UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from..................to..................
Commission file number 0-3922
PATRICK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1057796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 South 14th Street, Elkhart, IN 46516
(Address of principal executive offices)
(ZIP Code)
(574) 294-7511
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Shares of Common Stock Outstanding as of November 1, 2002: 4,556,136
1
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
ITEM 1. Financial Statements
Unaudited Condensed Balance Sheets
September 30, 2002 & December 31, 2001 3
Unaudited Condensed Statements of Income
Three Months Ended September 30, 2002 & 2001, and
Nine Months Ended September 30, 2002 & 2001 4
Unaudited Condensed Statements of Cash Flows
Nine Months Ended September 30, 2002 & 2001 5
Notes to Unaudited Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 18
ITEM 4. Controls and Procedures 18
PART II: Other Information 19
Signatures 20
Certifications 21
2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
(Unaudited)
SEPTEMBER 30 DECEMBER 31
2002 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 982,272 $ 5,914,283
Trade receivables 22,826,144 13,722,216
Inventories 36,194,324 28,625,747
Income tax refund claims receivable - - - 3,046,799
Prepaid expenses 629,677 804,398
Deferred tax assets 2,170,000 2,014,000
----------- -----------
Total current assets 62,802,417 54,127,443
----------- -----------
PROPERTY AND EQUIPMENT, at cost 92,451,951 90,935,808
Less accumulated depreciation 59,216,424 56,302,359
----------- -----------
33,235,527 34,633,449
----------- -----------
DEFERRED INCOME TAXES 230,839 - - -
----------- -----------
INTANGIBLE AND OTHER ASSETS 2,959,257 3,208,928
----------- -----------
Total assets $99,228,040 $91,969,820
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,671,428 $ 3,671,428
Accounts payable 16,147,533 7,180,706
Accrued liabilities 4,765,910 4,192,487
----------- -----------
Total current liabilities 24,584,871 15,044,621
----------- -----------
LONG-TERM DEBT, less current maturities 12,142,860 15,114,288
----------- -----------
DEFERRED COMPENSATION OBLIGATIONS 2,252,108 2,226,390
----------- -----------
DEFERRED TAX LIABILITIES - - - 81,000
----------- -----------
SHAREHOLDERS' EQUITY
Common stock 17,851,645 17,620,517
Retained earnings 42,396,556 41,883,004
----------- -----------
Total shareholders' equity 60,248,201 59,503,521
----------- -----------
Total liabilities and shareholders' equity $99,228,040 $91,969,820
=========== ===========
See accompanying Notes to Unaudited Condensed Financial Statements.
3
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2002 2001 2002 2001
NET SALES $ 80,848,100 $ 77,527,508 $ 238,657,632 $ 224,731,037
------------- ------------- ------------- --------------
COST AND EXPENSES
Cost of goods sold 70,498,170 68,352,088 207,717,224 198,384,000
Warehouse and delivery expenses 3,842,407 3,797,846 10,901,430 10,765,128
Selling, general, and administrative expenses 6,057,691 6,316,568 17,299,366 18,596,419
Restructuring charges - - - - - - 269,180 - - -
Interest expense, net 195,232 276,821 705,982 760,940
80,593,500 78,743,323 236,893,182 228,506,487
------------- ------------- ------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES 254,600 (1,215,815) 1,764,450 (3,775,450)
INCOME TAXES (CREDITS) 101,600 (486,200) 705,600 (1,510,200)
------------- ------------- ------------- --------------
NET INCOME (LOSS) $ 153,000 $ (729,615) $ 1,058,850 $ (2,265,250)
============= ============= ============= ==============
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ .03 $ (.16) $ .23 $ (.50)
============= ============= ============= ==============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,556,136 4,529,666 4,543,404 4,521,944
See accompanying notes to Unaudited Condensed Financial Statements.
4
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,058,850 $(2,265,250)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,802,106 5,729,602
Gain on sale of fixed assets (9,111) (23,918)
Deferred income taxes (467,839) - - -
Other 188,488 401,979
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables (9,103,928) (7,738,710)
Inventories (7,568,577) (3,280,624)
Income tax refund claims receivable 3,046,799 (674,014)
Prepaid expenses 174,721 30,717
Increase in:
Accounts payable and accrued liabilities 9,250,986 7,370,923
Income taxes payable 289,264 - - -
----------- -----------
Net cash provided by (used in) operating activities 1,661,759 (449,295)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,248,259) (1,356,235)
Proceeds from sale of property and equipment 47,218 494,193
Other 118,770 (26,344)
----------- -----------
Net cash (used in) investing activities (3,082,271) (888,386)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock - - - (561,965)
Principal payments on long-term debt (2,971,428) (2,971,428)
Proceeds from sale of common stock 15,128 - - -
Cash dividends paid (545,298) (549,922)
Other (9,901) (72,064)
----------- -----------
Net cash (used in) financing activities (3,511,499) (4,155,379)
----------- -----------
Decrease in cash and cash equivalents (4,932,011) (5,493,060)
Cash and cash equivalents, beginning 5,914,283 6,716,128
----------- -----------
Cash and cash equivalents, ending $ 982,272 $ 1,223,068
=========== ===========
See accompanying notes to Unaudited Condensed Financial Statements.
5
PATRICK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals and the adjustments for restructuring charges as
discussed in Note 5) necessary to present fairly the financial position
as of September 30, 2002 and December 31, 2001, the results of operations
for the three months and the nine months ended September 30, 2002 and
2001, and the cash flows for the nine months ended September 30, 2002 and
2001.
2. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's December 31, 2001 audited financial statements.
The results of operations for the three and nine month periods ended
September 30, 2002 and 2001 are not necessarily indicative of the results
to be expected for the full year.
3. The inventories on September 30, 2002 and December 31, 2001 consist of
the following classes:
September 30 December 31
2002 2001
Raw materials $22,227,410 $15,908,710
Work in process 2,013,501 2,049,879
Finished goods 4,698,800 4,335,875
----------- -----------
Total manufactured goods $28,939,711 $22,294,464
Distribution products 7,254,613 6,331,283
----------- -----------
TOTAL INVENTORIES $36,194,324 $28,625,747
=========== ===========
The inventories are stated at the lower of cost, First-In First-Out
(FIFO) method, or market.
4. Income (loss) per common share for the nine months ended September 30,
2002 and 2001 has been computed based on the weighted average common
shares outstanding of 4,543,404 and 4,521,944 respectively. Stock options
outstanding are immaterial and had no effect on earnings per share.
Dividends per common share for the quarter ending September 30, 2002 and
2001 were $.04 per share. This resulted in total dividends for the nine
month periods ending September 30, 2002 and 2001 of $.12 per share.
5. In June, 2002, the Company recorded a restructuring charge based on the
decision to close one of its cabinet door manufacturing facilities and
consolidate its operation into another facility. The Company recorded
estimated and actual costs related to this restructuring, all of which
were paid in the third quarter.
6
6. The Company's reportable segments are as follows:
Laminating - Utilizes various materials including gypsum, particleboard,
plywood, and fiberboard which are bonded by adhesives or a heating
process to a number of products including vinyl, paper, foil, and high
pressure laminate. These laminated products are utilized to produce
furniture, shelving, wall, counter, and cabinet products with a wide
variety of finishes and textures.
Distribution - Distributes primarily pre-finished wall and ceiling
panels, particleboard, hardboard and vinyl siding, roofing products,
passage doors, building hardware, insulation, and other products.
Wood - Uses raw lumber including solid oak, other hardwood materials, and
laminated particleboard or plywood to produce cabinet door product lines.
Other - Includes aluminum extrusion, painting, and distribution, a
manufacturer of adhesive products, a manufacturer of pleated shades, and
a manufacturer of laminating equipment.
The table below presents unaudited information about the revenue and
operating income of those segments:
THREE MONTHS ENDED SEPTEMBER 30, 2002
-------------------------------------
LAMINATING DISTRIBUTION WOOD OTHER SEGMENT TOTAL
---------- ------------ ---- ----- ------- -----
Net outside sales $ 37,391,514 $ 28,097,187 $ 7,803,389 $ 7,556,010 $ 80,848,100
Intersegment sales 1,731,595 200,547 169,691 2,421,992 4,523,825
------------- ------------- ------------- ------------- -------------
Total sales $ 39,123,109 $ 28,297,734 $ 7,973,080 $ 9,978,002 $ 85,371,925*
------------- ------------- ------------- ------------- -------------
EBIT (loss) ** $ 722,886 $ 464,132 $ (285,905) $ 213,148 $ 1,114,261
THREE MONTHS ENDED SEPTEMBER 30, 2001
-------------------------------------
Net outside sales $ 33,207,414 $ 27,457,654 $ 7,819,397 $ 9,043,043 $ 77,527,508
Intersegment sales 1,073,522 374,720 271,084 3,434,839 5,154,165
------------- ------------- ------------- ------------- -------------
Total sales $ 34,280,936 $ 27,832,374 $ 8,090,481 $ 12,477,882 $ 82,681,673*
------------- ------------- ------------- ------------- -------------
EBIT (loss) ** $ (4,242) $ 161,804 $ (287,329) $ (118,748) $ (248,515)
7
NINE MONTHS ENDED SEPTEMBER 30, 2002
------------------------------------
LAMINATING DISTRIBUTION WOOD OTHER SEGMENT TOTAL
---------- ------------ ---- ----- ------- -----
Net outside sales $ 108,866,154 $ 83,131,792 $ 24,515,552 $ 22,144,134 $ 238,657,632
Intersegment sales 4,986,862 582,648 582,881 7,862,590 14,014,981
------------- ------------- ------------- ------------- -------------
Total sales $ 113,853,016 $ 83,714,440 $ 25,098,433 $ 30,006,724 $ 252,672,613*
------------- ------------- ------------- ------------- -------------
EBIT (loss) ** $ 3,089,192 $ 1,237,260 $ (420,074) $ 528,482 $ 4,434,860
Identifiable assets $ 37,445,686 $ 15,405,792 $ 6,346,333 $ 7,976,585 $ 67,174,396
NINE MONTHS ENDED SEPTEMBER 30, 2001
------------------------------------
Net outside sales $ 98,397,222 $ 76,581,038 $ 23,108,459 $ 26,644,318 $ 224,731,037
Intersegment sales 3,262,851 753,176 724,772 10,394,577 15,135,376
------------- ------------- ------------- ------------- -------------
Total sales $ 101,660,073 $ 77,334,214 $ 23,833,231 $ 37,038,895 $ 239,866,413*
------------- ------------- ------------- ------------- -------------
EBIT (loss) ** $ (226,242) $ 673,878 $ (299,690) $ (626,213) $ (478,267)
Identifiable assets $ 34,820,889 $ 16,963,481 $ 6,124,166 $ 11,837,793 $ 69,746,329
Reconciliation of segment EBIT to consolidated EBIT
3 Months Ended 9 Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
EBIT (loss) for segments $ 1,114,261 $ (248,515) $ 4,434,860 $ (478,267)
Corporate incentive agreements 337,426 170,022 1,073,827 719,645
Consolidation reclassifications 18,306 (24,410) 95,910 (85,157)
Gain (loss) on sale of assets 5,494 1,805 9,111 23,918
Unallocated corporate expenses (981,612) (1,076,032) (2,359,862) (3,207,932)
Other (44,043) 238,136 (514,234) 13,283
Restructuring charges - - - - - - (269,180) - - -
----------- ----------- ----------- -----------
Consolidated EBIT (loss)** $ 449,832 $ (938,994) $ 2,470,432 $(3,014,510)
=========== =========== =========== ===========
*Does not agree to Financial Statements due to consolidation eliminations.
**Earnings (loss) before interest and taxes.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
Despite the weakening conditions in the Manufactured Housing industry,
the Company's business continued to show signs of improvement over the previous
year for the three and nine month periods ending September 30, 2002. Gains in
market share in the Manufactured Housing industry and the increased shipment
levels in the Recreational Vehicle industry have resulted in increased sales of
more than 6% over the previous year and more than 4% over the 2001 third
quarter. Net income increased more than $3.3 million over the previous year
through September, 2002 and more than $800,000 over the September, 2001 quarter.
The Company's sales to the Manufactured Housing, Recreational Vehicle, and Other
industries for the nine months ended September 30, 2002 were 48%, 29%, and 23%,
respectively. At September 30, 2001 they were 49%, 27%, and 24%, respectively.
The Manufactured Housing industry continues to show declines as shipments
are down more than 8% from a year ago and more than 35% from two years ago.
There continues to be uncertainty related to dealer and retail financing as two
of the top industry lenders have announced their exit from the market in the
last six months. Current estimates suggest that the 2002 year will end up down
almost 11% from the shipment levels attained in 2001 and that the 2003 calendar
year will be down more than 5% from the 2002 year numbers.
The Recreational Vehicle industry, on the other hand, has shown
significant improvement as shipment levels have improved by more than 18% over
the previous year through September, 2002. These shipment levels are just short
of the shipment levels seen in 2000, which were the second highest in history.
Current signs indicate that this trend is expected to continue through the first
quarter of 2003.
Over the past two years, the Company has made significant cost cutting
measures, plant closings, and consolidations to operate more efficiently at
reduced volumes. As the business cycle heads into the fourth and first quarters,
which are traditionally the weaker quarters due to inclement weather and plant
shutdowns over the holiday season, the Company is continuing these efforts in
order to mitigate any further potential unforeseen circumstances that may occur
as a result of the industry conditions and to strengthen our position when these
conditions subside.
The Company continues to monitor credit exposure related to its customer
base in the Manufactured Housing industry noting that further declines in units
produced and the reduced available wholesale and retail financing could cause
potential defaults from one or more of its significant customers. In the case of
an actual or foreseeable default of a major customer, the Company's current
allowance for doubtful accounts may not be adequate to cover the loss and the
Company would appropriately take a charge to operations for the full estimated
impact of the loss. At the current time, the Company cannot reasonably predict
the default of any one of these customers, and therefore, no reserve for loss
has been recorded.
The following table sets forth the percentage relationship to net sales
of certain items in the Company's Statements of Operations:
Three Months Nine Months
Ended September 30 Ended September 30
2002 2001 2002 2001
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.2 88.2 87.0 88.3
Gross profit 12.8 11.8 13.0 11.7
Warehouse and delivery 4.8 4.9 4.6 4.8
Selling, general & administratie 7.5 8.2 7.3 8.3
Restructuring charges (credit) - - - - - - 0.1 - - -
Operating income (loss) 0.5 (1.2) 1.0 (1.3)
Net income (loss) 0.2 (0.9) 0.4 (1.0)
9
RESULTS OF OPERATIONS
Quarter Ended September 30, 2002 Compared to Quarter Ended September 30, 2001
Net Sales. Net sales increased $3.3 million, or 4.3%, from $77.5 million
for the quarter ended September 30, 2001 to $80.8 million for the quarter ended
September 30, 2002. This increase is attributable to an approximate 27%
quarterly increase in units shipped and produced in the Recreational Vehicle
industry coupled with a change in the sales mix to core industries which the
Company serves. The Company's sales to the Manufactured Housing, Recreational
Vehicle, and other industries was 48%, 29%, and 23%, respectively. In the
quarter ended September 30, 2001 the Company's sales to these industries was
49%, 27%, and 24%, respectively.
Gross Profit. Gross profit increased by 12.8%, or $1.1 million, from $9.2
million for the quarter ended September 30, 2001 to $10.3 million for the
quarter ended September 30, 2002. As a percentage of net sales, gross profit
increased 1.0%, from 11.8% in the third quarter of 2001 to 12.8% for the same
three month period in 2002. These increases are due to increased sales as well
as increased operating efficiencies. The elimination of certain low margin
business, strategic cost cutting measures taken in the past two years, and the
restructuring activities related to significantly underperforming operating
units have all contributed to the positive increases in margin. The ongoing
developments in the Manufactured Housing industry related to the lack of dealer
and retail financing and the more than 8% drop in unit shipments from the
previous year have caused competitive pricing situations and may have future
impacts on gross profit margins.
Warehouse and Delivery Expenses. Warehouse and delivery expenses remained
fairly constant at $3.8 million for each of the three month periods ending
September, 2002 and 2001. As a percentage of net sales, warehouse and delivery
expenses decreased approximately 0.1%, from 4.9% in the quarter ended September
30, 2001 to 4.8% in the quarter ended September 30, 2002. The Company continues
to gain efficiencies in this area by shipping more full truckloads compared to
the previous year, as well as a reduction in the size of the fleet that the
Company owns or leases.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses decreased by $259,000, or 4.1%, from $6.3 million in the
quarter ended September 30, 2001 to $6.1 million in the quarter ended September
30, 2002. As a percentage of net sales, selling, general, and administrative
expenses decreased by 0.7%, from 8.2% for the quarter ended September 30, 2001
to 7.5% for the quarter ended September 30, 2002. The decrease in dollars and
percentage of net sales is due to the Company continuing to make variable cost
reductions as well as reduced depreciation expense from quarter to quarter.
Operating Income. Operating income increased by $1.4 million, from a loss
of $0.9 million in the third quarter of 2001 to income of $0.5 million in the
third quarter of 2002. The increase in operating income is due to the factors
described above.
Interest Expense, Net. Interest expense, net, decreased by $82,000 due to
a decline in rates on the variable tax exempt bonds as well as the normal debt
service requirements resulting in less long term debt outstanding.
Net Income. The Company had net income of $153,000 for the third quarter
ended September 30, 2002 compared to a net loss of $730,000 for the same period
in 2001. The increase in net income is attributable to the factors described
above.
Quarter ended September 30, 2001 Compared to Quarter Ended September 30, 2000
Net Sales. Net sales decreased by $12.4 million, or 13.8%, from $89.9
million in the quarter ended September 30, 2000 to $77.5 million in the quarter
ended September 30, 2001. This decrease is directly related to an estimated 33%
decrease in units shipped and produced in the Manufactured Housing industry and
an estimated 16% decrease in units shipped in the Recreational Vehicle industry
in the first nine months of 2001 compared to the first nine months of 2000.
10
Gross Profit. Gross profit decreased by $1.9 million, or 17.5%, from
$11.1 million in the third quarter 2000 compared to $9.2 million in the third
quarter of 2001. As a percentage of net sales, gross profit decreased 0.6%, from
12.4% in the third quarter of 2000 to 11.8% in the third quarter 2001. The
decrease is due to a 13.8% decrease in consolidated net sales coupled with
market conditions remaining highly competitive resulting in the inability of the
Company to increase selling prices without losing business.
Warehouse and Delivery Expenses. Warehouse and delivery expenses remained
constant at $3.8 million in the third quarters of 2001 and 2000. As a percentage
of net sales, warehouse and delivery expenses increased 0.7%, from 4.2% in the
third quarter of 2000 to 4.9% in the third quarter 2001. The increase as a
percentage of net sales is due to the Company shipping less full truckloads than
in the previous period, the increase in fuel costs from period to period, and an
increase in rates charged by the transportation companies due to them running at
capacity.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased $0.1 million, or 2.5%, from $6.2 million in
the quarter ended September 30, 2000 to $6.3 million in the quarter ended
September 30, 2001. As a percentage of net sales, selling, general, and
administrative expenses increased 1.3%, from 6.9% in the third quarter of 2000
to 8.2% in the third quarter of 2001. The increase in costs as a percentage of
net sales is due to reduced volumes as a result of the decline in shipments in
the Manufactured Housing and Recreational Vehicle industries.
Operating Loss. The Company experienced an operating loss of $0.9 million
in the third quarter of 2001 compared to operating income of $1.3 million in the
same quarter in 2000. This decrease of $2.2 million is due to the decline in
sales volume for the industries to which the Company serves, as well as the
factors described above.
Interest Expense, Net. Interest expense, net of interest income,
decreased 10.7% from $310,000 in the third quarter of 2000 to $277,000 in the
same period in 2001. This decrease is attributable to more funds invested in the
third quarter 2001 as a result of reduced working capital needs as well as lower
long-term debt levels due to normal debt service requirements.
Net Loss. The Company experienced a net loss of $730,000 in the third
quarter of 2001 compared to net income of $605,000 in the third quarter of 2000.
This decrease is attributable to the factors described above.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001
Net Sales. Net sales increased $14.0 million, or 6.2%, from $224.7
million for the nine months ended September 30, 2001 to $238.7 million for the
nine months ended September 30, 2002. This increase is attributable to an
approximate 18% increase in units shipped in the Recreational Vehicle industry
coupled with an approximate 8% decrease in units shipped in the Manufactured
Housing industry. The Company's sales for the first nine months of 2002 were 48%
to Manufactured Housing, 29% to Recreational Vehicle , and 23% to other
industries.
Gross Profit. Gross profit increased 17.4%, or $4.6 million, from $26.3
million for the nine months ended September 30, 2001 to $30.9 million for the
same period in 2002. As a percentage of net sales, gross profit increased
approximately 1.3%, from 11.7% for the nine months ended September 30, 2001 to
13.0% for the nine months ended September 30, 2002. The increase in dollars and
percentage of net sales was due to the Company making significant strategic cost
cutting measures in 2000 and 2001 including plant closings, eliminating low
margin business, and reducing certain fixed overhead expenses.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased approximately $136,000, or 1.3%, from $10.8 million for the nine month
period ended September 30, 2001 to $10.9 million for the same period in 2002. As
a percentage of net sales, warehouse and delivery expenses decreased
approximately 0.2%, from 4.8% in 2001 to 4.6% in 2002. The small increase in
costs and the decrease in costs as a percentage of net sales was due to
increased sales levels allowing the Company to ship more full truckloads than in
the previous year and a reduction in the size of the fleet that the Company owns
or leases.
11
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased $1.3 million, or 7.0%, from $18.6 million for
the nine months ended September 30, 2001 to $17.3 million for the same period in
2002. As a percentage of net sales, selling, general, and administrative
expenses decreased 1.0%, from 8.3% in 2001 to 7.3% in 2002. This decrease in
dollars and percentage of net sales is due to the Company's continued cost
cutting efforts to reduce both fixed and variable expenses.
Restructuring Charges. As discussed in Note 5 of the financial
statements, the Company recorded restructuring charges of $269,000 for the nine
months ended September 30, 2002.
Operating Income (Loss). Operating income increased $5.5 million, from a
loss of $3.0 million for the nine months ended September 30, 2001 to income of
$2.5 million for the same period in 2002. The increase in operating income is
due to the factors described above.
Interest Expense, Net. Interest expense, net, decreased $55,000 due to a
decrease in the tax exempt variable interest rate as well as a decrease in the
total debt outstanding due to normal debt service requirements.
Net Income (Loss). The Company had net income of $1.1 million for the
nine months ended September 30, 2002 compared to a net loss of $2.3 million for
the same period in 2001. This increase in net income is due to the factors
described above.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended
September 30, 2000
Net Sales. Net sales decreased $65.9 million, or 22.7%, from $290.7
million in the nine months ended September 30, 2000 to $224.7 million for the
nine months ended September 30, 2001. This decrease is attributable to the 33%
decline in units shipped and produced in the Manufactured Housing industry and
16% decline in units shipped and produced in the Recreational Vehicle industry.
The Company's sales for the first nine months of 2001 were 49% to Manufactured
Housing, 27% to Recreational Vehicle, and 24% to other industries.
Gross Profit. Gross profit decreased $8.1 million, or 23.5%, from $34.4
million in the first nine months of 2000 to $26.3 million in the first nine
months of 2001. As a percentage of net sales, gross profit decreased 0.2%, from
11.9% in the nine months ended September 30, 2000 compared to 11.7% in the nine
months ended September 30, 2001. The decrease was due to the significantly
reduced sales volume in the industries which the Company serves.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
decreased $1.1 million, or 9.4%, from $11.9 million in the nine months ended
September 30, 2000 to $10.8 million in the same period in 2001. As a percentage
of net sales, warehouse and delivery expenses increased 0.7%, from 4.1% in 2000
to 4.8% in 2001. The overall decrease is due to the decline in sales volume. The
increase as a percentage of net sales is due to the Company shipping less full
truckloads than in the previous period, the increase in fuel costs from period
to period, and an increase in rates charged by the transportation companies.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased by $0.9 million, or 4.6%, from $19.5 million
for the nine months ended September 30, 2000 to $18.6 million for the same
period in 2001. As a percentage of net sales, selling, general, and
administrative expenses increased 1.6% from 6.7% in the first nine months of
2000 to 8.3% in the first nine months of 2001. The overall decrease was due to
the Company making cost and staffing reductions. The increase in cost as a
percentage of net sales was due to reduced volume as a result of the decline in
shipments in the Manufactured Housing and Recreational Vehicle industries.
Impairment Charges. The Company recognized an impairment charge of $6.9
million in the first quarter of 2000.
Restructuring Charges. The Company recognized restructuring charges of
$0.2 million in the second and third quarters of 2000.
12
Operating Loss. The Company experienced an operating loss of $3.0 million
for the nine months ended September 30, 2001 compared to an operating loss of
$4.0 million for the nine months ended September 30, 2000. The operating loss
was due to the factors described above.
Interest Expense, Net. Interest expense, net of interest income,
decreased 22.1%, or $216,000, from $977,000 in the nine months ended September
30, 2000 to $761,000 in the same period in 2001. The decrease was due to more
funds being invested as a result of reduced working capital needs as well as
lower long term debt levels due to normal debt service requirements.
Net Loss. The Company experienced a net loss after interest and taxes for
the nine months ended September 30, 2000 and 2001 of $3.1 million and $2.3
million, respectively. These losses were attributable to the factors described
above.
BUSINESS SEGMENTS
Quarter ended September 30, 2002 Compared to Quarter Ended September 30, 2001
Laminating Segment Discussion
Net sales in the laminating segment increased $4.8 million, or 14.1%,
from $34.3 million for the quarter ended September 30, 2001 to $39.1 million for
the quarter ended September 30, 2002. This increase in net sales is due to an
approximate 27% increase in shipments in the Recreational Vehicle industry in
the third quarter of 2002 compared to the same period in 2001. Shipments in the
Manufactured Housing industry were down approximately 15% for the same quarterly
period.
EBIT increased $727,000, from a loss of $4,200 for the quarter ended
September 30, 2001 to income of $723,000 for the quarter ended September 30,
2002. This increase was due to the increased sales volume as well as the cost
cutting measures that the Company has undertaken over the past two years to
reduce fixed and variable costs.
Distribution Segment Discussion
Net sales increased $465,000, or 1.7%, from $27.8 million to $28.3
million for the quarters ended September 30, 2001 and 2002, respectively. This
increase was due to this segment gaining market share despite the downturn in
the Manufactured Housing industry, which is the major industry which this
segment serves.
EBIT increased $302,000, from $162,000 in the quarter ended September 30,
2001 to $464,000 in the same period in 2002. This increase was due to the
increased sales volume.
13
Wood Segment Discussion
Net sales decreased $117,000, or 1.5%, from $8.1 million in the quarter
ended September 30, 2001 to $8.0 million in the same period in 2002. This
decrease was due to the closing and consolidation of one of the business units
in this segment in August, 2002.
EBIT remained fairly constant at an operating loss of approximately $0.3
million.
Other Segment Discussion
Net sales in this segment decreased $2.5 million, or 20.0%, from $12.5
million in the quarter ended September 30, 2001 to $10.0 million for the same
period in 2002. This decrease was attributable to the closing and consolidation
of two operations in this segment in 2001, as well as the approximate 15%
decrease in shipments in the Manufactured Housing industry for the three month
period ended September 30, 2002.
EBIT increased $332,000, from a loss of $119,000 in the quarter ended
September 30, 2001 to income of $213,000 in the quarter ended September 30,
2002. This increase was attributable to the closing and consolidation of two of
the significantly underperforming operating units in this segment in 2001.
Quarter ended September 30, 2001 Compared to Quarter Ended September 30, 2000
Laminating Segment Discussion
Net sales decreased in the third quarter of 2001 by $5.4 million, or
13.6%, from $39.7 million in the period ended September 30, 2000 to $34.3
million in the period ended September 30, 2001. This decline in sales volume was
due to approximately 33% less shipments nationwide in the Manufactured Housing
industry as well as declines of up to 43% in some of the Company's principal
market areas.
EBIT declined 100.8% in the laminating segment from income of $544,000 in
the period ended September 30, 2000 compared to a loss of $4,200 in the period
ended September 30, 2001. As a percentage of net sales, EBIT decreased 1.4% in
the third quarter of fiscal 2001. This decline was due to the decrease in sales
volume.
Distribution Segment Discussion
Net sales decreased 17.4%, or $5.9 million, from $33.7 million in the
third quarter 2000 to $27.8 million in the third quarter 2001. This decrease was
due primarily to the decline in units shipped and produced in the Manufactured
Housing industry which this segment serves, and the Company choosing not to
accept certain lower margin business.
EBIT increased 80.4%, or $72,000, due to certain operations in this
segment gaining operating margin due to eliminating some unprofitable products
in 2001.
Wood Segment Discussion
Net sales decreased 6.0%, or $0.5 million, from $8.6 million in the
three-month period ended September 30, 2000 to $8.1 million in the same period
in 2001. This decline is consistent with the overall decline in the Recreational
Vehicle industry, which is the primary industry which this segment serves.
EBIT for this segment has increased from an operating loss of $0.5
million in the third quarter of 2000 to an operating loss of $0.3 million in the
third quarter of 2001. Management's continued commitment to improving operating
results in this segment and returning it to profitability have caused the
improved results. The closing of one of the segments under-performing units in
2000 resulted in additional cost savings.
14
Other Segment Discussion
Net sales in the other segment decreased by 9.0%, or $1.2 million, from
$13.7 million in the three months ended September 30, 2000 to $12.5 million in
the three month period ending September 30, 2001. The decline in sales volume is
primarily attributable to a 16% decline in shipments in the Recreational Vehicle
industry and increases in sales in the Company's aluminum extrusion division and
machine manufacturing division which sell to customers mainly outside the
Manufactured Housing and Recreational Vehicle industries.
EBIT for this segment decreased $183,000, or 286%, from $64,000 in the
three month period ending September 30, 2000 to a loss of $119,000 in the same
period in 2001. This decrease was due to the decrease in sales volume.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001
Laminating Segment Discussion
Net sales in this segment increased $12.2 million, or 12.0%, from $101.7
million in the nine months ended September 30, 2001 to $113.9 million in the
same period in 2002. This increase was mostly due to the approximate 18%
increase in sales in the Recreational Vehicle industry. Additionally, the
Company closed three divisions in the other segment in 2001 which had sales of
approximately $4.7 million for the nine months ended September 30, 2001 and
certain of these operations were merged into a facility in the laminating
segment which was operating at less than capacity and subsequently in 2002 has
seen significantly increased volume resulting in higher efficiencies and
increased profitability.
EBIT increased $3.3 million, from a loss of $226,000 in the nine months
ended September 30, 2001 to income of $3.1 million in the same period in 2002.
This increase was due to increased sales volume coupled with increased operating
efficiencies from the reduction of fixed and variable costs related to the
strategic cost cutting measures that were taken in 2000 and 2001.
Distribution Segment Discussion
Net sales in this segment increased $6.4 million, or 8.3%, from $77.3
million in the nine months ended September 30, 2001 to $83.7 million in the nine
months ended September 30, 2002. This increase was due to increased sales in
certain of the Company's operating units in the southeast region of the
Manufactured Housing industry.
EBIT increased $563,000, or 84%, from $674,000 in the nine months ended
September 30, 2001 to $1.2 million for the same period in 2002 due to increased
sales volume.
Wood Segment Discussion
Net Sales increased $1.3 million, or 5.3%, from $23.8 million in the nine
months ended September 30, 2001 to $25.1 million in the nine months ended
September 30, 2002. This increase was attributable to the approximate 18%
increase in sales in the Recreational Vehicle industry for the first nine months
of 2002.
EBIT decreased $120,000, from a loss of $300,000 for the nine months
ended September 30, 2001 to a loss of $420,000 for the same period in 2002. This
decrease is attributable to two operating units in this segment experiencing
operating inefficiencies, one of which was consolidated into another division in
this segment. The operating results of these two divisions have offset the
positive results of the three other divisions within this segment.
Other Segment Discussion
Net sales in this segment decreased $7.0 million, or 19.0%, from $37.0
million in the first nine months of 2001 compared to $30.0 million in the same
period in 2002. This decline was due to the closing and consolidation of one
division in the first quarter of 2001 and two divisions in the fourth quarter of
2001, as well as the more than 8% decline in shipments in the Manufactured
Housing industry compared to the previous year.
EBIT increased $1.1 million, from a loss of $0.6 million in the nine
month period ended September 30, 2001 to income of $0.5 million in the nine
15
month period ended September 30, 2002. This increase is due to the closing and
consolidation of three unprofitable divisions in this segment in 2001.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended
September 30, 2000
Laminating Segment Discussion
Net sales in the laminating segment decreased by 21.6%, or $28.0 million,
from $129.6 million in the nine month period ending September 30, 2000 to $101.7
million in the same period in 2001. This decrease was attributable to the 33%
decline in units shipped and produced in the Manufactured Housing industry and
16% decrease in units shipped and produced in the Recreational Vehicle industry.
EBIT decreased 110.0%, or $2.6 million, from $2.4 million in the nine
months ended September 30, 2000 to a loss of $0.2 million for the nine months
ended September 30, 2001. This decline was attributable to the decrease in sales
volume.
Distribution Segment Discussion
Net sales in the distribution segment decreased $30.9 million, or 28.5%,
from $108.2 million in the first nine months of 2000 to $77.3 million in the
same period in 2001. This decrease is directly related to the 33% decrease in
units shipped and produced in the Manufactured Housing industry.
EBIT decreased 44.5%, or $540,000, due to the decrease in sales and
competitive pricing situations.
Wood Segment Discussion
Net sales in the wood segment decreased $4.4 million, or 15.6%, from
$28.2 million in the nine months ended September 30, 2000 to $23.8 million in
the same period in 2001. This decline is consistent with the overall decline in
the Recreational Vehicle industry, which is the primary industry which this
segment serves.
The operating loss in this segment decreased from a loss of $1.1 million
in the first nine months of 2000, to an operating loss of $0.3 million in the
first nine months of 2001. Management's continued commitment to improving
operating results in this segment and returning it to profitability caused the
improvement in operating income. Additionally, depreciation expense has been
reduced by approximately $526,000 as a result of the Company recognizing a
non-cash accounting charge in the first quarter of 2000 related to the
impairment of certain long-lived assets. The Company also closed one operating
unit in this segment in 2000 which contributed to savings in 2001 of
approximately $751,000.
Other Segment Discussion
Net sales in the other segment decreased 15.3%, or $6.7 million, from
$43.7 million in the nine months ended September 30, 2000 to $37.0 million in
the nine months ended September 30, 2001. This decline was due to reduced sales
volume in the Recreational Vehicle industry.
EBIT decreased from operating income of $92,000 in the first nine months
of 2000 to an operating loss of $626,000 in the same period in 2001. This
decrease was due to the decline in sales volume.
16
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are to meet working capital
needs, support its capital expenditure plans, and meet debt service
requirements.
The Company, in September, 1995, issued to an insurance company in a
private placement, $18,000,000 of senior unsecured notes. The ten year notes
bear interest at 6.82%, with semi-annual interest payments that began in 1996
and seven annual principal repayments of $2,571,428 which began September 15,
1999. These funds were used to reduce existing bank debt and for working capital
needs.
The Company has an unsecured bank Revolving Credit Agreement that
provides loan availability of $10,000,000 with maturity in the year 2003.
Pursuant to the private placement and the Credit Agreement, the Company
is required to maintain certain financial ratios, all of which are currently
complied with.
The Company believes that cash generated from operations and available
borrowings under its credit agreements will be sufficient to fund its working
capital requirements and normal recurring capital expenditures as currently
contemplated. The fluctuations in inventory and accounts receivable balances,
which affect the Company's cash flows, are part of normal business cycles.
A summary of our contractual cash obligations remaining at September 30,
2002 and for the twelve month periods ending 2003 through 2006 is as follows:
--------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------------------------------
- ---------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2002 2003 2004 2005 2006
- --------------------------------------- ------------- --------------- --------------- --------------- --------------- --------------
------------- --------------- --------------- --------------- --------------- --------------
Long-term debt, including interest** $14,589,181 $891,914 $4,368,757 $4,159,176 $3,949,599 $1,219,735
------------- --------------- --------------- --------------- --------------- --------------
Operating Leases $3,964,939 $815,843 $1,898,185 $888,254 $199,015 $163,642
------------- --------------- --------------- --------------- --------------- --------------
Total contractual cash obligations $18,554,120 $1,707,757 $6,266,942 $5,047,430 $4,148,614 $1,383,377
------------- --------------- --------------- --------------- --------------- --------------
**Interest payments have been calculated using the fixed rate of 6.82% for the Senior notes and the average 2001 annual interest
rate of 3.11% for the Industrial Revenue Bonds.
We also have a commercial commitment as described below:
- -------------------------------------- --------------------------------- ------------------------------- ---------------------------
OTHER COMMERCIAL TOTAL AMOUNT OUTSTANDING DATE OF
COMMITMENT COMMITTED AT 09/30/02 EXPIRATION
- -------------------------------------- --------------------------------- ------------------------------- ---------------------------
Line of Credit $10,000,000 $0 January 28, 2003
- -------------------------------------- --------------------------------- ------------------------------- ---------------------------
We believe that our cash balance, availability under our line of credit,
if needed, and anticipated cash flows from operations will be adequate to fund
our cash requirements for 2002.
17
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are summarized in the footnotes to
our financial statements. Some of the most critical policies are also discussed
below.
As a matter of policy, we review our major assets for impairment. Our
major operating assets are accounts receivable, inventory, and property and
equipment. We have not experienced significant bad debt losses and our reserve
for doubtful accounts of $250,000 should be adequate for any exposure to loss in
our September 30, 2002 accounts receivable. We have also established reserves
for slow moving and obsolete inventories and believe them to be adequate. We
depreciate our property and equipment over their estimated useful lives and
during the nine months ended September, 2002 and September, 2001 we have not
identified any items that are impaired.
SEASONALITY
Manufacturing operations in the manufactured housing and recreational
vehicle industries historically have been seasonal and are generally at the
highest levels when the climate is moderate. Accordingly, the Company's sales
and profits are generally highest in the second and third quarters.
INFLATION
The Company does not believe that inflation had a material effect on
results of operations for the periods presented.
SAFE HARBOR STATEMENT
Statements that do not address historical performance are
"forward-looking statements" within the meaning of the Private Securities
Litigation reform Act of 1995 and are based on a number of assumptions,
including but not limited to; (1) continued domestic economic growth and demand
for the Company's products; and (2) the Company's belief with respect to its
capital expenditures, seasonality and inflation. Any developments significantly
deviating from these assumptions could cause actual results to differ materially
from those forecast or implied in the aforementioned forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded,
based on their evaluation within 90 days of the filing date of this report, that
our disclosure controls and procedures are effective for gathering, analyzing,
and disclosing the information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934. There have been no significant
changes in our internal controls or in the other factors that could
significantly affect these controls subsequent to the date of the previously
mentioned evaluation.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities AND USE OF PROCEEDS
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer and Chief
Financial Officer
(b) There were no reports filed on Form 8-K
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATRICK INDUSTRIES, INC.
(Company)
Date November 8, 2002 /S/Harold E. Wyland
---------------------- ---------------------------------
Harold E. Wyland
(Chairman of the Board)
Date November 8, 2002 /S/David D. Lung
---------------------- ---------------------------------
David D. Lung
(President)
(Chief Executive Officer)
Date November 8, 2002 /S/Andy L. Nemeth
----------------------- ---------------------------------
Andy L. Nemeth
(Secretary-Treasurer)
(Chief Financial Officer)
20
CERTIFICATIONS
--------------
I, David D. Lung, certify that:
1. I have reviewed this quarterly report on Form 10Q of Patrick
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's Chief Financial Officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Company's Chief Financial Officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the Audit
Committee of the Company's Board of Directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize, and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls;
6. The Company's Chief Financial Officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date November 8, 2002 /S/David D. Lung
----------------------- --------------------------------
David D. Lung
(President)
(Chief Executive Officer)
21
CERTIFICATIONS
--------------
I, Andy L. Nemeth, certify that:
1. I have reviewed this quarterly report on Form 10Q of Patrick
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's Chief Executive Officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this quarterly report is being prepared;
b. evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Company's Chief Executive Officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the Audit
Committee of the Company's Board of Directors (or persons performing
the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize, and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls;
6. The Company's Chief Executive Officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date November 8, 2002 /S/Andy L. Nemeth
----------------------- --------------------------------
Andy L. Nemeth
(Secretary-Treasurer)
(Chief Financial Officer)
22