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, 2000
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)
(219) 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 30, 2000: 5,211,166
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
Unaudited Condensed Balance Sheets
June 30, 2000 & December 31, 1999 3
Unaudited Condensed Statements of Operations
Three Months Ended June 30, 2000 & 1999, and
Six Months Ended June 30, 2000 & 1999 4
Unaudited Condensed Statements of Cash Flows
Six Months Ended June 30, 2000 & 1999 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 18
Signatures 19
PART I: FINANCIAL INFORMATION
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
(Unaudited) (Note)
JUNE 30 DECEMBER 31
2000 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 992,171 $ 6,686,182
Trade receivables 24,879,923 18,498,685
Inventories 44,284,198 42,039,348
Prepaid expenses 315,117 663,189
------------ ------------
Total current assets 70,471,409 67,887,404
------------ ------------
PROPERTY AND EQUIPMENT, at cost 92,108,326 90,450,403
Less accumulated depreciation 50,045,666 40,554,763
------------ ------------
42,062,660 49,895,640
------------ ------------
DEFERRED TAX ASSETS 754,000 - - -
------------ ------------
------------
INTANGIBLE AND OTHER ASSETS 6,694,371 8,420,056
------------ ------------
Total assets $119,982,440 $126,203,100
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,671,428 $ 3,671,428
Accounts payable, trade 15,215,757 11,155,999
Accrued liabilities 4,921,650 5,506,326
------------ ------------
Total current liabilities 23,808,835 20,333,753
------------ ------------
LONG-TERM DEBT, less current maturities 22,457,144 22,457,144
------------ ------------
DEFERRED COMPENSATION OBLIGATIONS 2,050,190 1,945,058
------------ ------------
DEFERRED TAX LIABILITIES - - - 1,900,000
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 20,177,500 21,389,940
Retained earnings 51,488,771 58,177,205
------------ ------------
Total shareholders' equity 71,666,271 79,567,145
------------ ------------
Total liabilities and shareholders' equity $119,982,440 $126,203,100
============ ============
NOTE: The balance sheet at December 31, 1999 has been taken from the
audited financial statements at that date.
See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
NET SALES $ 100,902,440 $ 123,029,266 $ 200,726,513 $ 230,381,300
------------- ------------- ------------- -------------
COST AND EXPENSES
Cost of goods sold 88,336,721 106,759,213 177,407,331 200,127,395
Warehouse and delivery expenses 3,957,873 4,369,909 8,063,910 8,202,009
Selling, general, and administrative expenses 6,460,527 7,183,881 13,321,809 13,315,342
Impairment charges - - - - - - 6,937,163 - - -
Restructuring charges 332,342 - - - 332,342 - - -
Interest expense, net 353,622 322,800 667,255 689,135
------------- ------------- ------------- -------------
99,441,085 118,635,803 206,729,810 222,333,881
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 1,461,355 4,393,463 (6,003,297) 8,047,419
INCOME TAXES (CREDIT) 581,300 1,734,600 (2,281,000) 3,177,900
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 880,055 $ 2,658,863 $ (3,722,297) $ 4,869,519
============= ============= ============= =============
BASIC AND DILUTED EARNINGS
PER COMMON SHARE $ .16 $ .47 $ ( .70) $ .85
============= ============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,268,666 5,685,715 5,307,506 5,735,819
See accompanying notes to Unaudited Condensed Financial Statements.
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
SIX MONTHS ENDED
JUNE 30
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (3,722,297) $ 4,869,519
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,508,565 4,252,966
Impairment charges 6,937,163 - - -
(Gain) Loss on sale of property and equipment 9,022 641,096)
Deferred income taxes (2,654,000) - - -
Other 215,132 70,467
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables (6,381,238) (13,272,694)
Inventories (2,244,850) (4,717,936)
Prepaid expenses 348,072 (138,126)
Increase (decrease) in:
Accounts payable and accrued liabilities 3,648,160 11,619,587
Income taxes payable (192,846) 1,586,360
------------ ------------
Net cash provided by operating activities 470,883 3,629,047
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,810,626) (3,881,608)
Proceeds from sale of property and equipment 26,861 861,976
Other (45,000) (42,000)
------------ ------------
Net cash (used in) investing activities (1,828,765) (3,061,632)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt - - - (308,571)
Proceeds from exercise of common stock options - - - 21,500
Repurchase of common stock (3,876,939) (2,537,208)
Cash dividends paid (437,870) (464,536)
Other (21,320) (41,173)
------------ ------------
Net cash (used in) financing activities (4,336,129) (3,329,988)
------------ ------------
(Decrease) in cash and cash equivalents (5,694,011) (2,762,573)
Cash and cash equivalents, beginning 6,686,182 3,704,693
------------ ------------
Cash and cash equivalents, ending $ 992,171 $ 942,120
============ ============
Cash Payments for:
Interest $ 756,509 $ 839,468
Income taxes 429,126 1,793,962
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 the impairment of certain
long-lived assets and restructuring charges as discussed in Notes 5 and
6) necessary to present fairly financial position as of June 30, 2000,
and December 31, 1999, and the results of operations and cash flows for
the three months and the six months ended June 30, 2000 and 1999.
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 Registrant's December
31, 1999 audited financial statements. The results of operations for the
three month and six month periods ended June 30, 2000 and 1999 are not
necessarily indicative of the results to be expected for the full year.
3. The inventories on June 30, 2000 and December 31, 1999 consist of the
following classes:
June 30 December 31
2000 1999
Raw materials $25,739,101 $23,286,250
Work in process 2,088,279 1,555,319
Finished 4,489,818 4,668,813
----------- -----------
Total manufactured goods $32,317,198 $29,510,382
Distribution products 11,967,000 12,528,966
----------- -----------
TOTAL INVENTORIES $44,284,198 $42,039,348
=========== ===========
The inventories are stated at the lower of cost, First-In First-Out
(FIFO) method, or market.
4. Stock options outstanding are immaterial and had no effect on earnings
per share.
Earnings per common share for the six months ended June 30, 2000 and 1999
have been computed based on the weighted average common shares
outstanding of 5,307,506 and 5,735,819 respectively.
5. The Company recognized a non-cash accounting charge in the first quarter
of 2000 related to an impairment of certain long-lived assets as required
by SFAS 121. As a result of the implications of the downturn in the
manufactured housing industry, the competitive pricing adversely
affecting margins in certain of the Company's operating units, and
insufficient efficiency gains from operational changes implemented by
management, updated analyses were prepared to determine if there was
impairment of any long-lived assets primarily in the Company's Wood and
Other Segments. The carrying values of these assets were calculated on
the basis of discounted estimated future cash flow and resulted in a
charge to operations of $6,937,163 or $.80 per share, net of tax. The
SFAS 121 charge had no impact on the Company's 2000 cash flow or its
ability to generate cash flow in the future. As a result of the SFAS 121
charge, depreciation and amortization expense related to these assets
will decrease in future periods.
6. In April, 2000, the Company recorded a restructuring charge based on its
decision to close one of its cabinet door manufacturing facilities and
consolidate its operation into other existing facilities and due to the
relocation of its Fabricated Metals facility. The Company looked at
future costs in line with future levels of business and determined that
it was not feasible to keep the cabinet door facility open in this
particular region. The Company recorded estimated and actual costs
related to these restructuring activities of $332,342, most of which will
be realized in the third quarter.
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,
manufacture of adhesive products, pleated shades, plastic thermoforming,
and manufacturer of laminating equipment.
The table below presents unaudited information about the revenue and
operating income of those segments:
THREE MONTHS ENDED JUNE 30, 2000
--------------------------------
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
---------- ------------ ---- ----- -----
Net outside sales $ 43,149,383 $ 38,592,181 $ 9,431,905 $ 9,731,337 $100,904,806
Intersegment sales 1,435,694 31,643 274,846 4,617,584 6,359,767
-------------------------------------------------------------------------------
Total sales $ 44,585,077 $ 38,623,824 $ 9,706,751 $ 14,348,921 $107,264,573*
-------------------------------------------------------------------------------
EBIT** $ 1,318,061 $ 727,383 $ (293,022)*** $ 54,819*** $ 1,807,241
THREE MONTHS ENDED JUNE 30, 1999
--------------------------------
Net outside sales $ 49,500,790 $ 49,660,494 $ 11,512,130 $ 12,040,940 $122,714,354
Intersegment sales 1,710,739 147 373,740 6,075,396 8,160,022
-------------------------------------------------------------------------------
Total sales $ 51,211,529 $ 49,660,641 $ 11,885,870 $ 18,116,336 $130,874,376*
-------------------------------------------------------------------------------
EBIT** $ 1,795,651 $ 1,347,328 $ (793,378) $ 1,057,233 $ 3,406,834
SIX MONTHS ENDED JUNE 30, 2000
------------------------------
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
---------- ------------ ---- ----- -----
Net outside sales $ 86,713,077 $ 74,466,846 $ 19,095,460 $ 20,453,496 $200,728,879
Intersegment sales 3,263,320 40,453 546,099 9,555,660 13,405,532
-------------------------------------------------------------------------------
Total sales $ 89,976,397 $ 74,507,299 19,641,559 $ 30,009,156 $214,134,411*
-------------------------------------------------------------------------------
EBIT** $ 1,812,199 $ 1,124,421 $ (6,327,188)*** $ (1,563,445)*** $ (4,954,013)
Identifiable assets $ 42,586,535 $ 22,913,702 $ 8,446,227 $ 13,996,003 $ 87,942,467
SIX MONTHS ENDED JUNE 30, 1999
------------------------------
Net outside sales $ 94,603,596 $ 90,864,958 $ 22,199,100 $ 22,223,201 $229,890,855
Intersegment sales 3,328,170 1,374 590,901 11,269,326 15,189,771
------------ ------------ ------------ ------------ ------------
Total sales $ 97,931,766 $ 90,866,332 $ 22,790,001 $ 33,492,527 $245,080,626*
------------ ------------ ------------ ------------ ------------
EBIT** $ 4,110,666 $ 2,416,983 $ (1,574,855) $ 1,655,304 $ 6,608,098
Identifiable assets $ 48,061,525 $ 28,769,102 $ 14,079,146 $ 15,164,454 $106,074,227
Reconciliation of segment operating income to consolidated operating income
3 Months Ended 6 Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
EBIT** for segments $ 1,807,241 $ 3,406,834 $(4,954,013) $ 6,608,098
Corporate incentive agreements 342,962 1,119,580 488,372 1,557,334
Consolidation reclassifications (131,795) (204,362) (316,958) (393,160)
Gain on sale of assets (6,654) 2,424 (9,022) 641,096
Other (196,777) 391,787 (544,421) 323,186
----------- ----------- ----------- -----------
Consolidated EBIT** $ 1,814,977 $ 4,716,263 $(5,336,042) $ 8,736,554
=========== =========== =========== ===========
There has been no material change in assets in the above segments.
*Does not agree to Financial Statements due to consolidation eliminations.
**Earnings before interest and taxes.
***The Company recognized a charge in the first quarter 2000 of $5,371,295 and
$1,565,868 to the Wood and Other segments, respectively, related to the
impairment of long-lived assets as discussed in Note 5 to the June 30, 2000
financial statements. The identifiable asset values for each segment have been
reduced accordingly. Additionally, the Company recognized a charge in the second
quarter 2000 of $306,473 and $25,869 to the Wood and Other segments,
respectively, related to restructuring charges for the closing and consolidation
of one of its cabinet door manufacturing facilities and to the relocation of its
Fabricated Metals facility.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
GENERAL
The Company's business has shown significant revenue growth since 1991,
as net sales increased annually from $143 million to over $457 million in eight
years. The sales in 1999 were 0.8% ahead of the 1998 record year. The increase
in sales resulted from the continued strength of both the economy and the
manufactured housing and recreational vehicle industries. In the last quarter of
1999 it became apparent that the manufactured housing industry had produced
units in excess of the retail demand resulting in approximately 7.0% decline in
production that year. Retail sales lots were overstocked and unit production was
reduced. Year to date the industry is down nearly 23% in units shipped and
produced due to the limited availability of dealer and retail financing and
excessive retail inventory levels. These conditions may continue through the end
of the year and even into next year. The Company's sales are 55% to manufactured
housing, 26% to recreational vehicle, and 19% 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,
2000 1999 2000 1999
Net sales 100.0% 100.0% 100.0 100.0%
Cost of sales 87.5 86.8 88.4 86.9
Gross profit 12.5 13.2 11.6 13.1
Warehouse and delivery 3.9 3.6 4.0 3.6
Selling, general, & administrative 6.4 5.8 6.6 5.8
Impairment charges - - - - - - 3.5 - - -
Restructuring charges 0.3 - - - 0.2 - - -
Operating income 1.8 3.8 (2.7) 3.8
Net income 0.9 2.2 (1.9) 2.1
RESULTS OF OPERATIONS
Quarter Ended June 30, 2000 Compared to Quarter Ended June 30, 1999
Net Sales. Net Sales decreased by $22.1 million, or 18.0%, from $123.0
million in the quarter ended June 30, 1999 to $100.9 million in the quarter
ended June 30, 2000. This decrease was a direct result of an estimated 23%
decrease in units shipped and produced in the manufactured housing industry in
the first half of 2000.
Gross Profit. Gross profit decreased by $3.7 million, or 22.8%, from
$16.3 million in the second quarter 1999 compared to $12.6 million in the same
quarter in 2000. As a percentage of net sales, gross profit decreased 0.8% from
13.2% in the second quarter of 1999 to 12.6% in the second quarter 2000. This
decrease was due to an 18% decrease in consolidated net sales as well as highly
competitive market conditions affecting margins. Several of our operations have
had to reduce margins in order to maintain sales levels which has resulted in
lower gross profits.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
decreased $0.4 million from $4.4 million in the second quarter of 1999 to $4.0
million in the second quarter 2000. As a percentage of net sales, warehouse and
delivery expenses increased from 3.6% in the second quarter of 1999 to 4.0% in
the second quarter 2000. This increase is attributable to lower sales levels and
higher shipping costs specifically related to the increase in gasoline prices in
the first half of 2000.
Selling, General, and Administrative Expenses. To make the year to year
comparison similar, a $0.3 million restructuring charge has been removed from
the selling, general, and administrative expenses discussion for the period
ended June 30, 2000. Selling, general, and administrative expenses decreased
10.1%, or, $0.7 million, from $7.2 million for the quarter ended June 30, 1999
compared to $6.5 million for the quarter ended June 30, 2000. As a percentage of
net sales, however, June 30, 2000 expenses were 6.4% compared to 5.8% for the
same three-month period ended June 30, 1999.
Restructuring Charges. As discussed in Note 6 of the financial
statements, the Company recognized a restructuring charge of $332,000 in the
second quarter of 2000.
Operating Income. Operating income decreased $2.9 million from $4.7
million in the quarter ended June 30, 1999 to $1.8 million in the quarter ended
June 30, 2000. The decrease in operating income in the second quarter of 2000
was due to the factors described above.
Interest Expense, Net. Interest expense, net of interest income,
increased 9.6% from $323,000 in the second quarter of 1999 to $354,000 in the
same period in 2000. This slight increase is attributable to less being invested
in the second quarter 2000.
Net Income. Net income decreased $1.8 million, or 67%, for the quarter
ended June 30, 2000 compared to the same quarter in 1999. As a percentage of net
sales, net income decreased 1.3% from 2.2% in the second quarter of 1999 to 0.9%
in the second quarter of 2000. This decrease is due primarily to the factors
described above.
Quarter Ended June 30, 1999 Compared to Quarter Ended June 30, 1998
Net Sales. Net sales increased by $5.3 million, or 4.5%, from $117.7
million for the quarter ended June 30, 1998, to $123.0 million in the quarter
ended June 30, 1999. This sales increase was attributable to increases in the
number of units produced in both the manufactured housing and recreational
vehicle industries. The Company's sales in the quarter were 62% to manufactured
housing, 23% to recreational vehicle, and 15% to other industries.
Gross Profit. Gross profit increased by approximately $.8 million, or
5.2%, from $15.4 million in the second quarter of 1998, to $16.2 million in the
same 1999 quarter. As a percentage of net sales, gross profit increased from
13.1% in 1998 to 13.2% in the second quarter of 1999. The increase in gross
profit was due to certain manufacturing operations showing improvement in volume
and efficiencies over the same 1998 period. In certain markets highly
competitive pricing continues to have a negative impact on normal gross profits.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased approximately $.3 million, or 7.7%, from $4.1 million in 1998, to $4.4
million in the second quarter of 1999. As a percentage of net sales, warehouse
and delivery expenses increased from 3.4% in 1998 to 3/6% in the 1999 second
quarter, mainly due to increased sales in the Company's distribution segment.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased by $.2 million, or 3.0%, from $7.0 million in
1998, to $7.2 million in 1999. As a percentage of net sales, selling, general,
and administrative expenses decreased from 5.9% in 1998 to 5.8% in the second
quarter of 1999.
Operating Income. Operating income increased by approximately $290,000
because of the increased sales and the increased gross profits. As a percentage
of sales, operating income remained the same at 3.8% for both second quarters.
Interest Expense, Net. Interest expense, net, increased by approximately
$58,000 from $265,000 in 1998 to $323,000 in the second quarter of 1999. The
Company's borrowing levels during the 1999 period were higher than those in
1998.
Net Income. Net income increased by approximately $162,000 from $2.5
million in 1998 to $2.6 million in 1999 for the second quarter ended June 30.
This increase is attributable to the factors described above. As a percentage of
net sales, net income increased from 2.1% in 1998 to 2.2% in 1999.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net Sales. Net sales decreased $29.7 million, or 12.9%, from $230.3
million for the six months ended June 30, 1999 to $200.7 million for the six
months ended June 30, 2000. This decrease is attributable to the decline in the
number of units shipped and produced in the manufactured housing industry. The
Company's sales in the first six months of fiscal 2000 are 55% to manufactured
housing, 26% to recreational vehicle, and 19% to other industries.
Gross Profit. Gross profit decreased 22.9%, or $6.9 million, from $30.3
million in the first six months of 1999 to $23.3 million in the first six months
of 2000. As a percentage of net sales, gross profit decreased 1.5% from 13.1% in
the six months ended June 30, 1999 to 11.6% in the six months ended June 30,
2000. This decrease is attributable to the 12.9% reduction in sales for the six
month period as well as highly competitive pricing pressures forcing the Company
to reduce prices to maintain certain business.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
decreased 1.7%, or $138,000, from $8.2 million in 1999 to $8.1 million in the
first six months of 2000. As a percentage of net sales, warehouse and delivery
expenses increased 0.5% from 3.5% in 1999 to 4.0% in the six months ended June
30, 2000. This increase as a percentage of net sales is due to higher fuel costs
for the first half of fiscal 2000.
Selling, General, and Administrative Expenses. For the six months ended
June 30, 2000, a $6.9 million impairment charge and a $0.3 million restructuring
charge has been included in the selling, general, and administrative expenses.
For the six months ended June 30, 1999, a $0.6 million gain on sale of assets
has been included in the selling, general, and administrative expenses.
Exclusive of the impairment charges, restructuring charges, and gain on sale of
assets, selling, general, and administrative expenses decreased $634,000 from
$13.9 million in the six months ended June 30, 1999 to $13.3 million in the same
period ending June 30, 2000. As a percentage of net sales, however, June 30,
2000 expenses were 6.6% compared to 6.1% for the six months ended June 30, 1999.
This increase as a percentage of net sales was due primarily to the 13% decrease
in net sales for the six months ended June 30, 2000.
Impairment Charges. As discussed in Note 5 of the financial statement,
the Company recognized an impairment charge of $6.9 million in the first quarter
of 2000.
Restructuring Charges. As discussed in Note 6 of the financial
statements, the Company recognized restructuring charges of $332,000 in the
second quarter of 2000.
Operating Income (Loss). The Company experienced an operating loss of
$5.3 million for the six months ended June 30, 2000 compared to operating income
of $8.7 million for the six months ended June 30, 1999. The operating loss in
the six months ended June 30, 2000 is due primarily to the factors described
above.
Interest Expenses, Net. Interest expense, net of interest income remained
fairly constant at $0.7 million for the six months ended June 30, 2000 and 1999.
Net Income (Loss). The Company experienced a net loss for the six months
ended June 30, 2000 of $3.7 million compared to net income of $4.9 million in
the same period in 1999. This decrease is due primarily to the factors described
above.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net Sales. Net sales increased by $7.7 million, or 3.4%, from $222.7
million for the six months ended June 30, 1998, to $230.4 million in the six
months ended June 30, 1999. This sales increase was attributable to increases in
the number of units produced in both the manufactured housing and recreational
vehicle industries. The Company's sales in the first six months were 61% to
manufactured housing, 22% to recreational vehicle, and 17% to other industries.
Gross Profit. Gross profit increased by $1.5 million, or 5.4%, from $28.7
million in the first six months of 1998, to $30.2 million in the same period in
1999. As a percentage of net sales, gross profit increased from 12.9% in the
first six months of 1998 to 13.1% in 1999. The increase in gross profit was due
to certain manufacturing operations showing improvement in volume and
efficiencies over the same 1998 period. In certain markets highly competitive
pricing continues to have a negative impact on expected gross profits.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased approximately $429,000, or 5.5%, from $7.8 million in 1998, to $8.2
million in the first six months of 1999. As a percentage of net sales, warehouse
and delivery expenses remained the same.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased by approximately $76,000, or 0.6%, from $13.2
million in 1998, to $13.3 million in 1999. As a percentage of net sales,
selling, general, and administrative expenses decreased from 5.9% for 1998 to
5.8% in 1999.
Operating Income. Operating income increased by approximately $1.0
million in the first six months of 1999 as compared to 1998, and as a percentage
of sales increased from 3.5% in 1998 to 3.8% in 1999. This was due to increased
sales and gross profits.
Interest Expense, Net. Interest expense, net, increased by approximately
$170,000 from $519,000 in 1998, to $689,000 in 1999. This increase was due to
higher borrowings during the first six months of 1999.
Net Income. Net income increased by approximately $561,000 from $4.3
million in 1998 to $4.8 million in 1999. As a percentage of net sales, net
income increased from 1.9% in 1998 to 2.1% in 1999. This is primarily
attributable to the factors described above.
BUSINESS SEGMENTS
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Laminating Segment Discussion
Net sales decreased in the second quarter of 2000 by $6.6 million, or
12.9%, from $51.2 million in the period ended June 30, 1999 to $44.6 million in
the period ended June 30, 2000. This decline in sales volume was due to roughly
23% less shipments nationwide in the manufactured housing industry.
EBIT declined 26.6% in the laminating segment from $1.8 million in the
period ended June 30, 1999 compared to $1.3 million in the period ended June 30,
2000. As a percentage of net sales, EBIT decreased 0.6% from 3.5% in the second
quarter 1999 to 3.0% in the second quarter 2000. The ability to increase selling
prices in the first half of 1999 became more difficult in the second half of
1999 and the first half of 2000 due to the Company having to make concessions in
pricing to maintain business as a result of the decline in the overall industry.
Distribution Segment Discussion
Net sales decreased 22.2%, or $11.0 million, from $49.7 million in the
second quarter 1999 to $38.6 million in the second quarter 2000. This decrease
is due to the decline in units shipped in the manufactured housing industry for
which this segment serves.
EBIT decreased 46.0%, or $620,000, due to the decrease in sales and
competitive pricing situations.
Wood Segment Discussion
Net sales decreased 18.3%, or $2.2 million, from $11.9 million in the
period ended June 30, 1999 to $9.7 million in the period ended June 30, 2000.
This decline is due to the overall decline in the industry as well as some
operating divisions choosing not to accept lower margin business.
EBIT increased 101.7% in the wood segment from a loss of $793,000 in the
second quarter of 1999 to income of $13,000, exclusive of the restructuring
charges, in the second quarter of 2000. As a percentage of net sales, EBIT
increased 6.8% from a loss of 6.7% to income of 0.1% in the second quarter of
1999 and 2000, respectively. This increase is due specifically to one operating
unit experiencing exceptional operating efficiencies and returning to
profitability for the quarter for the first time in three years.
Other Segment Discussion
Net sales in the other segment decreased by 20.8%, or $3.8 million from
$18.1 million in the three months ended June 30, 1999 to $14.3 million in the
three month period ending June 30, 2000. This decrease is primarily attributable
to decreased sales in all of the Company's other segment business units as a
result of the overall decline in the industries to which the Company serves.
The other segment experienced an EBIT of $80,700 for the quarter ended
June 30, 2000 compared to EBIT of $1.1 million for the quarter ended June 30,
1999. This decrease of $1.0 million, or 92.3%, is a result of one of the
Company's other segment business units experiencing operating inefficiencies
related to the relocation of its existing business as well as the overall
decline in the industry trends mentioned above.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Laminating Segment Discussion
Net sales were about the same in this segment in both second quarters,
with 1999 showing only $222,000 less than 1998 on totals of over $51 million.
The operating income in the laminating segment was down approximately
$330,000, or 15%, in the 1999 quarter primarily due to increased material costs
and new product start-up costs at one division.
Distribution Segment Discussion
Net sales increased in the 1999 second quarter by 12.6% primarily because
of increased production in the recreational vehicle and manufactured housing
industries, which this segment serves.
The operating income in this segment was 24.5% higher in 1999 because of
increased sales and lower warehouse and delivery expenses as percentages of
sales.
Wood Segment Discussion
Net sales were lower in the 1999 second quarter by 16.5% because of one
division in this segment. This division closed an operation which was all
intersegment sales and that accounted for 8.3% of the sales reduction. The
balance of the sales decrease in this segment came about when this same division
chose not to serve certain markets because of declining gross profit margins.
The operating results for this segment in the second quarter were
affected by this same division. The sales decline and continued competitive
pricing situations caused this division and the segment to report negative
operating results.
Other Segment Discussion
Net sales in this segment increased 3.4% in the second quarter of 1999
with all divisions, except one, showing sales growth.
The operating income in this segment was lower by 8.1% in 1999 because of
inventory cost increases in one division, and the lower sales in another
division.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Laminating Segment Discussion
Net sales decreased $7.9 million from $97.9 million in the six months
ended June 30, 1999 to $90.0 million for the six months ended June 30, 2000
primarily due to the decline in volume in the manufactured housing industry.
EBIT decreased $2.3 million, or 55.9%, because of lower sales volumes and
highly competitive pricing.
Distribution Segment Discussion
Net sales decreased $16.3 million, or 18.0%, from $90.8 million in the
six month period ended June 30, 1999 to $74.5 million in the same period in
2000. This decline is due primarily to the overall decline in volume in the
manufactured housing industry.
EBIT decreased $1.3 million, or 53.5%, from $2.4 million in the first six
months of 1999 compared to $1.1 million in the first six months of 2000. This
decline is due to lower sales volumes and the increase in gasoline prices in the
first half of fiscal 2000.
Wood Segment Discussion
Net sales decreased $3.1 million, or 13.8%, due to the decline in the
manufactured housing industry.
The wood segment, exclusive of the impairment charge, experienced a
decreased operating loss of approximately $925,000 from a loss of $1.6 million
for the six months ended June 30, 1999 to a loss of $649,000 for the six months
ended June 30, 2000. This decrease in operating loss is a direct result of the
Company gaining operating efficiencies, and increased volume from the
restructuring at several of its wood segment business units.
Other Segment Discussion
Net sales decreased by $3.5 million, or 10.4%, from $33.5 million in the
six months ended June 30, 1999 to $30.0 million in the six months ended June 30,
2000. This decline is due to the decline in the manufactured housing industry
and the other industries to which the Company serves.
Operating income, exclusive of the impairment charge, decreased $1.6
million, or 98.3%, from $1.7 million in the six months ended June 30, 1999 to
$28,000 in the six months ended June 30, 2000. Operating efficiencies were lost
in one division of this segment in the first six months of 2000 due to plant
reorganizing and low sales volumes, and two other divisions had reduced sales
levels because of the manufactured housing industry slow down .
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Laminating Segment Discussion
Net sales were lower by 4.3% in the first half of 1999 due primarily to
the closing of a facility in this segment in the second half of 1998.
The operating income in laminating in the first half year of 1999 showed
a small improvement, even after one division had new product start-up costs and
material cost increases.
Distribution Segment Discussion
Net sales increased in the first six months of this year by 15.2% because
of increased production in the recreational vehicle and manufactured housing
industries, which this segment services.
The operating income in this segment was 45.6% higher in this years first
half because of the increased sales and lower operating expenses as percentages
of those sales.
Wood Segment Discussion
Net sales in this segment were lower by 7.3% in the first half of 1999,
primarily because of one division. That division closed an operation which was
all intersegment sales and also stopped serving certain markets because of low
gross profit margins.
The operating results in the first six months were affected by this same
division. The sales decline and continued competitive pricing situations caused
this division to report negative operating results. Certain other operations in
this segment did not reach profitable operating levels because of competitive
pricing situations.
Other Segment Discussion
Net sales were 5.3% lower in 1999 in this segment primarily due to one
division losing production time in the first quarter because of equipment
breakdowns.
The operating income in this segment decreased 30.3% because of the lost
production time at one division due to equipment failure and to inventory cost
increases at one other division.
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 beginning 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 balances,
which affect the Company's cash flows, are part of normal business cycles.
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 bot 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
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 16, 2000.
(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
David D. Lung 4,476,410 200,076
Thomas G. Baer 4,612,916 63,570
Merlin D. Knispel 4,545,895 130,591
2. Not applicable.
(d) Not applicable.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) There were no reports filed on Form 8-K
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 10, 2000 /S/Mervin D. Lung
-------------------- --------------------------------
Mervin D. Lung
(Chairman of the Board)
Date August 10, 2000 /S/David D. Lung
------------------- --------------------------------
David D. Lung
(President)
Date August 10, 2000 /S/Keith V. Kankel
--------------------- --------------------------------
Keith V. Kankel
(Vice President Finance)
(Principal Accounting Officer)