UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 2, 2001: 4,529,666
1
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
Unaudited Condensed Balance Sheets
September 30, 2001 & December 31, 2000 3
Unaudited Condensed Statements of Income
Three Months Ended September 30, 2001 & 2000, and
Nine Months Ended September 30, 2001 & 2000 4
Unaudited Condensed Statements of Cash Flows
Nine Months Ended September 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)
SEPTEMBER 30 DECEMBER 31
2001 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,223,068 $ 6,716,128
Trade receivables 22,020,384 14,281,674
Inventories 34,218,578 30,937,954
Income taxes receivable 1,705,100 1,031,086
Prepaid expenses 739,300 770,017
Deferred tax assets 1,946,000 1,946,000
------------ ------------
Total current assets 61,852,430 55,682,859
------------ ------------
PROPERTY AND EQUIPMENT, at cost 89,929,278 92,421,319
Less accumulated depreciation 53,896,982 51,831,581
------------ ------------
36,032,296 40,589,738
INTANGIBLE AND OTHER ASSETS 5,917,524 6,247,573
------------ ------------
Total assets $103,802,250 $102,520,170
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,671,428 $ 3,671,428
Accounts payable 14,050,934 7,040,285
Accrued liabilities 3,767,573 3,555,008
------------ ------------
Total current liabilities 21,489,935 14,266,721
------------ ------------
LONG-TERM DEBT, less current maturities 15,814,288 18,785,716
------------ ------------
DEFERRED COMPENSATION OBLIGATIONS 2,131,280 2,042,198
------------ ------------
DEFERRED TAX LIABILITIES 1,176,000 1,176,000
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 17,620,517 17,689,417
Retained earnings 45,570,230 48,560,118
------------ ------------
Total shareholders' equity 63,190,747 66,249,535
------------ ------------
Total liabilities and shareholders' equity $103,802,250 $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 INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2000 2001 2000
NET SALES $ 77,527,508 $ 89,944,512 $224,731,037 $290,671,025
------------- ------------- ------------ ------------
COST AND EXPENSES
Cost of goods sold 68,352,088 78,822,081 198,384,000 256,229,412
Warehouse and delivery expenses 3,797,846 3,815,775 10,765,128 11,879,685
Selling, general, and administrative expenses 6,316,568 6,161,205 18,596,419 19,483,014
Impairment charges - - - - - - - - - 6,937,163
Restructuring charges (credit) - - - (173,127) - - - 159,215
Interest expense, net 276,821 309,966 760,940 977,221
------------- ------------- ------------ ------------
78,743,323 88,935,900 228,506,487 295,665,710
------------- ------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,215,815) 1,008,612 (3,775,450) (4,994,685)
INCOME TAXES (CREDITS) (486,200) 403,800 (1,510,200) (1,877,200)
------------- ------------- ------------ ------------
NET INCOME (LOSS) $ (729,615) $ 604,812 $ (2,265,250) $ (3,117,485)
============= ============= ============ ============
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ (.16) $ .11 $ (.50) $ (.59)
============= ============= ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,529,666 5,141,275 4,521,944 5,251,691
See accompanying notes to Unaudited Condensed Financial Statements.
4
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,265,250) $(3,117,485)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,729,602 6,440,563
Impairment charges - - - 6,937,163
(Gain) loss on sale of fixed assets (23,918) 5,622
Deferred income taxes - - - (2,187,000)
Other 401,979 226,706
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables (7,738,710) (4,692,536)
Inventories (3,280,624) 3,216,654
Prepaid expenses 30,717 31,057
Income taxes receivable (674,014) (469,580)
Increase (decrease) in:
Accounts payable and accrued liabilities 7,370,923 1,103,651
Income taxes payable - - - (404,725)
----------- -----------
Net cash provided by (used in) operating activities (449,295) 7,090,090
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,356,235) (2,805,760)
Proceeds from sale of property and equipment 494,193 32,192
Other (26,344) (67,500)
----------- -----------
Net cash (used in) investing activities (888,386) (2,841,068)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock (561,965) (5,405,350)
Principal payments on long-term debt (2,971,428) (2,971,428)
Cash dividends paid (549,922) (648,859)
Other (72,064) (62,157)
----------- -----------
Net cash (used in) financing activities (4,155,379) (9,087,794)
----------- -----------
Decrease in cash and cash equivalents (5,493,060) (4,838,772)
Cash and cash equivalents, beginning 6,716,128 6,686,182
----------- -----------
Cash and cash equivalents, ending $ 1,223,068 $ 1,847,410
=========== ===========
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 September 30,
2001, and December 31, 2000, and the results of operations and cash flows
for the three months and the nine months ended September 30, 2001 and
2000.
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, 2000 audited financial statements.
The results of operations for the three and nine month periods ended
September 30, 2001 and 2000 are not necessarily indicative of the results
to be expected for the full year.
3. The inventories on September 30, 2001 and December 31, 2000 consist of
the following classes:
September 30 December 31
2001 2000
Raw materials $19,400,933 $17,130,635
Work in process 2,044,069 2,040,040
Finished 4,510,838 4,647,673
----------- -----------
Total manufactured goods $25,955,840 $23,818,348
Distribution products 8,262,738 7,119,606
----------- -----------
TOTAL INVENTORIES $34,218,578 $30,937,954
=========== ===========
The inventories are stated at the lower of cost, First-In First-Out
(FIFO) method, or market.
4. Losses per common share for the nine months ended September 30, 2001 and
2000 have been computed based on the weighted average common shares
outstanding of 4,521,944 and 5,251,691 respectively. Stock options
outstanding are immaterial and had no effect on earnings per share.
Dividends per common share for the quarter ending September 30, 2001 and
2000 were $.04 per share. This resulted in total dividends for the nine
month periods ending September 30, 2001 and 2000 of $.12 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 $159,215.
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, 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 SEPTEMBER 30, 2001
-------------------------------------
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
---------- ------------ ---- ----- -----
Net outside sales $33,207,414 $27,457,654 $ 7,819,397 $ 9,043,043 $ 77,527,508
Intersegment sales 1,073,522 374,720 271,084 3,434,839 5,154,165
------------ ----------- ----------- ------------ ------------
Total sales $34,280,936 $27,832,374 $ 8,090,481 $ 12,477,882 $ 82,681,673*
----------- ----------- ----------- ------------ ------------
EBIT (loss) ** $ (4,242) $ 161,804 $ (287,329) $ (118,748) $ (248,515)
THREE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------
Net outside sales $38,165,378 $33,701,472 $ 8,300,991 $ 9,776,671 $ 89,944,512
Intersegment sales 1,491,451 9,899 309,784 3,931,986 5,743,120
----------- ----------- ----------- ------------ ------------
Total sales $39,656,829 $33,711,371 $ 8,610,775 $ 13,708,657 $ 95,687,632*
----------- ----------- ----------- ------------ ------------
EBIT (loss) ** $ 543,840 $ 89,675 $ (486,739) $ 63,830 $ 210,606
7
NINE MONTHS ENDED SEPTEMBER 30, 2001
------------------------------------
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
---------- ------------ ---- ----- -----
Net outside sales $ 98,397,222 $ 76,581,038 $ 23,108,459 $ 26,644,318 $ 224,731,037
Intersegment sales 3,262,851 753,176 724,772 10,394,577 15,135,376
------------- ------------ ------------ ------------ --------------
Total sales $ 101,660,073 $ 77,334,214 $ 23,833,231 $ 37,038,895 $ 239,866,413*
------------- ------------ ------------ ------------ --------------
EBIT (loss) ** $ (226,242) $ 673,878 $ (299,690) $ (626,213) $ (478,267)
Identifiable assets $ 34,820,889 $ 16,963,481 $ 6,124,166 $ 11,837,793 $ 69,746,329
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------
Net outside sales $ 124,878,455 $108,168,318 $ 27,396,451 $ 30,230,167 $ 290,673,391
Intersegment sales 4,754,771 50,352 855,883 13,487,646 19,148,652
------------- ------------ ------------ ------------ --------------
Total sales $ 129,633,226 $108,218,670 $ 28,252,334 $ 43,717,813 $ 309,822,043*
------------- ------------ ------------ ------------ --------------
EBIT (loss) ** $ 2,356,039 $ 1,214,096 $ (1,136,157) $ 92,122 $ 2,526,100
Identifiable assets $ 39,497,207 $ 17,390,258 $ 7,070,088 $ 15,469,839 $ 79,427,392
Reconciliation of segment EBIT to consolidated EBIT
3 Months Ended 9 Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
EBIT (loss) for segments $ (248,515) $ 210,606 $ (478,267) $ 2,526,100
Corporate incentive agreements 170,022 1,310,348 719,645 1,798,720
Consolidation reclassifications (24,410) (91,703) (85,157) (408,661)
Gain (loss) on sale of assets 1,805 3,899 23,918 (5,123)
Unallocated corporate expenses (1,076,032) (236,870) (3,207,932) (1,276,755)
Other 238,136 (50,829) 13,283 444,633
Impairment charges - - - - - - - - - (6,937,163)
Restructuring charges - - - 173,127 - - - (159,215)
------------ ---------- ----------- ------------
Consolidated EBIT (loss)** $ (938,994) $1,318,578 $(3,014,510) $ (4,017,464)
============ ========== ============ ============
There has been no material change in assets in the above segments.
*Does not agree to Financial Statements due to consolidation eliminations.
**Earnings (loss) before interest and taxes.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
GENERAL
Due to 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
nine months of fiscal 2001 showed similar results as shipments and production in
the Manufactured Housing industry were down approximately 33% and shipments in
the Recreational Vehicle industry were down nearly 16% from the same period in
fiscal 2000. These conditions are expected to continue through the end of fiscal
2001 and into fiscal 2002. The Company's sales are 50% to Manufactured Housing,
25% to Recreational Vehicle, and 25% 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 Nine Months
Ended September 30 Ended September 30
2001 2000 2001 2000
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 88.2 87.6 88.3 88.2
Gross profit 11.8 12.4 11.7 11.8
Warehouse and delivery 4.9 4.2 4.8 4.0
Selling, general & administrative 8.2 6.9 8.3 6.7
Impairment charges - - - - - - - - - 2.4
Restructuring charges (credit) - - - (0.2) - - - 0.1
Operating income (loss) (1.2) 1.5 (1.3) (1.4)
Net income (loss) (0.9) 0.6 (1.0) (1.1)
RESULTS OF OPERATIONS
Quarter ended September 30, 2001 Compared to Quarter Ended September 30, 2000
Net Sales. Net sales decreased by $12.4 million, or 13.8%, from $89.9
million in the quarter ended September 30, 2000 to $77.5 million in the quarter
ended September 30, 2001. This decrease is directly related to an estimated 33%
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 first nine months of fiscal 2001 compared to the first nine months of
fiscal 2000.
Gross Profit. Gross profit decreased by $1.9 million, or 17.5%, from
$11.1 million in the third quarter 2000 compared to $9.2 million in the third
quarter of 2001. As a percentage of net sales, gross profit decreased 0.6%, from
12.4% in the third quarter of 2000 to 11.8% in the third quarter 2001. The
decrease is due to a 13.8% decrease in consolidated net sales coupled with
market conditions remaining highly competitive resulting in the inability of the
Company to increase selling prices without losing business.
9
Warehouse and Delivery Expenses. Warehouse and delivery expenses remained
constant at $3.8 million in the third quarters of 2001 and 2000. As a percentage
of net sales, warehouse and delivery expenses increased 0.7%, from 4.2% in the
third quarter of 2000 to 4.9% in the third quarter 2001. The increase as a
percentage of net sales is due to the Company shipping less full truckloads than
in the previous period, the increase in fuel costs from period to period, and an
increase in rates charged by the transportation companies due to them running at
capacity. This increase is attributable to the Company shipping fewer full
truckloads of material compared to previous years, lower sales levels, higher
shipping costs specifically related to the increase in gasoline prices over the
past year, and transportation companies running at capacity.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased $0.1 million, or 2.5%, from $6.2 million in
the quarter ended September 30, 2000 to $6.3 million in the quarter ended
September 30, 2001. As a percentage of net sales, selling, general, and
administrative expenses increased 1.3%, from 6.9% in the third quarter of 2000
to 8.2% in the third quarter of 2001. 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 Loss. The Company experienced an operation loss of $0.9 million
in the third quarter of 2001 compared to operating income of $1.3 million in the
same quarter in 2000. This decrease of $2.2 million is due to the decline in
sales volume for the industries to which the Company serves, as well as the
factors described above.
Interest Expense, Net. Interest expense, net of interest income,
decreased 10.7% from $310,000 in the third quarter of 2000 to $277,000 in the
same period in 2001. This decrease is attributable to more funds invested in the
third quarter 2001 as a result of reduced working capital needs as well as lower
long-term debt levels due to normal debt service requirements.
Net Loss. The Company experienced a net loss of $730,000 in the third
quarter of fiscal 2001 compared to net income of $605,000 in the third quarter
of fiscal 2000. This decrease is attributable to the factors described above.
Quarter Ended September 30, 2000 Compared to Quarter Ended September 30, 1999
Net Sales. Net sales decreased by $27.1 million, or 23.1%, from $117.0
million in the quarter ended September 30, 1999 to $89.9 million in the quarter
ended September 30, 2000. This decrease was a direct result of an estimated 25%
decrease in units shipped and produced in the manufactured housing industry in
the first nine months of fiscal 2000.
Gross Profit. Gross profit decreased by $2.4 million, or 17.6%, from
$13.5 million in the third quarter 1999 compared to $11.1 million in the same
quarter in 2000. Gross profit as a percentage of net sales increased by 0.9%
from 11.5% in the third quarter of 1999 to 12.4% in the third quarter 2000. The
decrease in overall gross profit was due primarily to a 23% decrease in
consolidated net sales. The increase in gross profit as a percentage of net
sales was due to the Company concentrating on maintaining margin levels in the
highly competitive markets as well as significant concentration on operating
efficiencies in the Laminating and Wood operating segments.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
decreased $0.4 million, from $4.2 million in the third quarter 1999 to $3.8
million in the third quarter 2000. As a percentage of net sales, warehouse and
delivery expenses increased 0.7%, from 3.5% in the third quarter of 1999 to 4.2%
in the third quarter 2000. This increase is attributable to lower sales levels,
especially in the Distribution segment, and higher shipping costs specifically
related to the increase in gasoline prices from the same quarter in 1999.
Selling, General and Administrative Expenses. To make the year to year
comparison similar, a $0.2 million restructuring credit has been adjusted from
the selling, general and administrative expense discussion for the period ended
September 30, 2000. Selling, general and administrative expenses decreased 8.1%,
or $0.5 million, from $6.7 million in the quarter ended September 30, 1999 to
$6.2 million in the same period in 2000. As a percentage of net sales, September
30, 2000 expenses were 6.9% compared to 5.7% for the three month period ended
September 30, 1999. This 1.2% increase was due to the decline in consolidated
net sales.
10
Restructuring Charges. As discussed in Note 7 of the financial
statements, the Company recognized a credit in the amount of $173,000 in the
third quarter of 2000 as a result of an over accrual related to estimated
restructuring charges recorded in the second quarter.
Operating Income. Operating income decreased $1.3 million, from $2.6
million in the quarter ended September 30, 1999 to $1.3 million in the quarter
ended September 30, 2000. The decrease in operating income in the third quarter
of 2000 was due to the factors described above.
Interest Expense, Net. Interest expense, net of interest income,
decreased 21.5%, from $395,000 in the third quarter of 1999 to $310,000 in the
same period in 2000. This decrease is attributable to more funds being invested
in the third quarter of 2000 compared to the third quarter of 1999 as a result
of lower inventory and receivable levels, and lower borrowing levels.
Net Income. Net income decreased $0.7 million, or 55%, for the quarter
ended September 30, 2000 compared to the same quarter in 1999. As a percentage
of net sales, net income decreased 0.5%, from 1.2% in the third quarter of 1999
to 0.7% in the third quarter of 2000. This decrease is due primarily to the
factors described above.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000
Net Sales. Net sales decreased $65.9 million, or 22.7%, from $290.7
million in the nine months ended September 30, 2000 to $224.7 million for the
nine months ended September 30, 2001. This decrease is attributable to the 33%
decline in units shipped and produced in the Manufactured Housing industry and
16% decline in units shipped and produced in the Recreational Vehicle industry.
The Company's sales for the first nine months of fiscal 2001 are 50% to
Manufactured Housing, 25% to Recreational Vehicle, and 25% to other industries.
Gross Profit. Gross profit decreased $8.1 million, or 23.5%, from $34.4
million in the first nine months of fiscal 2000 to $26.3 million in the first
nine months of fiscal 2001. As a percentage of net sales, gross profit decreased
0.2%, from 11.9% in the nine months ended September 30, 2000 compared to 11.7%
in the nine months ended September 30, 2001. The 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 9.4%, from $11.9 million in the nine months ended
September 30, 2000 to $10.8 million in the same period in 2001. As a percentage
of net sales, warehouse and delivery expenses increased 0.7%, from 4.1% in
fiscal 2000 to 4.8% 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 Company
shipping less full truckloads than in the previous period, the increase in fuel
costs from period to period, and an increase in rates charged by the
transportation companies due to them running at capacity.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased by $0.9 million, or 4.6%, from $19.5 million
for the nine months ended September 30, 2000 to $18.6 million for the same
period in 2001. As a percentage of net sales, selling, general, and
administrative expenses increased 1.6% from 6.7% in the first nine months of
fiscal 2000 to 8.3% in the first nine months 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 $0.2 million in the
second and third quarters of 2000.
11
Operating Loss. The Company experienced an operating loss of $3.0 million
for the nine months ended September 30, 2001 compared to an operating loss of
$4.0 million for the nine months ended September 30, 2000. The operating loss is
due to the factors described above.
Interest Expense, Net. Interest expense, net of interest income,
decreased 22.1%, or $216,000, from $977,000 in the nine months ended September
30, 2000 to $761,000 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 due to normal debt service requirements.
Net Loss. The Company experienced a net loss after interest and taxes for
the nine months ended September 30, 2000 and 2001 of $3.1 million and $2.3
million, respectively. These losses are attributable to the factors described
above.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Net Sales. Net sales decreased $56.7 million, or 16.3%, from $347.4
million for the nine months ended September 30, 1999 to $290.7 million for the
nine months ended September 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 nine months of fiscal 2000 are 55% to
manufactured housing, 25% to recreational vehicle, and 20% to other industries.
Gross Profit. Gross profit decreased 21.3%, or $9.3 million, from $43.7
million in the first nine months of 1999 to $34.4 million in the first nine
months of 2000. As a percentage of net sales, gross profit decreased 0.7%, from
12.6% in the nine months ended September 30, 1999 to 11.9% in the nine months
ended September 30, 2000. This decrease is attributable to the 16.3% reduction
in sales for the nine 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 4.0%, or $0.5 million, from $12.4 million in 1999 to $11.9 million in
the first nine months of 2000. As a percentage of net sales, warehouse and
delivery expenses increased 0.5%, from 3.6% in 1999 to 4.1% in the nine months
ended September 30, 2000. This increase as a percentage of net sales is due to
higher fuel costs for the three quarters ended September 30, 2000 and the 16.3%
decrease in consolidated net sales, and especially the 23% decline in net sales
of the Distribution segment.
Selling, General and Administrative Expenses. For the nine months ended
September 30, 2000, a $6.9 million impairment charge and a $0.2 million
restructuring charge has been included in the selling, general and
administrative expenses. For the nine months ended September 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 remained consistent with 1999 at $19.5 million. As a percentage of net
sales, however, September 30, 2000 expenses were 6.7% compared to 5.6% for the
nine months ended September 30, 1999. This increase as a percentage of net sales
was due primarily to the larger than anticipated 16.3% decrease in net sales for
the nine months ended September 30, 2000.
Impairment Charges. As discussed in Note 5 of 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 $0.2 million in the
second and third quarters of 2000. As discussed in Note 6 of the financial
statements, the Company recognized restructuring charges of $159,000 in the nine
months ended September 30, 2000.
Operating Income (Loss). The Company experienced an operating loss of
$4.0 million for the nine months ended September 30, 2000 compared to operating
income of $11.3 million for the nine months ended September 30, 1999. The
operating loss in the nine months ended September 30, 2000 is due primarily to
the factors described above.
12
Interest Expense, Net. Interest expense, net of interest income decreased
9.9%, from $1,084,000 million in the nine months ended September 30, 1999 to
$977,000 in the same period in 2000. This decrease is due to more funds being
invested as a result of lower inventory and receivable levels, and lower
borrowing levels.
Net Income (Loss). The Company experienced a net loss for the nine months
ended September 30, 2000 of $3.1 million compared to net income of $6.2 million
in the same period in 1999. This decrease is due primarily to the factors
described above.
BUSINESS SEGMENTS
Quarter ended September 30, 2001 Compared to Quarter Ended September 30, 2000
Laminating Segment Discussion
Net sales decreased in the third quarter of 2001 by $5.4 million, or
13.6%, from $39.7 million in the period ended September 30, 2000 to $34.3
million in the period ended September 30, 2001. This decline in sales volume was
due to approximately 33% 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 100.8% in the laminating segment from income of $544,000 in
the period ended September 30, 2000 compared to a loss of $4,200 in the period
ended September 30, 2001. As a percentage of net sales, EBIT decreased 1.4% in
the third quarter of fiscal 2001. This decline is due to the decrease in sales
volume.
Distribution Segment Discussion
Net sales decreased 17.4%, or $5.9 million, from $33.7 million in the
third quarter 2000 to $27.8 million in the third quarter 2001. This decrease is
due primarily to the decline in units shipped and produced in the Manufactured
Housing industry for which this segment serves, and the Company choosing not to
accept certain lower margin business.
EBIT increased 80.4%, or $72,000, due to certain operations in this
segment gaining operating margin due to eliminating some unprofitable products
in fiscal 2001.
Wood Segment Discussion
Net sales decreased 6.0%, or $0.5 million, from $8.6 million in the
three-month period ended September 30, 2000 to $8.1 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 an operating loss of $0.5
million in the third quarter of 2000 to an operating loss of $0.2 million in the
third quarter of 2001. Management's continued commitment to improving operating
results in this segment and returning it to profitability have caused the
improved results. The closing of one of the segments under-performing units in
fiscal 2000 resulted in additional cost savings.
Other Segment Discussion
Net sales in the other segment decreased by 9.0%, or $1.2 million, from
$13.7 million in the three months ended September 30, 2000 to $12.5 million in
the three month period ending September 30, 2001. The decline in sales volume is
primarily attributable to a 16% decline in sales in Recreational Vehicle
industry and increases in sales in the Company's aluminum extrusion division and
machine manufacturing division which sell to areas mainly outside the
Manufactured Housing and Recreational Vehicle industries.
EBIT for this segment decreased $183,000, or 286%, from $64,000 in the
three month period ending September 30, 2000 to a loss of $119,000 in the same
period in 2001. This decrease is due to the decrease in sales volume.
13
Quarter Ended September 30, 2000 Compared to Quarter Ended September 30, 1999
Laminating Segment Discussion
Net sales decreased in the third quarter of 2000 by $8.1 million, or
17.0%, from $47.8 million in the period ended September 30, 1999 to $39.7
million in the period ended September 30, 2000. This decline in sales volume was
due to approximately 25% less shipments nationwide in the manufactured housing
industry.
EBIT declined 37.5% from $870,000 in the three month period ended
September 30, 1999 compared to $544,000 in the three month period ended
September 30, 2000. As a percentage of net sales, EBIT decreased 0.5%, from 1.8%
in the third quarter 1999 to 1.3% in the third quarter 2000. The ability to
increase selling prices became more difficult 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 31.8%, or $15.7 million, from $49.4 million in the
third quarter 1999 to $33.7 million in the third quarter 2000. This decrease is
due to the decline in units shipped in the Manufactured Housing industry for
which this segment serves, and the Company choosing not to accept certain lower
margin business.
EBIT decreased 90.1%, or $873,000, due to the decrease in sales,
competitive pricing situations, and higher fuel costs.
Wood Segment Discussion
Net sales decreased 18.8%, or $2.0 million, from $10.6 million in the
period ended September 30, 1999 to $8.6 million in the period ended September
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 18.2% in the wood segment from a loss of $595,000 in the
third quarter of 1999 to a loss of $487,000, excluding restructuring credits, in
the third quarter of 2000. As a percentage of net sales, EBIT remained fairly
consistent at a loss of 5.6% in the third quarters of both 1999 and 2000.
Other Segment Discussion
Net sales in the Other segment decreased by 14.7%, or $2.4 million, from
$16.1 million in the three months ended September 30, 1999 to $13.7 million in
the three month period ending September 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 $64,000, excluding restructuring
charges, for the quarter ended September 30, 2000 compared to EBIT of $660,000
for the quarter ended September 30, 1999. This decrease of $596,000, or 90.3%,
is a result of the reduced sales and one of the Company's Other segment business
units experiencing operating inefficiencies related to the relocation of its
existing business.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000
Laminating Segment Discussion
Net sales in the laminating segment decreased by 21.6%, or $28.0 million,
from $129.6 million in the nine month period ending September 30, 2000 to $101.7
million in the same period in 2001. This decrease is attributable to the 33%
decline in units shipped and produced in the Manufactured Housing industry and
16% decrease in units shipped and produced in the Recreational Vehicle industry.
EBIT decreased 110.0%, or $2.6 million, from $2.4 million in the nine
months ended September 30, 2000 to a loss of $0.2 million for the nine months
ended September 30, 2001. This decline is attributable to the decrease in sales
volume.
14
Distribution Segment Discussion
Net sales in the distribution segment decreased $30.9 million, or 28.5%,
from $108.2 million in the first nine months of fiscal 2000 to $77.3 million in
the same period in fiscal 2001. This decrease is directly related to the 33%
decrease in units shipped and produced in the Manufactured Housing industry.
EBIT decreased 44.5%, or $540,000, due to the decrease in sales and
competitive pricing situations.
Wood Segment Discussion
Net sales in the wood segment decreased $4.4 million, or 15.6%, from
$28.2 million in the nine months ended September 30, 2000 to $23.8 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 $1.1 million
in the first nine months of fiscal 2000, to an operating loss of $0.3 million in
the first nine months of fiscal 2001. Management's continued commitment to
improving operating results in this segment and returning it to profitability
caused the improvement in operating income. Additionally, depreciation expense
has been reduced by approximately $526,000 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 5. The Company
also closed one operating unit in this segment in fiscal 2000 which contributed
to savings in 2001 of approximately $751,000.
15
Other Segment Discussion
Net sales in the other segment decreased 15.3%, or $6.7 million, from
$43.7 million in the nine months ended September 30, 2000 to $37.0 million in
the nine months ended September 30, 2001. This decline is due to reduced sales
volume in the Recreational Vehicle industry.
EBIT decreased from operating income of $92,000 in the first nine months
of fiscal 2000 to an operating loss of $626,000 in the same period in fiscal
2001. This decrease is due to the decline in sales volume.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Laminating Segment Discussion
Net sales decreased $16.1 million from $145.7 million in the nine months
ended September 30, 1999 to $129.6 million for the nine months ended September
30, 2000, primarily due to the decline in volume in the manufactured housing
industry.
EBIT decreased $2.6 million, or 52.7%, because of lower sales volumes and
highly competitive pricing.
Distribution Segment Discussion
Net sales decreased $32.1 million, or 22.9%, from $140.3 million in the
nine month period ended September 30, 1999 to $108.2 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 $2.2 million, or 64.1%, from $3.4 million in the first
nine months of 1999 compared to $1.2 million in the first nine months of 2000.
This decline is due to lower sales volumes and the increase in gasoline prices
in the first nine months of fiscal 2000.
Wood Segment Discussion
Net sales decreased $5.1 million, or 15.4%, due to the decline in the
manufactured housing industry. EBIT, exclusive of the impairment and
restructuring charges, decreased approximately $1.0 million, from a
loss of $2.2 million for the nine months ended September 30, 1999 to a loss of
$1.1 million for the nine months ended September 30, 2000. This decrease in
operating loss is a direct result of the Company gaining operating efficiencies
at several of its wood segment business units.
Other Segment Discussion
Net sales decreased by $5.9 million, or 11.8%, from $49.6 million in the
nine months ended September 30, 1999 to $43.7 million in the nine months ended
September 30, 2000. This decline is due to the overall decline in the industries
to which the Company serves.
EBIT, exclusive of the impairment and restructuring charges, decreased
$2.2 million, or 96.0%, from $2.3 million in the nine months ended September 30,
1999 to $92,000 in the nine months ended September 30, 2000. Operating
efficiencies were lost in this segment in the first nine months of 2000 due to
plant reorganizing and low sales volumes.
16
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 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 but not limited to; (1) continued domestic economic growth and demand
for the Company's products; and (2) the Company's belief with respect to its
capital expenditures, seasonality and inflation. Any developments significantly
deviating from these assumptions could cause actual results to differ materially
from those forecast or implied in the aforementioned forward-looking statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None
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.
(Company)
Date November 8, 2001 /S/Harold E. Wyland
---------------------- ------------------------------------
Harold E. Wyland
(Chairman of the Board)
Date November 8, 2001 /S/David D. Lung
---------------------- ------------------------------------
David D. Lung
(President)
Date November 8, 2001 /S/Keith V. Kankel
----------------------- ------------------------------------
Keith V. Kankel
(Vice President Finance)
(Principal Accounting Officer)
19