at 3.7% for 1994 and 1995. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $1.0 million, or 29.6%, from $3.5 million in 1994, to $4.5 million in 1995. As a percentage of net sales, selling, general and administrative expenses increased from 4.6% in 1994 to 5.3% in 1995. This percentage increase is due to unusually large group insurance claims, additional personnel costs and other increased expenses because of the higher sales levels. Operating Income. Operating income increased by $1.0 million, or 32%, from $3.1 million in 1994, to $4.1 million in 1995. This increase is primarily attributable to the $2.4 million increase in gross profit. As a percentage of sales, operating income increased from 4.1% in 1994 to 4.7% in 1995. Interest Expense. Interest expense increased by $124,000 from $224,000 in 1994, to $348,000 in 1995. This increase was due to higher interest rates and higher average borrowing levels. Net Income. Net income increased by $0.5 million from $1.8 million in 1994, to $2.3 million in 1995. This increase in net income 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 beginning 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 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. On October 31, 1995 the bank financing agreement was amended reducing the credit revolver loan availability to $5,000,000. 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 temperate. Accordingly, the Registrant's sales and profits are generally highest in the second and third quarters. However, due to dramatic increases in production of Manufactured Housing and Recreational Vehicles, the first quarters of 1995 and 1994 and the fourth quarters of 1994 and 1993 were unusual in their high sales and gross profit levels during those winter months when compared to historical trends. 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 8-K (a) Exhibits 3.1 Articles of Amendment of the Articles of Incorporation of Patrick Industries, Inc. 3.2 Certificate of Designations, Preferences and Rights of Preferred Stock of Patrick Industries, Inc. 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 10, 1996 /S/Mervin D. Lung Mervin D. Lung (Chairman of the Board) Date May 10, 1996 /S/David D. Lung David D. Lung (President) Date May 10, 1996 /S/Keith V. Kankel Keith V. Kankel (Vice President Finance) (Principal Accounting Officer)