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 June 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from..................to..................
Commission file number 0-3922
PATRICK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1057796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 South 14th Street, Elkhart, IN 46516
(Address of principal executive offices)
(ZIP Code)
(574) 294-7511
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Shares of Common Stock Outstanding as of July 31, 2002: 4,557,074
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
Unaudited Condensed Balance Sheets
June 30, 2002 & December 31, 2001 3
Unaudited Condensed Statements of Operations
Three Months Ended June 30, 2002 & 2001, and
Six Months Ended June 30, 2002 & 2001 4
Unaudited Condensed Statements of Cash Flows
Six Months Ended June 30, 2002 & 2001 5
Notes to Unaudited Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II: Other Information 19
Signatures 20
2
PART I: FINANCIAL INFORMATION
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
(Unaudited)
JUNE 30 DECEMBER 31
2002 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,295,308 $ 5,914,283
Trade receivables 22,775,085 13,722,216
Inventories 31,600,562 28,625,747
Income tax refund claims receivable 10,569 3,046,799
Prepaid expenses 418,798 804,398
Deferred tax assets 2,170,000 2,014,000
------------ ------------
Total current assets 62,270,322 54,127,443
------------ ------------
PROPERTY AND EQUIPMENT, at cost 92,392,672 90,935,808
Less accumulated depreciation 58,092,982 56,302,359
------------ ------------
34,299,690 34,633,449
------------ ------------
DEFERRED INCOME TAXES 311,839 - - -
------------ ------------
INTANGIBLE AND OTHER ASSETS 3,129,159 3,208,928
------------ ------------
Total assets $100,011,010 $ 91,969,820
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,671,428 $ 3,671,428
Accounts payable 13,894,634 7,180,706
Accrued liabilities 4,722,558 4,192,487
------------ ------------
Total current liabilities 22,288,620 15,044,621
------------ ------------
LONG-TERM DEBT, less current maturities 15,114,288 15,114,288
------------ ------------
DEFERRED COMPENSATION OBLIGATIONS 2,330,766 2,226,390
------------ ------------
DEFERRED TAX LIABILITIES - - - 81,000
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 17,851,645 17,620,517
Retained earnings 42,425,691 41,883,004
------------ ------------
Total shareholders' equity 60,277,336 59,503,521
------------ ------------
Total liabilities and shareholders' equity $100,011,010 $ 91,969,820
============ ============
See accompanying Notes to Unaudited Condensed Financial Statements.
3
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2002 2001 2002 2001
NET SALES $ 82,566,743 $ 78,908,792 $ 157,809,532 $ 147,203,529
------------- ------------- ------------- -------------
COST AND EXPENSES
Cost of goods sold 71,712,567 68,822,170 137,219,054 130,031,912
Warehouse and delivery expenses 3,634,000 3,557,882 7,059,023 6,967,282
Selling, general, and administrative expenses 5,611,363 5,929,555 11,241,675 12,279,851
Restructuring charges 269,180 -- 269,180 --
Interest expense, net 279,343 246,390 510,750 484,119
------------- ------------- ------------- -------------
81,506,453 78,555,997 156,299,682 149,763,164
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 1,060,290 352,795 1,509,850 (2,559,635)
INCOME TAXES (CREDIT) 424,200 140,900 604,000 (1,024,000)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 636,090 $ 211,895 $ 905,850 $ (1,535,635)
============= ============= ============= =============
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ .14 $ .05 $ .20 $ (.34)
============= ============= ============= =============
DIVIDENDS PER SHARE $ .04 $ .04 $ .08 $ .08
============= ============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,544,015 4,518,062 4,536,932 4,518,020
See accompanying Notes to Unaudited Condensed Financial Statements.
4
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
SIX MONTHS ENDED
JUNE 30
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 905,850 $(1,535,635)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,234,981 3,834,620
Gain on sale of fixed assets (3,616) (22,113)
Deferred income taxes (548,839) - - -
Other 267,146 372,285
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables (9,052,869) (7,435,857)
Inventories (2,974,815) (2,141,146)
Income tax refund claims receivable 3,036,230 (230,999)
Prepaid expenses 385,600 678,322
Increase (decrease) in:
Accounts payable and accrued liabilities 6,843,205 8,081,621
Income taxes payable 400,794 - - -
----------- -----------
Net cash provided by operating activities 2,493,667 1,601,098
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,865,761) (877,246)
Proceeds from sale of fixed assets 37,753 23,392
Other 66,301 (20,883)
----------- -----------
Net cash (used in) investing activities (2,761,707) (874,737)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock - - - (561,965)
Proceeds from sale of common stock 15,128 - - -
Cash dividends paid (363,163) (368,853)
Other (2,900) (11,443)
----------- -----------
Net cash (used in) financing activities (350,935) (942,261)
----------- -----------
(Decrease) in cash and cash equivalents (618,975) (215,900)
Cash and cash equivalents, beginning 5,914,283 6,716,128
----------- -----------
Cash and cash equivalents, ending $ 5,295,308 $ 6,500,228
=========== ===========
Cash Payments for:
Interest $ 507,600 $ 503,719
Income taxes 24,107 36,596
See accompanying notes to Unaudited Condensed Financial Statements.
5
PATRICK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals and the adjustments for restructuring charges as
discussed in Note 5) necessary to present fairly financial position as of
June 30, 2002 and December 31, 2001, the results of operations and cash
flows for the three months and the six months ended June 30, 2002 and
2001, and cash flows for the six months ended June 30, 2002 and 2001.
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, 2001 audited financial statements. The results of operations for the
three month and six month periods ended June 30, 2002 and 2001 are not
necessarily indicative of the results to be expected for the full year.
3. The inventories on June 30, 2002 and December 31, 2001 consist of the
following classes:
June 30 December 31
2002 2001
Raw materials $18,033,472 $15,908,710
Work in process 1,743,023 2,049,879
Finished goods 4,872,104 4,335,875
----------- -----------
Total manufactured goods 24,648,599 22,294,464
Distribution products 6,951,963 6,331,283
----------- -----------
TOTAL INVENTORIES $31,600,562 $28,625,747
=========== ===========
The inventories are stated at the lower of cost, First-In First-Out
(FIFO) method, or market.
4. Income (loss) per common share for the six months ended June 30, 2002 and
2001 has been computed based on the weighted average common shares
outstanding of 4,536,932 and 4,518,020 respectively. Stock options
outstanding are immaterial and had no effect on earnings per share.
Dividends per common share for the quarter ending June 30, 2002 and 2001
were $.04 per share. This resulted in total dividends for the six month
period ending June 30, 2002 and 2001 of $.08 per share.
5. In June, 2002, the Company recorded a restructuring charge based on the
decision to close one of its cabinet door manufacturing facilities and
consolidate its operation into another facility. The Company recorded
estimated and actual costs related to this restructuring of $269,180,
$.04 per share, most of which will be paid in the third quarter.
6. In June, 2002, the Company purchased certain leased real estate from the
Chairman Emeritus, a major shareholder, for approximately $2,000,000.
6
7. The Company's reportable segments are as follows:
Laminating - Utilizes various materials including gypsum, particleboard,
plywood, and fiberboard which are bonded by adhesives or a heating
process to a number of products including vinyl, paper, foil, and high
pressure laminate. These laminated products are utilized to produce
furniture, shelving, wall, counter, and cabinet products with a wide
variety of finishes and textures.
Distribution - Distributes primarily pre-finished wall and ceiling
panels, particleboard, hardboard and vinyl siding, roofing products,
passage doors, building hardware, insulation, and other products.
Wood - Uses raw lumber including solid oak, other hardwood materials, and
laminated particleboard or plywood to produce cabinet door product lines.
Other - Includes aluminum extrusion painting and distribution,
manufacturer of adhesive products, pleated shades, and a manufacturer of
laminating equipment.
The table below presents unaudited information about the revenue and
operating income of those segments:
THREE MONTHS ENDED JUNE 30, 2002
--------------------------------
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
---------- ------------ ---- ----- -----
Net outside sales $ 37,109,896 $ 29,389,085 $ 8,469,644 $ 7,598,118 $ 82,566,743
Intersegment sales 1,670,621 183,681 218,512 2,907,764 4,980,578
-------------------------------------------------------------------------------------------------
Total sales $ 38,780,517 $ 29,572,766 $ 8,688,156 $ 10,505,882 $ 87,547,321*
-------------------------------------------------------------------------------------------------
EBIT (loss)** $ 1,243,116 $ 665,428 $ (118,754) $ 227,541 $ 2,017,331
THREE MONTHS ENDED JUNE 30, 2001
--------------------------------
Net outside sales $ 34,130,120 $ 27,061,159 $ 7,784,188 $ 9,933,325 $ 78,908,792
Intersegment sales 1,136,600 283,766 245,437 4,016,127 5,681,930
-------------------------------------------------------------------------------------------------
Total sales $ 35,266,720 $ 27,344,925 $ 8,029,625 $ 13,949,452 $ 84,590,722*
--------------------------------------------------------------------------------------------------
EBIT** $ 168,833 $ 544,567 $ 112,915 $ 344,285 $ 1,170,600
7
SIX MONTHS ENDED JUNE 30, 2002
------------------------------
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
---------- ------------ ---- ----- -----
Net outside sales $ 71,474,640 $ 55,034,605 $ 16,712,163 $ 14,588,124 $157,809,532
Intersegment sales 3,255,267 382,101 413,190 5,440,598 9,491,156
-------------------------------------------------------------------------------------------------
Total sales $ 74,729,907 $ 55,416,706 $ 17,125,353 $ 20,028,722 $167,300,688*
------------------------------------------------------------------------------------------------
EBIT (loss)** $ 2,366,306 $ 773,128 $ (134,169) $ 315,334 $ 3,320,599
Total assets $ 33,880,287 $ 15,647,131 $ 6,273,744 $ 7,947,914 $ 63,749,076
SIX MONTHS ENDED JUNE 30, 2001
------------------------------
Net outside sales $ 65,189,808 $ 49,123,384 $ 15,289,062 $ 17,601,275 $147,203,529
Intersegment sales 2,189,329 378,456 453,688 6,959,738 9,981,211
-------------------------------------------------------------------------------------------------
Total sales $ 67,379,137 $ 49,501,840 $ 15,742,750 $ 24,561,013 $157,184,740*
-------------------------------------------------------------------------------------------------
EBIT (loss)** $ (222,000) $ 512,074 $ (12,361) $ (507,465) $ (229,752)
Total assets $ 35,251,066 $ 15,718,155 $ 6,451,044 $ 12,603,615 $ 70,023,880
Reconciliation of segment EBIT to consolidated EBIT
3 Months Ended 6 Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
EBIT (loss) for segments $ 2,017,331 $ 1,170,600 $ 3,320,599 $ (229,752)
Corporate incentive agreements 322,500 352,381 736,401 549,623
Consolidation reclassifications 36,089 (10,576) 77,604 (60,747)
Gain (loss) on sale of assets (49) 14,250 3,617 22,113
Restructuring charges (269,180) - - - (269,180) - - -
Unallocated corporate expenses (547,736) (780,480) (1,378,250) (2,131,900)
Other (219,322) (146,990) (470,191) (224,853)
------------- -------------- -------------- ------------
Consolidated EBIT (loss)** $ 1,339,633 $ 599,185 $ 2,020,600 $(2,075,516)
============ ============= ============ ===========
*Does not agree to Financial Statements due to consolidation eliminations.
**Earnings before interest and taxes.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
GENERAL
The Company's business continued to show signs of improvement over the
previous year for the three and six month periods ended June 30, 2002. The third
quarter of 1999 marked the beginning of the Company's declining revenue which
continued up through the year ending December 31, 2001. Net sales for the twelve
month period ending December 31, 1999 finished at a record high of $457 million
and dropped almost 36% over a two year period where they finished at $293
million for the year ended December 31, 2001. This decline in sales volume is
the result of the overall downturn in the Manufactured Housing and Recreational
Vehicle industries.
The downturn in the Manufactured Housing industry began in the fourth
quarter of 1999 due to retail sales lots being overstocked and unit production
being reduced approximately 7% that year. In 2001 and 2000, the Manufactured
Housing industry was down nearly 23% and 29%, respectively, in units shipped and
produced due to the limited availability of dealer and retail financing, as well
as excessive retail inventory levels which included repossessed units. The year
2002 began to show early signs of improvement and then dropped off due to a
major financing lender leaving the market. Shipments for the first six months of
2002 were down more than 5% in this industry.
The decline in the Recreational Vehicle industry began in the second
quarter of 2000 due to the Recreational Vehicle dealers making inventory
corrections. The end result of this was an approximate 7% decline in units
shipped and produced in 2000 and a 14% decline in units shipped and produced in
2001. The first half of 2002 had positive results with an increase in units
shipped and produced of almost 14% compared to the previous year. Preliminary
signs indicate that this industry is slowly coming out of the down cycle that it
has experienced for the last 18 months.
While the conditions in these two industries are uncertain, the Company
has implemented cost cutting measures and plant closings and consolidations over
the past two years to more efficiently operate at reduced volumes. The Company's
sales for the six months ended June 30, 2002 are 47% to Manufactured Housing,
30% to Recreational Vehicle, and 23% to other industries.
The following table sets forth the percentage relationship to net sales
of certain items in the Company's Statements of Operations:
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 86.9 87.2 86.9 88.3
Gross profit 13.1 12.8 13.1 11.7
Warehouse and delivery 4.4 4.5 4.5 4.7
Selling, general, & administrative 6.8 7.5 7.1 8.3
Restructuring charges 0.3 - - - 0.2 - - -
Operating income (loss) 1.6 0.8 1.3 (1.4)
Income (loss) before taxes 1.3 0.5 1.0 (1.7)
Income taxes (credits) 0.5 0.2 0.4 (0.7)
Net income (loss) 0.8 0.3 0.6 (1.0)
RESULTS OF OPERATIONS
Quarter Ended June 30, 2002 Compared to Quarter Ended June 30, 2001
Net Sales. Net sales increased $3.7 million, or 4.6%, from $78.9 million
for the quarter ended June 30, 2001 to $82.6 million for the quarter ended June
30, 2002. This increase is attributable to an approximate 19% quarterly increase
in units shipped and produced in the Recreational Vehicle industry coupled by a
change in the sales mix of core industries to which the Company serves. The
Company's sales to the Manufactured Housing, Recreational Vehicle, and other
industries was 47%, 30%, and 23%, respectively. At June 30, 2001 the Company's
sales to these industries was 48%, 26%, and 26%, respectively.
9
Gross Profit. Gross profit increased by 7.6%, or $0.8 million, from $10.1
million for the quarter ended June 30, 2001 to $10.9 million for the quarter
ended June 30, 2002. As a percentage of net sales, gross profit increased 0.3%
for the same three month period. These increases are due to increased sales as
well as increased operating efficiencies resulting from the elimination of
certain low margin business and strategic cost cutting measures taken in the
past two years.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased by $76,000, or 2.1%, from the three month period ended June 30, 2001
to the same period in 2002. As a percentage of net sales, warehouse and delivery
expenses decreased 0.1%, from 4.5% in the quarter ended June 30, 2001 to 4.4% in
the quarter ended June 30, 2002. The increase in dollars is due to the increased
sales levels while the decrease in percentage of net sales is due to the Company
shipping more full truckloads compared to the previous year as well as a
reduction in fleet size that the Company owns or leases.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses decreased by $318,000, or 5.4%, from $5.9 million in the
three month period ended June 30, 2001 to $5.6 million in the same period ended
June 30, 2002. As a percentage of net sales, selling, general, and
administrative expenses decreased by 0.7%, from 7.5% for the quarter ended June
30, 2001 to 6.8% for the quarter ended June 30, 2002. The decreases in dollars
and percentage of net sales is due to the Company making cost and staffing
reductions which has reduced the fixed portion of these expenses.
Restructuring Charges. As discussed in Note 5 of the financial
statements, the Company recognized restructuring charges of $269,000 in the
second quarter of 2002.
Operating Income. Operating income increased by $0.7 million, or 124%,
from approximately $0.6 million in the quarter ended June 30, 2001 to $1.3
million in the quarter ended June 30, 2002. The increase in operating income is
due to the factors described above.
Interest Expense, Net. Interest expense, net increased by $33,000 due to
the decline in interest rates on funds invested over the past year.
Net Income. The Company had net income of $636,000 for the quarter ended
June 30, 2002 compared to net income of $212,000 for the same period in 2001.
The increase in net income is attributable to the factors described above.
Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000
Net Sales. Net sales decreased by $22.0 million, or 21.8%, from $100.9
million in the quarter ended June 30, 2000 to $78.9 million in the quarter ended
June 30, 2001. This decrease is directly related to an estimated 29% decrease in
units shipped and produced in the Manufactured Housing industry and an estimated
16% decrease in units shipped in the Recreational Vehicle industry in the second
quarter of 2001 compared to the second quarter of 2000.
Gross Profit. Gross profit decreased by $2.5 million, or 19.7%, from
$12.6 million in the second quarter 2000 compared to $10.1 million in the second
quarter of 2001. As a percentage of net sales, gross profit increased 0.3% from
12.5% in the second quarter of 2000 to 12.8% in the second quarter 2001. The
overall decrease was due to a 21.8% decrease in consolidated net sales. The
slight increase in gross profits as a percentage of net sales is a result of the
Company's improvements in operating efficiencies through consolidation and
restructuring. However, market conditions are still highly competitive resulting
in the inability of the Company to increase selling prices without losing
business.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
decreased $0.4 million, from $4.0 million in the second quarter 2000 to $3.6
million in the second quarter 2001. As a percentage of net sales, warehouse and
delivery expenses increased 0.6% from 3.9% in the second quarter of 2000 to 4.5%
in the second quarter of 2001. This increase is attributable to lower sales
levels and higher shipping costs specifically related to the increase in
gasoline prices over the past year and increase in rates charged by
transportation companies.
10
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased $0.5 million, or 8.2%, from $6.4 million in
the quarter ended June 30, 2000 to $5.9 million in the quarter ended June 30,
2001. As a percentage of net sales, selling, general, and administrative
expenses increased 1.1% from 6.4% in the second quarter of 2000 to 7.5% in the
second quarter of 2001. The overall decrease is due to the Company making cost
and staffing reductions. The increase in costs as a percentage of net sales is
due to reduced volumes as a result of the decline in shipments in the
Manufactured Housing and Recreational Vehicle industries.
Operating Income. Operating income decreased by 67.0%, or $1.2 million,
from $1.8 million in the second quarter of 2000 to $0.6 million in the second
quarter of 2001. The decrease in operating income is due to the decline in sales
volume for the industries to which the Company serves.
Interest Expense, Net. Interest expense, net of interest income,
decreased 30.3% from $354,000 in the second quarter of 2000 to $246,000 in the
same period for 2001. This decrease is attributable to more funds invested in
the second quarter of 2001 as a result of reduced working capital needs as well
as lower long-term debt levels resulting from normal debt service requirements.
Net Income. Net income decreased by $668,000, or 75.9%, from $880,000 in
the second quarter of 2000 to $212,000 in the second quarter of 2001. This
decrease is attributable to the factors described above.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Net Sales. Net sales increased $10.6 million, or 7.2%, from $147.2
million for the six months ended June 30, 2001 to $157.8 million for the six
months ended June 30, 2002. This increase is attributable to an approximate 14%
increase in units shipped and produced in the Recreational Vehicle industry
coupled with an approximate 5% decrease in units shipped and produced in the
Manufactured Housing industry. The Company's sales for the first six months of
2002 are 47% to Manufactured Housing, 30% to Recreational Vehicle, and 23% to
other industries.
Gross Profit. Gross Profit increased 19.9%, or $3.4 million, from $17.2
million for the six months ended June 30, 2001 to $20.6 million for the same
period in 2002. As a percentage of net sales, gross profit increased
approximately 1.4%, from 11.7% for the six months ended June 30, 2001 to 13.1%
for the six months ended June 30, 2002. The increase in dollars and percentage
of net sales is due to 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
increased approximately $92,000, or 1.3%, from $7.0 million for the six month
period ended June 30, 2001 to $7.1 million for the same period in 2002. As a
percentage of net sales, warehouse and delivery expenses decreased approximately
0.2%, from 4.7% in 2001 to 4.5% in 2002. The small increase in costs and the
decrease in costs as a percentage of net sales is due to increased sales levels
allowing the Company to ship more full truckloads than in the previous year and
a reduction in fleet size that the Company owns or leases.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased $1.0 million, or 8.5%, from $12.3 million for
the six months ended June 30, 2001 to $11.3 million for the same period in 2002.
As a percentage of net sales, selling, general, and administrative expenses
decreased 1.2%. This decrease in dollars and percentage of net sales is due to
the Company making significant cost cutting measures in 2000 and 2001 which has
reduced the fixed portion of these expenses.
Restructuring Charges. As discussed in Note 5 of the financial
statements, the Company recorded restructuring charges of $269,000 for the six
months ended June 30, 2002.
Operating Income (Loss). Operating income has increased $4.1 million,
from a loss of $2.1 million for the six months ended June 30, 2001 to income of
$2.0 million for the six months ended June 30, 2002. The increase in operating
income is due to the factors described above.
11
Interest Expense, Net. Interest expense, net increased $27,000 due to the
Company earning less interest on funds invested due to the decline in interest
rates over the past year.
Net Income (Loss). The Company had net income of $906,000 for the six
months ended June 30, 2002 compared to a net loss of $1.5 million for the same
period in 2001. This increase in net income is due to the factors described
above.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
Net Sales. Net sales decreased $53.5 million, or 26.7%, from $200.7
million in the six months ended June 30, 2000 to $147.2 million for the six
months ended June 30, 2001. This decrease is attributable to the 35% decline in
units shipped and produced in the Manufactured Housing industry and 20% decline
in units shipped and produced in the Recreational Vehicle industry. The
Company's sales for the first six months of 2001 are 48% to Manufactured
Housing, 26% to Recreational Vehicle, and 26% to other industries.
Gross Profit. Gross profit decreased $6.1 million, or 26.4%, from $23.3
million in the first six months of 2000 to $17.2 million in the first six months
of 2001. As a percentage of net sales, gross profit remained fairly consistent
for the six months ended June 30, 2000 and 2001. The overall decrease is due to
the significantly reduced sales volume in the industries to which the Company
serves.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
decreased $1.1 million, or 13.6%, from $8.1 million in the six months ended June
30, 2000 to $7.0 million in the same period in 2001. As a percentage of net
sales, warehouse and delivery expenses increased 0.7%, from 4.0% in 2000 to 4.7%
in 2001. The overall decrease is due to the decline in sales volume. The
increase as a percentage of net sales is due to the increase in fuel costs from
period to period, coupled with an increase in rates charged by the
transportation companies.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased by $1.0 million, or 7.8%, from $13.3 million
for the six months ended June 30, 2000 to $12.3 million for the same period in
2001. As a percentage of net sales, selling, general, and administrative
expenses increased 1.7%, from 6.6% in the first half of 2000 to 8.3% in the
first half of 2001. The overall decrease is due to the Company making cost and
staffing reductions. The increase in cost as a percentage of net sales is due to
reduced volume as a result of the decline in shipments in the Manufactured
Housing and Recreational Vehicle industries.
Impairment Charges. The Company recognized an impairment charge of $6.9
million in the first quarter of 2000.
Restructuring Charges. The Company recognized restructuring charges of
$0.3 million in the second quarter of 2000.
12
Operating Loss. The Company experienced an operating loss of $2.1 million
for the six months ended June 30, 2001 compared to an operating loss of $5.3
million for the six months ended June 30, 2000. The operating loss is due to the
factors described above.
Interest Expense, Net. Interest expense, net of interest income,
decreased 27.5%, or $183,000 from $667,000 in the six months ended June 30, 2000
to $484,000 in the same period in 2001. The decrease is due to more funds being
invested as a result of reduced working capital needs as well as lower long term
debt levels resulting from normal debt service requirements.
Net Loss. The Company experienced a net loss after interest and taxes for
the six months ended June 30, 2000 and 2001 of $3.7 million and $1.5 million,
respectively. These losses are attributable to the factors described above.
BUSINESS SEGMENTS
Quarter Ended June 30, 2002 Compared to Quarter Ended June 30, 2001
Laminating Segment Discussion
Net sales in the laminating segment increased $3.5 million, or 10.0%,
from $35.3 million for the quarter ended June 30, 2001 to $38.8 million for the
quarter ended June 30, 2002. This increase in net sales is due to an approximate
19% increase in sales in the Recreational Vehicle industry in the second quarter
of 2002 compared to the same period in 2001. Sales in the Manufactured Housing
industry were down almost 10% for the same period.
EBIT increased $1.0 million, from $0.2 million for the quarter ended June
30, 2001 to $1.2 million for the quarter ended June 30, 2002. This increase is
due to the increased sales volume and the cost cutting measures that the Company
has undertaken over the past two years to reduce fixed costs.
Distribution Segment Discussion
Net sales increased $2.2 million, or 8.2%, from $27.3 million to $29.5
million for the quarters ended June 30, 2001 and 2002, respectively. This
increase is due to market share gains in this segment.
EBIT increased 22.2%, or $121,000, from $545,000 in the quarter ended
June 30, 2001 to $666,000 in the same period in 2002. This increase is due to
the increased sales volume.
Wood Segment Discussion
Net sales increased $0.7 million, or 8.2%, from $8.0 million in the three
month period ended June 30, 2001 to $8.7 million in the same period in 2002.
This increase is consistent with the increase in units shipped and produced in
the Recreational Vehicle industry which is the major industry that this segment
serves.
EBIT decreased $232,000, from income of $113,000 for the quarter ended
June 30, 2001 to a loss of $119,000 for the quarter ended June 30, 2002. This
decrease is due to operating inefficiencies at one facility due to equipment
problems and inefficiencies at another facility which is being consolidated into
another operation.
Other Segment Discussion
Net sales in this segment decreased $3.4 million, or 24.7%, from $13.9
million in the quarter ended June 30, 2001 to $10.5 million for the same period
in 2002. This decrease is attributable to the closing and consolidation of two
operations in
13
this segment in 2001 as well as the almost 10% decrease in sales in the
Manufactured Housing industry for the three month period ended June 30, 2002.
EBIT decreased $116,000, or 33.9%, from $344,000 in the quarter ended
June 30, 2001 to $228,000 in the quarter ended June 30, 2002. This decrease is
attributable to an approximate 83% decline in sales in one of the operating
units in this segment.
Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000
Laminating Segment Discussion
Net sales decreased in the second quarter of 2001 by $9.3 million, or
20.9%, from $44.6 million in the period ended June 30, 2000 to $35.3 million in
the period ended June 30, 2001. This decline in sales volume was due to
approximately 29% less shipments nationwide in the Manufactured Housing industry
as well as declines of up to 43% in some of the Company's principal market
areas.
EBIT declined 87.2% in the laminating segment from income of $1.3 million
in the three month period ended June 30, 2000 compared to income of $0.2 million
in the same period ended June 30, 2001. As a percentage of net sales, EBIT
decreased 2.5% from 3.0% in the second quarter of 2000 to 0.5% in the second
quarter of 2001. This decline is due to the decrease in sales volume.
Distribution Segment Discussion
Net sales decreased 29.2%, or $11.3 million, from $38.6 million in the
second quarter 2000 to $27.3 million in the second quarter 2001. This decrease
is due primarily to the decline in units shipped and produced in the
Manufactured Housing industry.
EBIT decreased 25.1%, or $0.2 million, due to the decrease in sales and
competitive pricing situations.
Wood Segment Discussion
Net sales decreased 17.3%, or $1.7 million, from $9.7 million in the
three month period ended June 30, 2000 to $8.0 million in the same period in
2001. This decline is consistent with the overall decline in the Recreational
Vehicle industry, which is the primary industry to which this segment serves.
EBIT for this segment has increased from operating income of $13,000 in
the second quarter of 2000 to operating income of $113,000 in the second quarter
of 2001. Management's continued commitment to improving operating results in
this segment and returning it to profitability resulted in improvement in three
of the segment's operating units. The closure of one of the segment's
under-performing units in 2000 resulted in additional cost savings.
Other Segment Discussion
Net sales in the other segment decreased by 2.8%, or $0.4 million, from
$14.3 million in the three months ended June 30, 2000 to $13.9 million in the
three month period ending June 30, 2001. The slight decline in sales volume is
primarily attributable to a 20% decline in sales in the Recreational Vehicle
industry, coupled with increases in sales in the Company's aluminum extrusion
division and machine manufacturing division, which sell to industries mainly
outside the Manufactured Housing and Recreational Vehicle industries.
EBIT for this segment increased $263,000, or 326.7%, from $81,000 in the
three month period ending June 30, 2000 to $344,000 in the same period in 2001.
This increase is due to the increases in volume in the Company's aluminum
extrusion and machine manufacturing divisions.
14
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Laminating Segment Discussion
Net Sales in this segment increased $7.3 million, or 10.9%, from $67.4
million in the six months ended June 30, 2001 to $74.7 million in the same
period in 2002. This increase is due to the approximate 14% increase in sales in
the Recreational Vehicle industry. Additionally, the Company closed two
divisions in the other segment in 2001 which had sales of approximately $3.0
million for the six months ended June 30, 2001. Certain of these operations were
merged into a facility in the laminating segment which was operating at less
than capacity and subsequently in 2002 has seen significantly increased volume
resulting in higher efficiencies and increased profitability.
EBIT increased $2.6 million, from a loss of $0.2 million in the six
months ended June 30, 2001 to income of $2.4 million in the same period in 2002.
This increase is attributable to increased sales volume coupled with increased
operating efficiencies from the reduction of fixed costs related to the
strategic cost cutting measures that were taken in 2000 and 2001.
Distribution Segment Discussion
Net sales in this segment increased $5.9 million, or 12.0%, from $49.5
million in the six months ended June 30, 2001 to $55.4 million in the six months
ended June 30, 2002. This increase is due to market share gains.
EBIT increased $261,000, or 51%, due to increased sales volume.
Wood Segment Discussion
Net sales increased $1.4 million, or 8.8%, from $15.7 million in the six
months ended June 30, 2001 to $17.1 million in the six months ended June 30,
2002. This increase is attributable to the approximate 14% increase in sales in
the Recreational Vehicle industry for the first six months of 2002.
EBIT decreased $122,000, from a loss of $12,000 for the six months ended
June 30, 2001 to a loss of $134,000 for the six months ended June 30, 2002. This
decrease is attributable to two operating units in this segment experiencing
operating inefficiencies, one of which is being consolidated into another
division in this segment. The operating results of these two divisions have
mitigated the positive results of the three other divisions within this segment.
Other Segment Discussion
Net sales in this segment decreased $4.5 million, or 18.5%, from $24.6
million in the first six months of 2001 compared to $20.0 million in the same
period in 2002. This decline is due to the closing and consolidation of one
division in the first quarter of 2001 and two divisions in the fourth quarter of
2001.
EBIT increased $822,000, or 162.1%, from a loss of $507,000 in the six
month period ended June 30, 2001 compared to income of $315,000 in the six month
period ended June 30, 2002. This increase is due to the closing and
consolidation of three unprofitable divisions in this segment in 2001.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
Laminating Segment Discussion
Net sales in the laminating segment decreased by 25.1%, or $22.6 million
from $90.0 million in the six month period ending June 30, 2000 to $67.4 million
in the same period in 2001. This decrease is attributable to the 35% decline in
units shipped and produced in the Manufactured Housing industry and 20% decrease
in units shipped and produced in the Recreational Vehicle industry.
EBIT decreased 112.3%, or $2.0 million, from $1.8 million in the six
months ended June 30, 2000 to a loss of $0.2 million for the six months ended
June 30, 2001. This decline is attributable to the decrease in sales volume.
15
Distribution Segment Discussion
Net sales in the distribution segment decreased $25.0 million, or 33.6%,
from $74.5 million in the first half of 2000 to $49.5 million in the first half
of 2001. This decrease is directly related to the 35% decrease in units shipped
and produced in the Manufactured Housing industry.
EBIT decreased 54.5%, or $612,000, due to the decrease in sales and
competitive pricing situations.
Wood Segment Discussion
Net sales in the wood segment decreased $3.9 million, or 19.9%, from
$19.6 million in the six months ended June 30, 2000 to $15.7 million in the same
period in 2001. This decline is consistent with the overall decline in the
Recreational Vehicle industry, which is the primary industry to which this
segment serves.
The operating loss in this segment decreased from a loss of $649,000 in
the first six months of 2000 to an operating loss of $12,000 in the first six
months of 2001. Management's continued commitment to improving operating results
in this segment and returning it to profitability resulted in the improvement in
three of the segment's operating units. Additionally, depreciation expense has
been reduced by approximately $250,000 as a result of the Company recognizing a
non-cash accounting charge in the first quarter of 2000 related to the
impairment of certain long-lived assets. The Company also closed one operating
unit in this segment in 2000 which contributed to savings in 2001 of
approximately $569,000.
Other Segment Discussion
Net sales in the other segment decreased 18.2%, or $5.4 million, from
$30.0 million in the six months ended June 30, 2000 to $24.6 million in the six
months ended June 30, 2001. This decline is due to reduced sales volume in the
Recreational Vehicle industry.
EBIT decreased from operating income of $28,000 in the first half of 2000
to an operating loss of $507,000 in the first half of 2001. This decrease is due
to the decline in sales volume.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are to meet working capital
needs, support its capital expenditure plans, and meet debt service
requirements.
The Company, in September, 1995, issued to an insurance company in a
private placement $18,000,000 of senior unsecured notes. The ten year notes bear
interest at 6.82%, with semi-annual interest payments that began in 1996 and
seven annual principal repayments of $2,571,428 which began September 15, 1999.
These funds were used to reduce existing bank debt and for working capital
needs.
The Company has an unsecured bank Revolving Credit Agreement that
provides loan availability of $10,000,000 with maturity in the year 2003.
Pursuant to the private placement and the Credit Agreement, the Company
is required to maintain certain financial ratios, all of which are currently
complied with.
The Company believes that cash generated from operations and borrowings
under its credit agreements will be sufficient to fund its working capital
requirements and normal recurring capital expenditures as currently
contemplated. The fluctuations in inventory and accounts receivable and accounts
payable balances, which affect the Company's cash flows, are part of normal
business cycles.
A summary of our contractual cash obligations remaining at June 30,
2002 and for the twelve month periods ending 2003 through 2006 is as follows:
16
-------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
-------------------------------------------------------------------------------------------
- ---------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2002 2003 2004 2005 2006
- --------------------------------------- --------------- --------------- -------------- -------------- ------------- ---------------
--------------- --------------- -------------- -------------- ------------- ---------------
Long-term debt, including interest** $17,792,688 $4,095,421 $4,368,757 $4,159,176 $3,949,599 $1,219,735
--------------- --------------- -------------- -------------- ------------- ---------------
Operating Leases $3,972,688 $1,180,029 $1,592,658 $849,135 $311,178 $39,688
--------------- --------------- -------------- -------------- ------------- ---------------
Total contractual cash obligations $21,765,376 $5,275,450 $5,961,415 $5,008,311 $4,260,777 $1,259,423
--------------- --------------- -------------- -------------- ------------- ---------------
**Interest payments have been calculated using the fixed rate of 6.82% for the
Senior notes and the average 2001 annual interest rate of 3.11% for the
Industrial Revenue Bonds.
We also have a commercial commitment as described below:
- ---------------------- ------------------- ---------------- --------------------
OTHER COMMERCIAL TOTAL AMOUNT OUTSTANDING DATE OF
COMMITMENT COMMITTED AT 06/30/02 EXPIRATION
- ---------------------- ------------------- ---------------- --------------------
Line of Credit $10,000,000 $0 January 28, 2003
- ---------------------- ------------------- ---------------- --------------------
We believe that our cash balance, availability under our line of credit,
if needed, and anticipated cash flows from operations will be adequate to fund
our cash requirements for 2002.
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.
As a matter of policy, we review our major assets for impairment. Our
major operating assets are accounts receivable, inventory, and property and
equipment. We have not experienced significant bad debts losses and our reserve
for doubtful accounts of $200,000 should be adequate for any exposure to loss in
our June 30, 2002 accounts receivable. We have also established reserves for
slow moving and obsolete inventories and believe them to be adequate. We
depreciate our property and equipment over their estimated useful lives and
during the six months ended June, 2002 and June, 2001 we have not identified any
items that are impaired.
SEASONALITY
Manufacturing operations in the manufactured housing and recreational
vehicle industries historically have been seasonal and are generally at the
highest levels when the climate is moderate. Accordingly, the Company's sales
and profits are generally highest in the second and third quarters.
17
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
18
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
(a) The Annual Meeting of Shareholders of the Company was held on
May 15, 2002.
(b) Not applicable.
(c) 1. Set forth below is the tabulation of the votes on each
nominee for election as a director:
WITHHOLD
NAME FOR AUTHORITY
Robert C. Timmins 4,237,137 47,819
Terrence D. Brennan 4,239,505 45,451
Larry D. Renbarger 4,233,826 51,130
(d) Not applicable.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The following is included as an exhibit to this report on
Form 10Q:
Exhibit No. Description
----------- -----------
99.1 Certification of Chief Executive Officer and
Chief Financial Officer
(b) There were no reports filed on Form 8-K
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATRICK INDUSTRIES, INC.
(Registrant)
Date August 13, 2002 /S/Harold E. Wyland
-------------------- --------------------------------
Harold E. Wyland
(Chairman of the Board)
Date August 13, 2002 /S/David D. Lung
------------------- --------------------------------
David D. Lung
(President)
Date August 13, 2002 /S/Andy L. Nemeth
--------------------- --------------------------------
Andy L. Nemeth
(Secretary-Treasurer)
(Principal Accounting Officer)
20