UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from..................to..................
Commission file number 0-3922
PATRICK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1057796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 South 14th Street, Elkhart, IN 46516
(Address of principal executive offices)
(ZIP Code)
(574) 294-7511
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark whether the registrant is an accelerated filer.
Yes No X
---- ----
Shares of Common Stock Outstanding as of April 30, 2003: 4,584,261.
1
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
Unaudited Condensed Balance Sheets
March 31, 2003 & December 31, 2002 3
Unaudited Condensed Statements of Operations
Three Months Ended March 31, 2003 & 2002 4
Unaudited Condensed Statements of Cash Flows
Three Months Ended March 31, 2003 & 2002 5
Notes to Unaudited Condensed Financial Statements 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
PART II: Other Information 14
Signatures 15
2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
(Unaudited)
MARCH 31 DECEMBER 31
2003 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,789,788 $ 3,552,232
Trade receivables 17,519,590 11,544,753
Inventories 31,906,271 32,091,945
Income tax refund claims receivable 1,053,500 1,592,551
Prepaid expenses 1,323,584 849,344
Deferred tax assets 1,981,000 1,981,000
----------- -----------
Total current assets 55,573,733 51,611,825
----------- -----------
PROPERTY AND EQUIPMENT, at cost 92,004,818 91,499,922
Less accumulated depreciation 60,583,258 59,583,325
----------- -----------
31,421,560 31,916,597
----------- -----------
INTANGIBLE AND OTHER ASSETS 2,751,382 2,937,438
----------- -----------
Total assets $89,746,675 $86,465,860
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,671,428 $ 3,671,428
Accounts payable 10,573,533 5,822,511
Accrued liabilities 3,462,304 3,552,574
----------- -----------
Total current liabilities 17,707,265 13,046,513
----------- -----------
LONG-TERM DEBT, less current maturities 11,442,860 11,442,860
----------- -----------
DEFERRED COMPENSATION OBLIGATIONS 2,174,765 2,176,577
----------- -----------
DEFERRED TAX LIABILITIES 226,224 521,000
Total liabilities $31,551,114 $27,186,950
----------- -----------
SHAREHOLDERS' EQUITY
Common stock 18,028,833 18,028,833
Retained earnings 40,166,728 41,250,077
----------- -----------
Total shareholders' equity 58,195,561 59,278,910
----------- -----------
Total liabilities and shareholders' equity $89,746,675 $86,465,860
=========== ===========
See accompanying notes to Unaudited Condensed Financial Statements
3
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31
2003 2002
NET SALES $ 67,285,080 $ 75,242,789
------------ ------------
COST AND EXPENSES
Cost of goods sold 60,213,755 65,506,487
Warehouse and delivery expenses 3,193,773 3,425,023
Selling, general, and administrative expenses 5,171,372 5,630,312
Interest expense, net 193,950 231,407
------------ ------------
68,772,850 74,793,229
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,487,770) 449,560
INCOME TAXES (CREDIT) (587,700) 179,800
------------ ------------
NET INCOME (LOSS) $ (900,070) $ 269,760
============ ============
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ (.20) $ .06
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,584,261 4,529,770
See accompanying notes to Unaudited Condensed Financial Statements
4
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
THREE MONTHS ENDED
MARCH 31
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (900,070) $ 269,760
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,442,114 1,658,442
(Gain) on sale of fixed assets (13,376) (3,666)
Deferred income taxes (294,776) - - -
Other 70,500 233,270
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables (5,974,837) (7,111,897)
Inventories 185,674 (187,223)
Income tax refund claims receivable 539,051 - - -
Prepaid expenses (474,240) 15,297
Increase (decrease) in:
Accounts payable and accrued liabilities 4,900,752 4,681,099
Income taxes payable (240,000) 235,658
----------- -----------
Net cash (used in) operating activities (759,208) (209,260)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (828,187) (391,580)
Proceeds from sale of fixed assets 16,370 31,152
Other 67,488 33,547
----------- -----------
Net cash (used in) investing activities (744,329) (326,881)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on deferred compensation (72,312) (58,812)
Proceeds from sale of common stock - - - 11,484
Cash dividends paid (183,279) (181,065)
Other (3,316) (2,900)
----------- -----------
Net cash (used In) financing activities (258,907) (231,293)
----------- -----------
(Decrease) in cash and cash equivalents (1,762,444) (767,434)
Cash and cash equivalents, beginning 3,552,232 5,914,283
----------- -----------
Cash and cash equivalents, ending $ 1,789,788 $ 5,146,849
=========== ===========
Cash Payments for:
Interest $ 323,250 $ 407,517
Income taxes 6,282 4,142
See accompanying notes to Unaudited Condensed Financial Statements.
5
PATRICK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position
as of March 31, 2003, and December 31, 2002, and the results of
operations and cash flows for the three months ended March 31, 2003 and
2002.
2. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed
or omitted. It is suggested that these condensed financial statements
be read in conjunction with the financial statements and notes thereto
included in Company's December 31, 2002 audited financial statements.
The results of operations for the three month periods ended March 31,
2003 and 2002 are not necessarily indicative of the results to be
expected for the full year.
3. The inventories on March 31, 2003 and December 31, 2002 consist of the
following classes:
March 31 December 31
2003 2002
----------- -----------
Raw materials $20,483,506 $20,756,789
Work in process 1,889,302 1,625,099
Finished goods 3,874,234 4,190,366
----------- -----------
Total manufactured goods 26,247,042 26,572,254
Distribution products 5,659,229 5,519,691
----------- -----------
TOTAL INVENTORIES $31,906,271 $32,091,945
=========== ===========
Inventories are stated at the lower of cost (first-in, first-out (FIFO)
method) or market.
4. Income (loss) per common share for the three months ended March 31,
2003 and 2002 have been computed based on the weighted average common
shares outstanding of 4,584,261 and 4,529,770 respectively. Stock
options outstanding are immaterial and had no effect on earnings per
share.
Dividends per common share for the three months ended March 31, 2003
and 2002 were $.04 per share.
5. The Company accounts for grants of stock options under its stock option
plan based on the recognition and measurement principles of APB Opinion
No. 25 and related interpretations. The following table illustrates the
effect on net income and earnings per share if the Company had applied
the fair value recognition provision of FASB Statement No. 123 to stock
based employee compensation:
Three Months Ended March 31
2003 2002
-------------------------------------
Net income (loss):
As reported $ (900,070) $ 269,760
Deduct total stock-based employee
compensation expense determined
under fair value based method for
all rewards net of related tax effects (38,039) (37,675)
-------------------------------------
Pro forma $ (938,109) $ 232,085
=====================================
Basic earnings (loss) per share:
As reported $ (0.20) $ 0.06
Pro forma (0.20) 0.05
Diluted earnings (loss) per share:
As reported $ (0.20) $ 0.06
Pro forma (0.20) 0.05
6. The Company's reportable segments are as follows:
6
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, an adhesive division, a
pleated shade division, and a machine manufacturing division.
The table below presents unaudited information about the revenue and operating
income of those segments:
THREE MONTHS ENDED MARCH 31, 2003
---------------------------------
Laminating Distribution Wood Other Segment Total
---------- ------------ ---- ----- -------------
Net outside sales $33,227,540 $20,161,779 $6,724,142 $7,171,619 $67,285,080
Intersegment sales 1,721,582 206,390 108,808 1,892,135 3,928,915
----------- ----------- ---------- ---------- -----------
Total sales $34,949,122 $20,368,169 $6,832,950 $9,063,754 $71,213,995*
----------- ----------- ---------- ---------- -----------
EBIT (loss)** (98,923) 57,355 (803,121) (20,046) (864,735)
Total assets $34,826,912 $10,859,332 $5,232,903 $7,268,770 $58,187,917
THREE MONTHS ENDED MARCH 31, 2002
---------------------------------
Net outside sales $34,364,744 $25,645,520 $8,242,519 $6,990,006 $75,242,789
Intersegment sales 1,584,646 198,420 194,678 2,532,834 4,510,578
----------- ----------- ---------- ---------- -----------
Total sales $35,949,390 $25,843,940 $8,437,197 $9,522,840 $79,753,367*
----------- ----------- ---------- ---------- -----------
EBIT (loss)** $ 1,123,190 $ 107,700 $ (15,415) $ 87,793 $ 1,303,268
Total assets $32,892,571 $13,787,582 $6,139,067 $7,721,635 $60,540,855
Reconciliation of segment operating income to consolidated operating income
2003 2002
EBIT** for segments $ (864,735) $1,303,268
Corporate incentive agreements 306,019 413,901
Consolidation reclassifications 54,036 41,515
Gain on sale of property
and equipment 13,376 3,666
Unallocated corporate expenses (812,135) (830,514)
Other 9,619 (250,869)
Consolidated EBIT** $ (1,293,820) $ 680,967
*Does not agree to Financial Statements due to consolidation eliminations.
**Earnings (loss) before interest and taxes
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
After coming off a fairly positive 2002 year, with the exception of a
few items including the Oakwood Homes Corporation bankruptcy filing, the three
month period ended March 31, 2003 was a difficult quarter for the Company.
Conditions in the Manufactured Housing and Recreational Vehicle Industries,
which represent approximately 72% of the Company's sales at March 31, 2003 and
are the primary industries to which the Company serves, continued to be affected
by the stagnant economy and the events in the Middle East. The Company's sales
for the first quarter of 2003 were off more than 10.5% and significant
competitive pricing situations in these two industries resulted in higher cost
of goods sold and reduced gross profits.
The Manufactured Housing Industry continued to struggle with problems
related to high repossessed inventory levels and the lack of available financing
alternatives. Shipments in this industry for the first quarter of 2003 are down
more than 26% from the 2002 levels and more than 65% from the levels attained in
the first quarter of 1999, which was a near record shipment year for the
industry and a record sales year for the Company. Current twelve month shipment
estimates for calendar 2003 are projected at between 145,000 and 155,000 units,
which indicates a range of continued decline between 8% and 14% down from the
2002 levels.
The Recreational Vehicle Industry saw January shipments come in at
levels more than 18% ahead of those achieved in 2002. As conflict in the Middle
East became more evident, consumer confidence declined and shipments for
February and March, 2003 tailed off resulting in an approximate 8% growth in
shipments from the levels attained in the first quarter of 2002. Overall
consumer confidence rebounded in April providing Recreational Vehicle
manufacturers with hope that the year may still reach shipment levels between
10% and 15% ahead of 2002.
The Company continued its efforts with regards to diversifying into the
Industrial and Other markets where longer production runs contribute to
increased operating efficiencies and improved gross margins as well as reducing
the Company's reliance on the Manufactured Housing and Recreational Vehicle
Industries.
While conditions in these industries are uncertain at the present time,
the Company has continued to make significant cost cutting measures in order to
keep costs aligned with revenues and operate more efficiently at these reduced
volumes. These efforts are ongoing as are efforts related to strategic sales
growth, new product introductions, and potential acquisitions in order to grow
the business and further allow the Company to position itself to take advantage
of a rebound in the industries to which it serves.
The following table sets forth the percentage relationship to net sales
of certain items in the Company's Statements of Operations:
Quarter Ended
March 31,
2003 2002
Net sales 100.0% 100.0%
Cost of sales 89.5 87.1
Gross profit 10.5 12.9
Warehouse and delivery 4.7 4.6
Selling, general & administrative 7.7 7.5
Operating income (loss) (1.9) 0.9
Income taxes (credits) (0.9) 0.2
Net income (loss) (1.3) 0.4
RESULTS OF OPERATIONS
Quarter Ended March 31, 2003 Compared to Quarter Ended March 31, 2002
Net Sales. Net sales decreased approximately $7.9 million, or 10.6%,
from $75.2 million for the quarter ended March 31, 2002 to $67.3 million for the
quarter ended March 31, 2003. This decrease is attributable to an approximate
26% decrease in units shipped in the Manufactured Housing Industry, which
represents approximately 39% of the Company's sales. Shipments in the
Recreational Vehicle Industry, which represents an additional 33% of the
Company's sales, were up more than 7% and helped to offset the continued
declines experienced by the Manufactured Housing Industry. The Company continued
its penetration into the Industrial and Other markets, which represent the
remaining 28% of the first quarter 2003 net sales.
8
Gross Profit. Gross profit decreased approximately $2.6 million, or
27.4%, from $9.7 million in 2002 to $7.1 million in 2003. As a percentage of net
sales, gross profit decreased by approximately 2.4%. Significant competitive
pricing pressures have forced the Company to reduce selling prices resulting in
decreased margins. Additionally, certain fixed costs have remained constant in
this period of declining sales volume.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
decreased approximately $0.2 million, from $3.4 million for the first quarter of
2002 to $3.2 million in the same period in 2003. As a percentage of net sales,
warehouse and delivery expenses increased slightly from 4.6% in 2002 to 4.7% in
2003. The Company has continued to reduce its fleet size from the previous year
as well as gaining operating efficiencies by consolidating shipments and
attempting to ship more full truckloads. These efforts have been offset by
increased gasoline prices and delivery surcharges from the trucking companies.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased by $0.4 million, or 8.2%, from $5.6 million in
the quarter ending March 31, 2002 to $5.2 million for the quarter ending March
31, 2003. As a percentage of net sales, selling, general, and administrative
expenses increased 0.2%, from 7.5% the first quarter of 2002 to 7.7% in the
first quarter of 2003. The decreases in dollars is attributable to the Company
continuing to make significant strategic cost cutting measures resulting in
reduced fixed expenses. These efforts are ongoing and continue to be a priority
for the Company to keep costs aligned with revenues.
Operating Income (Loss). The Company experienced an operating loss of
$1.3 million in the first quarter of 2003 compared to operating income of $0.7
million in the first quarter of 2002. The decrease in operating income is due to
the factors described above.
Interest Expenses, Net. Interest expense, net of interest income
decreased 16.2%, or $37,000, from $231,000 in the first quarter of 2002 to
$194,000 in the first quarter of 2003. The decrease is attributable to lower
long term debt levels and a corresponding decrease in interest rates on the
variable rate debt from the previous year.
Net Income (Loss). The Company reported a net loss of $0.9 million in
the first quarter of 2003 compared to net income of $0.3 million for the first
quarter of 2002. The decrease in net income is attributable to the factors
described above.
Quarter Ended March 31, 2002 Compared to Quarter Ended March 31, 2001
Net Sales. Net sales increased $6.9 million, or 10.2%, from $68.3
million for the quarter ended March 31, 2001 to $75.2 million for the quarter
ended March 31, 2002. This increase is attributable to an approximate 8%
increase in units shipped in the Recreational Vehicle industry coupled by a
change in the sales mix of core industries to which the Company supplies. The
Company's sales to the Manufactured Housing, Recreational Vehicle, and other
industries was 47%, 28%, and 25%, respectively, for the quarter ended March 31,
2002. At December 31, 2001 the Company's sales to these industries was 51%, 24%,
and 25%, respectively.
Gross Profit. Gross profit increased by approximately $2.6 million, or
37.4%, from $7.1 million in 2001 to $9.7 million in 2002. As a percentage of net
sales, gross profit increased approximately 2.5%. The increase in gross profit
is due to increased sales as well as the Company making significant strategic
cost cutting measures in 2000 and 2001, including plant closings and
consolidations, eliminating low margin business, and certain fixed overhead
expenses.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
remained constant at $3.4 million for the quarters ending March 31, 2002 and
2001. As a percentage of net sales, warehouse and delivery expenses decreased
0.4%, from 5.0% in the first quarter of 2001 to 4.6% in the first quarter of
2002. The decrease, as a percentage of net sales, is attributable to increased
sales levels which has allowed the Company to ship more full truckloads than in
the previous year and a reduction in the fleet size that the Company owns or
leases.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased by $0.7 million, or 11.3%, from $6.3 million
in the quarter ending March 31, 2001 to $5.6 million for the quarter ending
March 31, 2002. As a percentage of net sales, selling, general, and
administrative expenses decreased 1.8%, from 9.3% the first quarter of 2001 to
7.5% in the first quarter of 2002. The decreases in both dollars and as a
percentage of net sales is due to the Company making significant strategic cost
cutting measures in 2001 which has reduced the fixed portion of these expenses.
9
Operating Income (Loss). The Company experienced operating income of
$0.7 million in the first quarter of 2002 compared to an operating loss of $2.7
million in the first quarter of 2001. The increase in operating income is due to
the factors described above.
Interest Expense, Net. Interest expense, net of interest income
decreased 2.7%, or $7,000 from $238,000 in the first quarter of 2001 to $231,000
in the first quarter of 2002. The slight change represents a decrease in
interest expense due to lower long term debt levels and a corresponding decrease
in interest income due to the declining interest rates over the past year on
funds invested.
Net Income (Loss). The Company had net income of $0.3 million for the
first quarter of 2002 compared to a net loss of $1.7 million in the first
quarter of 2001. The increase in net income is attributable to the factors
described above.
BUSINESS SEGMENTS
Quarter Ended March 31, 2003 Compared to Quarter Ended March 31, 2002
Laminating Segment Discussion
Net sales decreased by 2.8%, or $1.0 million, from $35.9 million in
quarter ended March 31, 2002 to $34.9 million in the same period in 2003. This
decrease is attributable to the approximate 26% decrease in units shipped in the
Manufactured Housing Industry coupled with an increase in shipments in the
Recreational Vehicle Industry of approximately 8%. Additionally, increased
penetration into the Industrial and Other markets has helped to offset the
continued declines in the Manufactured Housing Industry.
EBIT decreased $1.2 million from an income of $1.1 million in the first
quarter of 2002 to a loss of $0.1 million in the first quarter of 2003. This
decrease is attributable to significant competitive pricing pressures forcing
certain operations in this segment to reduce selling prices resulting in lower
gross margins.
Distribution Segment Discussion
Net sales decreased $5.5 million, or 21.2%, from $25.8 million in the
first quarter of 2002 to $20.3 million in the first quarter of 2003. This
decrease is attributable to an approximate 26% decrease in shipments in the
Manufactured Housing Industry, which is the primary market this segment serves.
EBIT decreased $50,000, from income of $108,000 in the first quarter of
2002 to income of $58,000 in the first quarter of 2003. The decrease in
operating income is due to reduced sales volume.
Wood Segment Discussion
Net sales decreased $1.6 million, or 19%, from $8.4 million in the
first quarter of 2002 to $6.8 million in the first quarter of 2003. This
decrease is attributable to the closing of one of the business units in this
segment in 2002.
The operating loss in this segment increased from a loss of $15,000 in
the first quarter of 2002 to a loss of $800,000 in the first quarter of 2003.
Production inefficiencies and labor problems continue to plague one of the
operating units in this segment, which was profitable in the first quarter of
2002, as a result of a change in raw material required by one of its major
customers which occurred in the fourth quarter of 2002. Losses are expected to
continue through at least the second quarter while the Company strategically
moves away from the use of this product at the expense of reduced sales volume.
Additionally, another operating unit in this segment continues to post losses as
a result of not having enough sales volume to cover the overhead expenses
associated with its operating facility.
10
Other Segment Discussion
Net sales in the Other segment decreased 4.8%, or $0.4 million, from
$9.5 million in the quarter ending March 31, 2002 to $9.1 million in the quarter
ending March 31, 2003. This decline is due to the decrease in units shipped in
the Manufactured Housing Industry of more than 26% from the first quarter of
2002 to the first quarter of 2003.
Operating income in this segment decreased from an income of $88,000 in
the first quarter of 2002 to an operating loss of $20,000 in the first quarter
of 2003. This decrease is attributable to reduced margins as a result of
decreased sales volume in certain operating units in this segment.
Quarter Ended March 31, 2002 Compared to Quarter Ended March 31, 2001
Laminating Segment Discussion
Net sales increased by 12.0%, or $3.8 million, from $32.1 million in
quarter ended March 31, 2001 to $35.9 million in the same period in 2002. This
increase is attributable to the approximate 8% increase in units shipped in the
Recreational Vehicle industry coupled with an increase in sales as a result of
consolidating certain business units into this segment in 2001.
EBIT increased $1.5 million from a loss of $0.4 million in the first
quarter of 2001 to income of $1.1 million in the first quarter of 2002. This
increase is attributable to increased sales as well as the strategic cost
cutting measures that the Company took in 2000 and 2001.
Distribution Segment Discussion
Net sales increased $3.7 million, or 16.6%, from $22.2 million in the
first quarter of 2001 to $25.8 million in the first quarter of 2002. This
increase is due to an increase in sales in the southeast region of the
Manufactured Housing industry.
EBIT increased $141,000 from a loss of $33,000 in the first quarter of
2001 to income of $108,000 in the first quarter of 2002. This increase is due to
the increased sales volume and lower operating expenses compared to the first
quarter of 2001.
Wood Segment Discussion
Net sales increased $724,000, or 9.4%, from $7.7 million in the first
quarter of 2001 to $8.4 million in the first quarter of 2002. This increase is
consistent with the overall increase in the Recreational Vehicle industry, which
is the primary industry to which this segment serves.
The operating loss in this segment decreased from a loss of $125,000 in
the first quarter of 2001 to a loss of $15,000 in the first quarter of 2002. The
Company has made significant strides in the improvement of certain operating
divisions in this segment, however, certain other divisions in this segment have
experienced operating inefficiencies causing them to be unprofitable. The
results from these unprofitable divisions have mitigated the overall positive
results of the segment.
Other Segment Discussion
Net sales in the Other segment decreased 10.3%, or $1.1 million, from
$10.6 million in the quarter ending March 31, 2001 to $9.5 million in the
quarter ending March 31, 2002. This decline is due to the closing and
consolidation of one division in the first quarter of 2001 and two divisions in
the 4th quarter of 2001 in this segment.
Operating income in this segment increased from a loss of $852,000 in
the first quarter of 2001 to operating income of $88,000 in the first quarter of
2002. This increase is attributable to the closing and consolidation of three
unprofitable divisions in this segment in 2001.
11
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 a secured bank revolving credit agreement that
provides loan availability of $10,000,000 with maturity in the year 2006.
Pursuant to the private placement and the Credit Agreement, the
Company is required to maintain certain financial ratios, all of which are
currently complied with.
The Company believes that cash generated from operations and
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 remaining at March 31,
2003 and for the twelve month periods ending 2004 through 2007 is as follows:
--------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------------------------------
- ---------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2003 2004 2005 2006 2007
- --------------------------------------- -------------- -------------- --------------- --------------- -------------- ---------------
-------------- -------------- --------------- --------------- -------------- ---------------
Long-term debt, including interest
at variable rates** $5,636,050 $1,200,700 $1,214,950 $1,194,050 $1,173,150 $853,200
-------------- -------------- --------------- --------------- -------------- ---------------
Long-term debt, including interest
at fixed rates** $8,481,539 $2,914,864 $2,871,021 $2,695,654 $0 $0
-------------- -------------- --------------- --------------- -------------- ---------------
Operating Leases $2,997,156 $1,451,056 $984,229 $250,461 $198,736 $112,674
-------------- -------------- --------------- --------------- -------------- ---------------
Total contractual cash obligations $17,114,745 $5,566,620 $5,070,200 $4,140,165 $1,371,886 $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.
We also have a commercial commitment as described below:
- ------------------------ ------------------ ------------------ -----------------
OTHER COMMERCIAL TOTAL AMOUNT OUTSTANDING DATE OF
COMMITMENT COMMITTED AT 03/31/03 EXPIRATION
- ------------------------ ------------------ ------------------ -----------------
Line of Credit $10,000,000 $0 May 31, 2006
- ------------------------ ------------------ ------------------ -----------------
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.
12
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. Exclusive of the write-off of certain assets related to
the Oakwood Homes Corporation bankruptcy filing in November, 2002, we have not
experienced significant bad debts losses and our reserve for doubtful accounts
of $300,000 should be adequate for any exposure to loss in our March 31, 2003
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 quarter ended March 31, 2003.
SEASONALITY
Manufacturing operations in the Manufactured Housing and Recreational
Vehicle Industries historically have been seasonal and are generally at the
highest levels when the climate is moderate. Accordingly, the Company's sales
and profits are generally highest in the second and third quarters.
INFLATION
The Company does not believe that inflation had a material effect on
results of operations for the periods presented.
SAFE HARBOR STATEMENT
Statements that do not address historical performance are
"forward-looking statements" within the meaning of the Private Securities
Litigation reform Act of 1995 and are based on a number of assumptions,
including but not limited to; (1) continued domestic economic growth and demand
for the Company's products; and (2) the Company's belief with respect to its
capital expenditures, seasonality and inflation. Any developments significantly
deviating from these assumptions could cause actual results to differ materially
from those forecast or implied in the aforementioned forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 the Liquidity and Capital Resources section
of this report.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded,
based on their evaluation within 90 days of the filing date of this report, that
our disclosure controls and procedures are effective for gathering, analyzing,
and disclosing the information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934. There have been no significant
changes in our internal controls or in the other factors that could
significantly affect these controls subsequent to the date of the previously
mentioned evaluation.
13
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer and Chief
Financial Officer
(b) Reports on Form 8-K
April 29, 2003
Item 9. Regulation FD Disclosure
Press Release dated April 24, 2003
announcing first quarter 2003 earnings
14
SIGNATURES
Pursuant to the requirements 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.
PATRICK INDUSTRIES, INC.
(Company)
Date May 12, 2003 /S/Harold E. Wyland
------------------------------ -------------------------
Harold E. Wyland
(Chairman of the Board)
Date May 12, 2003 /S/David D. Lung
------------------------------ -------------------------
David D. Lung
(President)
(Chief Executive Officer)
Date May 12, 2003 /S/Andy L. Nemeth
------------------------------ -------------------------
Andy L. Nemeth
(Secretary-Treasurer)
(Chief Financial Officer)
CERTIFICATIONS
--------------
I, David D. Lung, certify that:
1. I have reviewed this quarterly report on Form 10Q of Patrick
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in
this quarterly report;
4. The Company's Chief Financial Officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Company's Chief Financial Officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the Audit
Committee of the Company's Board of Directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize, and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's
internal controls;
6. The Company's Chief Financial Officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date May 12 , 2003 /S/David D. Lung
-------------- -------------------------
David D. Lung
(President)
(Chief Executive Officer)
CERTIFICATIONS
--------------
I, Andy L. Nemeth, certify that:
1. I have reviewed this quarterly report on Form 10Q of Patrick
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in
this quarterly report;
4. The Company's Chief Executive Officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Company's Chief Executive Officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the Audit
Committee of the Company's Board of Directors (or persons performing
the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize, and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's
internal controls;
6. The Company's Chief Executive Officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date May 12 , 2003 /S/Andy L. Nemeth
-------------- -------------------------
Andy L. Nemeth
(Secretary-Treasurer)
(Chief Financial Officer)