Business Context and Reporting Period
Company: Patrick Industries, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 1996
Industry: Manufacturer of products for the Manufactured Housing (approx. 69% of sales) and Recreational Vehicle (approx. 16% of sales) industries.
Key Financial Metrics
| Metric | 3 Months Ended Sep 30, 1996 | 9 Months Ended Sep 30, 1996 |
|---|---|---|
| Net Sales | $105,686,233 | $306,849,116 |
| Gross Profit | $14,479,903 | $40,676,503 |
| Gross Margin | 13.7% | 13.3% |
| Net Income | $3,284,685 | $8,433,750 |
| Earnings Per Share (EPS) | $0.55 | $1.41 |
| Operating Cash Flow (9 Mo) | $10,413,556 | |
| Cash and Equivalents (Sep 30, 1996) | $2,022,986 | |
| Total Debt (Current + Long-Term) | $26,900,000 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 12.3% ($11.6M) for the quarter and 12.1% ($33.1M) for the nine months compared to 1995. Growth was driven by a ~9-10% increase in units shipped by the Manufactured Housing industry.
- Profitability: Net income rose 15.6% ($443k) for the quarter and 7.8% ($613k) for the nine months. Operating income increased due to sales volume and controlled expense ratios.
- Expense Management: Selling, General, and Administrative (SG&A) expenses decreased as a percentage of sales (from 5.1% to 4.7% in Q3; 5.1% to 4.9% in 9 months). Interest expense decreased due to lower borrowing levels and higher temporary investments.
- Balance Sheet: Accounts Receivable increased significantly ($8.2M) and Inventories increased ($1.9M) to support higher sales volumes. Total Assets grew from $95.9M to $111.2M.
Outlook, Risks, and Management Commentary
- Seasonality: Operations are seasonal, with sales and profits typically highest in the second and third quarters due to temperate climate conditions in the housing and RV industries.
- Liquidity: Management believes cash from operations and existing credit facilities are sufficient to fund working capital and capital expenditures. The company maintains compliance with financial covenants.
- Debt Structure: In September 1995, the company issued $18M in senior unsecured notes (6.82% interest) to reduce bank debt. A credit revolver of up to $5M remains available under an amended agreement with NBD Bank, N.A.
- Risks: No material legal proceedings or defaults were reported. Inflation was not considered to have a material effect on operations.
Investor Verification Checklist
- Verify the sustainability of the ~10% growth in the Manufactured Housing industry, which drives 69% of revenue.
- Monitor the increase in Accounts Receivable ($8.2M increase in 9 months) to ensure collection efficiency remains stable.
- Review the impact of the $7.8M capital expenditure program on future cash flows and capacity.
- Confirm compliance with debt covenants under the NBD Bank Credit Agreement and the $18M senior notes.