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, 2001
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 31, 2001: 4,529,666
1
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
Unaudited Condensed Balance Sheets
June 30, 2001 & December 31, 2000 3
Unaudited Condensed Statements of Operations
Three Months Ended June 30, 2001 & 2000, and
Six Months Ended June 30, 2001 & 2000 4
Unaudited Condensed Statements of Cash Flows
Six Months Ended June 30, 2001 & 2000 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
2
PART I: FINANCIAL INFORMATION
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
(Unaudited) (Note)
JUNE 30 DECEMBER 31
2001 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,500,228 $ 6,716,128
Trade receivables 21,717,531 14,281,674
Inventories 33,079,100 30,937,954
Income tax refund claims receivable 1,262,085 1,031,086
Prepaid expenses 91,695 770,017
Deferred tax assets 1,946,000 1,946,000
------------ ------------
Total current assets 64,596,639 55,682,859
------------ ------------
PROPERTY AND EQUIPMENT, at cost 92,214,255 92,421,319
Less accumulated depreciation 54,485,607 51,831,581
------------ ------------
37,728,648 40,589,738
INTANGIBLE AND OTHER ASSETS 6,040,078 6,247,573
------------ ------------
Total assets $108,365,365 $102,520,170
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,671,428 $ 3,671,428
Accounts payable 14,996,779 7,040,285
Accrued liabilities 3,532,429 3,555,008
------------ ------------
Total current liabilities 22,200,636 14,266,721
------------ ------------
LONG-TERM DEBT, less current maturities 18,785,716 18,785,716
------------ ------------
DEFERRED COMPENSATION OBLIGATIONS 2,101,586 2,042,198
------------ ------------
DEFERRED TAX LIABILITIES 1,176,000 1,176,000
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 17,620,517 17,689,417
Retained earnings 46,480,910 48,560,118
------------ ------------
Total shareholders' equity 64,101,427 66,249,535
------------ ------------
Total liabilities and shareholders' equity $108,365,365 $102,520,170
============ ============
NOTE: The balance sheet at December 31, 2000 has been taken from the audited
financial statements at that date.
See accompanying Notes to Unaudited Condensed Financial Statements.
3
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS NDED
JUNE 30 JUNE 30
2001 2000 2001 2000
NET SALES $ 78,908,792 $ 100,902,440 $ 147,203,529 $ 200,726,513
------------- ------------- ------------- -------------
COST AND EXPENSES
Cost of goods sold 68,822,170 88,336,721 130,031,912 177,407,331
Warehouse and delivery expenses 3,557,882 3,957,873 6,967,282 8,063,910
Selling, general, and administrative expenses 5,929,555 6,460,527 12,279,851 13,321,809
Impairment charges -- -- -- 6,937,163
Restructuring charges -- 332,342 -- 332,342
Interest expense, net 246,390 353,622 484,119 667,255
------------- ------------- ------------- -------------
78,555,997 99,441,085 149,763,164 206,729,810
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 352,795 1,461,355 (2,559,635) (6,003,297)
INCOME TAXES (CREDIT) 140,900 581,300 (1,024,000) (2,281,000)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 211,895 $ 880,055 $ (1,535,635) $ (3,722,297)
============= ============= ============= =============
BASIC AND DILUTED EARNINGS
PER COMMON SHARE $ .05 $ .16 $ (.34) $ (.70)
============= ============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 4,518,062 5,268,666 4,518,020 5,307,506
See accompanying Notes to Unaudited Condensed Financial Statements.
4
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
SIX MONTHS ENDED
JUNE 30
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,535,635) $(3,722,297)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,834,620 4,508,565
Impairment charges -- 6,937,163
(Gain) loss on sale of fixed assets (22,113) 9,022
Deferred income taxes -- (2,654,000)
Other 372,285 215,132
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables (7,435,857) (6,381,238)
Inventories (2,141,146) (2,244,850)
Income tax refund claims receivable (230,999) --
Prepaid expenses 678,322 348,072
Increase (decrease) in:
Accounts payable and accrued liabilities 8,081,621 3,648,160
Income taxes payable -- (192,846)
----------- -----------
Net cash provided by operating activities 1,601,098 470,883
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (877,246) (1,810,626)
Proceeds from sale of fixed assets 23,392 26,861
Other (20,883) (45,000)
----------- -----------
Net cash (used in) investing activities (874,737) (1,828,765)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock (561,965) (3,876,939)
Cash dividends paid (368,853) (437,870)
Other (11,443) (21,320)
----------- -----------
Net cash (used in) financing activities (942,261) (4,336,129)
----------- -----------
(Decrease) in cash and cash equivalents (215,900) (5,694,011)
Cash and cash equivalents, beginning 6,716,128 6,686,182
----------- -----------
Cash and cash equivalents, ending $ 6,500,228 $ 992,171
=========== ===========
Cash Payments for:
Interest $ 503,719 $ 756,509
Income taxes 36,596 429,126
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 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, 2001 and
December 31, 2000, the results of operations and cash flows for the three
months and the six months ended June 30, 2001 and 2000, and cash flows
for the six months ended June 30, 2001 and 2000.
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, 2000 audited financial statements. The results of operations for the
three month and six month periods ended June 30, 2001 and 2000 are not
necessarily indicative of the results to be expected for the full year.
3. The inventories on June 30, 2001 and December 31, 2000 consist of the
following classes:
June 30 December 31
2001 2000
Raw materials $18,807,513 $17,130,635
Work in process 2,230,624 2,040,040
Finished goods 4,504,125 4,647,673
----------- -----------
Total manufactured goods $25,542,262 $23,818,348
Distribution products 7,536,838 7,119,606
----------- -----------
TOTAL INVENTORIES $33,079,100 $30,937,954
=========== ===========
The inventories are stated at the lower of cost, First-In First-Out
(FIFO) method, or market.
4. Loss per common share for the six months ended June 30, 2001 and 2000
have been computed based on the weighted average common shares
outstanding of 4,518,020 and 5,307,506 respectively. Stock options
outstanding are immaterial and had no effect on earnings per share.
Dividends per common share for the quarter ending June 30, 2001 and 2000
were $.04 per share. This resulted in total dividends for the six month
period ending June 30, 2001 and 2000 of $.08 per share.
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. 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. This charge
was recognized as an impairment of assets in the March 31, 2000 financial
statements. 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 has decreased in subsequent periods and will decrease in
future periods.
6
6. In April, 2000, the Company recorded a restructuring charge based on its
decision to close one of its cabinet door manufacturing facilities and to
relocate 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.
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 extruding, a painting and distribution
division, an adhesive division, a pleated shade division, a plastic
thermoforming division (closed effective February 2, 2001), and a machine
manufacturing division.
The table below presents unaudited information about the revenue and
operating income of those segments:
THREE MONTHS ENDED JUNE 30, 2001
--------------------------------
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
---------- ------------ ---- ----- -----
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
THREE MONTHS ENDED JUNE 30, 2000
--------------------------------
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 $ 13,451 $ 80,688 $ 2,139,583
7
SIX MONTHS ENDED JUNE 30, 2001
------------------------------
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
---------- ------------ ---- ----- -----
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
SIX MONTHS ENDED JUNE 30, 2000
------------------------------
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 (loss)** $ 1,812,199 $ 1,124,421 $ (649,420) $ 28,292 $ 2,315,492
Total assets $ 42,616,484 $ 21,317,448 $ 8,449,495 $ 15,559,040 $ 87,942,467
Reconciliation of segment EBIT to consolidated EBIT
3 Months Ended 6 Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
EBIT (loss) for segments $1,170,600 $2,139,583 $ (229,752) $2,315,492
Corporate incentive agreements 352,381 342,962 549,623 488,372
Consolidation reclassifications (10,576) (131,795) (60,747) (316,958)
Gain (loss) on sale of assets 14,250 (6,654) 22,113 (9,022)
Impairment charges - - - (6,937,163)
Restructuring charge - (332,342) - (332,342)
Unallocated corporate expenses (780,480) (614,873) (2,131,900) (1,039,885)
Other (146,990) 418,096 (224,853) 495,464
---------- ---------- ----------------- ----------
Consolidated EBIT (loss)** $ 599,185 $1,814,977 $ (2,075,516) $(5,336,042)
========== ========== ================= ===========
*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
Due to the overall downturn in the Manufactured Housing and Recreational
Vehicle industries, the Company's sales in fiscal 2000 declined 21% from the
previous year to $362 million. 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 fiscal 2000 the
Manufactured Housing industry was down nearly 29% 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 decline
in the Recreational Vehicle industry began in the second quarter of 2000 due to
the Recreational Vehicle dealers making inventory reductions. The end result of
this was an approximate 7% decline in units shipped and produced in that
particular industry for the twelve months ended December 31, 2000. The first six
months of fiscal 2001 showed similar results as shipments and production in the
Manufactured Housing industry were down approximately 35% and shipments in the
Recreational Vehicle industry were down nearly 20% from the same period in
fiscal 2000. These conditions are expected to continue through the end of fiscal
2001 and possibly into fiscal 2002. The Company's sales are 48% to Manufactured
Housing, 26% to Recreational Vehicle, and 26% 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,
2001 2000 2001 2000
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.2 87.5 88.3 88.4
Gross profit 12.8 12.5 11.7 11.6
Warehouse and delivery 4.5 3.9 4.7 4.0
Selling, general, & administrative 7.5 6.4 8.3 6.6
Impairment charges - - - - - - - - - 3.5
Restructuring charges - - - 0.3 - - - 0.2
Operating income (loss) 0.8 1.8 (1.4) (2.7)
Income taxes (credits) 0.2 0.6 (0.7) (1.1)
Net income (loss) 0.3 0.9 (1.0) (1.9)
RESULTS OF OPERATIONS
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 fiscal 2001 compared to the second quarter of fiscal 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
9
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.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased $0.5 million, or 8.2%, from $6.8 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 6.1% 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 66.7%, 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.
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 0.7% from
13.2% in the second quarter of 1999 to 12.5% 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 3.9% 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.
10
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.
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 fiscal 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 fiscal 2000 to $17.2 million in the first six
months of fiscal 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 fiscal 2000
to 4.7% in fiscal 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 fiscal 2000 to 8.3% in
the first half of fiscal 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. As discussed in Note 5 to the financial statements,
the Company recognized an impairment charge of $6.9 million in the first quarter
of 2000.
Restructuring Charges. As discussed in Note 6 to the financial
statements, the Company recognized restructuring charges of $0.3 million in the
second quarter of 2000.
11
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.
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.
12
Interest Expense, 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.
BUSINESS SEGMENTS
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 fiscal 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 $264,000, 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.
Quarter Ended June 30, 2000 Compared to Quarter Ended June 30, 1999
13
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. 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 $81,000 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.
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 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.
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 fiscal
14
2000 to $49.5 million in the first half of fiscal 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 fiscal 2000 to an operating loss of $12,000 in the first
six months of fiscal 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 as discussed in Note
6. The Company also closed one operating unit in this segment in fiscal 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
fiscal 2000 to an operating loss of $507,000 in the first half of fiscal 2001.
This decrease is due to the decline in sales volume.
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.
15
Wood Segment Discussion
Net sales decreased $3.1 million, or 13.8%, due to the decline in the
manufactured housing industry.
The wood segment 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 .
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.
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.
16
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
17
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, 2001.
(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
Mervin D. Lung 3,878,394 468,935
John H. McDermott 3,889,761 457,568
Harold E. Wyland 3,820,298 527,031
Keith V. Kankel 3,710,151 637,178
2. Set forth below is the tabulation of the votes for the
adoption of proposed Amendment to the 1987 Stock Option
Program:
FOR AGAINST ABSTAIN
2,986,517 1,297,614 63,198
(d) Not applicable.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) There were no reports filed on Form 8-K
18
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, 2001 /S/Harold E. Wyland
-------------------- ---------------------------------
Harold E. Wyland
(Chairman of the Board)
Date August 13, 2001 /S/David D. Lung
------------------- ---------------------------------
David D. Lung
(President)
Date August 13, 2001 /S/Keith V. Kankel
--------------------- ---------------------------------
Keith V. Kankel
(Vice President Finance)
(Principal Accounting Officer)