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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file Number 0-3922
PATRICK INDUSTRIES, INC.
(Exact name of Company as specified in its charter)
Indiana 35-1057796
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
1800 South 14th Street, P.O. Box 638, Elkhart, Indiana 46515
(Address of principal executive offices) (ZIP code)
Company's telephone number, including area code: (574) 294-7511
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
(Title of each class)
Indicate by check mark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K [ ]
Indicate by check mark whether the registrant is an accelerated filer.
YES NO X
------- -------
The aggregate market value of the voting stock held by non-affiliates of the
Company on June 30, 2002 (based upon the closing price on NASDAQ and an estimate
that 72.5% of the shares are owned by non-affiliates) was $28,655,248. The
closing market price was $8.675 on that day and 4,556,136 shares of the
Company's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Company's Proxy Statement for its Annual
Meeting of Shareholders to be held on May 15, 2003 are
incorporated by reference into Parts III of this Form
10-K.
2
PART I
ITEM 1. BUSINESS
The Company is a leading manufacturer and supplier of building
products and materials to the Manufactured Housing and Recreational Vehicle
industries. In addition, the Company is a supplier to certain other industrial
markets, such as furniture manufacturing, marine, architectural, and the
automotive aftermarket. The Company manufactures decorative vinyl and paper
panels, wrapped mouldings, cabinet doors, electronic desks, kitchen cabinets,
countertops, aluminum extrusions, drawer sides, adhesives, and laminating
machines. The Company is also an independent wholesale distributor of
pre-finished wall and ceiling panels, drywall and drywall finishing products,
particleboard, vinyl and cement siding, interior passage doors, roofing
products, high pressure laminates, decorative mirrors and glass, insulation, and
other related products.
The Company has a nationwide network of distribution centers for
its products, thereby reducing intransit delivery time and cost to the regional
manufacturing plants of its customers. The Company believes that it is one of
the few suppliers to the Manufactured Housing and Recreational Vehicle
industries that has such a nationwide network. The Company maintains six
manufacturing plants and a distribution facility near its principal offices in
Elkhart, Indiana, and operates eleven other warehouse and distribution centers
and twelve other manufacturing plants in twelve other states.
Strategy
- --------
Over time, the Company has developed very strong working
relationships with its customers. In so doing, the Company has oriented its
business and expansion to the needs of these customers. These customers include
all of the larger Manufactured Housing and Recreational Vehicle manufacturers.
The Company's customers generally demand high quality standards and a high
degree of flexibility from their suppliers. The result has been that the Company
focuses on maintaining and improving the quality of its manufactured products,
and has developed a nationwide manufacturing and distribution presence in
response to its customers' need for flexibility. As the Company explores new
markets and industries, it believes that this nationwide network provides it
with a strong foundation for expansion.
The Company continually seeks to improve its position as a leading
supplier to the Manufactured Housing and Recreational Vehicle industries and
other industries to which its products, manufacturing processes, or sales and
distribution system are applicable. Currently, approximately 47% of the
Company's sales are to the Manufactured Housing industry, 30% to the
Recreational Vehicle industry, and 23% to other industries. These industries,
and the impact that they have on their suppliers, are characterized by cyclical
demand and production, small order quantities, and short lead times. These
characteristics have an impact on the suppliers, many of whom tend to be small,
regional, and specific product line companies.
Management has identified several tools which it expects to
utilize to accomplish its operating strategies, including the following:
Diversification into Additional Industries
While the Company continually seeks to improve its position as a
leading supplier to the Manufactured Housing and Recreational Vehicle
industries, it is also seeking to expand its product lines into other industrial
markets. Many of the Company's products, such as its countertops, cabinet doors,
laminated panels, and shelving, have applications in the furniture and cabinetry
markets. In addition, the manufacturing processes for the Company's aluminum
extrusions are easily applied to the production of products for the marine,
automotive and truck accessories markets and aftermarkets, and many other
markets. The Company's adhesives are produced for almost all industrial
applications.
3
Because order size from these additional industries tends to be
for larger numbers of units, the Company enjoys better production efficiencies
for these orders. The Company believes that diversification into additional
industries will reduce its vulnerability to the cyclical nature of the
Manufactured Housing and Recreational Vehicle industries. In addition, the
Company believes that its nationwide manufacturing and distribution capabilities
enable it to serve its customers more effectively and position itself for
product expansion.
Expansion of Manufacturing Capacity
In the last 5 years, the Company has invested approximately $25.5
million to upgrade existing facilities and equipment and to build new
manufacturing facilities for its laminated paneling products, industrial
adhesives, cabinet doors, and furniture components. The capacity created by
these investments has enabled the Company to accommodate future growth in the
Company's product lines and markets.
Strategic Acquisitions and Expansion
The Company supplies a broad variety of building material products
and, with its nationwide manufacturing and distribution capabilities, is
well-positioned for the introduction of new products. The Company, from time to
time, considers the acquisition of additional product lines, facilities or other
assets to complement or expand its existing business. In 1998 the Company
expanded existing product lines and capacity with the opening of a new
manufacturing and distribution complex in New London, North Carolina. In 1999
the Company expanded the Sun Adhesive facility in Decatur, Alabama to increase
capacity.
Restructuring and Impairment
- ----------------------------
In the last two years the Company has incurred restructuring charges
of $0.7 million related to the closing, consolidation, and relocation of five
manufacturing divisions and two distribution divisions in various states. The
charges included severance payments, write-down of obsolete inventories,
equipment relocation, and future rental commitments related to closed
facilities. These strategic initiatives were done to eliminate duplication of
efforts, close negative performing operations, and increase volume levels at
other locations. The majority of cost savings related to these plans will be
realized in future years.
Additionally, in the last two years the Company has incurred
impairment charges of $2.8 million related to the write-down of the net book
value of long-lived assets primarily in the Company's Wood and Other segments.
The impairment costs were calculated by estimating discounted future cash flow
and comparing it to the carrying value of these assets. These write-downs were
non-cash charges and effectively eliminated all of the goodwill on the Company's
books as well as reducing future yearly depreciation expense.
Business Segments
- -----------------
The Company's operations comprise four reportable segments.
Information related to those segments is contained in "Note 14-Segment
Information" appearing herein the financial statements as noted in the index
appearing under Item 15(a)(1) and (2).
Principal Products
- ------------------
The Company distributes primarily pre-finished wall and ceiling
panels, particleboard, hardboard siding, roofing products, high pressure
laminates, passage doors, building hardware, insulation, and other products.
Through its manufacturing divisions, the Company fabricates decorative vinyl and
paper panels, cabinet doors, shelving, countertops, wood mouldings, aluminum
extrusions, drawer sides, furniture components, wood adhesives, and laminating
presses.
4
Pre-finished wall panels contributed more than 10% to total sales.
The percentage contributions of this class of product to total sales was 36.5%,
36.0%, and 38.5% for the years ended December 31, 2002, 2001, and 2000
respectively.
The Company has no material patents, licenses, franchises, or
concessions and does not conduct significant research and development
activities.
Manufacturing Processes and Operations
- --------------------------------------
The Company's laminating facilities utilize 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.
The Company's metals division utilizes technology to produce
aluminum extrusions for framing and window applications. In addition, this
division extrudes running boards, accessories for pick-up trucks, marine
industry products, and construction-related materials.
The Company manufactures two distinct cabinet door product lines.
One product line is manufactured from raw lumber utilizing solid oak and other
hardwood materials. The Company's other line of doors is made of laminated
fiberboard. The Company's doors are sold mainly to the Manufactured Housing and
Recreational Vehicle industries, and the Company continues to market to the
cabinet manufacturers and "ready-to-assemble" furniture manufacturers.
The Company's adhesive division, which supplies adhesives used in
most of the Company's manufacturing processes and to outside industrial
customers, uses a process of mixing non-toxic non-hazardous chemicals with water
to produce adhesives sold in tubes, pails, barrels, totes, and rail tank cars.
Markets
- -------
The Company is engaged in the manufacturing and distribution of
building products and material for use primarily by the Manufactured Housing and
Recreational Vehicle industries and other industrial markets.
Manufactured Housing
The Manufactured Housing industry has historically served as a
more affordable alternative to the home buyer. Because of the relatively lower
cost of construction as compared to site-built homes, manufactured homes
traditionally have been one of the principal means for first-time home buyers to
overcome the obstacles of large down payments and higher monthly mortgage
payments. Manufactured housing also presents an affordable alternative to
site-built homes for retirees and others desiring a lifestyle in which home
ownership is less burdensome than in the case with site-built homes. The
increase in square footage of living space in manufactured homes created by
multi-sectional models has made them more attractive to a larger segment of home
buyers.
Manufactured homes are built in accordance with national and state
building codes. Manufactured homes are factory-built and transported to a site
where they are installed, often permanently. Some manufactured homes have design
limitations imposed by the constraints of efficient production and over-the-road
transit. Delivery expense limits the effective competitive shipping range of the
manufactured homes to approximately 400 to 600 miles.
5
The Manufactured Housing industry is cyclical and is affected by
the availability of alternative housing such as apartments, town houses, and
condominiums. In addition, interest rates, availability of financing, regional
population, employment trends, and general regional economic conditions affect
the sale of manufactured homes. The Manufactured Housing Institute reported that
during the four-year period ended December 31, 1991, shipments of manufactured
homes declined 26.6% to a total of approximately 171,000 units nationally in
1991. The reported number of units increased sharply in the five years following
1991, with increases in each of those years. Manufactured home unit shipments
reached a peak in 1998 at 372,800, which represents 118% more units than in
1991. The industry has seen a decline in unit shipments since the record year in
1998 with shipments finishing the 2002 year at 168,500.
These cycles have a historic precedent. The Company believes that
the factors responsible for the national decline prior to 1992 included weakness
in the manufacturing, agricultural, and, in particular, oil industry sectors.
These industry sectors have historically provided a significant portion of the
Manufactured Housing industry's customer base. Additionally, high vacancy rates
in apartments, high levels of repossession inventories, and over-built housing
markets in certain regions of the country resulted in fewer sales of new
manufactured homes in the past. Changes in these market characteristics had
caused the manufactured housing cycle to change positively until 1999. Beginning
in mid-1999 and continuing through 2002, the Manufactured Housing industry has
had to contend with increased repossessed inventory levels, credit requirements
that became more stringent, and a reduction in availability of lenders for both
retail and dealers. As a result, the industry has experienced three consecutive
years of significant declines in the number of industry shipments with 2002
finishing at levels which were almost 52% lower than those experienced in 1999.
The coming year doesn't appear to show any signs of improvement as repossessed
inventory levels are still high and the availability of dealer and retail
financing is still a concern.
Manufactured Housing Shipments:
------------------------------
1990 - 188,200
1991 - 170,700
1992 - 210,800
1993 - 254,300
1994 - 303,900
1995 - 339,600
1996 - 363,400
1997 - 353,400
1998 - 372,800
1999 - 348,700
2000 - 250,600
2001 - 193,200
2002 - 168,500
Recreational Vehicles
The Recreational Vehicle industry has been characterized by cycles
of growth and contraction in consumer demand, reflecting prevailing general
economic conditions which affect disposable income for leisure time activities.
Fluctuations in interest rates, consumer confidence, and concerns about the
availability and price of gasoline, in the past, have had an adverse impact on
recreational vehicle sales. Recently the industry has been characterized by
shifting demand towards lower-priced, higher-value products which appeal to
economy-minded, value-conscious buyers.
Recreational vehicle classifications are based upon standards
established by the Recreational Vehicle Industry Association. The principal
types of recreational vehicles include conventional travel trailers, folding
camping trailers, fifth wheels, motor homes, and van conversions. These
recreational vehicles are
6
distinct from mobile homes, which are manufactured houses designed for permanent
and semi-permanent residential dwelling.
Conventional travel trailers and folding camping trailers are
non-motorized vehicles which are designed to be towed by passenger automobiles,
pick-up trucks or vans. They provide comfortable, self-contained living
facilities for short periods of time. Conventional travel trailers and folding
camping trailers are towed by means of a frame hitch attached to the towing
vehicle. Fifth wheel trailers, designed to be towed by pick-up trucks, are
constructed with a raised forward section that is attached to the bed area of
the pick-up truck. This allows for a bi-level floor plan and more living space
than a conventional travel trailer.
A motor home is a self-powered vehicle built on a motor vehicle
chassis. The interior typically includes a driver's area, kitchen, bathroom,
dining, and sleeping areas. Motor homes are self-contained with their own
lighting, heating, cooking, refrigeration, sewage holding, and water storage
facilities. Although they are not designed for permanent or semi-permanent
living, motor homes do provide comfortable living facilities for short periods
of time.
Van conversions are conventional vans modified for recreational or
other use.
Sales of recreational vehicle products have been cyclical.
Shortages of motor vehicle fuels and significant increases in fuel prices have
had a material adverse effect on the market for recreational vehicles in the
past, and could adversely affect demand in the future. The Recreational Vehicle
industry is also affected by the availability and terms of financing to dealers
and retail purchasers. Substantial increases in interest rates and decreases in
the general availability of credit have had a negative impact upon the industry
in the past and may do so in the future. Recession and lack of consumer
confidence generally results in a decrease in the sale of leisure time products
such as recreational vehicles.
The industry shipped a record 321,200 units in 1999. Increased
gasoline prices and uncertainty with regards to the economy resulted in shipment
declines over the next two years of more than 20%. The Industry rebounded in
2002 due to improved consumer confidence, depleted dealer inventories, lower
interest rates, and a fear of flying after the September 11, 2001 terrorist
attacks. Shipment levels in 2003 are expected to remain consistent with those
attained in 2002; however, above average gasoline prices and the war in the
Middle East could have negative consequences on these projections.
Recreational Vehicle Shipments:
------------------------------
1990 - 173,100
1991 - 163,300
1992 - 203,400
1993 - 227,800
1994 - 259,200
1995 - 247,000
1996 - 247,500
1997 - 254,500
1998 - 292,700
1999 - 321,200
2000 - 300,100
2001 - 256,800
2002 - 311,000
7
Other Markets
Many of the Company's products, such as its countertops, laminated
panels, cabinet doors, and shelving may be utilized in the furniture and
cabinetry markets. The Company's aluminum extrusion process is easily applied to
the production of accessories for pick-up trucks and vans, architectural and
also certain other building products. The Company's adhesives are marketed in
many industrial adhesive markets.
While demand in these industries also fluctuates with general
economic cycles, the Company believes that these cycles are less severe than
those in the Manufactured Housing and Recreational Vehicle industries. As a
result, the Company believes that diversification into these new markets will
reduce its reliance on the markets it has traditionally served and will mitigate
the impact of their historical cyclical patterns on its operating results.
Marketing and Distribution
- --------------------------
The Company's sales are to Manufactured Housing and Recreational
Vehicle manufacturers and other building products manufacturers. The Company has
approximately 3,375 customers. The Company has three customers, who together
accounted for approximately 27% and 28% of the Company's total sales in 2002 and
2001, respectively. Ten other customers collectively accounted for approximately
22% of 2002 sales. The Company believes it has good relationships with its
customers.
Products for distribution are purchased in carload or truckload
quantities, warehoused, and then sold and delivered by the Company.
Approximately 45% of the Company's distribution segment products are shipped
directly from the suppliers to the customers. The Company typically experiences
a two to four week delay between issuing its purchase orders and delivering of
products to the Company's warehouses or customers. The Company's customers do
not maintain long-term supply contracts, and therefore the Company must bear the
risk of accurate advance estimation of customer orders. The Company maintains a
substantial inventory to satisfy these orders. The Company has no significant
backlog of orders.
The Company operates twelve warehouse and distribution centers and
eighteen manufacturing plants located in Alabama, Arizona, California, Florida,
Georgia, Indiana, Kansas, Minnesota, Nevada, North Carolina, Oregon,
Pennsylvania, and Texas. Through the use of these facilities, the Company is
able to minimize its in-transit delivery time and cost to the regional
manufacturing plants of its customers.
Suppliers
- ---------
During the year ended December 31, 2002, the Company purchased
approximately 65% of its raw materials and distributed products from twenty
different suppliers. The five largest suppliers accounted for approximately 40%
of the Company's purchases. Materials are primarily commodity products, such as
lauan, gypsum, aluminum, particleboard, and other lumber products which are
available from many suppliers. Alternate sources of supply are available for all
of the Company's important materials.
Competition
- -----------
The Manufactured Housing and Recreational Vehicle industries are
highly competitive with low barriers to entry. This level of competition carries
through to the suppliers to these industries. Competition is based primarily on
price, product features, quality, and service. The Company has several
competitors in each of its classes of products. Some manufacturers and suppliers
of materials purchased by the Company also compete with it and sell directly to
the same industries. Most of the Company's competitors compete with the Company
on a regional basis. In order for a competitor to compete with the Company on a
national basis, the Company believes that a substantial capital commitment and
experienced personnel would be required. The industrial markets in which the
Company continues to expand are also highly competitive.
8
Employees
- ---------
As of December 31, 2002, the Company had 1,023 employees of which
928 employees were engaged directly in production, warehousing, and delivery
operations, 41 in sales, and 54 in office and administrative activities. There
are three manufacturing plants and one distribution center covered by collective
bargaining agreements. The Company considers its relationships with its
employees to be good.
The Company provides retirement, group life, hospitalization, and
major medical plans under which the employee pays a portion of the cost.
Executive Officers of the Company
- ---------------------------------
The following table sets forth the executive officers of the Company, as
of December 31, 2002:
Name Position
---- --------
David D. Lung Chief Executive Officer and President
Andy L. Nemeth Chief Financial Officer and Secretary-Treasurer
Gregory J. Scharnott Vice President Operations
Alan M. Rzepka Vice President Sales & Marketing
David D. Lung (age 55) has served as President and Chief Executive Officer since
December, 2000 and was President and Chief Operating Officer since 1989. Mr.
Lung had held various management positions with the Company before becoming Vice
President of Administration and Purchasing in 1987.
Andy L. Nemeth (age 33) assumed the position of Secretary-Treasurer in July,
2002. Mr. Nemeth was a Division Controller from May, 1996 to July, 2002 and
prior to that he spent five years in public accounting with Coopers & Lybrand
(now Pricewaterhouse Coopers).
Gregory J. Scharnott (age 52) assumed the position of Vice President of
Operations in June, 2002 and was the Executive Director of Midwest Operations
from February, 2001 to June, 2002. Mr. Scharnott has over 25 years of
manufacturing management experience, including 20 years with the General
Electric Company.
Alan M. Rzepka (age 46) assumed the position of Vice President of Sales &
Marketing in May, 2000. Mr. Rzepka was National Sales Manager from January, 1997
to May, 2000 and prior to that was Director of Manufacturing Purchasing since
1994.
Website Access to Company Reports
- ---------------------------------
We make available free of charge through our website,
www.patrickind.com , our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and all amendments to those reports as soon as
reasonably practicable after such material is electronically filed with the
Securities Exchange Commission. Our internet website and the information
contained therein or incorporated therein are not intended to be incorporated
into this Annual Report on Form 10-K.
9
ITEM 2. PROPERTIES AND EQUIPMENT
As of December 31, 2002, the Company maintained the following
warehouse, manufacturing and distribution facilities:
Ownership or
Location Use Area Sq. Ft. Lease Arrangement
- -------- --- ------------ -----------------
Elkhart, IN Manufacturing(3) 40,400 Leased to 2003
Elkhart, IN Mfg. & Dist.(1)(3) 173,360 Owned
Elkhart, IN Manufacturing(3) 30,900 Owned
Elkhart, IN Manufacturing (2) 42,000 Leased to 2004
Elkhart, IN Manufacturing(2) 30,000 Leased to 2004
Elkhart, IN Manufacturing(2) 31,000 Leased to 2003
Elkhart, IN Admin. Offices 10,000 Owned
Mishawaka, IN Manufacturing(4) 191,000 Owned, Subject to Mortgage
Decatur, AL Distribution(1) 30,000 Leased to 2003
Decatur, AL Manufacturing(2)(4) 35,000 Owned
Decatur, AL Manufacturing(2) 30,000 Leased to 2003
Decatur, AL Manufacturing(2)(4) 59,000 Owned
Valdosta, GA Distribution(1) 30,800 Owned
New London, NC Mfg. & Dist.(1)(2) 163,200 Owned, Subject to Mortgage
Halstead, KS Distribution(1) 36,000 Owned
Waco, TX Mfg. & Dist.(1)(2) 105,600 Leased to 2004
Waco, TX Manufacturing(2) 21,000 Leased to 2003
Mt. Joy, PA Distribution(1)(2) 58,500 Owned
Mt. Joy, PA Manufacturing(2) 30,000 Owned
Ocala, FL Manufacturing(2) 20,600 Leased to 2004
Ocala, FL Manufacturing(2) 55,500 Owned
Fontana, CA Mfg. & Dist.(1)(2) 110,000 Owned
Fontana, CA Manufacturing(2) 71,755 Owned
Fontana, CA Manufacturing(2) 32,000 Leased to 2004
Woodland, CA Distribution (1) 10,000 Leased to 2003
Phoenix, AZ Manufacturing (2) 36,000 Leased to 2002
Phoenix, AZ Manufacturing (2) 7,500 Leased to 2003
Woodburn, OR Mfg. & Dist.(1,2,3) 153,000 Owned, Subject to Mortgage
Boulder City, NV Manufacturing(4) 24,700 Leased to 2004
(1) Distribution center
(2) Vinyl/paper/foil laminating
(3) Cabinet doors and other wood related
(4) Aluminum, adhesives, and other
Additionally, the Company owns a 50,900 square foot manufacturing
building in Goshen, IN which has been leased. The Company also has a 62,000
square foot vacant building in Bristol, IN for sale as well as a 109,000 square
foot building in Elkhart, IN which is being used for administrative offices and
materials storage. As of December 31, 2002, the Company owned or leased 35
trucks, 46 tractors, 83 trailers, 143 forklifts, 1 automobile and a corporate
aircraft. All owned and leased facilities and equipment are in good condition
and well maintained.
10
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of
business. In management's opinion, currently pending legal proceedings and
claims against the Company will not, individually or in the aggregate, have a
material adverse effect on the Company's financial condition, results of
operations, or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's common stock is listed on The NASDAQ Stock MarketSM
under the symbol PATK. The high and low trade prices of the Company's common
stock as reported on NASDAQ/NMS for each quarterly period during the last two
years were as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2002 9.944 - 7.059 10.000 - 8.050 9.000 - 6.760 7.999 - 5.440
2001 7.563 - 5.625 9.180 - 6.250 8.550 - 6.000 7.280 - 5.450
2000 11.750 - 7.688 7.438 - 6.250 6.844 - 6.438 5.875 - 5.125
The quotations represent prices between dealers, do not include
retail mark-ups, mark-downs or commissions, and may not necessarily represent
actual transactions.
There were approximately 500 holders of the Company's common stock as
of March 14, 2003 as taken from the transfer agent's shareholder listing. It is
estimated that there are approximately 2,000 holders of the Company's common
stock held in street name.
The Company declared a first time regular quarterly dividend of $.04
per common share starting June 30, 1995 and has continued it through December
31, 2002. Although this is a regular quarterly dividend, any future
determination to pay cash dividends will be made by the Board of Directors in
light of the Company's earnings, financial position, capital requirements, and
such other factors as the Board of Directors deems relevant.
11
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for each of the five years
set forth below has been derived from financial statements audited by McGladrey
& Pullen, LLP, independent certified public accountants, certain of which have
been included elsewhere herein. The following data should be read in conjunction
with the Financial Statements and related Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein:
As of or for the Year Ended December 31,
2002 2001 2000 1999 1998
(dollars in thousands, except per share amounts)
Net sales $ 308,755 $ 293,070 $ 361,620 $ 457,356 $ 453,518
Gross profit 39,193 34,012 41,905 57,339 59,556
Warehouse and delivery
expenses 14,329 14,407 15,140 16,715 16,076
Selling, general, and
administrative expenses 23,546 24,926 25,241 27,058 26,796
Impairment charges - - - 2,834 6,937 - - - - - -
Restructuring charges 269 423 718 - - - - - -
Interest expense, net 891 962 1,224 1,393 1,172
Income taxes (credits) 63 (3,769) (2,821) 4,769 6,205
Net income (loss) 95 (5,771) (4,534) 7,404 9,307
Basic earnings (loss)
per common share .02 (1.28) (0.89) 1.30 1.58
Diluted earnings (loss)
per common share .02 (1.28) (0.89) 1.29 1.57
Weighted average common
shares outstanding 4,547 4,524 5,118 5,714 5,903
Cash dividends, per
common share .16 .16 .16 .16 .16
Working capital 38,566 39,082 41,416 47,553 46,698
Total assets 86,466 91,970 102,520 126,203 127,755
Long-term debt 11,443 15,114 18,786 22,457 26,129
Shareholders' equity 59,279 59,504 66,250 79,567 76,307
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's business ended 2002 with its first year of increased
sales and income since 1999. Near record shipment levels in the Recreational
Vehicle industry and increased penetration into the industrial and other markets
have contributed significantly to the increase in volume, while the
concentration on cost control and maximization of margins returned the Company
to profitability. The Manufactured Housing industry, which is the other major
industry that the Company serves, continued its downward trend as shipment
levels marked their lowest in 40 years. The Company's sales to the Manufactured
12
Housing, Recreational Vehicle, and Other industries for the twelve months ended
December 31, 2002 were 47%, 30%, and 23%, respectively. At December 31, 2001
they were 51%, 26%, and 23%, respectively.
Shipments in the Manufactured Housing industry were down almost
13% from a year ago and more than 32% from two years ago. The ongoing
uncertainty related to dealer and retail financing continues to be a significant
factor as 2002 marked the exit of two of the industry's top lenders.
Additionally, there have been large numbers of plant and retail center closings
as well as continued high repossessed inventory levels. The fourth quarter of
2002 included a Chapter 11 bankruptcy filing by Oakwood Homes Corporation, one
of the industry's leading manufacturers. Current estimates suggest that 2003
will be down at least 5% from the levels attained in 2002 with the assumption
that the latter half will include improved consumer confidence, a reduction in
repossessed inventory levels, and the potential entrance of one or more lenders
into the market.
The Recreational Vehicle industry, on the other hand, has shown
significant growth during 2002 as shipment levels improved each month compared
to 2001 and by more than 21% on a year to year basis. Total shipments in 2002
were just short of those seen in 1999, which represented the highest in history.
However, a relatively stagnant economy and a potential war in the Middle East
have caused uncertainty to exist as to whether the industry can continue this
upward trend. Preliminary signs indicate that the 2003 shipments will be
consistent with 2002.
Over the past two years, the Company has made significant cost
cutting measures including staff reductions, plant closings, and consolidations
to operate more efficiently at reduced volumes. These efforts will continue in
order to reduce the effects of further declines as well as allowing the Company
to position itself to take advantage of a rebound in the industries which it
serves.
The following table sets forth the percentage relationship to net
sales of certain items in the Company's statements of operations:
Year Ended
December 31,
2002 2001 2000
Net sales 100.0% 100.0% 100.0%
Cost of sales 87.3 88.4 88.4
Gross profit 12.7 11.6 11.6
Warehouse and delivery 4.7 4.9 4.2
Selling, general and administrative 7.6 8.5 7.0
Impairment charges -- 1.0 1.9
Restructuring charges 0.1 0.1 0.2
Operating income (loss) 0.3 (2.9) (1.7)
Net income (loss) 0.0 (2.0) (1.3)
RESULTS OF CONSOLIDATED OPERATIONS
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Net Sales. Net sales increased $15.7 million, or 5.4%, from $293.1
million for the year ended December 31, 2001 to $308.8 million for the year
ended December 31, 2002. This increase is attributable to a 21% increase in
units shipped and produced in the Recreational Vehicle industry as well as an
increase in penetration into the industrial and other markets.
13
Gross Profit. Gross profit increased by 15.2%, or $5.2 million, from
$34.0 million for the year ended December 31, 2001 to $39.2 million for the year
ended December 31, 2002. As a percentage of net sales, gross profit increased
1.1%, from 11.6% in 2001 to 12.7% for the same period in 2002. These
improvements are primarily due to increased sales, increased operating
efficiencies specifically in the laminating and other segments, and the
reduction of certain fixed overhead expenses. The Company has focused on
strategic cost cutting measures over the past two years as well as certain
restructuring activities related to significantly underperforming operating
units. These initiatives will continue as the Manufactured Housing industry
continues to show uncertainty specifically related to dealer and retail
financing.
Warehouse and Delivery Expenses. Warehouse and delivery expenses have
remained fairly constant at $14.3 million in 2002 compared to $14.4 million in
2001. As a percentage of net sales, however, warehouse and delivery expenses
decreased approximately 0.2%, from 4.9% in 2001 to 4.7% in 2002. The decrease in
percentage of net sales is a result of efficiencies gained from the increased
sales volume by the Company continuing to ship 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 $1.4 million, or 5.5%, from $24.9 million
in 2001 to $23.5 million in 2002. As a percentage of net sales, selling,
general, and administrative expenses decreased by 0.9%, from 8.5% in 2001 to
7.6% in 2002. The 2002 totals include the write-off of receivables and inventory
of approximately $1.6 million related to Oakwood Homes Corporation filing for
bankruptcy protection in the fourth quarter. Exclusive of this charge, selling,
general, and administrative expenses decreased by approximately $3.0 million
from 2001. The decrease in both dollars and percentage of net sales is due to
the Company continuing to concentrate on fixed and variable cost reductions as
well as the benefit of reduced depreciation from year to year.
Impairment Charges. As discussed in Note 10 of the financial
statements, the Company recognized impairment charges of approximately $2.8
million in the fourth quarter of 2001 related to two underperforming operations
in the Company's Other segment. Impaired assets included Goodwill and certain
fixed assets.
Restructuring Charges. As discussed in Note 10 of the financial
statements, the Company recognized restructuring charges of approximately
$269,000 in 2002 and $423,000 in 2001.
Operating Income. Operating income increased by $9.6 million, from a
loss of $8.6 million in 2001 to income of $1.0 million in 2002. The increase in
operating income is due to the factors described above.
Interest Expense, Net. Interest expense, net decreased by $71,000 due
to a decline in rates on the variable tax exempt bonds as well as the normal
debt service requirements resulting in reduced long term debt outstanding.
Net Income. Net income increased by $5.9 million, from a loss of $5.8
million in 2001 to income of $95,000 in 2002. The increase in net income is
attributable to the factors described above.
14
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net Sales. Net sales decreased $68.5 million, or 19.0%, from $361.6
million for the year ended December 31, 2000 to $293.1 million for the year
ended December 31, 2001. This decrease is attributable to the 23% decline in
units shipped and produced in the Manufactured Housing industry and 14% decline
in units shipped and produced in the Recreational Vehicle industry. The
Company's sales for the year were 51% to Manufactured Housing, 26% to
Recreational Vehicle, and 23% to other industries.
Gross Profit. Gross profit decreased by approximately $7.9 million,
or 18.8%, from $41.9 million in 2000 to $34.0 million in 2001. As a percentage
of net sales, gross profit remained consistent at 11.6% of net sales. The
overall decrease in gross profit is due to the reduced sales volume in the
industries which the Company serves.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
decreased $0.7 million, or 4.8%, from $15.1 million in 2000 to $14.4 million in
2001. As a percentage of net sales, warehouse and delivery expenses increased
0.7%, from 4.2% in 2000 to 4.9% in 2001. The overall decrease is attributable to
lower sales levels. The increase as a percentage of net sales is due to the
Company shipping less full truckloads than in the previous period, and an
increase in fuel and insurance costs from year to year.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased by $0.3 million, or 1.2%, from $25.2 million
for 2000 to $24.9 million in 2001. As a percentage of net sales, selling,
general, and administrative expenses increased 1.5%, from 7.0% in 2000 to 8.5%
in 2001. This increase is attributable to reduced volume as a result of the
decline in shipments in the Manufactured Housing and Recreational Vehicle
industries.
Impairment Charges. As discussed in Note 10 to the financial
statements, the Company recognized impairment charges of $2.8 million and $6.9
million in 2001 and 2000, respectively. The impairment charges in 2001 were
related to two underperforming operations in the Company's Other segment and
included the write-down of goodwill and certain fixed assets. Impairment charges
in 2000 were related to three operations in the Company's Wood segment and one
operation in the Company's Other segment and included the write-down of goodwill
and certain fixed assets. These charges were the result of the comparison of
undiscounted future cash flows with the carrying values of the specific assets.
Restructuring Charges. As discussed in Note 10 to the financial
statements, the Company recognized restructuring charges of $423,000 and
$718,000 in 2001 and 2000, respectively.
Operating Loss. The Company experienced operating losses of $8.6
million and $6.1 million in 2001 and 2000, respectively. The increase in
operating loss is attributable to the significantly reduced sales volume and
consistent operating costs from year to year.
Interest Expense, Net. Interest expense, net of interest income
decreased 21.4%, or $262,000, from $1.2 million in 2000 to $962,000 in 2001. The
decrease is attributable to lower long term debt levels due to normal debt
service requirements.
Net Loss. The net loss increased $1.2 million, or 27.3%, from a net
loss of $4.5 million in 2000 to a net loss of $5.8 million in 2001. The increase
in net loss is attributable to the factors described above.
15
BUSINESS SEGMENTS
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, high
pressure laminates, 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 and fabricating, manufacture of
adhesive products, pleated shades, and laminating equipment.
The table below presents information about the revenue and earnings
before interest and taxes of those segments. A reconciliation to consolidated
totals is presented in footnote 14 of the Company's 2002 financial statements.
Year Ended
December 31
2002 2001 2000
(dollars in thousands)
Sales
Laminating $148,863 $131,144 $162,346
Distribution 108,134 104,337 133,230
Wood 31,998 30,182 35,116
Other 37,590 46,397 53,749
Earnings (Loss) Before Interest and
Taxes (EBIT)
Laminating $ 2,530 $ (1,120) $ 1,763
Distribution 1,847 619 1,110
Wood (1,648) (1,027) (1,596)
Other 240 (1,730) (636)
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Laminating Segment Discussion
Net sales in the laminating segment increased $17.7 million, or
13.5%, from $131.1 million in 2001 to $148.8 million in 2002. This increase is
primarily attributable to an approximate 21% increase in shipments in the
Recreational Vehicle industry as well as increased penetration into the
industrial and other markets by certain operating units in this segment.
Additionally, the Company closed three divisions in the other segment in 2001
which had sales of approximately $5.9 million for the twelve months ended
December 31, 2001.
16
Certain of these operations were merged into a facility in the laminating
segment which was operating at less than capacity and contributed to increased
volume in 2002 resulting in improved efficiencies and profitability.
EBIT increased $3.6 million, from a loss of $1.1 million in 2001 to
income of $2.5 million in 2002. This increase is due to the increased sales
volume, the elimination of certain low margin business in exchange for business
that resulted in higher production runs and increased operating efficiencies,
and 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 by $3.8 million, or 3.6%, from $104.3 million in
2001 to $108.1 million in 2002. This increase is due to certain operating units
in this segment gaining market share despite the downturn in the Manufactured
Housing industry which is the major industry which this segment serves. Oakwood
Homes Corporation, which filed for bankruptcy protection in the fourth quarter,
accounted for a significant portion of this increase and future periods may
reflect decreases as the Company has limited its exposure by reducing
receivables and inventory specifically related to this particular customer,
which is operating as a "Debtor in Possession".
EBIT increased $1.2 million, from $0.6 million in 2001 to $1.8
million in 2002. This increase is due to the increased sales volume, the
elimination of certain low margin business, and the elimination of certain
unprofitable product lines.
Wood Segment Discussion
Net sales increased $1.8 million, or 6.0%, from $30.2 million in
2001 to $32.0 million in 2002. The increase in shipments in the Recreational
Vehicle industry, which is the primary industry this segment serves, was the
major contributor to the increase in sales in this segment. However, as
discussed in Note 10 to the financial statements, the Company closed one of the
operating units in this segment in June, 2002, which partially offset the impact
that the increase in industry shipments had on this segment.
Operating losses in this segment increased $0.6 million, from a loss
of $1.0 million in 2001 to a loss of $1.6 million in 2002. The increased losses
are the result of production inefficiencies and labor problems in two of the
operating units in this segment. Additionally, one of these operating units
encountered significant material problems and scrap related to a change in raw
material required by a customer as a result of the annual model change. The new
material is very susceptible to damage and consequently has required the Company
to incur additional costs related to increased handling, production rework, and
customer returns. The Company is taking steps to reduce these increased costs,
however, losses are expected to continue through at least the first quarter of
2003.
Other Segment Discussion
Net sales in this segment decreased $8.8 million, or 19.0%, from
$46.4 million in 2001 to $37.6 million in 2002. This decline is attributable to
the closing and consolidation of three operations in this segment in 2001 as
well as the 12.8% decrease in units shipped in the Manufacturing Housing
industry in 2002.
EBIT increased $1.9 million, from a loss of $1.7 million in 2001 to
income of $0.2 million in 2002. This increase is the result of the closing and
consolidation of three unprofitable operating units in 2001 as well as a return
to profitability of one of the operating units which experienced losses in 2001.
17
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Laminating Segment Discussion
Net sales decreased by 19.2%, or $31.2 million, from $162.3 million
in 2000 to $131.1 million in 2001. This decrease is attributable to the 23%
decline in units shipped in the Manufactured Housing industry and 14% decrease
in units shipped in the Recreational Vehicle industry.
EBIT was lower by $2.9 million, or 163.5%, from income of $1.8
million in 2000 to a loss of $1.1 million in 2001. This decline is attributable
to lower margins as a result of competitive market conditions not allowing price
increases and similar operating costs relative to significantly reduced sales
volume.
Distribution Segment Discussion
Net sales decreased $28.9 million, or 21.7%, from $133.2 million in
2000 to $104.3 million in 2001. This sales decrease is attributable to the 23%
decrease in units shipped and produced in the Manufactured Housing industry.
EBIT decreased 44.2%, or $0.5 million, from $1.1 million in 2000 to
$0.6 million in 2001, due to the decrease in sales volume.
Wood Segment Discussion
Net sales in the wood segment decreased $4.9 million, or 14.0%, from
$35.1 million in 2000 to $30.2 million 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 $1.6
million in 2000 to a loss of $1.0 million in 2001. The decrease in operating
loss is due largely to depreciation expense being reduced by approximately
$300,000, 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
as discussed in Note 10 . 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 13.7%, or $7.3 million,
from $53.7 million in 2000 to $46.4 million in 2001. This decline is due to
reduced sales volume in the Recreational Vehicle industry.
Operating losses in this segment increased from a loss of $636,000
in 2000 to an operating loss of $1.7 million in 2001. This increase is due to
the decline in sales volume as well as several of the operating units in this
segment operating inefficiently. As a result of the performance of this segment,
the Company closed three operating units in this segment in 2001.
18
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 that began in September, 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. The
Company has commitment letters from its financial institutions to renew the
credit facility for a three year period on a secured basis. The Company does not
expect any problems or other significant changes with regards to the renewal of
this credit facility.
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's Board of Directors from time to time has authorized the
repurchase of shares of the Company's common stock, in the open market or
through negotiated transactions, at such times and at such prices as management
may decide.
The Company believes that cash generated from operations and
borrowings under its credit agreements will be sufficient to fund its working
capital requirements, normal recurring capital expenditures, and common stock
repurchase program as currently contemplated. The changes in inventory and
accounts receivable balances, which affect the Company's cash flows, are part of
normal business cycles that cause them to change periodically.
A summary of our contractual cash obligations at December 31, 2002 is
as follows:
---------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
---------------------------------------------------------------------------------------------
- --------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2003 2004 2005 2006 2007
- -------------------------------------- ---------------- --------------- -------------- --------------- --------------- -------------
---------------- --------------- -------------- --------------- --------------- -------------
Long-term debt, including interest $5,671,200 $1,235,850 $1,214,950 $1,194,050 $1,173,150 $853,200
at Variable rates**
---------------- --------------- -------------- --------------- --------------- -------------
Long-term debt, including interest $8,613,067 $3,046,392 $2,871,021 $2,695,654 $0 $0
at Fixed rates**
---------------- --------------- -------------- --------------- --------------- -------------
Operating Leases $3,492,678 $1,997,275 $942,876 $241,115 $198,738 $112,674
---------------- --------------- -------------- --------------- --------------- -------------
Total contractual cash obligations $17,776,945 $6,279,517 $5,028,847 $4,130,819 $1,371,888 $965,874
---------------- --------------- -------------- --------------- --------------- -------------
**Interest payments have been calculated using the fixed rate of 6.82% for the
Senior notes and the average 2002 annual interest rate of 1.90% for the
Industrial Revenue Bonds.
19
We also have a commercial commitment as described below:
- -------------------------------------- -------------------------------- ------------------------------- ----------------------------
OTHER COMMERCIAL TOTAL AMOUNT OUTSTANDING DATE OF
COMMITMENT COMMITTED AT 12/31/02 EXPIRATION
- -------------------------------------- -------------------------------- ------------------------------- ----------------------------
Revolving Credit Agreement $10,000,000 $0 April 30, 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 fiscal 2003.
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.
Our major operating assets are accounts receivable, inventory, and
property and equipment. Excluding the write-off of certain assets related to the
Oakwood Homes Corporation bankruptcy filing, we have not experienced significant
bad debts expense and our reserve for doubtful accounts of $300,000 should be
adequate for any exposure to loss in our December 31, 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 we have not identified any items that are impaired
for the year ended December 31, 2002.
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.
SALE OF PROPERTY
No material transactions.
PURCHASE OF PROPERTY
The Company purchased in 2002 a previously leased building complex
near its principal offices in Elkhart, Indiana for an appraised value of $2
million from a major shareholder and Chairman Emeritus of the Company.
INFLATION
The Company does not believe that inflation had a material effect on
results of operations for the periods presented.
20
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to interest rate
changes on its debt. Long term debt includes $7,714,288 of indebtedness bearing
interest at a fixed rate of 6.82%. The related maturities and interest are
reported in the contractual obligations table in Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth in Item 14 (a) 1.
on page 22 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item with respect to directors is
set forth in the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 15, 2003, under the caption "Election of
Directors," which information is hereby incorporated herein by reference. The
information with respect to executive officers is set forth at the end of Part I
of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 15, 2003,
under the caption "Compensation of Executive Officers and Directors," which
information is hereby incorporated herein by reference.
21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 15, 2003,
under the caption "Election of Directors," which information is hereby
incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
- --------------------------- ------------------------------- ------------------------------- ----------------------------------------
Plan Category Number of securities to be Weighted-average exercise Number of securities remaining available
issued upon exercise of price of outstanding options, for future issuance under equity
outstanding options, warrants, warrants, and rights compensation plans (excluding securities
and rights reflected in column (a)
- --------------------------- ------------------------------- ------------------------------- ----------------------------------------
Equity compensation plans 274,775 $6.24 462,280
approved by security
holders
- --------------------------- ------------------------------- ------------------------------- ----------------------------------------
Equity compensation plans 0 N/A 0
not approved by security
holders
- --------------------------- ------------------------------- ------------------------------- ----------------------------------------
Total 274,775 $6.24 462,280
- --------------------------- ------------------------------- ------------------------------- ----------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 15, 2003,
under the caption "Certain Transactions," which information is hereby
incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation within 90 days of the filing of this
report, that our disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports that we file or submit under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. There have been no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the previously mentioned evaluation.
22
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
(a) 1. FINANCIAL STATEMENTS
Independent auditor's report F-1
Consolidated Balance sheets -
December 31, 2002 and 2001 F-2
Consolidated Statements of operations-years
ended December 31, 2002, 2001, and 2000 F-3
Consolidated Statements of shareholders'
equity years ended December 31,
2002, 2001, 2000 F-4
Consolidated Statements of cash flows-
years ended December 31,
2002, 2001, and 2000 F-5
Notes to the financial statements F-6-21
(a) 2. FINANCIAL STATEMENT SCHEDULES
Independent auditor's report
on supplemental schedule & consent F-22
Schedule II - Valuation and qualifying
accounts and reserves F-23
All other schedules have been omitted as not required, not applicable,
not deemed material or because the information is included in the Notes to
Financial Statements.
(a) 3. EXHIBITS
The exhibits listed in the accompanying Exhibit Index on pages 50, 51,
and 52 are filed or incorporated by reference as part of this report.
(b) REPORTS ON FORM 8-K
November 21, 2002
Item 9. Regulation FD Disclosure
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the date indicated.
PATRICK INDUSTRIES, INC
By Harold E. Wyland
---------------------------
Harold E. Wyland, Chairman
of the Board
Pursuant to the Requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Title Date
Harold E. Wyland Chairman of the Board March 20, 2003
Harold E. Wyland and Director
David D. Lung President, Chief Executive March 20, 2003
David D. Lung Officer, and Director
Andy L. Nemeth Secretary-Treasurer, March 20, 2003
Andy L. Nemeth Chief Financial Officer
Mervin D. Lung Chairman Emeritus and March 20, 2003
Mervin D. Lung Director
Keith V. Kankel Director March 20, 2003
Keith V. Kankel
Thomas G. Baer Director March 20, 2003
Thomas G. Baer
John H. McDermott Director March 20, 2003
John H. McDermott
Robert C. Timmins Director March 20, 2003
Robert C. Timmins
Terrence D. Brennan Director March 20, 2003
Terrence D. Brennan
Walter E. Wells Director March 20, 2003
Walter E. Wells
Larry D. Renbarger Director March 20, 2003
Larry D. Renbarger
24
CERTIFICATIONS
--------------
I, David D. Lung, certify that:
1. I have reviewed this annual report on Form 10K of Patrick Industries,
Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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
annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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 March 20, 2003 /S/David D.Lung
--------------------- -------------------------------
David D. Lung
(President)
(Chief Executive Officer)
25
CERTIFICATIONS
- --------------
I, Andy L. Nemeth, certify that:
1. I have reviewed this annual report on Form 10K of Patrick Industries,
Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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
annual 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 annual report (the "Evaluation Date"); and
c. presented in this annual 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
annual 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 March 20, 2003 /S/Andy L. Nemeth
--------------------- ------------------------------
Andy L. Nemeth
(Secretary-Treasurer)
(Chief Financial Officer)
26
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 2002
CONTENTS
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
ON THE FINANCIAL STATEMENTS F-1
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheets F-2
Consolidated statements of operations F-3
Consolidated statements of shareholders' equity F-4
Consolidated statements of cash flows F-5
Notes to financial statements F-6-F-21
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
ON THE SUPPLEMENTARY INFORMATION F-22
- --------------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Schedule II - Valuation and qualifying
accounts and reserves F-23
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PATRICK INDUSTRIES, INC.
Elkhart, Indiana
We have audited the accompanying consolidated balance sheets of PATRICK
INDUSTRIES, INC. AND SUBSIDIARIES as of December 31, 2002 and 2001, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2002.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PATRICK INDUSTRIES,
INC. AND SUBSIDIARIES as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.
Elkhart, Indiana
January 24, 2003
F-1
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
- -------------------------------------------------------------------------------
2002 2001
- -------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 3,552,232 $ 5,914,283
Trade receivables 11,544,753 13,722,216
Inventories 32,091,945 28,625,747
Income tax refund claims receivable 1,592,551 3,046,799
Prepaid expenses 849,344 804,398
Deferred tax assets 1,981,000 2,014,000
------------------------------
Total current assets 51,611,825 54,127,443
Property and Equipment, net 31,916,597 34,633,449
Intangible and Other Assets 2,937,438 3,208,928
------------------------------
TOTAL ASSETS $86,465,860 $ 91,969,820
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 3,671,428 $ 3,671,428
Accounts payable 5,822,511 7,180,706
Accrued liabilities 3,552,574 4,192,487
------------------------------
Total current liabilities 13,046,513 15,044,621
Long-Term Debt, less current maturities 11,442,860 15,114,288
Deferred Compensation Obligations 2,176,577 2,226,390
Deferred Tax Liabilities 521,000 81,000
------------------------------
TOTAL LIABILITIES $27,186,950 $ 32,466,299
------------------------------
Commitments and Contingencies
Shareholders' Equity
Preferred stock, no par value; authorized
1,000,000 shares - -
Common stock, no par value; authorized
12,000,000 shares; issued 2002 4,584,261
shares; 2001 4,529,666 18,028,833 17,620,517
Retained earnings 41,250,077 41,883,004
------------------------------
TOTAL SHAREHOLDERS' EQUITY $59,278,910 $ 59,503,521
------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $86,465,860 $ 91,969,820
==============================
See Notes to Financial Statements.
F-2
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2002, 2001, and 2000
- ------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Net sales $308,754,982 $ 293,070,216 $ 361,620,206
Cost of goods sold 269,561,768 259,057,716 319,715,214
-----------------------------------------------------------
Gross profit 39,193,214 34,012,500 41,904,992
-----------------------------------------------------------
Operating expenses:
Warehouse and delivery 14,329,135 14,406,931 15,140,245
Selling, general, and administrative 23,546,020 24,926,575 25,240,711
Impairment charges - 2,833,987 6,937,163
Restructuring charges 269,180 423,617 717,598
-----------------------------------------------------------
Total operating expenses 38,144,335 42,591,110 48,035,717
-----------------------------------------------------------
Operating income (loss) 1,048,879 (8,578,610) (6,130,725)
Interest expense, net 891,259 961,800 1,224,145
-----------------------------------------------------------
Income (loss) before income
taxes (credits) 157,620 (9,540,410) (7,354,870)
Federal and state income taxes (credits) 63,100 (3,769,000) (2,821,000)
-----------------------------------------------------------
Net income (loss) $ 94,520 $ (5,771,410) $ (4,533,870)
===========================================================
Basic earnings (loss) per common share $ 0.02 $ (1.28) $ (0.89)
===========================================================
Diluted earnings (loss) per common share $ 0.02 $ (1.28) $ (0.89)
===========================================================
See Notes to Financial Statements.
F-3
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2002, 2001, and 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred Common Retained
Stock Stock Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ - $ 21,389,940 $ 58,177,205 $ 79,567,145
Net loss - - (4,533,870) (4,533,870)
Issuance of 24,000 shares of common stock for stock award plan - 156,000 - 156,000
Repurchase and retirement of 1,050,800 shares of common stock - (3,856,523) (4,270,321) (8,126,844)
Dividends on common stock ($.16 per share) - - (812,896) (812,896)
-----------------------------------------------------------
Balance, December 31, 2000 - 17,689,417 48,560,118 66,249,535
Net loss - - (5,771,410) (5,771,410)
Issuance of 24,000 shares of common stock for stock award plan - 170,640 - 170,640
Repurchase and retirement of 63,000 shares of common stock - (239,540) (182,417) (421,957)
Dividends on common stock ($.16 per share) - - (723,287) (723,287)
-----------------------------------------------------------
Balance, December 31, 2001 - 17,620,517 41,883,004 59,503,521
Net income - - 94,520 94,520
Issuance of 24,000 shares of common stock for stock award plan - 216,000 - 216,000
Issuance of 30,595 shares of common stock
upon exercise of common stock options - 192,316 - 192,316
Dividends on common stock ($.16 per share) - - (727,447) (727,447)
-----------------------------------------------------------
Balance, December 31, 2002 $ - $18,028,833 $41,250,077 $59,278,910
===========================================================
See Notes to Financial Statements.
F-4
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002, 2001, and 2000
- ------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income (loss) $ 94,520 $ (5,771,410) $ (4,533,870)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 6,295,388 7,512,286 8,237,025
Impairment charges - 2,833,987 6,937,163
Deferred income taxes 473,000 (1,163,000) (2,670,000)
(Gain)/Loss on sale of property and equipment 11,775 (66,581) (611,120)
Other 371,051 497,089 207,139
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables 2,177,463 559,458 4,217,011
Inventories (3,466,198) 2,312,207 11,101,394
Income tax refund claims receivable 1,454,248 (2,015,713) (1,031,086)
Prepaid expenses (44,946) (34,381) (106,828)
Increase (decrease) in:
Accounts payable and accrued liabilities (1,998,108) 545,601 (5,763,761)
Income taxes payable - 240,000 (404,725)
-------------------------------------------------------
Net cash provided by operating
activities 5,368,193 5,449,543 15,578,342
-------------------------------------------------------
Cash Flows From Investing Activities
Capital expenditures (4,186,726) (1,817,120) (3,806,938)
Proceeds from sale of property and equipment 904,599 540,193 748,552
Other 116,929 (23,270) 104,264
-------------------------------------------------------
Net cash (used in) investing
activities (3,165,198) (1,300,197) (2,954,122)
-------------------------------------------------------
Cash Flows From Financing Activities
Principal payments on long-term debt (3,671,428) (3,671,428) (3,671,428)
Payments on deferred compensation obligations (258,094) - -
Proceeds from exercise of common stock options 192,316 - -
Repurchase of common stock - (421,957) (7,986,836)
Cash dividends paid (727,447) (730,988) (851,450)
Other (100,393) (126,818) (84,560)
-------------------------------------------------------
Net cash (used in) financing
activities (4,565,046) (4,951,191) (12,594,274)
-------------------------------------------------------
Increase (decrease) in cash and
cash equivalents (2,362,051) (801,845) 29,946
Cash and cash equivalents, beginning 5,914,283 6,716,128 6,686,182
-------------------------------------------------------
Cash and cash equivalents, ending $ 3,552,232 $ 5,914,283 $ 6,716,128
=======================================================
See Notes to Financial Statements.
F-5
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS, USE OF ESTIMATES, RISKS AND UNCERTAINTIES, AND
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company's operations consist primarily of the manufacture and distribution
of building products and materials for use primarily by the Manufactured Housing
and Recreational Vehicle industries for customers throughout the United States.
Credit is generally granted on an unsecured basis for terms of 30 days.
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES:
The Company purchases significant amounts of inventory, which are commodities,
from a limited number of suppliers. The purchase price of such items can be
volatile as it is subject to prevailing market conditions, both domestically and
internationally. The Company's purchases of these items are based on supplier
allocations.
SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Patrick
Industries, Inc. and its wholly- owned subsidiaries, Harlan Machinery Company,
Inc., and Patrick Door, Inc., and its majority-owned subsidiary, Patrick
Mouldings, L.L.C. ("the Company"). During the year ended December 31, 2000,
Patrick Door, Inc. ceased operations and is not a consolidated subsidiary at
December 31, 2001. During the year ended December 31, 2002, Patrick Mouldings,
L.L.C. ceased operations. All significant inter-company accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS:
The Company has cash on deposit in financial institutions in amounts which, at
times, may be in excess of insurance coverage provided by the Federal Deposit
Insurance Corporation.
For purposes of the statement of cash flows, the Company considers all overnight
repurchase agreements and commercial paper with a maturity of 30 days or less
acquired in connection with its sweep account arrangements with its bank to be
cash equivalents.
F-6
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
TRADE RECEIVABLES:
Trade receivables are carried at original invoice amount less an estimate made
for doubtful receivables based on a review of all outstanding amounts on a
monthly basis. Management determines the allowance for doubtful accounts by
evaluating individual customer receivables and considering a customer's
financial condition, credit history, and current economic conditions. In
conjunction with the Company's credit terms, trade receivables are considered to
be past due if any portion of the receivable balance is outstanding for more
than 30 days. Trade receivables are written off when deemed uncollectible.
Recoveries of trade receivables previously written off are recorded when
received.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out (FIFO) method)
or market.
PROPERTY AND EQUIPMENT:
Property and equipment is recorded at cost. Depreciation has been computed
primarily by the straight- line method applied to individual items based on
estimated useful lives which generally range from 10 to 40 years for buildings
and improvements and from 3 to 15 years for machinery and equipment,
transportation equipment, and leasehold improvements.
LONG-LIVED AND INTANGIBLE ASSETS:
In accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
reviews its long-lived and intangible assets periodically to determine potential
impairment by comparing the carrying value of the long-lived and intangible
assets with the estimated future net undiscounted cash flows expected to result
from the use of the assets, including cash flows from disposition. Should the
sum of the expected future net cash flows be less than the carrying value, the
Company would recognize an impairment loss at that date. An impairment loss
would be measured by comparing the amount by which the carrying value exceeds
the fair value of the long-lived and intangible assets.
During the years ended December 31, 2001 and 2000, recorded goodwill was
considered to be impaired and was written off in accordance with SFAS 121 (see
Note 10).
F-7
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STOCK OPTION PLAN:
At December 31, 2002, the Company has a stock option plan with shares of common
stock reserved for options to key employees. The company accounts for those
plans under the recognition and measurement principles of APB Opinion # 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, no stock-based employee compensation cost has been recognized, as
all options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share had compensation
cost for the stock-based compensation plan been determined based on the grant
date fair value of awards (the method described in FASB Statement No. 123,
Accounting for Stock-Based Compensation):
2002 2001 2000
------------------------------------------------------------
Net income (loss):
As reported $ 94,520 $ (5,771,410) $ (4,533,870)
Deduct total stock-based employee
compensation expense determined under
fair value based method for all rewards
net of related tax effects (152,155) (150,699) (361,430)
------------------------------------------------------------
Pro forma $ (57,635) $ (5,922,109) $ (4,895,300)
============================================================
Basic earnings (loss) per share:
As reported $ 0.02 $ (1.28) $ (0.89)
Pro forma (0.01) (1.31) (0.96)
Diluted earnings (loss) per share:
As reported $ 0.02 $ (1.28) $ (0.89)
Pro forma (0.01) (1.31) (0.96)
REVENUE RECOGNITION:
The Company ships product based on specific orders from customers and revenue is
recognized upon delivery.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial statements.
F-8
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145, among other technical corrections, rescinds SFAS No's. 4 and 64
which required gains and losses from the early extinguishment of debt be
classified as extraordinary items in the statement of operations. This statement
is effective for fiscal years beginning after May 15, 2002 although early
application is encouraged. The Company does not believe that the adoption of
this pronouncement will have a material effect on its financial statements.
In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement requires the recognition of a
liability for a cost associated with an exit or disposal activity when the
liability is incurred versus the date the Company commits to an exit plan. In
addition, this Statement states the liability should be initially measured at
fair value. The Statement is effective for exit or disposal activities that are
initiated after December 31, 2002. The Company does not believe that the
adoption of this pronouncement will have a material effect on its financial
statements.
EARNINGS PER COMMON SHARE:
Following is information about the computation of the earnings per share data
for the years ended December 31, 2002, 2001, and 2000:
2002 2001 2000
------------------------------------------
Numerator for basic and diluted
earnings per share, net income (loss) $ 94,520 $ (5,771,410) $ (4,533,870)
==========================================
Denominator:
Weighted average shares, denominator
for basic earnings per share 4,547,075 4,523,891 5,118,103
Effect of dilutive potential common
shares, employee stock options (a) 66,821 - -
------------------------------------------
Denominator for diluted
earnings per share 4,613,896 4,523,891 5,118,103
==========================================
Basic earnings (loss) per share $ 0.02 $ (1.28) $ (0.89)
==========================================
Diluted earnings (loss) per share $ 0.02 $ (1.28) $ (0.89)
==========================================
(a) Due to the loss incurred during the years ended December 31, 2001
and 2000, 40,942 and 15,715 dilutive potential common shares,
respectively are not included because the effect would be
antidilutive.
F-9
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. BALANCE SHEET DATA
TRADE RECEIVABLES:
Trade receivables in the accompanying balance sheets at December 31, 2002 and
2001 are stated net of an allowance for doubtful accounts of $300,000 and
$175,000 respectively.
INVENTORIES: 2002 2001
------------------------------------
Raw materials $ 20,756,789 $ 15,908,710
Work in process 1,625,099 2,049,879
Finished goods 4,190,366 4,335,875
Materials purchased for resale 5,519,691 6,331,283
------------------------------------
$ 32,091,945 $ 28,625,747
====================================
PROPERTY AND EQUIPMENT:
Land and improvements $ 3,858,329 $ 3,508,329
Buildings and improvements 26,188,501 25,283,954
Machinery and equipment 56,263,774 56,737,001
Transportation equipment 1,772,221 1,950,731
Leasehold improvements 3,417,097 3,455,793
-------------------------------------
91,499,922 90,935,808
Less accumulated depreciation 59,583,325 56,302,359
-------------------------------------
$ 31,916,597 $ 34,633,449
=====================================
INTANGIBLE AND OTHER ASSETS:
Cash value of life insurance $ 2,433,000 $ 2,549,928
Other 504,438 659,000
-------------------------------------
$ 2,937,438 $ 3,208,928
=====================================
ACCRUED LIABILITIES:
Payroll and related expenses $ 951,320 $ 1,188,348
Property taxes 841,236 968,600
Group insurance 805,000 725,000
Other 955,018 1,310,539
-------------------------------------
$ 3,552,574 $ 4,192,487
=====================================
F-10
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. PLEDGED ASSETS AND LONG-TERM DEBT
Long-term debt at December 31, 2002 and 2001 is as follows:
2002 2001
-------------------------------
Senior Notes, insurance company $ 7,714,288 $ 10,285,716
Indiana Development Finance Authority Bonds 1,200,000 1,500,000
State of Oregon Economic Development Revenue Bonds 2,800,000 3,200,000
State of North Carolina Economic Development Revenue
Bonds 3,400,000 3,800,000
-------------------------------
15,114,288 18,785,716
Less current maturities 3,671,428 3,671,428
-------------------------------
$ 11,442,860 $ 15,114,288
===============================
The senior notes bear interest at a fixed rate of 6.82% and are unsecured. The
notes are due in annual principal installments of $2,571,428 and the final
installment is due September 15, 2005. This agreement requires that the Company
maintain a minimum level of tangible net worth.
The Indiana Development Finance Authority Bonds are payable in annual
installments of $300,000 plus interest at a variable tax exempt bond rate, set
periodically to enable the bonds to be sold at par (1.8% at December 31, 2002).
The final installment is due November 1, 2006. The bonds are collateralized by
real estate and equipment purchased with the bond funds and are backed by a bank
standby letter of credit totaling approximately $1,272,000.
The State of Oregon Economic Development Revenue Bonds are payable in annual
installments of $400,000 plus interest at a variable tax-exempt bond rate (1.8%
at December 31, 2002). The final installment is due December 1, 2009. The bonds
are collateralized by real estate and equipment purchased with the bond funds
and are backed by a bank standby letter of credit totaling approximately
$2,927,000.
The State of North Carolina Economic Development Revenue Bonds are payable in
annual installments of $400,000 plus quarterly interest payments at a variable
tax exempt bond rate (1.8% at December 31, 2002). Annual payments of $500,000
are due in each of the last two years with a final payment due August 1, 2010.
The bonds are collateralized by real estate and equipment purchased with the
bond funds and are backed by a bank standby letter of credit totaling
approximately $3,523,000.
The Company has an unsecured revolving credit agreement which allows borrowings
up to $10,000,000 or a borrowing base defined in the agreement and expires on
April 30, 2003. Interest on this note is at prime or the Eurodollar rate plus a
percentage based on the Company's cash flow. The Company pays .25% of the unused
portion of the revolving line. In addition, this agreement requires the Company
to, among other things, maintain minimum levels of tangible net worth, working
capital, and debt to net worth.
Aggregate maturities of long-term debt for the years ending December 31, 2003
and 2004 are $3,671,428; 2005 $3,671,432; 2006 $1,100,000; 2007 $800,000 and
thereafter $2,200,000.
F-11
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In addition, the Company is contingently liable for standby letters of credit of
approximately $2,300,000 to meet credit requirements for one of the Company's
insurance providers.
Based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the fair value of the long-term debt
instruments approximates their carrying value.
Interest expense for the years ended December 31, 2002, 2001, and 2000 was
approximately $1,035,000, $1,280,000, and $1,662,000, respectively.
NOTE 4. EQUITY TRANSACTIONS
SHAREHOLDER RIGHTS PLAN:
On February 29, 1996, the Company's Board of Directors adopted a shareholder
rights agreement, granting certain new rights to holders of the Company's common
stock. Under the agreement, one right was granted for each share of common stock
held as of March 20, 1996, and one right will be granted for each share
subsequently issued. Each right entitles the holder, in an unfriendly takeover
situation, and after paying the exercise price (currently $30), to purchase
Patrick common stock having a market value equal to two times the exercise
price. Also, if the Company is merged into another corporation, or if 50 percent
or more of the Company's assets are sold, then rightholders are entitled, upon
payment of the exercise price, to buy common shares of the acquiring
corporation's common stock having a then current market value equal to two times
the exercise price. In either situation, these rights are not available to the
acquiring party. However, these exercise features will not be activated if the
acquiring party makes an offer to acquire the Company's outstanding shares at a
price which is judged by the Board of Directors to be fair to all Patrick
shareholders. The rights may be redeemed by the Company under certain
circumstances at the rate of $.01 per right. The rights will expire on March 20,
2006. The Company has authorized 100,000 shares of preferred stock, Series A, no
par value, in connection with this plan, none of which have been issued.
REPURCHASE OF COMMON STOCK:
The Company's Board of Directors from time to time has authorized the repurchase
of shares of the Company's common stock, in the open market or through
negotiated transactions, at such times and at such prices as management may
decide.
NOTE 5. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company leases office, manufacturing, and warehouse facilities and certain
equipment under various noncancelable agreements, which expire at various dates
through 2004. These agreements contain various renewal options and provide for
minimum annual rentals plus the payment of real estate taxes, insurance, and
normal maintenance on the properties. Certain of the leases are with the
chairman emeritus/major shareholder and expire at various dates through October
31, 2004.
The total minimum rental commitment at December 31, 2002 under the leases
mentioned above is approximately $1,921,000 which is due approximately
$1,306,000 in 2003, and $615,000 in 2004.
F-12
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The total rent expense included in the statements of operations for the years
ended December 31, 2002, 2001, and 2000 is approximately $3,900,000, $4,300,000,
and $3,900,000 respectively, of which approximately $1,100,000 was paid in 2002,
and $1,300,000 was paid in both 2001 and 2000, to the chairman emeritus/major
shareholder.
In June 2002, the Company purchased a previously leased building complex near
its principal offices in Elkhart, Indiana for its appraised value of $2,000,000
from the chairman emeritus/major shareholder.
NOTE 6. MAJOR CUSTOMERS
Net sales for the years ended December 31, 2002, 2001, and 2000 included sales
to one customer accounting for 12.7%, 11.9%, and 14.4% respectively of total net
sales of the Company.
The balances due from this customer at December 31, 2002 and 2001 were
approximately $2,119,000 and $2,250,000 respectively.
NOTE 7. INCOME TAX MATTERS
Federal and state income taxes (credits) for the years ended December 31, 2002,
2001, and 2000, all of which are domestic, consist of the following:
2002 2001 2000
-----------------------------------------------------
Current:
Federal $ (233,900) $ (2,133,000) $ (120,000)
State (176,000) (473,000) (31,000)
Deferred 473,000 (1,163,000) (2,670,000)
-----------------------------------------------------
$ 63,100 $ (3,769,000) $ (2,821,000)
=====================================================
The provisions for income taxes (credits) for the years ended December 31, 2002,
2001, and 2000 are different from the amounts that would otherwise be computed
by applying a graduated federal statutory rate of 35% to income before income
taxes. A reconciliation of the differences is as follows:
2002 2001 2000
-------------------------------------------
Rate applied to pretax income $ 55,100 $ (3,339,000) $ (2,570,000)
State taxes, net of federal
tax effect 9,000 (572,000) (368,000)
Write off of nondeductible goodwill - - 121,000
Other (1,000) 142,000 (4,000)
-------------------------------------------
$ 63,100 $ (3,769,000) $ (2,821,000)
===========================================
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the current period plus or minus
the change during the period in deferred tax assets and liabilities.
F-13
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The composition of the deferred tax assets and liabilities at December 31, 2002
and 2001 is as follows:
2002 2001
-------------------------------------
Gross deferred tax liability,
Accelerated depreciation $ (2,057,000) $ (2,006,000)
-------------------------------------
Gross deferred tax assets:
Trade receivables allowance 119,000 69,000
Inventory capitalization 336,000 257,000
Accrued expenses 767,000 1,247,000
Deferred compensation 860,000 879,000
Unvested stock awards 197,000 149,000
Inventory reserves 18,000 2,000
AMT credit carryforward 115,000 100,000
State NOL carryforwards 600,000 -
Goodwill 276,000 1,046,000
Other 229,000 190,000
-------------------------------------
3,517,000 3,939,000
-------------------------------------
Net deferred tax assets $ 1,460,000 $ 1,933,000
=====================================
NOTE 8. SELF-INSURED PLANS
The Company has a self-insured health plan for its employees under which there
is both a participant stop loss and an aggregate stop loss based on total
participants. The Company is potentially responsible for annual claims not to
exceed approximately $3,100,000 in the aggregate at December 31, 2002. The
excess loss portion of the employees' coverage has been insured with a
commercial carrier.
The Company is partially self-insured for its workers' compensation liability.
The Company is responsible for a per occurrence limit, with an aggregate amount
not to exceed approximately $2,375,000 on an annual basis. The excess loss
portion of the employees' coverage has been insured with a commercial carrier.
The Company has accrued an estimated liability for these benefits based upon
claims incurred.
NOTE 9. COMPENSATION PLANS
DEFERRED COMPENSATION OBLIGATIONS:
The Company has deferred compensation agreements with certain key employees. The
agreements provide for monthly benefits for ten years subsequent to retirement,
disability, or death. The Company has accrued an estimated liability based upon
the present value of an annuity needed to provide the future benefit payments.
F-14
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
BONUS PLAN:
The Company pays bonuses to certain management personnel. Historically, bonuses
are determined annually and are based upon corporate and divisional income
levels. The charge to operations amounted to approximately $790,000, $540,000,
and $560,000 for the years ended December 31, 2002, 2001, and 2000 respectively.
PROFIT-SHARING PLAN:
The Company has a qualified profit-sharing plan, more commonly known as a 401(k)
plan, for substantially all of its employees with over one year of service and
who are at least 21 years of age. The plan provides for a matching contribution
by the Company as defined in the agreement and, in addition, provides for a
discretionary contribution annually as determined by the Board of Directors. The
amounts of contributions for the years ended December 31, 2002, 2001, and 2000
were immaterial.
STOCK OPTION PLAN:
A summary of transactions of granted shares under option for the years ended
December 31, 2002, 2001 and 2000 is as follows:
2002 2001 2000
------------------------------------------------------------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
------------------------------------------------------------------------------
Outstanding, beginning
of year 349,800 $6.25 452,500 $12.55 417,500 $14.13
Issued during the year - - 240,000 6.30 115,000 6.13
Canceled during the year (44,430) 6.24 (342,700) 14.62 (80,000) 11.50
Exercised during the year (30,595) 6.29 - - - -
------------------------------------------------------------------------------
Outstanding, end of year 274,775 $6.24 349,800 $ 6.25 452,500 $12.55
==============================================================================
Eligible, end of year for
exercise 182,856 $6.27 147,450 $ 6.27 84,375 $14.75
==============================================================================
Weighted average fair value
of options granted during
the year N/A N/A N/A $ 1.86 N/A $ 2.07
==============================================================================
F-15
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A further summary about fixed options outstanding at December 31, 2002 is as
follows:
Options Outstanding Options Exercisable
------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life Price Exercisable Price
------------------------------------------------------------------------
Exercise price of $6.13 92,900 7.5 $ 6.13 46,450 $ 6.13
========================================================================
Exercise price of $6.30 181,875 6.5 $ 6.30 136,406 $ 6.30
========================================================================
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following assumptions for 2002:
dividend rate of 2.25% for all years; risk-free interest rate of 5.25%; expected
lives of 5 years; and price volatility of 43%.
STOCK AWARD PLAN:
The Company has adopted a stock award plan for the non-employee directors.
Grants awarded during May 2002, 2001, and 2000 of 24,000 shares are subject to
forfeiture in the event the recipient terminates as a director within two years
from the date of grant. The related compensation expense is being recognized
over the two-year vesting period.
NOTE 10. ASSET IMPAIRMENTS AND RESTRUCTURINGS
During 2001 and 2000, the Company determined that asset impairment existed by
comparing the estimated future undiscounted cash flows of certain long
lived-assets with their respective carrying values. In 2001 impairment charges
were the result of two of the Company's divisions in the Other segment, which
were non-core business units, experiencing negative operating results as well as
lower projected sales volume levels due to the overall downturn in the
Manufactured Housing and Recreational Vehicle Industries. Accordingly, the
Company recorded a pre-tax charge to operations of approximately $2,834,000, of
which, approximately $186,000 related to the write-down of certain fixed assets
and $2,648,000 related to the write-down of goodwill. This charge approximated
$1,700,000 after tax or $.38 per share in 2001.
In 2000, continued losses in three divisions in the Company's Wood segment and
the overall decline in the Recreational Vehicle industry were the factors that
resulted in impairment. Additionally, in the Other segment, one of the operating
units, which was a startup operation, never achieved enough sales to support its
overhead structure, thus resulting in a test of impairment due to negative cash
flows. This division and two divisions in the Wood segment were subsequently
closed and consolidated. Accordingly, the Company recorded a pre-tax charge to
operations of approximately $6,937,000, of which $5,467,000 related to the
write-down of certain fixed assets and $1,470,000 related to the write-down of
goodwill. This charge approximated $4,283,000 after tax or $.84 per share in
2000.
F-16
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In June, 2002, the Company decided to close an unprofitable division in the Wood
segment and consolidate it into another existing plant location. Accordingly,
the Company recorded charges of approximately $269,000 which included plant shut
down expenses, the write-down of obsolete inventory, and severance payments of
approximately $62,000 to 51 employees. These restructuring charges approximated
$162,000 after tax, or $.04 per share and were all utilized in the third quarter
of 2002.
In 2001, restructuring charges were incurred from the decision to relocate two
manufacturing plants in the Other segment and consolidate them into existing
plant locations. The Company recorded charges of approximately $424,000 which
included the write-down of obsolete inventory, plant shut down expenses, and
severance payments of approximately $61,000 to 25 employees. These restructuring
charges approximated $254,000 after tax, or $.06 per share. The restructuring
reserve at December 31, 2001 was approximately $408,000, all of which was
utilized in the first quarter of 2002.
In 2000, restructuring charges were incurred from the decisions to close a
manufacturing plant in the Wood segment, moving manufacturing to other existing
plant locations, the merging of certain facilities in the Southeast to gain
operating efficiencies, and the closing of an unprofitable manufacturing
facility in the Other segment. The Company recorded charges of approximately
$718,000 related to the write-down of obsolete equipment, moving manufacturing
machinery, and severance payments of approximately $100,000 to 38 employees.
These restructuring charges approximated $431,000 after tax, or $.08 per share.
The restructuring reserve at December 31, 2000 was approximately $400,000, all
of which was utilized in the second quarter of 2001.
NOTE 11. CONTINGENCIES
The Company is subject to claims and suits in the ordinary course of business.
In management's opinion, current pending legal proceedings and claims against
the Company will not, individually or in the aggregate, have a material adverse
effect on the Company's financial condition, results of operations, or cash
flows.
NOTE 12. CASH FLOWS INFORMATION
Supplemental information relative to the statements of cash flows for the years
ended December 31, 2002, 2001, and 2000 is as follows:
2002 2001 2000
------------------------------------------------------------
Supplemental disclosures of cash
flows information:
Cash payments for:
Interest $ 875,059 $ 1,062,450 $ 1,275,745
============================================================
Income taxes $ 717,232 $ 125,234 $ 1,248,811
============================================================
Supplemental schedule of noncash
financing activities:
Issuance of common stock
for stock awardn $ 216,000 $ 170,640 $ 156,000
============================================================
F-17
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. UNAUDITED INTERIM FINANCIAL INFORMATION
Presented below is certain selected unaudited quarterly financial information
for the years ended December 31, 2002 and 2001 (dollars in thousands, except per
share data):
Quarter Ended
----------------------------------------------------------
March 31, June 30 September 30, December 31,
----------------------------------------------------------
2002
----------------------------------------------------------
Net sales $ 75,243 $ 82,567 $ 80,848 $ 70,097
Gross profit 9,736 10,855 10,350 8,252
Net income (loss) 270 636 153 (964) *
Earnings (loss) per common
share 0.06 0.14 0.03 (0.21)
Weighted average common
shares outstanding 4,529,770 4,544,015 4,556,136 4,557,970
* During the 4th quarter ended December 31, 2002, the Company wrote off
receivables of approximately $1,600,000 which had an impact of $.21 per
share, net of taxes.
Quarter Ended
-----------------------------------------------------------
March 31, June 30, September 30, December 31,
-----------------------------------------------------------
2001
-----------------------------------------------------------
Net sales $ 68,295 $ 78,908 $ 77,528 $ 68,339
Gross profit 7,085 10,086 9,176 7,666
Net income (loss) (1,748) 212 (729) (3,506)*
Earnings (loss) per common
share (0.39) 0.05 (0.16) (0.78)
Weighted average common
shares outstanding 4,517,977 4,518,062 4,529,666 4,529,666
* During the 4th quarter ended December 31, 2001, the Company recorded a
pretax impairment charge of approximately $2,834,000 which had an impact
of $.38 per share, net of taxes.
NOTE 14. SEGMENT INFORMATION
The Company has determined that its reportable segments are those that are based
on the Company's method of internal reporting, which segregates its business by
product category and production/ distribution process. 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.
F-18
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Distribution -- Distributes primarily pre-finished wall and ceiling panels,
drywall and drywall finishing products, particleboard, hardboard, vinyl
siding, roofing products, passage doors, building hardware, insulation, and
other products.
Wood -- Uses raw lumber including solid oak as well as other hardwood
materials or laminated particleboard or plywood to produce cabinet door
product lines.
Other -- Includes aluminum extrusion and fabricating, an adhesive division,
a pleated shade division, a plastic thermoforming division, and a machine
manufacturing division.
The accounting policies of the segments are the same as those described in
"Significant Accounting Policies," except as described below. Segment data
includes intersegment revenues, as well as a charge allocating a majority of the
corporate costs to each of its operating segments based on a percentage of
sales. Assets are identified with the segments with the exception of cash, land
and buildings, and intangibles which are identified with the corporate division.
The corporate division charges rents to the segment for use of the land and
buildings based upon market rates. The Company accounts for intersegment sales
as if the sales were to third parties, that is, at current market prices. The
Company also records income from purchase incentive agreements as corporate
division revenue. The Company evaluates the performance of its segments and
allocates resources to them based on a variety of indicators including revenues,
cost of goods sold, earnings before interest and taxes (EBIT), and total
identifiable assets.
The table below presents information about the net income (loss) and segment
assets used by the chief operating decision makers of the Company as of and for
the years ended December 31, 2002, 2001, and 2000.
Laminating Distribution Wood Other Total
--------------------------------------------------------------------------------
2002
--------------------------------------------------------------------------------
Sales $ 142,156 $ 107,376 $ 31,266 $ 27,957 $ 308,755
Sales, intersegment 6,707 758 732 9,633 17,830
--------------------------------------------------------------------------------
Total sales 148,863 108,134 31,998 37,590 326,585
Cost of goods sold 132,969 94,839 30,061 33,096 290,965
EBIT 2,530 1,847 (1,648) 240 2,969
Identifiable assets 33,609 10,357 5,207 5,614 54,787
Depreciation 2,461 250 626 627 3,964
F-19
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Laminating Distribution Wood Other Total
--------------------------------------------------------------------------------
2001
--------------------------------------------------------------------------------
Sales $ 127,092 $ 103,298 $ 29,256 $ 33,424 $ 293,070
Sales, intersegment 4,052 1,039 926 12,973 18,990
--------------------------------------------------------------------------------
Total sales 131,144 104,337 30,182 46,397 312,060
Cost of goods sold 119,702 92,500 27,657 42,181 282,040
EBIT (1,120) 619 (1,027) (1,730) (3,258)
Identifiable assets 30,324 12,561 5,323 8,318 56,526
Depreciation 2,644 343 647 1,201 4,835
2000
--------------------------------------------------------------------------------
Sales $ 156,525 $ 133,174 $ 34,050 $ 37,855 $ 361,604
Sales, intersegment 5,821 56 1,066 15,894 22,837
--------------------------------------------------------------------------------
Total sales 162,346 133,230 35,116 53,749 384,441
Cost of goods sold 146,538 120,534 32,735 47,763 347,570
EBIT 1,763 1,110 (1,596) (636) 641
Identifiable assets 32,368 13,177 6,132 11,486 63,163
Depreciation 2,668 457 947 1,384 5,456
A reconciliation of total segment sales, cost of goods sold, and EBIT to
consolidated sales, cost of goods sold, and segment information to the
consolidated financial statements as of and for the years ended December 31,
2002, 2001, and 2000 is as follows (dollars in thousands):
2002 2001 2000
------------------------------------------------------------
Sales:
Total sales for reportable segments $ 326,585 $ 312,060 $ 384,441
Elimination of intersegment revenue (17,830) (18,990) (22,821)
------------------------------------------------------------
Consolidated sales $ 308,755 $ 293,070 $ 361,620
============================================================
F-20
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2002 2001 2000
----------------------------------------------------------
Cost of goods sold:
Total cost of goods sold for reportable
segments $ 290,965 $ 282,040 $ 347,570
Elimination of intersegment cost of goods
sold (17,830) (18,990) (22,821)
Consolidation reclassifications (1,397) (1,535) (2,000)
Corporate incentive agreements (2,427) (2,286) (2,589)
Other 251 (171) (445)
------------------------------------------------------------
Consolidated cost of goods sold $ 269,562 $ 259,058 $ 319,715
============================================================
Earnings before interest and taxes (EBIT):
EBIT for reportable segments $ 2,969 $ (3,258) $ 641
Corporate incentive agreements 2,427 2,286 2,589
Consolidation reclassifications 131 21 (329)
Gain (loss) on sale of property
and equipment (12) 67 617
Impairment charge - (2,834) (6,937)
Restructuring charge (269) (424) (718)
(Underallocated) overallocated
corporate expenses (4,197) (4,437) (1,994)
------------------------------------------------------------
Consolidated EBIT $ 1,049 $ (8,579) $ (6,131)
============================================================
Consolidated assets:
Identifiable assets for reportable segments $ 54,787 $ 56,526 $ 63,163
Corporate property and equipment 22,235 22,586 23,764
Current assets not allocated to segments 6,703 9,917 9,694
Intangible and other assets not allocated
to segments 2,937 3,209 6,248
Consolidation eliminations (196) (268) (349)
------------------------------------------------------------
Consolidated assets $ 86,466 $ 91,970 $ 102,520
============================================================
Depreciation and amortization:
Depreciation for reportable segments $ 3,964 $ 4,835 $ 5,456
Corporate depreciation and amortization 2,331 2,677 2,781
------------------------------------------------------------
Consolidated depreciation and
amortization $ 6,295 $ 7,512 $ 8,237
============================================================
F-21
INDEPENDENT AUDITOR'S REPORT ON THE
SUPPLEMENTAL SCHEDULE AND CONSENT
To the Board of Directors
PATRICK INDUSTRIES, INC.
Elkhart, Indiana
Our audits of the consolidated financial statements of PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES included Schedule II, contained herein, for each of the years
in the three-year period ended December 31, 2002. Such schedule is presented for
purposes of complying with the Securities and Exchange Commission's rule and is
not a required part of the basic consolidated financial statements. In our
opinion, such schedule presents fairly the information set forth therein, in
conformity with generally accepted accounting principles.
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-04187) and in the related Prospectus of our
report, dated January 24, 2003, with respect to the consolidated financial
statements and schedule of PATRICK INDUSTRIES, INC. AND SUBSIDIARIES included in
this Annual Report on Form 10-K for the year ended December 31, 2002.
/s/ McGladrey & Pullen, LLP
Elkhart, Indiana
January 24, 2003
F-22
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
December 31, 2002, 2001, and 2000
===========================================================================================================================
Balance At Deductions Balance At
Beginning Charged To From Close
Of Period Operations Reserves Of Period
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts
- deducted from trade receiv-
ables in the balance sheets:
2000 $ 275,000 $ 641,676 $ 166,676 $ 750,000
==============================================================================
2001 $ 750,000 $ 196,195 $ 771,195 $ 175,000
==============================================================================
2002 $ 175,000 $ 1,762,297 $ 1,637,297 $ 300,000
==============================================================================
Allowance for restructuring
charges - in accrued
liabilities in the balance
sheets:
2000 $ - $ 714,598 $ 588,598 $ 126,000
==============================================================================
2001 $ 126,000 $ 423,617 $ 141,617 $ 408,000
==============================================================================
2002 $ 126,000 $ 269,180 $ 395,180 $ -
==============================================================================
F-23
INDEX TO EXHIBITS
Exhibit Number Exhibits
- -------------- --------
3(a) -Amended Articles of Incorporation of the Company as further
amended (filed as Exhibit 3(a) to the Company's Form 10-K/A-1
amending its report on Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by reference)
...........
3(b) -By-Laws of the Company (filed as Exhibit 3(b) to the
Company's Form 10-K/A-1 amending its report on Form 10-K for
the fiscal year ended December 31, 1992 and incorporated
herein by reference) ...........
3(c) - Preferred Share Purchase Rights Agreement (filed April 3,
1996 on Form 8-A and incorporated herein by
reference).........
10(a) -Second Amendment to February 2, 1994 Credit Agreement, dated
as of June 26, 1995 among the Company, NBD Bank, as agent,
and NBD Bank, N.A. (filed as Exhibit 10(a) to the Company's
Form 10-K for the fiscal year ended December 31, 1995 and
incorporated herein by reference) ...........
10(b) -Note Agreement, dated September 1, 1995, between the Company
and Nationwide Life Insurance Company (filed as Exhibit 10(b)
to the Company's Form 10-K for the fiscal year ended December
31, 1995 and incorporated herein by reference) ...........
10(c) -Commercial Lease and Option to Purchase dated as of October
1, 1995 between Mervin Lung Building Company, Inc., as
lessor, and the Company, as lessee (filed as Exhibit 10(c) to
the Company's Form 10-K for the fiscal year ended December
31, 1995 and incorporated herein by reference) ...........
10(d) -First Amendment to Credit Agreement, dated as of October 27,
1994 among the Company, NBD Bank, as agent, and NBD Bank,
N.A. (filed as Exhibit 10(a) to the Company's Form 10-K for
the fiscal year ended December 31, 1994 and incorporated
herein by reference) ...........
10(e) -Loan Agreement dated as of December 1, 1994 between the
State of Oregon Economic Development Commission, along with
the Pledge and Security Agreement relating thereto (filed as
Exhibit 10(b) to the Company's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference)
...........
10(f) -Credit Agreement dated as of February 2, 1994 among the
Company, NBD Bank, as agent, and NBD Bank, N.A. (filed as
Exhibit 10(a) to the Company's Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by reference)
...........
Exhibit Number Exhibits
- -------------- --------
10(g) -Loan Agreement dated as of November 1, 1991 between the
Company and the Indiana Development Finance Authority, along
with the Pledge and Security Agreement relating thereto
(filed as Exhibit 10(c) to the Company's Form 10-K/A-1
amending its report on Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by reference) .....
*10(h) -Patrick Industries, Inc. 1987 Stock Option Program, as
amended (filed as Exhibit 10(e) to the Company's Form 10-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference) ...........
*10(i) -Patrick Industries, Inc. 401(k) Employee Savings Plan
(filed as Exhibit 10(a) to the Company's Form 10-K for the
fiscal year ended December 31, 1993 and incorporated herein
by reference) ...........
*10(j) -Form of Employment Agreements with Executive Officers
(filed as Exhibit 10(e) to the Company's Form 10-K/A-1
amending its report on Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by reference) .....
*10(k) -Form of Deferred Compensation Agreements with Executive
Officers (filed as Exhibit 10(f) to the Company's Form
10-K/A-1 amending its report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by reference)
...........
10(l) -Commercial Lease and dated as of October 1, 1994 between
Mervin D. Lung, as lessor, and the Company, as lessee (filed
as Exhibit 10(k) to the Company's Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference) ...........
10(m) -Commercial Lease dated September 1, 1994 between Mervin D.
Lung Building Company, Inc., as lessor, and the Company, as
lessee (filed as Exhibit 10(l) to the Company's Form 10-K for
the fiscal year ended December 31, 1994 and incorporated
herein by reference) ...........
10(n) -Commercial Lease dated November 1, 1994 between Mervin D.
Lung Building Company, Inc., as lessor, and the Company, as
lessee (filed as Exhibit 10(m) to the Company's Form 10-K for
the fiscal year ended December 31, 1994 and incorporated
herein by reference) ...........
10(o) -Commercial Lease dated October 1, 1999 between Mervin D.
Lung, as lessor, and the Company, as lessee (filed as Exhibit
10(o) to the Company's Form 10-K for the fiscal year ended
December 31, 1999 and incorporated herein by reference)
..........
10(p) -Commercial Lease dated September 1, 2000 between Mervin D.
Lung Building Company, Inc., as lessor, and the Company, as
lessee (filed as Exhibit 10(p) to the Company's Form 10-K for
the fiscal year ended December 31, 2000 and incorporated
herein by reference)..........
Exhibit Number Exhibits
- -------------- --------
10(q) -Commercial Lease dated November 1, 2000 between Mervin D.
Lung Building Company, Inc., as lessor, and the Company, as
lessee (filed as Exhibit 10(q) to the Company's Form 10-K for
the fiscal year ended December 31, 2000 and incorporated
herein by reference)..........
10(r) -Credit Agreement dated as of January 28, 2000 among the
Company, Bank One, Indiana, N.A. (filed as Exhibit 10(r) to
the Company's Form 10-K for the fiscal year ended December
31, 2000 and incorporated herein by reference)..........
10(s) -Commercial Lease dated August 1, 2001 between Mervin
D. Lung Building Company, Inc., as lessor, and the company,
as lessee (filed as Exhibit 10(s) to the Company's Form 10-K
for the fiscal year ended December 31, 2001 and incorporated
herein by reference) ........
10(t)** -Commercial Lease dated October 1, 2002 between M. D. Lung,
Inc., as lessor, and the company, as lessee (filed as Exhibit
10(t) to the Company's Form 10-K for the fiscal year ended
December 31, 2002 and incorporated herein by
reference)..........
12** -Computation of Operating Ratios ...........
99.1** -Certification pursuant to 18 U.S.C. Section 1350.........
23 -Consent of accountants (included in Independent auditor's
report on supplemental schedule & consent on page F-21) .....
*Management contract or compensatory plan or arrangement
**Filed herewith