Business Context and Reporting Period
Company: Patrick Industries, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 1995
Industry: Manufacturer of building products, primarily serving the Manufactured Housing industry (65% of sales) and recreational vehicle sectors.
Key Financial Metrics
| Metric | 9 Months Ended Sep 30, 1995 | 9 Months Ended Sep 30, 1994 | 3 Months Ended Sep 30, 1995 | 3 Months Ended Sep 30, 1994 |
|---|---|---|---|---|
| Net Sales | $273,716,121 | $248,148,702 | $94,125,637 | $86,011,213 |
| Gross Profit Margin | 13.8% | 12.6% | 14.0% | 13.0% |
| Net Income | $7,820,619 | $6,565,529 | $2,842,092 | $2,498,489 |
| Earnings Per Share | $1.32 | $1.07 | $0.48 | $0.41 |
| Operating Cash Flow | $4,859,259 | $619,891 | N/A | N/A |
| Total Debt (Current + Long-Term) | $27,600,000 | $22,874,000 | N/A | N/A |
| Cash and Equivalents | $601,369 | $666,986 | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 10.3% ($25.6M) for the nine months and 9.4% ($8.1M) for the quarter, driven by a 12% increase in production units in the Manufactured Housing industry.
- Profitability: Gross profit margins expanded due to stabilized raw material costs, improved labor efficiency, and lower Workers' Compensation insurance costs. Net income rose 19.1% for the nine months and 13.7% for the quarter.
- Expense Increases: Selling, General, and Administrative (SG&A) expenses rose 27.1% year-over-year for the nine months, primarily due to higher wages and increased bad debt expense.
- Acquisition: The company purchased substantially all assets of U.S. Door (a wooden cabinet door manufacturer) for $3.35 million in January 1995.
- Capital Expenditures: Investing cash outflows increased significantly to $9.2 million (vs. $3.5M prior year) due to the U.S. Door acquisition and ongoing construction of an Oregon facility.
Guidance, Outlook, and Risks
- Liquidity Strategy: In September 1995, the company issued $18 million in senior unsecured notes (6.82% interest) to repay existing bank debt and fund working capital. The bank credit revolver availability was subsequently reduced to $5 million.
- Seasonality: Operations are seasonal, with peak sales typically in Q2 and Q3. However, recent years have shown unusually high sales in Q1 and Q4 due to industry production surges.
- Debt Covenants: The company is currently in compliance with all financial ratios required by its Credit Agreement.
- Outlook: Management believes cash from operations, escrowed bond proceeds, and credit agreements are sufficient to fund working capital and capital expenditures.
- Risks: Exposure to the Manufactured Housing industry (65% of sales) and rising interest rates impacting borrowing costs.
Investor Verification Checklist
- Verify the sustainability of the 12% production increase in the Manufactured Housing industry.
- Monitor the impact of rising SG&A expenses (specifically bad debt) on future net margins.
- Confirm the status of the Oregon facility construction and the utilization of the $2 million held in escrow.
- Review the terms of the new $18 million senior unsecured notes and the reduced $5 million bank revolver availability.
- Assess the integration progress and financial contribution of the U.S. Door acquisition.