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, 1999 Commission File Number 0-3922
PATRICK INDUSTRIES, INC.
(Exact name of company 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)
Company'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 Company (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 Company 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 May 7, 1999: 5,675,566
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
Unaudited Condensed Balance Sheets
March 31, 1999 & December 31, 1998 3
Unaudited Condensed Statements of Income
Three Months Ended March 31, 1999 & 1998, 4
Unaudited Condensed Statements of Cash Flows
Three Months Ended March 31, 1999 & 1998 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 13
Signatures 14
PART I: FINANCIAL INFORMATION
PATRICK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(Unaudited) (Note)
MARCH 31 DECEMBER 31
1999 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,190,929 $ 3,704,693
Trade receivables 30,610,651 20,767,406
Inventories 42,208,628 43,498,632
Prepaid expenses 572,505 591,470
-------------- --------------
Total current assets 74,582,713 68,562,201
-------------- --------------
PROPERTY AND EQUIPMENT, at cost 85,334,746 84,527,846
Less accumulated depreciation 35,406,127 34,055,143
-------------- --------------
49,928,619 50,472,703
-------------- --------------
INTANGIBLE AND OTHER ASSETS 8,523,075 8,719,759
-------------- --------------
Total assets $ 133,034,407 $ 127,754,663
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,828,262 $ 3,985,963
Accounts payable, trade 18,288,286 13,184,295
Accrued liabilities 5,393,337 4,693,559
-------------- --------------
Total current liabilities 27,509,885 21,863,817
-------------- --------------
LONG-TERM DEBT, less current maturities 26,128,572 26,128,572
-------------- --------------
DEFERRED COMPENSATION OBLIGATIONS 1,819,264 1,781,491
-------------- --------------
DEFERRED TAX LIABILITIES 1,674,000 1,674,000
-------------- --------------
SHAREHOLDERS' EQUITY
Common stock 21,560,305 22,117,481
Retained earnings 54,342,381 54,189,302
-------------- --------------
Total shareholders' equity 75,902,686 76,306,783
-------------- --------------
Total liabilities and shareholders' equity $ 133,034,407 $ 127,754,663
============== ==============
NOTE: The balance sheet at December 31, 1998 has been taken from the audited financial statements at that date.
See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF INCOME
THREE MONTHS ENDED
MARCH 31
1999 1998
NET SALES $107,352,034 $104,987,172
------------ ------------
COST AND EXPENSES
Cost of goods sold 93,368,182 91,733,783
Warehouse and delivery expenses 3,832,100 3,717,248
Selling, general, and administrative expenses 6,131,461 6,263,513
Interest expense, net 366,335 253,970
------------ ------------
103,698,078 101,968,514
------------ ------------
INCOME BEFORE INCOME TAXES 3,653,956 3,018,658
INCOME TAXES 1,443,300 1,207,500
------------ ------------
NET INCOME $ 2,210,656 $ 1,811,158
============ ============
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ .38 $ .31
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,786,480 5,896,472
See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
THREE MONTHS ENDED
MARCH 31
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,210,656 $ 1,811,158
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,061,724 1,729,556
Gain on sale of fixed assets (642,876) (11,895)
Other 37,773 93,000
Change in assets and liabilities:
Decrease (Increase) in:
Trade receivables (9,843,245) (11,704,480)
Inventories 1,290,004 804,260
Prepaid expenses 18,965 276,619
Increase (Decrease) in:
Accounts payable and accrued liabilities 4,042,704 7,979,872
Income taxes payable 1,518,088 990,873
------------ ------------
Net cash provided by operating activities 693,793 1,968,963
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,472,764) (2,347,387)
Proceeds from sale of fixed assets 852,676 32,015
Other (21,000) (21,000)
------------ ------------
Net cash (Used in) investing activities (641,088) (2,336,372)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Reacquisition of common stock (2,142,830) - - -
Proceeds from exercise of common stock options 5,375 21,500
Principal payments on long-term debt (157,701) (109,763)
Cash dividends paid (234,321) (236,238)
Other (36,992) - - -
------------ ------------
Net cash (Used In) financing activities (2,566,469) (324,501)
------------ ------------
Decrease in cash and cash equivalents (2,513,764) (691,910)
Cash and cash equivalents, beginning 3,704,693 3,765,171
------------ ------------
Cash and cash equivalents, ending $ 1,190,929 $ 3,073,261
============ ============
Cash Payments for:
Interest $ 111,140 $ 78,822
Income taxes 7,711 291,627
See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, 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, 1999, and December 31, 1998, and the results of
operations and cash flows for the three months ended March 31, 1999 and
1998.
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 Company's
December 31, 1998 audited financial statements. The results of
operations for the three month periods ended March 31, 1999 and 1998
are not necessarily indicative of the results to be expected for the
full year.
3. The inventories on March 31, 1999 and December 31, 1998 consist of the
following classes:
March 31 December 31
1999 1998
Raw materials $25,636,497 $26,676,674
Work in process 1,338,539 1,278,367
Finished 3,802,725 3,103,860
----------- -----------
Total manufactured goods 30,777,761 31,058,901
Distribution products 11,430,867 12,439,731
----------- -----------
TOTAL INVENTORIES $42,208,628 $43,498,632
=========== ===========
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.
Earnings per common share for the three months ended March 31, 1999
and 1998 have been computed based on the weighted average common shares
outstanding of 5,786,480, and 5,896,472 respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company's business has shown significant revenue growth since 1991,
as net sales increased annually from $143 million to over $453 million in seven
years. The sales in 1998 were 10.5% ahead of the 1997 record year. The increase
in sales resulted from the continued strength of both the economy and the
manufactured housing and recreational vehicle industries, as well as strategic
business acquisitions made during late 1997 and fiscal 1998.
The following table sets forth the percentage relationship to net sales
of certain items in the Company's Statements of Operations:
Quarterly Ended
March 31,
1999 1998
Net sales 100.0% 100.0%
Cost of sales 87.0 87.4
Gross profit 13.0 12.6
Warehouse and delivery 3.6 3.5
Selling, general & administrative 5.7 6.0
Operating income 3.7 3.1
Net income 2.1 1.7
RESULTS OF OPERATIONS
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
Net Sales. Net sales increased by $2.4 million, or 2.3%, from $105.0
million in the quarter ended March 31, 1998 to $107.4 million in the quarter
ended March 31, 1999. This sales increase was attributable to higher unit
production in the manufactured housing and recreational vehicle industries. The
Company's sales are 60% to manufactured housing, 20% to recreational vehicles,
and 20% to other industrial industries.
Gross Profit. Gross profit increased by approximately $0.7 million, or
5.5%, from $13.3 million in the first quarter of 1998, to $14.0 million in the
same quarter of 1999. As a percentage of net sales, gross profit increased from
12.6% in the first quarter of 1998 to 13.0% in 1999. The increase in gross
profit was due to certain operations showing improvement over the same 1998
quarter, while highly competitive market pricing of many of the Company's
products continued in the first quarter of 1999.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased approximately $0.1 million, or 3.0%, from $3.7 million in 1998 to $3.8
million in the 1999 first quarter. As a percentage of net sales, warehouse and
delivery expenses increased from 3.5% in the first quarter of 1998 to 3.6% in
1999.
Selling, General, and Administrative Expenses. To make the year to year
comparison similar, a $0.6 million gain has been removed from the selling,
general, and administrative expenses discussion. Selling, general, and
administrative expenses increased by approximately $0.5 million, or 8.1%, from
$6.3 million in 1998, to $6.8 million in 1999. As a percentage of net sales,
selling, general, and administrative expenses increased from 6.0% in 1998 to
6.3% in 1999. Expense increases were partially attributable to the Management
Information System implementation expenses and additional personnel required as
a result of the growth the Company has experienced over the last several years.
Operating Income. Operating income increased by approximately $0.7
million because of the gain on the sale of real estate and increased gross
profits. As a percentage of net sales, operating income increased from 3.1%
in1998 to 3.7% in the 1999 first quarter.
Interest Expense. Interest expense, net of interest income, increased
by approximately $0.1 million in 1999 from $254,000 in 1998 to $366,000 in 1999.
The Company's borrowing level increased because of a new industrial revenue bond
issued in the third quarter of 1998 and the Company had less invested funds in
1999.
Net Income. Net income increased by approximately $0.4 million from
$1.8 million in the 1998 first quarter to $2.2 million in 1999. This increase is
primarily attributable to the factors described above.
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 Company. The Company'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 the
Company'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 Company 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 Company'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.
BUSINESS SEGMENTS
The Company's reportable segments are as follows:
Laminating - Utilizes 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.
Distribution - Distributes primarily pre-finished wall and ceiling panels,
particleboard, hardboard, and vinyl siding, roofing products, passage doors,
building hardware, insulation, and other products.
Wood - Uses raw lumber including solid oak, other hardwood materials, and
laminated particleboard or plywood to produce cabinet door product lines.
Other - Includes aluminum extrusion, painting and distribution, manufacture of
adhesive products, pleated shades, plastic thermoforming, and manufacturer of
laminating equipment.
The table below presents unaudited information about the revenue and
operating income of those segments:
THREE MONTHS ENDED MARCH 31, 1999
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
Net outside sales $ 45,102,806 $ 41,205,691 $ 10,686,970 $ 10,182,261 $107,177,728
Intersegment sales 1,617,431 - - - 217,161 5,193,930 7,028,522
-------------------------------------------------------------------------
Total sales $ 46,720,237 $ 41,205,691 $ 10,904,131 $ 15,376,191 $114,206,250*
------------------------------------------------------------------------
EBIT** $ 2,374,504 $ 1,082,092 $ (771,625) $ 602,023 $ 3,286,994
THREE MONTHS ENDED MARCH 31, 1998
Net outside sales $ 48,556,457 $ 34,805,323 $ 8,942,171 $ 12,368,159 $104,672,110
Intersegment sales 2,376,131 - - - 1,403,756 5,502,855 9,282,742
------------------------------------------------------------------------
Total sales $ 50,932,588 $ 34,805,323 $ 10,345,927 $ 17,871,014 $113,954,852*
------------------------------------------------------------------------
EBIT** $ 2,030,891 $ 585,349 $ (808,102) $ 1,232,476 $ 3,040,614
Reconciliation of segment operating income to consolidated operating income
1999 1998
---- ----
EBIT** for segments $ 3,286,994 $ 3,040,614
Consolidation reclassifications (188,797) (92,532)
Gain on sale of real estate 638,672 - - -
Other 283,422 324,546
----------- -----------
Consolidated EBIT** $ 4,020,291 $ 3,272,628
=========== ===========
There has been no material change in assets in the above segments.
* Does not agree to Financial Statements due to consolidation eliminations.
**Earnings before interest and taxes
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Laminating Segment Discussion
Net Sales in the 1999 period were lower in this segment by 8.3%. One
operation was closed in June of 1998 that represented approximately $3.2 million
less sales in the March 31, 1999 quarter, and another operation was started in
March of 1998 that contributed approximately $1.0 million of additional sales to
the 1999 period. The Company also chose not to meet some competitive market
pricing situations with certain existing business.
Operating income in the laminating segment increased 16.9% in the 1999
period and as a percentage of sales, the increase was from 4.0% to 5.1%. The
Company reduced material costs in most operations by increasing selling prices
when raw product costs increased and by reducing the sales of lower margin
business.
Distribution Segment Discussion
Net sales in the 1999 quarter increased by 18.4% in the distribution
segment primarily because of the growth in the manufactured housing and
recreational vehicle industries, which this segment serves.
The operating income from this segment increased by 84.9%. Gross profit
margins increased and distribution expenses, selling, general and administrative
expenses all decreased as percentages of sales in the 1999 period. These factors
and the increased sales provided this positive income change.
Wood Segment Discussion
Net sales in the wood segment increased by 5.4% in the 1999 first
quarter.
The overall operating results also showed no significant change in the
1999 period, with losses showing a slight reduction as percentages of sale from
7.8% in the 1998 first quarter to 7.1% in the current year. Several operations
in this segment had operating income improvement in the 1999 period, while one
operation had operating income gains offset by the relocation and consolidation
of one of its facilities.
Other Segment Discussion
Net sales in this segment were lower in 1999 by 14% from the first
quarter of 1998 primarily because the Company's aluminum extrusion division had
to shut down one press for major repairs.
The operating income in this segment was lower by 51.2%. The reduced
sales in the extrusion operation and inventory cost increases in another
division accounted for most of the income reduction.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are to meet working capital
needs, support its capital expenditure plans, and meet debt service
requirements.
The Company, 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 Company 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 Company
is required to maintain certain financial ratios, all of which are currently
complied with.
The Company 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 fluctuations in inventory and accounts receivable balances,
which affect the Company's cash flows, are part of normal business cycles.
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 Company's sales
and profits are generally highest in the second and third quarters.
YEAR 2000 ISSUE
The Company began a new management information system implementation
project in the first quarter of 1996, which when fully implemented, will result
in the Company's information systems being Year 2000 compliant. The project was
started because of the need to upgrade all hardware and software to meet
capacity and information needs at present and for the future. The Year 2000
issue for internal information systems would be resolved since the new hardware
and software should be compliant when implemented.
The Company at present has successfully implemented this Year 2000
compliant system in accounting, finance, general ledger, and distribution
operations. Implementation has also been completed at two of six wood product
operations, nine of ten laminating operations, and the shade and thermoforming
operations. The remaining laminating operation is scheduled to be completed in
the second quarter of 1999. The remaining cabinet door and two other operations
are scheduled to be implemented during the year with anticipated completion in
November.
In the event that the scheduled implementations get delayed,
contingency plans allow basic conversion of existing software to the new system
so it would be Year 2000 compliant prior to the year 2000.
The Company has developed a Year 2000 plan to address risk assessment
in areas other than information technology. The Plan Committee is examining all
automated plant systems and external parties with whom the Company interacts.
This assessment is scheduled to be completed by mid-year in 1999. The Company's
contingency plans for external party compliance are to replace any
telecommunications and other equipment that cannot be made compliant. A risk
assessment of customers, vendors, and service providers is underway and will be
on-going. At present the assessment shows that the companies responding are
either compliant or will be compliant prior to January 1, 2000.
The total cost of Year 2000 activities cannot be specifically
determined because the internal information system project was planned for
management and operation purposes and Year 2000 compliance was a benefit of that
system. The expenditures of implementing the new information hardware and
software systems has been $2.87 million in 1996, $1.93 million in 1997, $1.42
million in 1998, and $0.12 million in the first quarter of 1999. Approximately
$0.8 million will be expended during the balance of 1999 to complete the
project. The costs of assessment of external party compliance is minimal and
costs of replacement of telecommunications and other equipment has been and will
be part of normal scheduled upgrades.
INFLATION
The Company does not believe that inflation had a material effect on
results of operations for the periods presented.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None
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
10(o) -Loan Agreement dated as of August 1, 1998 between the
Company and the Stanly County Industrial Facilities and
pollution control financing authority, filed herewith.
10(p) -Commercial lease dated August 1, 1998 between Mervin D.
Lung Building Company, as lessor, and the Company, as
lessee, filed herewith.
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 Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATRICK INDUSTRIES, INC.
(Company)
Date May 11, 1999 /S/Mervin D. Lung
Mervin D. Lung
(Chairman of the Board)
Date May 11, 1999 /S/David D. Lung
David D. Lung
(President)
Date May 11, 1999 /S/Keith V. Kankel
Keith V. Kankel
(Vice President Finance)
(Principal Accounting Officer)