Patrick Industries Reports Second Quarter Results
ELKHART, Ind., Aug. 1, 2007 -- Patrick Industries, Inc. today announced its operating results for the second quarter ended June 30, 2007, highlighted by the completion of the Adorn, LLC acquisition and the related beginning phases of operational integration.
Patrick, a leading manufacturer and distributor of building and component products for the Recreational Vehicle (RV), Manufactured Housing (MH) and Industrial markets, reported a net loss of $1.3 million, or $0.25 per share, on net sales of $113.1 million for the second quarter of 2007, compared with net earnings of $1.3 million, or $0.27 per share, on net sales of $94.7 million for the same quarter of 2006.
The second quarter of 2007 included a $1.1 million restructuring charge associated with the synergistic facility rationalization opportunities presented by the recent acquisition of Adorn in May 2007. The restructuring charge includes costs associated with severance and other employee termination related activities, and other contract termination costs related to the closing and consolidation of several Patrick operating units and manufacturing work centers.
Additionally, the Company accrued costs of approximately $1.7 million in the Adorn opening balance sheet related to the consolidation of five Adorn operations into the Patrick platform. Patrick also reported other charges during the quarter including certain liability settlement costs of approximately $0.3 million, amortization of debt financing costs and intangible assets of approximately $0.2 million, and charges of approximately $0.8 million due to certain employee related retirement vesting obligations.
Patrick reported net sales of approximately $191.3 million, and a net loss of approximately $1.9 million, or $0.38 per share for the first six months of 2007, including restructuring charges of approximately $1.1 million. Last year's six-month period included net earnings of $2.0 million, or $0.42 per share, on net sales of $184.0 million.
"Our focus in the quarter was on completing the Adorn acquisition, an important step in our strategic plan of becoming a premier manufacturer and distributor of building and component products to the RV and MH industries," said Paul E. Hassler, President and CEO of Patrick Industries. "We also made progress during the quarter in executing on our transition plan of integrating and consolidating Adorn's operations into Patrick. As part of our consolidation efforts to date, we have closed two Adorn facilities, reallocated certain customer production in several business units to more opportune locations, and consolidated Patrick's unprofitable hardwood door operating unit in Woodburn, Ore. into Adorn's state-of-the-art cabinet door facility in Elkhart, Ind."
"We further finalized our senior management organization structure and completed the consolidation of the corporate offices. We expect to have the majority of the consolidation and facility rationalization completed by the end of the year. During the quarter, we further paid down approximately $9.4 million in senior term debt as a result of working capital initiatives driven from the consolidation. We expect to see improvements from the synergies of the acquisition and other initiatives in the third and fourth quarters of 2007, and will begin shifting our focus to driving the top line and new product introductions."
The combined MH and RV market sectors represented approximately 67 percent of the Company's sales in the second quarter of 2007, compared to 74 percent for the second quarter of 2006. Industrial and other sales, which include sales to the kitchen cabinet, office furniture, store fixtures and other industries, represented approximately 33 percent of the Company's sales for the 2007 second quarter, compared with 26 percent for the same quarter of 2006. The year-over-year change in market mix is primarily a result of the continued weakness in the MH and RV market sectors and the addition of American Hardwoods to Patrick's Industrial market share.
"We added $27.8 million in profitable sales from our recently acquired Adorn operations, which represented six weeks of activity from the closing date of May 18, 2007, and was immediately accretive to earnings," said Hassler. "Our American Hardwoods operation, which we acquired in January 2007 and was also immediately accretive to earnings, added $3.8 million of profitable sales in the 2007 second quarter. Our recent product introductions added approximately $1.5 million in sales for the quarter and approximately $3.0 million year-to-date, and we are optimistic this will accelerate as we continue to gain market share for these products."
"Excluding sales from acquisitions and new products, our sales declined by approximately 15 percent in the quarter, primarily due to softness in our primary markets," added Hassler. "Industry sales of manufactured homes were down 30 percent year-to-date and industry sales of RVs were down 14 percent as of May 2007, the most recent data available from industry sources. Industry analysts are forecasting a 10 percent decline in RV shipments for 2007, with the industry recovering to modest growth in 2008. Several of our MH customers have reported improved backlogs, which is a positive sign in this difficult market."
Patrick reported gross margin of approximately 10.6 percent for the second quarter of 2007 compared with gross margin of 12.4 percent in the same quarter of 2006. The year-over-year decline in gross margin includes the restructuring and other charges as well as other litigation related settlement costs during the quarter. Patrick reported an operating loss of $0.6 million for the second quarter of 2007, compared to operating income of $2.5 million in the same quarter of 2006, primarily due to the restructuring and other charges related to the Adorn acquisition.
"Both the RV and MH industries are facing challenges in 2007. However, we are well positioned to expand in these difficult markets and execute on our strategic plan based on market penetration, enhanced capacity utilization, improving operating efficiencies, product development and the exploration of strategic and accretive acquisition opportunities," Hassler concluded.
About Patrick Industries
Patrick Industries, Inc. (www.patrickind.com) is a major manufacturer of component products and a distributor of building products serving the Manufactured Housing, Recreational Vehicle, kitchen cabinet, home and office furniture, fixture and commercial furnishings, marine, and other Industrial markets and operates coast-to-coast through locations in 14 states. Patrick's major manufactured products include cabinet and wall components, countertops, adhesives, and aluminum extrusions. The Company also distributes drywall and drywall finishing products, interior passage doors, flooring, vinyl and cement siding, ceramic tile, high pressure laminates, and other miscellaneous products.
UNAUDITED FINANCIAL HIGHLIGHTS
(dollars in 000's except THREE MONTHS ENDED SIX MONTHS ENDED
per share amounts) JUNE 30, JUNE 30,
INCOME STATEMENT 2007 2006 2007 2006
Net sales $113,125 $94,692 $191,273 $183,973
Cost of goods sold 100,213 82,993 169,547 161,272
Restructuring charges 938 --- 938 ---
Gross profit 11,974 11,699 20,788 22,701
Warehouse and delivery expenses 5,177 3,903 8,944 7,923
Selling, general, and
administrative expenses 7,222 5,277 12,798 10,714
Restructuring charges 183 --- 183 ---
Operating income (loss) (608) 2,519 (1,137) 4,064
Interest expense, net 1,525 325 2,096 659
Income (loss) before
income taxes (2,133) 2,194 (3,233) 3,405
Income taxes (credit) (847) 888 (1,293) 1,393
NET INCOME (LOSS) ($1,286) $1,306 ($1,940) $2,012
BASIC INCOME (LOSS) PER COMMON
SHARE ($0.25) $0.27 ($0.38) $0.42
DILUTED INCOME (LOSS) PER COMMON
SHARE ($0.25) $0.27 ($0.38) $0.41
Weighted average shares
outstanding, basic 5,422 4,864 5,166 4,848
Weighted average shares
outstanding, diluted 5,422 4,903 5,166 4,887
June 30, June 30,
BALANCE SHEET 2007 2006
CURRENT ASSETS
Cash and cash equivalents $83 $609
Trade receivables, net 32,682 25,497
Inventories 48,484 45,312
Income taxes receivable 1,031 ---
Prepaid expenses and other 3,343 1,920
Deferred tax assets 1,866 1,141
Total current assets 87,489 74,479
PROPERTY AND EQUIPMENT, NET 58,759 38,977
GOODWILL AND OTHER INTANGIBLE ASSETS 71,200 ---
OTHER ASSETS 3,483 2,824
TOTAL ASSETS $220,931 $116,280
CURRENT LIABILITIES
Current maturities of long-term debt $8,750 $2,767
Short-term borrowings --- 1,942
Accounts payable 27,286 23,021
Accrued expenses 11,144 4,685
Total current liabilities 47,180 32,415
LONG-TERM DEBT LESS CURRENT MATURITIES 78,250 15,639
DEFERRED COMPENSATION AND OTHER 3,363 1,749
DEFERRED TAX LIABILITIES 16,437 1,011
SHAREHOLDERS' EQUITY 75,701 65,466
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $220,931 $116,280