UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
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)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Indicate by check mark whether the registrant is an accelerated filer.
Yes No X
--------- ------
Shares of Common Stock Outstanding as of April 30, 2004: 4,683,736.
1
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Balance Sheets
March 31, 2004 (unaudited) & December 31, 2003 3
Unaudited Condensed Statements of Operations
Three Months Ended March 31, 2004 & 2003 4
Unaudited Condensed Statements of Cash Flows
Three Months Ended March 31, 2004 & 2003 5
Notes to Unaudited Condensed Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8-13
CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
ITEM 4. CONTROLS AND PROCEDURES 13
PART II: OTHER INFORMATION 14
Signatures 15
2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PATRICK INDUSTRIES, INC.
Unaudited CONDENSED BALANCE SHEETS
MARCH 31 DECEMBER 31
2004 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,337,429 $ 7,077,390
Trade receivables 19,905,336 14,240,556
Inventories 27,633,422 23,042,444
Prepaid expenses 919,166 913,650
Deferred tax assets 1,954,000 1,954,000
----------- -----------
Total current assets 51,749,353 47,228,040
----------- -----------
PROPERTY AND EQUIPMENT, at cost 92,256,912 90,620,044
Less accumulated depreciation 58,850,819 59,927,134
----------- -----------
33,406,093 30,692,910
----------- -----------
INTANGIBLE AND OTHER ASSETS 3,238,624 3,221,010
----------- -----------
Total assets $88,394,070 $81,141,960
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,671,429 $ 3,671,429
Accounts payable 12,172,059 4,883,038
Accrued liabilities 3,442,753 3,038,926
----------- -----------
Total current liabilities 19,286,241 11,593,393
----------- -----------
LONG-TERM DEBT, less current maturities 7,771,430 7,771,430
----------- -----------
DEFERRED LIABILITIES 2,208,525 2,529,403
----------- -----------
Total liabilities $29,266,196 $21,894,226
----------- -----------
SHAREHOLDERS' EQUITY
Common stock 18,638,116 18,236,386
Retained earnings 40,489,758 41,011,348
----------- -----------
Total shareholders' equity 59,127,874 59,247,734
----------- -----------
Total liabilities and shareholders' equity $88,394,070 $81,141,960
=========== ===========
See accompanying notes to Unaudited Condensed Financial Statements.
3
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31
2004 2003
Net Sales $ 65,712,355 $ 67,285,080
Cost of goods sold 58,119,215 60,213,755
------------ ------------
Gross profit 7,593,140 7,071,325
------------ ------------
Operating expenses:
Warehouse and delivery expenses 3,160,855 3,193,773
Selling, general, and administrative expenses 5,156,545 5,171,372
------------ ------------
Total operating expenses 8,317,400 8,365,145
------------ ------------
Operating loss (724,260) (1,293,820)
Interest expense, net 137,830 193,950
------------ ------------
Loss before income taxes (credits) (862,090) (1,487,770)
Federal and state income taxes (credits) (340,500) (587,700)
------------ ------------
Net loss $ (521,590) $ (900,070)
============ ============
Basic and diluted loss per common share $ (.11) $ (.20)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,640,741 4,584,261
See accompanying notes to Unaudited Condensed Financial Statements.
4
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
THREE MONTHS ENDED
MARCH 31
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (521,590) $ (900,070)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,399,259 1,442,114
(Gain) on sale of fixed assets (11,375) (13,376)
Deferred income taxes (332,566) (294,776)
Other 70,500 70,500
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables (5,664,780) (5,974,837)
Inventories (4,590,978) 185,674
Income tax refund claims receivable - - - 539,051
Prepaid expenses (5,516) (474,240)
Increase (decrease) in:
Accounts payable and accrued liabilities 7,705,556 4,900,752
Income taxes payable (12,707) (240,000)
----------- -----------
Net cash (used in) operating activities (1,964,197) (759,208)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,027,617) (828,187)
Proceeds from sale of property and equipment 17,150 16,370
Other (106,102) 67,488
----------- -----------
Net cash (used in) investing activities (4,116,569) (744,329)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on deferred compensation obligations (58,812) (72,312)
Proceeds from exercise of common stock options 401,730 - - -
Cash dividends paid - - - (183,279)
Other (2,113) (3,316)
----------- -----------
Net cash provided by (used In) financing activities 340,805 (258,907)
----------- -----------
(Decrease) in cash and cash equivalents (5,739,961) (1,762,444)
Cash and cash equivalents, beginning 7,077,390 3,552,232
----------- -----------
Cash and cash equivalents, ending $ 1,337,429 $ 1,789,788
=========== ===========
Cash Payments for:
Interest $ 228,078 $ 323,250
Income taxes 4,773 6,282
See accompanying notes to Unaudited Condensed Financial Statements.
5
PATRICK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position
as of March 31, 2004, and December 31, 2003, and the results of
operations and cash flows for the three months ended March 31, 2004 and
2003.
2. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed
or omitted. It is suggested that these condensed financial statements
be read in conjunction with the financial statements and notes thereto
included in the Company's December 31, 2003 audited financial
statements. The results of operations for the three month periods ended
March 31, 2004 and 2003 are not necessarily indicative of the results
to be expected for the full year.
3. The inventories on March 31, 2004 and December 31, 2003 consist of the
following classes:
March 31 December 31
2004 2003
----------- -----------
Raw materials $15,782,222 $12,733,414
Work in process 1,605,000 1,630,052
Finished goods 4,375,060 3,501,779
----------- -----------
Total manufactured goods 21,762,282 17,865,245
Distribution products 5,871,140 5,177,199
----------- -----------
TOTAL INVENTORIES $27,633,422 $23,042,444
=========== ===========
Inventories are stated at the lower of cost (first-in, first-out (FIFO)
method) or market.
4. Dividends per common share for the three months ended March 31, 2003
were $.04 per share.
5. The Company accounts for grants of stock options under its stock option
plan based on the recognition and measurement principles of APB Opinion
No. 25 and related interpretations. The following table illustrates the
effect on net income and earnings per share if the Company had applied
the fair value recognition provision of FASB Statement No. 123 to stock
based employee compensation:
Three Months Ended March 31
2004 2003
---------------------------
Net income (loss):
As reported $(521,590) $(900,070)
Deduct total stock-based employee
compensation expense determined
under fair value based method for
all rewards net of related tax effects (30,035) (38,039)
----------- ----------
Pro forma $(551,625) $(938,109)
========= ==========
Basic and diluted loss per share:
As reported $ (0.11) $ (0.20)
Pro forma (0.12) (0.20)
6. Effective January 1, 2004, the Company changed its segment reporting to
no longer allocate corporate expenses to the individual business units.
Accordingly, the segment results have been restated to reflect this
change.
6
7. The Company has determined that its reportable segments are those that
are based on the Company's method of internal reporting, which
segregates its business by product category and production/distribution
process. Effective January 1, 2004, in accordance with the Company's
internal reporting, the Company changed its segment reporting from four
reportable segments to three. As a result of this change, two of the
operations in the wood segment were combined into the Primary
Manufactured Products Segment and two of the operations were combined
into the Other Component Manufactured Products Segment. The Company's
reportable segments are as follows:
Primary Manufactured Products - 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 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.
Other Component Manufactured Products - Includes aluminum extrusion and
fabricating, an adhesive division, two cabinet door divisions, and a
machine manufacturing division.
The table below presents unaudited information about the revenue and
operating income of those segments:
THREE MONTHS ENDED MARCH 31, 2004
-------------------------------------
PRIMARY OTHER
MANUFACTURED COMPONENT MFG
PRODUCTS DISTRIBUTION PRODUCTS SEGMENT TOTAL
-------- ------------ -------- --------------
Net outside sales $ 35,434,304 $ 20,796,415 $ 9,481,636 $65,712,355
Intersegment sales 1,771,428 343,915 2,233,894 4,349,237
------------ ------------ ------------- -----------
Total sales $ 37,205,732 $ 21,140,330 $ 11,715,530 $70,061,592 *
------------ ------------ ------------- -----------
Operating income $ 728,672 $ 783,686 $ 153,575 $ 1,665,933
Total assets $ 35,724,873 $ 12,423,900 $ 7,788,714 $55,937,487
THREE MONTHS ENDED MARCH 31, 2003
---------------------------------
Net outside sales $ 35,860,262 $ 20,161,779 $ 11,263,039 $67,285,080
Intersegment sales 1,830,250 206,390 1,892,275 3,928,915
------------ ------------ ------------- -----------
Total sales $ 37,690,512 $ 20,368,169 $ 13,155,314 $ 71,213,995 *
------------ ------------ ------------- -----------
Operating income (loss) $ 893,948 $ 546,805 $ (611,015) $ 829,738
Total assets $ 36,585,820 $ 10,859,332 $ 10,742,765 $58,187,917
Reconciliation of segment operating income to consolidated operating income
2004 2003
---- ----
Operating income for segments $ 1,665,933 $ 829,738
Corporate incentive agreements 300,000 306,019
Consolidation reclassifications 8,649 54,036
Gain on sale of property
and equipment 11,375 13,376
Corporate expenses (2,748,223) (2,506,608)
Other 38,006 9,619
------------ ------------
Consolidated Operating Loss $ (724,260) $(1,293,820)
============ ============
*Does not agree to Financial Statements due to consolidation eliminations.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
After coming off of two approximate break-even years in 2002 and 2003, $.02
earnings per share in 2002 and a $.01 loss per share in 2003, the first quarter
of 2004 started out very similar to the 2003 first quarter. Net sales, which
decreased by 2.3% from the 2003 first quarter, continued to be affected by
shipment declines in the Manufactured Housing industry, which are at more than
forty year lows. Competitive pricing situations continued to put pressure on
gross margins, however, the Company's restructuring efforts in 2003 helped to
decrease operating losses by 44% from the 2003 first quarter. Operating expenses
for the first quarter of 2004 continued to be aligned with revenues as a
percentage of net sales when compared to the first quarter of 2003, and net
losses decreased by $.09 per share from $.20 per share loss in the first quarter
of 2003 to $.11 per share loss in the first quarter of 2004. Net sales to the
Manufactured Housing, Recreational Vehicle, and Industrial markets were 38%,
33%, and 29%, respectively, for the first three months of 2004, and 39%, 33%,
and 28%, respectively for the same period in 2003.
The Manufactured Housing industry continued to show shipment declines through
February. This industry has posted declines in fifty-five of the last sixty
months. In March, however, the Industry posted its first month of shipment
increases in twenty-four months with shipments being approximately 8% higher
than the March 2003 shipment number. For the first quarter of 2004, shipments
decreased by 5.5% from the first quarter of 2003. Shipments for the 2004 year
are projected to be higher than in 2003. While repossessed inventory levels have
been reduced to more manageable levels, the availability of dealer and retail
financing as well as overall jobs growth remain questionable and will have an
impact on future shipment levels.
The Recreational Vehicle Industry continued to post consistently strong shipment
levels with first quarter shipments 18.7% higher than in 2003. Shipments in this
industry have been greater than 300,000 units in four out of the last five years
and 2004 is expected to be at or above the 2003 level, which was the second
highest in the last twenty-five years. While rising gasoline prices have not had
a major impact on shipments in this industry in the last ten years, the
forecasted price increases for this year, or decreases in availability, could
have a negative effect on future shipment levels.
The Company remains focused on its efforts to increase penetration into the
industrial and other markets and in its efforts to further diversify its
business model and grow sales levels. Additionally, capital expenditures for
property and equipment will increase in 2004 in accordance with the Company's
strategic plan as will investment in personnel to help further direct the
Company's sales focus.
The following table sets forth the percentage relationship to net sales
of certain items in the Company's Statements of Operations:
Quarter Ended
March 31,
2004 2003
Net sales 100.0% 100.0%
Cost of sales 88.4 89.5
Gross profit 11.6 10.5
Warehouse and delivery 4.8 4.7
Selling, general & administrative 7.9 7.7
Operating (loss) (1.1) (1.9)
Income taxes (credits) (0.5) (0.9)
Net (loss) (0.8) (1.3)
RESULTS OF OPERATIONS
Quarter Ended March 31, 2004 Compared to Quarter Ended March 31,2003
Net Sales. Net sales decreased by $1.6 million, or 2.3% from $67.3
million at March 31, 2003 compared to $65.7 million at March 31, 2004. The
8
decrease is primarily attributable to the continued declines in shipment levels
in the Manufactured Housing Industry, which represent 38% of consolidated sales.
Manufactured Housing shipments were down 5.5% from the previous year. The
decreased sales as a result of the decline in Manufactured Housing shipments
were offset by a 18.7% increase in shipments in the Recreational Vehicle
Industry, which accounts for 33% of consolidated sales, and increased sales to
the Industrial and Other Markets, which accounts for 29% of consolidated sales.
Gross Profit. Gross Profit increased by $0.5 million, or 7.4% from $7.1
million in the first quarter of 2003 to $7.6 million in the first quarter of
2004. As a percentage of net sales, gross profit increased approximately 1.1%
from 10.5% in the first quarter of 2003 to 11.6% in the first quarter of 2004.
The increase in dollars and percent of net sales is primarily attributable to
the Company closing one of its unprofitable cabinet door divisions in the third
quarter of 2003, which resulted in decreased losses in the first quarter of
2004.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
remained fairly constant at $3.2 million for both the first quarter of 2003 and
2004, and at 4.7% and 4.8% of net sales for both periods in 2003 and 2004,
respectively. The Company has continued its efforts to keep costs aligned with
revenues.
Selling, General, and Administrative Expenses. Selling, general and
administrative expenses remained constant at $5.2 million for the first quarter
of 2003 and 2004. As a percentage of net sales, selling, general and
administrative expenses increased by 0.2% from 7.7% in the first quarter of 2003
to 7.9% in the first quarter of 2004. The increase in percent of net sales is
attributable to the decreased sales volume of 2.3%.
Operating Loss. Operating losses decreased by $0.6 million, or 44.0%
from a loss of $1.3 million in the first quarter of 2003 to a loss of $0.7
million in the first quarter of 2004. The decrease is operating losses is
attributable to the factors described above.
Interest Expense, Net. Interest expense, net decreased by $56,000 due
to normal debt service requirements resulting in lower long-term debt
outstanding from quarter to quarter.
Net Loss. The Company recorded a net loss of $0.5 million in the first
quarter of 2004 compared to a net loss of $0.9 million in the same period in
2003. The decreased net loss is attributable to the factors described above.
Quarter Ended March 31, 2003 Compared to Quarter Ended March 31, 2002
Net Sales. Net sales decreased approximately $7.9 million, or 10.6%,
from $75.2 million for the quarter ended March 31, 2002 to $67.3 million for the
quarter ended March 31, 2003. This decrease is attributable to an approximate
26% decrease in units shipped in the Manufactured Housing Industry, which
represents approximately 39% of the Company's sales. Shipments in the
Recreational Vehicle Industry, which represents an additional 33% of the
Company's sales, were up more than 7% and helped to offset the continued
declines experienced by the Manufactured Housing Industry. The Company continued
its penetration into the Industrial and Other markets, which represent the
remaining 28% of the first quarter 2003 net sales.
Gross Profit. Gross profit decreased approximately $2.6 million, or
27.4%, from $9.7 million in 2002 to $7.1 million in 2003. As a percentage of net
sales, gross profit decreased by approximately 2.4%. Significant competitive
pricing pressures have forced the Company to reduce selling prices resulting in
decreased margins. Additionally, certain fixed costs have remained constant in
this period of declining sales volume.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
decreased approximately $0.2 million, from $3.4 million for the first quarter of
2002 to $3.2 million in the same period in 2003. As a percentage of net sales,
warehouse and delivery expenses increased slightly from 4.6% in 2002 to 4.7% in
2003. The Company has continued to reduce its fleet size from the previous year
as well as gaining operating efficiencies by consolidating shipments and
attempting to ship more full truckloads. These efforts have been offset by
increased gasoline prices and delivery surcharges from the trucking companies.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased by $0.4 million, or 8.2%, from $5.6 million in
the quarter ending March 31, 2002 to $5.2 million for the quarter ending March
31, 2003. As a percentage of net sales, selling, general, and administrative
expenses increased 0.2%, from 7.5% the first quarter of 2002 to 7.7% in the
first quarter of 2003. The decrease in dollars is attributable to the Company
continuing to make significant strategic cost cutting measures resulting in
reduced fixed expenses. These efforts are ongoing and continue to be a priority
for the Company to keep costs aligned with revenues.
9
Operating Income (Loss). The Company experienced an operating loss of
$1.3 million in the first quarter of 2003 compared to operating income of $0.7
million in the first quarter of 2002. The decrease in operating income is due to
the factors described above.
Interest Expense, Net. Interest expense, net of interest income
decreased 16.2%, or $37,000, from $231,000 in the first quarter of 2002 to
$194,000 in the first quarter of 2003. The decrease is attributable to lower
long term debt levels and a corresponding decrease in interest rates on the
variable rate debt from the previous year.
Net Income (Loss). The Company reported a net loss of $0.9 million in
the first quarter of 2003 compared to net income of $0.3 million for the first
quarter of 2002. The decrease in net income is attributable to the factors
described above.
BUSINESS SEGMENTS
As discussed in Notes 6 and 7, the Company changed its segment reporting to
reduce the number of reportable segments from four to three and to eliminate
allocating corporate expenses to the reportable segments. Accordingly, the
Segment Operating Results and the Business Segment Discussions have been
restated to reflect these changes.
Quarter Ended March 31, 2004 Compared to Quarter Ended March 31, 2003
Primary Manufactured Products Segment Discussion
Net Sales. Net Sales decreased by $0.5 million, or 1.3% from $37.7
million in the first quarter of 2003 to $37.2 million in the first quarter of
2004. The decrease in net sales is attributable to the approximate 5.5% decrease
in shipments in the Manufactured Housing industry. Offsetting this decrease were
increases in shipments to the Recreational Vehicle industry and increased sales
to the industrial and other markets.
Operating Income. Operating income decreased by $0.2 million from $0.9
million in the first quarter of 2003 to $0.7 million in the first quarter of
2004. This decrease is primarily attributable to decreased gross margins as a
result of competitive pricing situations.
Distribution Segment Discussion
Net Sales. Net sales increased by $0.7 million, or 3.8% from $20.4
million in the first quarter of 2003 to $21.1 million in the first quarter of
2004. The increase in sales is attributable to increased sales to the
Manufactured Housing Industry by this segment, which is the primary market that
this segment serves.
Operating Income. Operating income increased by $0.2 million from $0.5
million in the first quarter of 2003 to $0.7 million in the same period in 2004.
The increase in operating income is attributable to the increased sales volume.
Other Manufactured Component Products Segment Discussion
Net sales. Net sales decreased by $1.4 million, or 10.9% from $13.1
million in the first quarter of 2003 to $11.7 million in the first quarter of
2004. The decrease in sales volume is attributable to the Company closing one of
its cabinet door facilities in the third quarter of 2003.
Operating Income. Operating income increased by $0.8 million due
primarily to the closing of one of the Company's cabinet door divisions in the
third quarter of 2003.
Quarter Ended March 31, 2003 Compared to Quarter Ended March 31, 2002
Primary Manufactured Products Segment Discussion
Net sales decreased by 3.3%, or $1.3 million, from $39.0 million in
quarter ended March 31, 2002 to $37.7 million in the same period in 2003. This
decrease is attributable to the approximate 26% decrease in units shipped in the
Manufactured Housing Industry coupled with an increase in shipments in the
Recreational Vehicle Industry of approximately 8%. Additionally, increased
penetration into the Industrial and Other markets has helped to offset the
continued declines in the Manufactured Housing Industry.
10
Operating income decreased $1.4 million from income of $2.3 million in
the first quarter of 2002 to $0.9 million in the first quarter of 2003. This
decrease is attributable to significant competitive pricing pressures forcing
certain operations in this segment to reduce selling prices resulting in lower
gross margins.
Distribution Segment Discussion
Net sales decreased $5.4 million, or 21.2%, from $25.8 million in the
first quarter of 2002 to $20.4 million in the first quarter of 2003. This
decrease is attributable to an approximate 26% decrease in shipments in the
Manufactured Housing Industry, which is the primary market this segment serves.
Operating income decreased $0.2 million, from income of $0.7 million in
the first quarter of 2002 to income of $0.5 million in the first quarter of
2003. The decrease in operating income is due to reduced sales volume.
Other Manufactured Component Products Segment Discussion
Net sales decreased $1.8 million, or 11.9%, from $14.9 million in the
first quarter of 2002 to $13.1 million in the first quarter of 2003. This
decrease is attributable to the closing of one of the business units in this
segment in 2002.
Operating income in this segment decreased from $0.2 million in the
first quarter of 2002 to an operating loss of $0.6 million in the first quarter
of 2003. Production inefficiencies and labor problems continue to plague one of
the operating units in this segment, which was profitable in the first quarter
of 2002, as a result of a change in raw material required by one of its major
customers which occurred in the fourth quarter of 2002. Losses are expected to
continue through at least the second quarter while the Company strategically
moves away from the use of this product at the expense of reduced sales volume.
Additionally, another operating unit in this segment continues to post losses as
a result of not having enough sales volume to cover the overhead expenses
associated with its operating facility.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are to meet working
capital needs, support its capital expenditure plans, and meet debt service
requirements.
The Company, in September, 1995, issued to an insurance company in a
private placement $18,000,000 of senior unsecured notes. The ten year notes bear
interest at 6.82%, with semi-annual interest payments that began in 1996 and
seven annual principal repayments of $2,571,429 that began in September, 1999.
These funds were used to reduce existing bank debt and for working capital
needs.
The Company has a secured bank revolving credit agreement that
provides loan availability of $15,000,000 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, planned capital expenditures, and common stock repurchase
program as currently contemplated. The changes in inventory and accounts
receivable balances, which affect the Company's cash flows, are part of normal
business cycles that cause them to change periodically.
A summary of our contractual cash obligations remaining at March 31,
2004 and for the twelve month periods ending 2005 through 2008 is as follows:
---------------------------------------------------------------------------------------------
PAYMENTS DUE BY PERIOD
---------------------------------------------------------------------------------------------
- -------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2004 2005 2006 2007 2008
- ------------------------------------- --------------- --------------- --------------- ------------- --------------- ---------------
--------------- --------------- --------------- ------------- --------------- ---------------
Long-term debt, including interest
at variable rates** $5,216,313 $1,178,313 $1,186,625 $1,167,375 $849,000 $835,000
--------------- --------------- --------------- ------------- --------------- ---------------
Long-term debt, including interest
at fixed rates** $5,478,989 $2,783,335 $2,695,654 $0 $0 $0
--------------- --------------- --------------- ------------- --------------- ---------------
Operating Leases $3,158,109 $1,403,537 $837,501 $502,892 $279,623 $134,556
--------------- --------------- --------------- ------------- --------------- ---------------
Total contractual cash obligations $13,853,411 $5,365,185 $4,719,780 $1,670,267 $1,128,623 $969,556
--------------- --------------- --------------- ------------- --------------- ---------------
**Interest payments have been calculated using the fixed rate of 6.82% for the
Senior notes and the average 2003 annual interest rate of 1.75% for the
Industrial Revenue Bonds.
We also have a commercial commitment as described below:
- ------------------- -------------------- ------------------- ------------------
OTHER COMMERCIAL TOTAL AMOUNT OUTSTANDING DATE OF
COMMITMENT COMMITTED AT 03/31/04 EXPIRATION
- ------------------- -------------------- ------------------- ------------------
Line of Credit $15,000,000 $0 May 31, 2006
- ------------------- -------------------- ------------------- ------------------
We believe that our cash balance, availability under our line of
credit, if needed, and anticipated cash flows from operations will be adequate
to fund our cash requirements for fiscal 2004.
12
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are summarized in the footnotes to
our financial statements. Some of the most critical policies are also discussed
below.
Our major operating assets are accounts receivable, inventory, and
property and equipment. Exclusive of the write-off of certain assets related to
the Oakwood Homes Corporation bankruptcy filing in November, 2002, we have not
experienced significant bad debts losses and our reserve for doubtful accounts
of $250,000 should be adequate for any exposure to loss in our March 31, 2004
accounts receivable. We have also established reserves for slow moving and
obsolete inventories and believe them to be adequate. We depreciate our property
and equipment over their estimated useful lives and we have not identified any
items that are impaired for the quarter ended March 31, 2004. The Company ships
product based on specific orders from customers and revenue is recognized upon
delivery.
SEASONALITY
Manufacturing operations in the Manufactured Housing and Recreational
Vehicle Industries historically have been seasonal and are generally at the
highest levels when the climate is moderate. Accordingly, the Company's sales
and profits are generally highest in the second and third quarters.
INFLATION
The Company does not believe that inflation had a material effect on
results of operations for the periods presented.
SAFE HARBOR STATEMENT
Statements that do not address historical performance are
"forward-looking statements" within the meaning of the Private Securities
Litigation reform Act of 1995 and are based on a number of assumptions,
including but not limited to; (1) continued domestic economic growth and demand
for the Company's products; and (2) the Company's belief with respect to its
capital expenditures, seasonality and inflation. Any developments significantly
deviating from these assumptions could cause actual results to differ materially
from that forecast or implied in the aforementioned forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to interest rate changes
on portions of 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 are effective in
all material respects in ensuring that information required to be disclosed in
the report that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. There have been no
significant changes in our internal controls over financial reporting or in
other factors that could significantly affect these controls subsequent to the
date of the previously mentioned evaluation.
13
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Executive Officer
31.2 Certification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 by Chief Financial Officer
32 Certification pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K
April 30, 2004
Item 9. Regulation FD Disclosure
Press Release dated April 23, 2004 announcing
first quarter 2004 earnings
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATRICK INDUSTRIES, INC.
(Company)
Date May 12, 2004 /S/Robert C. Timmins
----------------------- --------------------------
Robert C. Timmins
(Lead Director)
Date May 12, 2004 /S/Paul E. Hassler
----------------------- --------------------------
Paul E. Hassler
(President)
(Chief Executive Officer)
Date May 12, 2004 /S/Andy L. Nemeth
----------------------- --------------------------
Andy L. Nemeth
(Vice President-Finance)
(Chief Financial Officer)
15