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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 3, 2003: 4,616,886
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART 1: Financial Information
ITEM 1: Financial Statements
Unaudited Condensed Balance Sheets
September 30, 2003 & December 31, 2002 3
Unaudited Condensed Statements of Operations
Three Months Ended September 30, 2003 & 2002, and
Nine Months Ended September 30, 2003 & 2002 4
Unaudited Condensed Statements of Cash Flows
Nine Months Ended September 30, 2003 & 2002 5
Notes to Unaudited Condensed Financial Statements 6
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk 19
ITEM 4: Controls and Procedures 19
PART II: Other Information 20
Signatures 21
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
(Unaudited)
SEPTEMBER 30 DECEMBER 31
2003 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,396,358 $ 3,552,232
Trade receivables 18,585,667 11,544,753
Inventories 28,958,628 32,091,945
Income tax refund claims receivable 285,298 1,592,551
Prepaid expenses 1,137,482 849,344
Deferred tax assets 1,981,000 1,981,000
----------- -----------
Total current assets 56,344,433 51,611,825
----------- -----------
PROPERTY AND EQUIPMENT, at cost 91,402,945 91,499,922
Less accumulated depreciation 60,999,200 59,583,325
----------- -----------
30,403,745 31,916,597
----------- -----------
INTANGIBLE AND OTHER ASSETS 2,618,682 2,937,438
----------- -----------
Total assets $89,366,860 $86,465,860
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,671,428 $ 3,671,428
Accounts payable 10,990,678 5,822,511
Accrued liabilities 5,127,238 3,552,574
----------- -----------
Total current liabilities 19,789,344 13,046,513
----------- -----------
LONG-TERM DEBT, less current maturities 8,471,431 11,442,860
----------- -----------
DEFERRED COMPENSATION OBLIGATIONS 2,171,141 2,176,577
----------- -----------
DEFERRED TAX LIABILITIES 279,200 521,000
----------- -----------
Total liabilities $30,711,116 $27,186,950
----------- -----------
SHAREHOLDERS' EQUITY
Common stock 18,236,386 18,028,833
Retained earnings 40,419,358 41,250,077
----------- -----------
Total shareholders' equity 58,655,744 59,278,910
----------- -----------
Total liabilities and shareholders' equity $89,366,860 $86,465,860
=========== ===========
See accompanying Notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2003 2002 2003 2002
NET SALES $ 70,267,568 $ 80,848,100 $ 208,502,593 $ 238,657,632
------------- ------------- ------------- -------------
COST AND EXPENSES
Cost of goods sold 61,358,268 70,498,170 183,960,275 207,717,224
Warehouse and delivery expenses 3,203,555 3,842,407 9,593,305 10,901,430
Selling, general, and administrative expenses 4,918,198 6,057,691 15,222,977 17,299,366
Restructuring charges 235,000 - - - 235,000 269,180
Interest expense, net 177,087 195,232 561,176 705,982
------------- ------------- ------------- -------------
69,892,108 80,593,500 209,572,733 236,893,182
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 375,460 254,600 (1,070,140) 1,764,450
INCOME TAXES (CREDIT) 148,300 101,600 (422,700) 705,600
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 227,160 $ 153,000 $ (647,440) $ 1,058,850
============= ============= ============= =============
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ .05 $ .03 $ (.14) $ .23
============= ============= ============= =============
DIVIDENDS PER SHARE $ .00 $ .04 $ .04 $ .12
============= ============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,611,037 4,556,136 4,595,306 4,543,404
See accompanying Notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (647,440) $ 1,058,850
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,309,083 4,802,106
(Gain) on sale of fixed assets (272,330) (9,111)
Deferred income taxes (241,800) (467,839)
Other 211,500 375,308
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables (7,040,914) (9,103,928)
Inventories 3,133,317 (7,568,577)
Income tax refund claims receivable 1,307,253 3,046,799
Prepaid expenses (288,138) 174,721
Increase (decrease) in:
Accounts payable and accrued liabilities 6,982,831 9,250,986
Income taxes payable (240,000) 289,264
----------- -----------
Net cash provided by operating activities 7,213,362 1,848,579
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,490,903) (3,248,259)
Proceeds from sale of fixed assets 1,271,767 47,218
Other 102,411 118,770
----------- -----------
Net cash (used in) investing activities (2,116,725) (3,082,271)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (2,971,429) (2,971,428)
Payments of deferred compensation (216,936) (186,820)
Proceeds from sale of common stock 128,953 15,128
Cash dividends paid (183,279) (545,298)
Other (9,820) (9,901)
----------- -----------
Net cash (used in) financing activities (3,252,511) (3,698,319)
----------- -----------
Increase (decrease) in cash and cash equivalents 1,844,126 (4,932,011)
Cash and cash equivalents, beginning 3,552,232 5,914,283
----------- -----------
Cash and cash equivalents, ending $ 5,396,358 $ 982,272
=========== ===========
Cash Payments for:
Interest $ 694,926 $ 875,502
Income taxes 174,229 237,237
See accompanying notes to Unaudited Condensed Financial Statements
PATRICK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals and the adjustments for restructuring charges as
discussed in Note 5) necessary to present fairly the financial position as
of September 30, 2003 and December 31, 2002, the results of operations for
the three months and the nine months ended September 30, 2003 and 2002, and
cash flows for the nine months ended September 30, 2003 and 2002.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 2002
audited financial statements. The results of operations for the three month
and nine month periods ended September 30, 2003 and 2002 are not
necessarily indicative of the results to be expected for the full year.
3. The inventories on September 30, 2003 and December 31, 2002 consist of the
following classes:
September 30 December 31
2003 2002
---- ----
Raw materials $16,737,662 $20,756,789
Work in process 1,537,353 1,625,099
Finished goods 4,455,816 4,190,366
----------- -----------
Total manufactured goods 22,730,831 26,572,254
Distribution products 6,227,797 5,519,691
----------- -----------
TOTAL INVENTORIES $28,958,628 $32,091,945
=========== ===========
The inventories are stated at the lower of cost, First-In First-Out (FIFO)
method, or market.
4. Dividends per common share for the quarters ending September 30, 2003 and
2002 were $.00 and $.04 per share, respectively. This resulted in total
dividends for the nine month periods ending September 30, 2003 and 2002 of
$.04 and $.12 per share, respectively.
5. In September, 2003, the Company recorded a restructuring charge related to
the closing of one of its unprofitable cabinet door operating units. The
Company recorded estimated and actual costs of $235,000, or $.03 per share,
net of tax related to this restructuring. This operating unit was phased
out in the third quarter of 2003 and the charges include, but are not
limited to severance, retention, and accrued vacation for approximately 61
hourly and salaried employees, all of which will be terminated from this
particular operation. Other charges include shut down expenses and the
write-off of obsolete inventory. The operation was closed in September and
the charges are expected to be paid in the fourth quarter of 2003.
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, or
$.04 per share, net of tax which included plant shut-down expenses, the
write-down of obsolete inventory, and severance payments of approximately
$62,000 to approximately 51 employees, all of which were terminated from
the operation. These restructuring charges were all paid in the third
quarter of 2002.
6. New accounting standard:
The FASB has issued Statement No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". Statement
No. 150 requires that certain freestanding financial instruments be
reported as liabilities in the balance sheet. Depending on the type of
financial instrument, it will be
accounted for at either fair value or the present value of future cash
flows determined at each balance sheet date with the change in that value
reported as interest expense in the income statement. Prior to the
application of Statement No. 150, either those financial instruments were
not required to be recognized, or if recognized were reported in the
balance sheet as equity and changes in the value of those instruments were
normally not recognized in net income. The Company is required to apply
Statement No. 150 in the current period. The Company presently does not
have any freestanding financial instruments which are within the scope of
Statement No. 150.
7. 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:
Nine Months Ended September 30
2003 2002
---------------------------------
Net income (loss):
As reported $ (647,440) $1,058,850
Deduct total stock-based employee
compensation expense determined
under fair value based method for
all rewards net of related tax effects (114,000) (114,117)
---------------------------------
Pro forma $ (761,440) $ 944,733
=================================
Basic earnings (loss) per share:
As reported $ (.14) $ .23
Pro forma (.17) .21
Diluted earnings (loss) per share:
As reported $ (.14) $ .23
Pro forma (.17) .20
8. 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, 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 SEPTEMBER 30, 2003
-------------------------------------
Segment
Laminating Distribution Wood Other Total
---------- ------------ ---- ----- -----
Net outside sales $ 33,527,467 $ 23,896,457 $ 6,317,863 $ 5,327,527 $ 69,069,314
Intersegment sales 1,714,860 147,692 175,193 3,404,165 5,441,910
------------------------------------------------------------------------------------------------
Total sales $ 35,242,327 $ 24,044,149 $ 6,493,056 $ 8,731,692 $ 74,511,224*
------------------------------------------------------------------------------------------------
Operating
income (loss) $ 499,631 $ 579,144 $ (222,808) $ 250,556 $ 1,106,523
THREE MONTHS ENDED SEPTEMBER 30, 2002
-------------------------------------
Net outside sales $ 37,391,514 $ 28,097,187 $ 7,803,389 $ 7,556,010 $ 80,848,100
Intersegment sales 1,731,595 200,547 169,691 2,421,992 4,523,825
------------------------------------------------------------------------------------------------
Total sales $ 39,123,109 $ 28,297,734 $ 7,973,080 $ 9,978,002 $ 85,371,925*
------------------------------------------------------------------------------------------------
Operating
income (loss) $ 722,886 $ 464,132 $ (285,905) $ 213,148 $ 1,114,261
NINE MONTHS ENDED SEPTEMBER 30, 2003
------------------------------------
Segment
Laminating Distribution Wood Other Total
---------- ------------ ---- ----- -----
Net outside sales $101,943,562 $ 66,825,213 $ 19,571,062 $ 18,964,502 $ 207,304,339
Intersegment sales 5,008,402 505,200 445,326 7,433,809 13,392,737
------------------------------------------------------------------------------------------------
Total sales $106,951,964 $ 67,330,413 $ 20,016,388 $ 26,398,311 $ 220,697,076*
------------------------------------------------------------------------------------------------
Operating
income (loss) $ 1,003,062 $ 914,666 $ (1,360,767) $ 410,273 $ 967,234
Total assets $ 33,347,723 $ 12,715,050 $ 4,947,955 $ 6,801,082 $ 57,811,810
NINE MONTHS ENDED SEPTEMBER 30, 2002
------------------------------------
Net outside sales $108,866,154 $ 83,131,792 $ 24,515,552 $ 22,144,134 $ 238,657,632
Intersegment sales 4,986,862 582,648 582,881 7,862,590 14,014,981
------------------------------------------------------------------------------------------------
Total sales $113,853,016 $ 83,714,440 $ 25,098,433 $ 30,006,724 $ 252,672,613*
------------------------------------------------------------------------------------------------
Operating
income (loss) $ 3,089,192 $ 1,237,260 $ (420,074) $ 528,482 $ 4,434,860
Total assets $ 37,445,686 $ 15,405,792 $ 6,346,333 $ 7,976,585 $ 67,174,396
Reconciliation of segment operating income to consolidated operating income
(loss):
3 Months Ended 9 Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
Operating income for segments $ 1,106,523 $ 1,114,261 $ 967,234 $ 4,434,860
Corporate incentive agreements 300,000 337,426 906,019 1,073,827
Consolidation reclassifications 196,359 18,306 396,828 95,910
Gain on sale of assets 181,635 5,494 272,330 9,111
Unallocated corporate expenses (765,075) (981,612) (2,387,043) (2,359,862)
Other (231,895) (44,043) (429,332) (514,234)
Restructuring charges (235,000) - - - (235,000) (269,180)
----------- ----------- ----------- -----------
Consolidated operating income (loss) $ 552,547 $ 449,832 $ (508,964) $ 2,470,432
=========== =========== =========== ===========
*Does not agree to Financial Statements due to consolidation eliminations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The first nine months of 2003 have been a challenge for the Company.
After coming off of a fairly positive 2002 year, with the exception of a few
items including the Oakwood Homes Corporation bankruptcy filing, 2003 has been a
year faced with much uncertainty. The end of the first quarter and the beginning
of the second quarter were impacted by the unstable situation in the Middle East
and the War in Iraq. The third quarter continued with stagnant economic
conditions and ended with the lowest consumer confidence levels since March. Net
sales for the three and nine month periods ending September 30, 2003 were
approximately 13% less than the comparative 2002 periods. The third quarter
trended sales levels showed slight improvement as first quarter sales were down
a little more than 10% and second quarter sales were down more than 14%.
The Manufactured Housing Industry, which represents approximately 41%
of the Company's sales at September 30, 2003, is entering its fifth year of this
negative cycle. Shipment levels began their fall in the middle of 1999 and have
continued that decline through the third quarter of 2003. Year to date shipments
through September 2003 were down approximately 24% from the 2002 levels and down
almost 64% from the 1998 year to date numbers. The significant declines in
shipment levels and plant closings and consolidations have caused extremely
competitive market pricing conditions. While this industry appears to have
corrected its problems related to dealer and retail inventory levels,
repossessed inventory levels, while declining, still remain high and the lack of
available financing alternatives lingers on. Current twelve month shipment
estimates for calendar 2003 are now projected to be between 130,000 and 135,000
units, which would indicate a range of continued decline between 20% and 23%
from the 2002 levels. There have been indications of new entrants into the
Manufactured Housing financing arena, but little, if any, impact has been felt
yet. Analysts are predicting that shipment improvements in this industry will
begin in 2004.
The climate in the Recreational Vehicle Industry, which represents
approximately 32% of the Company's sales at September 30, 2003, remains
relatively strong. Year to date shipments through September 2003 are currently
running approximately 2% ahead of the 2002 levels which represents the second
highest number of units shipped in the last ten years. While 2003 cumulative
monthly shipment numbers have been trending downwards, this industry appears to
be on track for a strong year in 2003 and is projected to continue through 2004,
barring any unforeseen circumstances.
Diversification into the industrial and other markets has been a
priority for the Company and continues to be a strategic focus. These industries
generally provide for longer production runs and improved operating efficiencies
resulting in improved gross margins. Additionally, the Company wants to reduce
its reliance on the Manufactured Housing and Recreational Vehicle industries
through market diversification, while still maintaining and increasing market
share with them.
The Company is continually evaluating its overhead structure and making
cost cutting adjustments where necessary in order to keep costs aligned with
revenues and operate more efficiently at reduced volumes. These efforts are
ongoing as are initiatives related to strategic sales growth, new product
introductions, potential acquisitions, and investment in property and equipment.
Current capacity levels are running at around 40%, and management feels that the
Company is well positioned both financially and strategically to take advantage
of improvements 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:
Three Months Nine Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.3 87.2 88.2 87.0
Gross profit 12.7 12.8 11.8 13.0
Warehouse and delivery 4.6 4.8 4.6 4.6
Selling, general, & administrative 7.0 7.5 7.3 7.3
Restructuring charges 0.3 - - - 0.1 0.1
Operating income (loss) 0.8 0.5 (0.2) 1.0
Income (loss) before taxes 0.5 0.3 (0.5) 0.7
Income taxes (credits) 0.2 0.1 (0.2) 0.3
Net income (loss) 0.3 0.2 (0.3) 0.4
RESULTS OF OPERATIONS
Quarter Ended September 30, 2003 Compared to Quarter Ended September 30, 2002
Net Sales. Net sales decreased approximately $10.6 million, or 13.1%,
from $80.8 million in the quarter ended September 30, 2002 to $70.2 million in
the quarter ended September 30, 2003. The decrease is attributable to a 20%
quarterly decrease in shipments in the Manufactured Housing Industry which was
partially offset by strong shipment levels in the Recreational Vehicle Industry.
Gross Profit. Gross profit decreased $1.4 million, or 13.9%, from $10.3
million in the quarter ended September 30, 2002 to $8.9 million in the same
period in 2003. As a percentage of net sales, gross profit remained relatively
consistent decreasing only 0.1%, from 12.8% in 2002 to 12.7% in 2003.
Significant competitive pricing situations continue to apply downward pressures
on profit margins; however, margins have improved from their levels in the first
and second quarters of 2003. This is due to the Company choosing to eliminate
certain low margin business as well as better pricing on some of the commodity
inventory items that the Company uses.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
decreased $0.6 million, or 16.6%, from $3.8 million in the third quarter of 2002
to $3.2 million in the third quarter of 2003. As a percentage of net sales,
these expenses decreased 0.2%, from 4.8% in 2002 to 4.6% in 2003. These
decreases are attributable to decreased sales volume, increased efficiencies
related to shipping more full truckloads, and a reduction in the fleet size that
the Company owns or leases.
Selling, General, and Administrative Expenses. Exclusive of the
restructuring charges of $0.2 million in the third quarter of 2003, selling,
general, and administrative expenses decreased $1.2 million, or 18.8%, from $6.1
million in the third quarter of 2002 to $4.9 million in the third quarter of
2003. This decrease is due to the elimination of certain fixed expenses as the
Company has concentrated on keeping costs aligned with revenues. Additionally,
the third quarter of 2003 includes a gain of approximately $0.2 million related
to the disposition of a building and real estate which was being held for sale.
Restructuring Charges. As discussed in Note 5 to the financial
statements, the Company recorded restructuring charges of $235,000 in the third
quarter of 2003.
Operating Income. Operating income for the third quarter of 2003 and
2002 was $0.5 million.
Interest expense, net. Interest expense, net decreased by $18,000, or
9.3%, due to a decline in rates on the variable tax exempt bonds as well as the
normal debt service requirements resulting in less long-term debt outstanding.
Net Income. The Company had net income of $0.2 million for the third
quarter of 2003, or $.05 per share, compared to income of $0.1 million in the
third quarter of 2002, or $.03 per share.
Quarter Ended September 30, 2002 Compared to Quarter Ended September 30, 2001
Net Sales. Net sales increased $3.3 million, or 4.3%, from $77.5 million
for the quarter ended September 30, 2001 to $80.8 million for the quarter ended
September 30, 2002. This increase is attributable to an approximate 27%
quarterly increase in units shipped and produced in the Recreational Vehicle
Industry coupled with a change in the sales mix to core industries which the
Company serves. The Company's sales to the Manufactured Housing, Recreational
Vehicle, and other industries was 48%, 29%, and 23%, respectively. In the
quarter ended September 30, 2001 the Company's sales to these industries was
49%, 27%, and 24%, respectively.
Gross Profit. Gross profit increased by 12.8%, or $1.1 million, from $9.2
million for the quarter ended September 30, 2001 to $10.3 million for the
quarter ended September 30, 2002. As a percentage of net sales, gross profit
increased 1.0%, from 11.8% in the third quarter of 2001 to 12.8% for the same
three month period in 2002. These increases are due to increased sales as well
as increased operating efficiencies. The elimination of certain low margin
business, strategic cost cutting measures taken in the past two years, and the
restructuring activities related to significantly underperforming operating
units have all contributed to the positive increases in margin. The ongoing
developments in the Manufactured Housing Industry related to the lack of dealer
and retail financing and the more than 8% drop in unit shipments from the
previous year have caused competitive pricing situations and may have future
impacts on gross profit margins.
Warehouse and Delivery Expenses. Warehouse and delivery expenses remained
fairly constant at $3.8 million for each of the three month periods ending
September, 2002 and 2001. As a percentage of net sales, warehouse and delivery
expenses decreased approximately 0.1%, from 4.9% in the quarter ended September
30, 2001 to 4.8% in the quarter ended September 30, 2002. The Company continues
to gain efficiencies in this area by shipping more full truckloads compared to
the previous year, as well as a reduction in the size of the fleet that the
Company owns or leases.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses decreased by $0.2 million, or 4.1%, from $6.3 million in
the quarter ended September 30, 2001 to $6.1 million in the quarter ended
September 30, 2002. As a percentage of net sales, selling, general, and
administrative expenses decreased by 0.7%, from 8.2% for the quarter ended
September 30, 2001 to 7.5% for the quarter ended September 30, 2002. The
decrease in dollars and percentage of net sales is due to the Company continuing
to make variable cost reductions as well as reduced depreciation expense from
quarter to quarter.
Operating Income. Operating income increased by $1.4 million, from a loss
of $0.9 million in the third quarter of 2001 to income of $0.5 million in the
third quarter of 2002. The increase in operating income is due to the factors
described above.
Interest Expense, Net. Interest expense, net, decreased by $82,000 due to
a decline in rates on the variable tax exempt bonds as well as the normal debt
service requirements resulting in less long term debt outstanding.
Net Income. The Company had net income of $0.1 million for the third
quarter ended September 30, 2002 compared to a net loss of $0.7 million for the
same period in 2001. The increase in net income is attributable to the factors
described above.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002
Net Sales. Net sales decreased $30.2 million, or 12.6%, from $238.7
million in the nine month period ended September 30, 2002 to $208.5 million in
the same period in 2003. This decrease is attributable to an approximate 24%
decrease in shipments in the Manufactured Housing Industry and an offsetting
increase of approximately 2% in shipments in the Recreational Vehicle Industry,
which are the two primary industries that the Company serves. The Company's
sales for the first nine months of 2003 were 41% to Manufactured Housing, 32% to
Recreational Vehicle, and 27% to the Industrial and other markets. For the same
period in 2002, the Company's sales were 48%, 29%, and 23%, respectively.
Gross Profit. Gross profit for the nine month period decreased $6.4
million, or 20.7%, from $30.9 million in 2002 to $24.5 million in 2003. As a
percentage of net sales, gross profit decreased 1.2%, from 13.0% in 2002 to
11.8% in 2003. Significant competitive pricing pressures in both the
Manufactured Housing and Recreational Vehicle markets have had an impact on the
decline in gross profits and gross profit as a percentage of net sales.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
decreased $1.3 million, or 12.0%, from $10.9 million in 2002 to $9.6 million in
2003. As a percentage of net sales, warehouse and delivery expenses have
remained fairly constant at approximately 4.6% of net sales for both 2002 and
2003. The decline in dollars and comparable percentages of net sales is the
result of reduced sales volume as well as a reduction in the fleet size that the
Company owns or leases. Additionally, the Company has been able to take
advantage of improved efficiencies at its various locations by shipping more
full truckloads.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased by $2.1 million, or 12.0%, from $17.3 million
in 2002 to $15.2 million in 2003. As a percentage of net sales, selling,
general, and administrative expenses remained constant from 2002 to 2003. The
2003 figures include a gain on sale of one of the Company's idle manufacturing
facilities of approximately $0.2 million. The decrease in dollars is
attributable to the Company's ongoing efforts to reduce fixed costs and keep
costs aligned with revenues.
Operation Loss. Operating losses increased from income of $2.5 million in
2002 to a loss of $0.5 million in 2003 due to the factors described above.
Restructuring Charges. As discussed in Note 5 of the financial
statements, the Company recorded restructuring charges of approximately $235,000
for the nine months ended September 30, 2003.
Interest Expense, net. Interest expense, net decreased $144,000, or
20.5%, due to reduced debt service levels and a decline in rates on the variable
tax exempt bonds.
Net Loss. The Company reported a net loss of $0.6 million for the first
nine months of 2003 compared to net income of $1.1 million for the same period
in 2002. The decrease in income is attributable to the factors described above.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30,
2001
Net Sales. Net sales increased $14.0 million, or 6.2%, from $224.7
million for the nine months ended September 30, 2001 to $238.7 million for the
nine months ended September 30, 2002. This increase is attributable to an
approximate 18% increase in units shipped in the Recreational Vehicle Industry
coupled with an approximate 8% decrease in units shipped in the Manufactured
Housing Industry. The Company's sales for the first nine months of 2002 were 48%
to Manufactured Housing, 29% to Recreational Vehicle , and 23% to other
industries.
Gross Profit. Gross profit increased 17.4%, or $4.6 million, from $26.3
million for the nine months ended September 30, 2001 to $30.9 million for the
same period in 2002. As a percentage of net sales, gross profit increased
approximately 1.3%, from 11.7% for the nine months ended September 30, 2001 to
13.0% for the nine months ended September 30, 2002. The increase in dollars and
percentage of net sales was due to the Company making significant strategic cost
cutting measures in 2000 and 2001 including plant closings, eliminating low
margin business, and reducing certain fixed overhead expenses.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased approximately $0.1 million, or 1.3%, from $10.8 million for the nine
month period ended September 30, 2001 to $10.9 million for the same period in
2002. As a percentage of net sales, warehouse and delivery expenses decreased
approximately 0.2%, from 4.8% in 2001 to 4.6% in 2002. The small increase in
costs and the decrease in costs as a percentage of net sales was due to
increased sales levels allowing the Company to ship more full truckloads than in
the previous year and a reduction in the size of the fleet that the Company owns
or leases.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased $1.3 million, or 7.0%, from $18.6 million for
the nine months ended September 30, 2001 to $17.3 million for the same period in
2002. As a percentage of net sales, selling, general, and administrative
expenses decreased 1.0%, from 8.3% in 2001 to 7.3% in 2002. This decrease in
dollars and percentage of net sales is due to the Company's continued cost
cutting efforts to reduce both fixed and variable expenses.
Restructuring Charges. As discussed in Note 5 of the financial
statements, the Company recorded restructuring charges of $269,000 for the nine
months ended September 30, 2002.
Operating Income. Operating income increased $5.5 million, from a loss of
$3.0 million for the nine months ended September 30, 2001 to income of $2.5
million for the same period in 2002. The increase in operating income is due to
the factors described above.
Interest Expense, Net. Interest expense, net, decreased $55,000 due to a
decrease in the tax exempt variable interest rate as well as a decrease in the
total debt outstanding due to normal debt service requirements.
Net Income. The Company had net income of $1.1 million for the nine
months ended September 30, 2002 compared to a net loss of $2.3 million for the
same period in 2001. This increase in net income is due to the factors described
above.
BUSINESS SEGMENTS
Quarter ended September 30, 2003 Compared to Quarter Ended September 30, 2002
Laminating Segment Discussion
Net sales decreased $3.9 million, or 9.9%, from $39.1 million in the
quarter ended September 30, 2002 to $35.2 million in the same period in 2003.
The decrease is attributable to a 20% quarterly decline in shipments in the
Manufactured Housing Industry which was offset by comparable shipments in the
Recreational Vehicle Industry.
Operating income decreased $0.2 million, or 30.9%, from $0.7 million in
the quarter ended September 30, 2002 to $0.5 million in the same period in 2003.
As a percentage of laminating segment sales, operating income decreased
approximately 0.4%. The decrease in dollars is due to the decline in sales
volume. The relatively small decrease in operating income as a percentage of net
sales is attributable to the Company's constant focus on keeping operating costs
aligned with revenues.
Distribution Segment Discussion
Net sales decreased $4.3 million, or 15.0%, from $28.3 million in the
third quarter of 2002 to $24.0 million in the third quarter of 2003. The
decrease in net sales is attributable to the approximate 20% decrease in
quarterly shipments in the Manufactured Housing Industry, which is the primary
industry this segment serves.
Operating income increased $0.1 million, or 25.0%, from $0.5 million in
the third quarter of 2002 to $0.6 million in the third quarter of 2003. The
increase in operating income despite decreased sales is attributable to this
segment improving profit margins in this extremely competitive business
environment.
Wood Segment Discussion
Net sales decreased $1.5 million, or 18.6%, from $8.0 million in the
third quarter of 2002 to $6.5 million in the third quarter of 2003. This
decrease is due to the closing of one of the unprofitable divisions in this
segment and its related phase out during the third quarter, as discussed in Note
5 to the financial statements.
The operating loss decreased approximately $0.1 million, or 22%, from a
loss of $0.3 million in the third quarter of 2002 to a loss of $0.2 million in
the third quarter of 2003. This decrease is attributable to operating
improvements as a result of increased sales volume in one of the divisions in
this segment in 2003, some of which were offset by the shut down expenses
related to the closing of another division in this segment in the third quarter
of 2003, which is discussed in Note 5 to the financial statements.
Other Segment Discussion
Net sales decreased $1.3 million, or 12.5%, from $10.0 million in the
third quarter of 2002 to $8.7 million in the third quarter of 2003. This
decrease is attributable to the sale of one of the operating units in this
segment in the fourth quarter of 2002.
Operating income remained relatively constant at $0.2 million for both
2002 and 2003.
Quarter ended September 30, 2002 Compared to Quarter Ended September 30, 2001
Laminating Segment Discussion
Net sales in the laminating segment increased $4.8 million, or 14.1%,
from $34.3 million for the quarter ended September 30, 2001 to $39.1 million for
the quarter ended September 30, 2002. This increase in net sales is due to an
approximate 27% increase in shipments in the Recreational Vehicle Industry in
the third quarter of 2002 compared to the same period in 2001. Shipments in the
Manufactured Housing Industry were down approximately 15% for the same quarterly
period.
Operating income increased $0.7 million, from a small loss of $4,200 for
the quarter ended September 30, 2001 to income of $0.7 million for the quarter
ended September 30, 2002. This increase was due to the increased sales volume as
well as the cost cutting measures that the Company has undertaken over the past
two years to reduce fixed and variable costs.
Distribution Segment Discussion
Net sales increased $0.5 million, or 1.7%, from $27.8 million to $28.3
million for the quarters ended September 30, 2001 and 2002, respectively. This
increase was due to this segment gaining market share despite the downturn in
the Manufactured Housing Industry, which is the major industry this segment
serves.
Operating income increased $0.3 million, from $0.2 million in the quarter
ended September 30, 2001 to $0.5 million in the same period in 2002. This
increase was due to the increased sales volume.
Wood Segment Discussion
Net sales decreased $0.1 million, or 1.5%, from $8.1 million in the
quarter ended September 30, 2001 to $8.0 million in the same period in 2002.
This decrease was due to the closing and consolidation of one of the business
units in this segment in August, 2002.
Operating losses remained fairly constant at an operating loss of
approximately $0.3 million.
Other Segment Discussion
Net sales in this segment decreased $2.5 million, or 20.0%, from $12.5
million in the quarter ended September 30, 2001 to $10.0 million for the same
period in 2002. This decrease was attributable to the closing and consolidation
of two operations in this segment in 2001, as well as the approximate 15%
decrease in shipments in the Manufactured Housing Industry for the three month
period ended September 30, 2002.
Operating income increased $0.3 million, from a loss of $0.1 in the
quarter ended September 30, 2001 to income of $0.2 in the quarter ended
September 30, 2002. This increase was attributable to the closing and
consolidation of two of the significantly underperforming operating units in
this segment in 2001.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002
Laminating Segment Discussion
Net sales decreased approximately $6.9 million, or 6.1% from $113.9
million in 2002 to $107.0 million in 2003. This decrease is attributable to the
24% decrease in shipments in the Manufactured Housing Industry, which was offset
by the 2% increase in shipments in the Recreational Vehicle Industry.
Operating income decreased $2.1 million, or 67.5% from $3.1 million in
2002 to $1.0 million in 2003. The decrease is due to significant competitive
pricing pressures in the Manufactured Housing and Recreational Vehicle
Industries
Distribution Segment Discussion
Net sales decreased $16.4 million, or 19.6% from $83.7 million in 2002 to
$67.3 million in 2003. The decrease is attributable to the 24% decrease in
shipments in the Manufactured Housing Industry, which is the primary industry
this segment serves.
Operating income decreased $0.3 million, or 26.1% from $1.2 million in
2002 to $0.9 million in 2003. This decrease is attributable to lower sales
volume.
Wood Segment Discussion
Net sales decreased $5.1 million, or 20.2% from $25.1 million in 2002 to
$20.0 million in 2003. This decrease is due to the closing of two operating
units in this segment, one in June 2002 and the other in September 2003. These
closings are discussed in Note 5 to the financial statements.
The operating loss increased $1.0 million from a loss of $0.4 million in
2002 to a loss of $1.4 million in 2003. The increase in the operating loss is
due to one of the operating units in this segment experiencing operating
inefficiencies and material problems in 2003. As discussed in Note 5 to the
financial statements, this operating unit was closed in September 2003.
Other Segment Discussion
Net sales decreased $3.6 million, or 12.0% from $30.0 million in 2002 to
$26.4 million in 2003. This decrease is attributable to the sale of one of the
operating units in this segment in the fourth quarter of 2002.
Operating income decreased $0.1 million, or 22.4% from $0.5 million in
2002 to $0.4 million in 2003.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30,
2001
Laminating Segment Discussion
Net sales in this segment increased $12.2 million, or 12.0%, from $101.7
million in the nine months ended September 30, 2001 to $113.9 million in the
same period in 2002. This increase was mostly due to the approximate 18%
increase in shipments in the Recreational Vehicle Industry. Additionally, the
Company closed three divisions in the other segment in 2001 which had sales of
approximately $4.7 million for the nine months ended September 30, 2001 and
certain of these operations were merged into a facility in the laminating
segment which was operating at less than capacity and subsequently in 2002 has
seen significantly increased volume resulting in higher efficiencies and
increased profitability.
Operating income increased $3.3 million, from a loss of $0.2 million in
the nine months ended September 30, 2001 to income of $3.1 million in the same
period in 2002. This increase was due to increased sales volume coupled with
increased operating efficiencies from the reduction of fixed and variable costs
related to the strategic cost cutting measures that were taken in 2000 and 2001.
Distribution Segment Discussion
Net sales in this segment increased $6.4 million, or 8.3%, from $77.3
million in the nine months ended September 30, 2001 to $83.7 million in the nine
months ended September 30, 2002. This increase was due to increased sales in
certain of the Company's operating units in the southeast region of the
Manufactured Housing Industry.
Operating income increased $563,000, or 84%, from $674,000 in the nine
months ended September 30, 2001 to $1.2 million for the same period in 2002 due
to increased sales volume.
Wood Segment Discussion
Net Sales increased $1.3 million, or 5.3%, from $23.8 million in the nine
months ended September 30, 2001 to $25.1 million in the nine months ended
September 30, 2002. This increase was attributable to the approximate 18%
increase in shipments in the Recreational Vehicle Industry for the first nine
months of 2002.
Operating losses increased $0.1 million, from a loss of $0.3 million for
the nine months ended September 30, 2001 to a loss of $0.4 million for the same
period in 2002. This decrease is attributable to two operating units in this
segment experiencing operating inefficiencies, one of which was consolidated
into another division in this segment. The operating results of these two
divisions have offset the positive results of the three other divisions within
this segment.
Other Segment Discussion
Net sales in this segment decreased $7.0 million, or 19.0%, from $37.0
million in the first nine months of 2001 compared to $30.0 million in the same
period in 2002. This decline was due to the closing and consolidation of one
division in the first quarter of 2001 and two divisions in the fourth quarter of
2001, as well as the more than 8% decline in shipments in the Manufactured
Housing Industry compared to the previous year.
Operating income increased $1.1 million, from a loss of $0.6 million in
the nine month period ended September 30, 2001 to income of $0.5 million in the
nine month period ended September 30, 2002. This increase is due to the closing
and consolidation of three unprofitable divisions in this segment in 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are to meet working capital
needs, support its capital expenditure plans, and meet debt service
requirements.
The Company, in September, 1995, issued to an insurance company in a
private placement $18,000,000 of senior unsecured notes. The ten year notes bear
interest at 6.82%, with semi-annual interest payments that began in 1996 and
seven annual principal repayments of $2,571,428 which began 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 and normal recurring capital expenditures 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 September
30, 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** $5,167,017 $731,667 $1,214,950 $1,194,050 $1,173,150 $853,200
-------------- --------------- --------------- --------------- --------------- --------------
Long-term debt, including interest
at fixed rates** $5,654,360 $87,685 $2,871,021 $2,695,654 $0 $0
-------------- --------------- --------------- --------------- --------------- --------------
Operating Leases $2,430,124 $489,212 $1,290,873 $338,629 $198,736 $112,674
-------------- --------------- --------------- --------------- --------------- --------------
Total contractual cash obligations $13,251,501 $1,308,564 $5,376,844 $4,228,333 $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 09/30/03 EXPIRATION
- -------------------------------------- --------------------------------- ------------------------------- ---------------------------
Line of Credit $10,000,000 $0 August 15, 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 2003.
CIRITICAL 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 debt losses and our reserve for doubtful accounts of
$350,000 should be adequate for any exposure to loss in our September 30, 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 at September 30, 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
The Company makes forward-looking statements from time to time and
desires to take advantage of the "safe harbor" which is afforded such statements
under the Private Securities Litigation Reform Act of 1995 when they are
accompanied by meaningful cautionary statements identifying important factors
that could cause actual results to differ materially from those in the
forward-looking statements.
The statements contained in the foregoing "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as other
statements contained in this Quarterly Report and statements contained in future
filings with the Securities and Exchange Commission and publicly disseminated
press releases, and statements which may be made from time to time in the future
by management of the Company in presentations to shareholders, prospective
investors, and others interested in the business and financial affairs of the
Company, which are not historical facts, are forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those set forth in the forward-looking statements. Any
projections of financial performance or statements concerning expectations as to
future developments should not be construed in any manner as a guarantee that
such results or developments will, in fact, occur. There can be no assurance
that any forward-looking statement will be realized or that actual results will
not be significantly different from that set forth in such forward-looking
statement. In addition to the risks and uncertainties of ordinary business
operations, the forward-looking statements of the Company referred to above are
also subject to the following risks and uncertainties:
o The Company operates in highly competitive business environment, and its
sales could be negatively affected by its inability to maintain or
increase prices, changes in geographic or product mix, or the decision of
its customers to purchase competitive products instead of the Company's
products. Sales could also be affected by pricing, purchasing, financing,
operational, advertising, or promotional decisions made by purchasers of
the Company products.
o On an annual basis, the Company negotiates renewals for property,
casualty, workers compensation, general liability, product liability, and
health insurance coverages. Due to conditions within these insurance
markets and other factors beyond the Company's control, future coverages
and the amount of the related premiums could have a negative affect on
the Company's results.
o The primary markets to which the Company sells include the Manufactured
Housing and Recreational Vehicle Industries, which are cyclical and
dependent on various factors including interest rates, access to
financing, inventory and production levels and other economic and
demographic factors. The Company's sales levels could be negatively
impacted by changes in any one of the above items.
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 $5,142,859 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
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation as of the end of the period covered by this
report, that the Company's "disclosure controls and procedures" (as defined in
the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) are effective
to ensure that information required to be disclosed in the reports that the
Company files or submits 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 were no changes in
the Company's internal control over financial reporting during the quarter ended
September 30, 2003 that have materially affected, or are reasonable likely to
materially affect, the Company's internal controls over financial reporting.
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:
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(b) and Section 302 of the Sarbanes-Oxley Act of 2002,
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(b) and Section 302 of the Sarbanes-Oxley Act of 2002,
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant Section 906 of the Sarbanes-Oxley Act of 2002,
filed herewith
(b) A Form 8-K was filed on October 16, 2003, announcing the
resignation of David D. Lung as President and Chief Executive
Officer and the appointment of Keith V. Kankel as successor.
(c) A Form 8-K was filed on October 21, 2003, announcing the third
quarter financial results.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATRICK INDUSTRIES, INC.
(Company)
Date November 13, 2003 /S/Keith V. Kankel
--------------------- ---------------------------
Keith V. Kankel
(President)
(Chief Executive Officer)
Date November 13, 2003 /S/Andy L. Nemeth
----------------------- ---------------------------
Andy L. Nemeth
(Vice President, Finance)
(Chief Financial Officer)