Business Context and Reporting Period
Company: Patrick Industries, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter ended March 31, 1996
Industry: Manufacturer and distributor of products for the Manufactured Housing (68% of sales) and Recreational Vehicle (16% of sales) industries.
Key Financial Metrics
| Metric | Q1 1996 | Q1 1995 |
|---|---|---|
| Net Sales | $93,767,541 | $87,030,721 |
| Gross Profit | $11,753,396 | $11,970,620 |
| Operating Income | $3,463,597 | $4,143,284 |
| Net Income | $1,944,706 | $2,315,713 |
| Earnings Per Share | $0.33 | $0.39 |
| Cash from Operations | $3,707,632 | $1,212,349 |
| Total Assets | $102,168,885 | $95,915,922 |
| Total Debt (Current + Long-term) | $26,900,000 | $26,900,000 |
| Cash and Temporary Investments | $3,131,491 | $1,349,709 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 7.7% ($6.7 million) driven by a 7% increase in units shipped by the Manufactured Housing industry. Sales to the Recreational Vehicle industry declined slightly.
- Margin Compression: Gross profit decreased 1.8% to $11.7 million, and gross margin fell from 13.7% to 12.5%. This was caused by higher raw material costs in the aluminum extrusion division, lower volume, plant relocation costs in Oregon, and competitive pricing.
- Profitability Decline: Net income decreased 16% ($371,000) to $1.9 million due to reduced gross profit and increased operating expenses.
- Expense Increases: Selling, General, and Administrative (SG&A) expenses rose 7.6% ($348,000), while Warehouse and Delivery expenses increased 3.5% ($114,000).
- Liquidity Improvement: Cash and temporary investments more than doubled to $3.1 million, supported by strong operating cash flow of $3.7 million.
Outlook, Risks, and Management Commentary
- Seasonality: Operations are seasonal, typically peaking in Q2 and Q3. However, Q1 1995 and 1996 were unusually strong due to dramatic production increases in the housing and RV sectors.
- Capital Resources: The company issued $18 million in senior unsecured notes in September 1995 (6.82% interest) to reduce bank debt and fund working capital. A credit revolver of up to $5 million remains available.
- Debt Compliance: The company is currently in compliance with all financial ratios required by its credit agreements.
- Risks: Exposure to the cyclical nature of the Manufactured Housing and RV industries; competitive market pricing pressures; and raw material cost volatility.
- Unusual Items: Q1 1995 SG&A expenses included unusually large group insurance claims. Q1 1996 included costs associated with a plant relocation in Oregon.
Investor Verification Checklist
- Verify the sustainability of the 7% unit volume increase in the Manufactured Housing industry for the full year.
- Monitor raw material costs for aluminum extrusion and their impact on gross margins.
- Confirm the timeline and cost completion of the Oregon facility relocation.
- Review the company's ability to maintain required financial ratios under the amended credit agreement.
- Assess the impact of competitive pricing strategies on future gross profit percentages.