Business Context and Reporting Period
Company: Patrick Industries, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 1995
Industry: Building products, primarily serving the Manufactured Housing and Recreational Vehicle industries.
Key Financial Metrics
| Metric | Six Months Ended June 30, 1995 | Six Months Ended June 30, 1994 |
|---|---|---|
| Net Sales | $179,590,484 | $162,137,489 |
| Gross Profit | $24,466,426 | $20,206,660 |
| Gross Margin | 13.6% | 12.5% |
| Net Income | $4,979,127 | $4,067,040 |
| Earnings Per Share (EPS) | $0.84 | $0.66 |
| Operating Cash Flow | $1,229,757 | $1,151,433 |
| Total Debt (Current + Long-term) | $28,350,000 | $22,874,000 |
| Cash and Equivalents | $400,097 | $666,986 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 10.8% ($17.5 million) year-over-year for the six-month period, driven by production unit increases in the Manufactured Housing industry. The Recreational Vehicle industry showed no production gains.
- Margin Expansion: Gross profit margin improved from 12.5% to 13.6%, attributed to fewer cost increases on certain products and inventory items costing below current market rates.
- Expense Increases: Selling, General, and Administrative (SG&A) expenses rose 25.3% to $9.0 million, primarily due to higher marketing, sales commissions, and administrative wages linked to increased sales volume.
- Profitability: Net income increased 22.4% to $4.98 million. Operating income rose 25.2% to $8.9 million.
- Capital Expenditures: Investing cash outflows increased significantly to $6.74 million (vs. $1.99 million prior year), driven by $5.45 million in capital expenditures and a $3.35 million acquisition of U.S. Door assets.
Outlook, Risks, and Management Commentary
- Seasonality: Operations are seasonal, typically peaking in the second and third quarters. However, recent years have seen unusually high sales in winter months due to dramatic production increases in manufactured housing.
- Liquidity and Debt: The company maintains a credit agreement with NBD Bank, N.A., consisting of a $10 million term loan and a $13 million revolving credit facility. As of June 30, 1995, $18.75 million was outstanding under this agreement. Additionally, $6 million in industrial revenue bonds were issued for an Oregon facility project, with $2.6 million held in escrow.
- Future Financing: The company has a commitment to issue $18 million in senior unsecured notes (6.82% interest) scheduled to close in the third quarter of 1995. Proceeds will reduce existing bank debt and fund working capital.
- Risks: Management notes that results for the periods presented are not necessarily indicative of full-year results. Inflation is not believed to have a material effect on operations.
Investor Verification Checklist
- Verify the closing of the $18 million senior unsecured notes issuance and the subsequent reduction in bank debt.
- Monitor the completion of the Oregon facility construction funded by industrial revenue bonds.
- Assess the sustainability of the 13.6% gross margin given potential future raw material cost increases.
- Review the performance of the newly acquired U.S. Door assets in upcoming quarters.
- Confirm compliance with financial covenants under the NBD Bank credit agreement as debt levels remain elevated.