SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sections 240.14a-11(c) or Section
240.14a-12
Patrick Industries, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name Of Person(S) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PATRICK INDUSTRIES, INC.
107 WEST FRANKLIN STREET
P.O. BOX 638
ELKHART, INDIANA 46515-0638
574-294-7511
------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 2005
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Patrick
Industries, Inc., an Indiana corporation, will be held at the Company's
Corporate offices, 107 W. Franklin Street, Elkhart, Indiana, on Thursday, May
12, 2005 at 10:00 a.m., Indiana time, for the following purposes:
1. To elect three directors of the Company to serve until 2008; and
2. To consider and transact such other business as may properly come before
the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 16, 2005,
as the record date for the determination of the holders of shares of the
Company's outstanding Common Stock entitled to notice of and to vote at the
Annual Meeting of Shareholders. Each shareholder is entitled to one vote per
share on all matters to be voted on at the meeting.
Whether or not you expect to attend the meeting, you are urged to sign,
date, and return the enclosed proxy in the enclosed envelope.
By Order of the Board of Directors,
ANDY L. NEMETH
SECRETARY
April 8, 2005
PLEASE DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH
REQUIRES NO POSTAGE FOR MAILING IN THE UNITED STATES. A PROMPT RESPONSE IS
HELPFUL, AND YOUR COOPERATION WILL BE APPRECIATED.
10
PATRICK INDUSTRIES, INC.
107 WEST FRANKLIN STREET
P.O. BOX 638
ELKHART, INDIANA 46515-0638
574-294-7511
---------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 2005
-------------------------------
This Proxy Statement is being mailed to shareholders of Patrick Industries,
Inc. (the "Company") on or about April 8, 2005, and is furnished in connection
with the Board of Directors' solicitation of proxies for the Annual Meeting of
Shareholders to be held on May 12, 2005 for the purpose of considering and
acting upon the matters specified in the Notice of Annual Meeting of
Shareholders accompanying this Proxy Statement. If the form of proxy which
accompanies this Proxy Statement is executed and returned, it may be revoked by
the person giving it at any time prior to the voting thereof by written notice
to the Secretary, by delivery of a later dated proxy, or by requesting to vote
in person at the meeting. Additional solicitations, in person or by telephone or
otherwise, may be made by certain directors, officers and employees of the
Company without additional compensation. Expenses incurred in the solicitation
of proxies, including postage, printing and handling, and actual expenses
incurred by brokerage houses, custodians, nominees, and fiduciaries in
forwarding documents to beneficial owners, will be paid by the Company.
The Annual Report to shareholders for the year ended December 31, 2004,
accompanies this Proxy Statement. Additional copies of the Annual Report may be
obtained by writing the Secretary of the Company.
VOTING INFORMATION
Each shareholder is entitled to one vote for each share of the Company's
Common Stock held as of the record date. For purposes of the meeting, a quorum
means a majority of the outstanding shares. As of the close of business on March
16, 2005, the record date for shareholders entitled to vote at the annual
meeting, there were outstanding 4,748,198 shares of Common Stock entitled to one
vote each. In determining whether a quorum exists at the meeting, all shares
represented in person or by proxy will be counted. A shareholder may, with
respect to the election of directors, (i) vote for the election of all named
director nominees, (ii) withhold authority to vote for all named director
nominees, or (iii) vote for the election of all named director nominees other
than any nominee with respect to whom the shareholder withholds authority to
vote by so indicating in the appropriate space on the proxy. With respect to any
other proposals, a shareholder may vote for, against, or abstain. Proxies
properly executed and received by the Company prior to the meeting and not
revoked will be voted as directed therein on all matters presented at the
meeting. In the absence of a specific direction from the shareholder, proxies
will be voted for the election of all named director nominees.
The Directors are elected by a plurality of the votes cast by shares
present in person or by proxy at the Annual Meeting and entitled to vote.
Consequently, withholding authority to vote in the election of Directors will
have no effect on the election of directors. Any other matter which may properly
come before the meeting may be approved by a majority of the votes cast at a
meeting at which a quorum is present. Broker non-votes will have no effect on
any matter at the Annual Meeting.
The Board of Directors knows of no other matter which may come up for
action at the Annual Meeting. However, if any other matter properly comes before
the Annual Meeting, the persons named in the proxy form enclosed will vote in
accordance with their judgment upon such matter.
1
Shareholder proposals for inclusion in proxy materials for the next Annual
Meeting should be addressed to the Company's Secretary, P.O. Box 638, Elkhart,
Indiana 46515-0638, and must be received no later than Friday, December 9, 2005.
In addition, the Company's By-laws require notice of any other business to be
brought before a meeting by a shareholder (but not included in the proxy
statement) to be delivered, in writing, to the Company's Secretary, together
with certain prescribed information, not less than 90 days nor more than 110
days prior to the first anniversary of the preceding year's annual meeting.
Likewise, the Articles of Incorporation and By-laws require that shareholder
nominations to the Board of Directors be delivered to the Secretary, together
with certain prescribed information in accordance with the procedures for
bringing business before an annual meeting which directors are to be elected.
STOCK OWNERSHIP INFORMATION
The following table sets forth, as of the record date, information
concerning the only parties known to the Company having beneficial ownership of
more than 5 percent of its outstanding Common Stock and information with respect
to the stock ownership of all directors and executive officers of the Company as
a group.
NUMBER OF
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS
------------------------------------ ----- --------
Mervin D. Lung . . . . . . . . . . . . . . . . . . . . . . . . 846,596 17.83%
Chairman Emeritus of the Company
P.O. Box 638 Elkhart, Indiana 46515
Heartland Advisors, Inc. . . . . . . . . . . . . . . . . . . . 448,710 9.45%
789 North Water Street
Milwaukee, Wisconsin 53202
Citigroup, Inc . . . . . . . . . . . . . . . . . . . . . . . . 440,500 9.28%
399 Park Avenue
New York, New York 10043
Tontine Capital Partners, L.P. . . . . . . . . . . . . . . . . 332,028 6.99%
55 Railroad Avenue
Greenwich, Connecticut 06830
Dimensional Fund Advisors, Inc . . . . . . . . . . . . . . . . 321,842 6.78%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
FMR Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . 273,280 5.76%
25 Lovat Lane
Boston, Massachusetts 02109
Directors and Executive Officers as a group (10 persons)(1). . 1,009,282 21.26%(1)
- ---------
(1) The stock ownership of the executive officers named in the Summary
Compensation Table is set forth under the heading "Election of Directors",
except for Paul E. Hassler (1,500 shares), and Andy L. Nemeth and Gregory
J. Scharnott (0 shares each).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that certain
of the Company's officers, its directors and 10% shareholders file with the
Securities and Exchange Commission and NASDAQ an initial statement of beneficial
ownership and certain statements of changes in beneficial ownership of Common
Stock of the Company. Based solely on its review of such forms received by the
Company and written representation from the directors and officers that no other
reports were required, the Company is unaware of any instances of noncompliance
or late compliance with such filings during the fiscal year ended December 31,
2004, except for Mervin D. Lung who was late in filing one Form 4 covering one
transaction.
2
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, with the members of
each class serving staggered three-year terms. Accordingly, at the 2005 Annual
Meeting three directors will be elected to hold office until the 2008 Annual
Meeting or until their successors are duly elected and qualified.
It is intended that the proxies will be voted for the nominees listed
below, unless otherwise indicated on the proxy form. It is expected that these
nominees will serve, but, if for any unforeseen cause any such nominee should
decline or be unable to serve, the proxies will be voted to fill any vacancy so
arising in accordance with the discretionary authority of the persons named in
the proxies.
The following information concerning principal occupations and the number
of shares of Common Stock of the Company owned beneficially as of March 16,
2005, has been furnished by the nominees and directors continuing in office:
COMMON PERCENT
FIRST STOCK OF
YEAR OF THE COMMON
PRINCIPAL OCCUPATION ELECTED COMPANY STOCK
NAME AND AGE AND OTHER DIRECTORSHIPS DIRECTOR OWNED(1) OWNED
------------ ----------------------- -------- -------- -----
Nominees to Serve Until the 2008 Annual Meeting:
- ------------------------------------------------
Robert C. Timmins, 83 . . . Retired Vice President and Director of 1987 54,300 1.14%
a Musical Instrument Company and
CPA and Partner of McGladrey &
Pullen (certified public accountants)
until 1985.
Terrence D. Brennan, 66 . . Retired President and CEO of NBD Bank, 1999 12,000 less
Elkhart, IN, from 1973 to 1997. than 1%
Larry D. Renbarger, 66 . . Retired as CEO of Shelter Components 2002 19,500 less
in 1998. Currently serving on Boards for than 1%
Therm-O-Lite, Inc. (manufacturer
of windows), and The Utility Bodywerks
(converter of mid-size trucks).
Directors to Serve Until the 2006 Annual Meeting:
- -------------------------------------------------
Walter E. Wells, 66 . . . . Retired President and CEO of Schult 2001 12,000 less
Homes Corporation and Director of than 1%
Pleasant Street, LLC (home builders).
David D. Lung, 57 . . . . . Former President and Chief Executive 1977 2,700 less
Officer from 1989 to 2003. than 1%
Son of Mervin D. Lung.
John H. McDermott, 73 . . . Of counsel to the Chicago, Illinois 1969 29,000 less
law firm of McDermott, Will & Emery, than 1%
which firm has been retained by the
Company since 1968 for certain legal
matters.
3
COMMON PERCENT
FIRST STOCK OF
YEAR OF THE COMMON
PRINCIPAL OCCUPATION ELECTED COMPANY STOCK
NAME AND AGE AND OTHER DIRECTORSHIPS DIRECTOR OWNED(1) OWNED
------------ ----------------------- -------- -------- -----
Directors to Serve Until the 2007 Annual Meeting:
- -------------------------------------------------
Keith V. Kankel, 62 . . . . Retired Interim President and CEO 1977 19,686 less
from 2003 to 2004. Vice President of than 1%
Finance of Patrick Industries, Inc.
from 1987 through July, 2002
and retired Secretary-Treasurer
from 1974 through July, 2002.
Mervin D. Lung, 82 . . . . Chairman Emeritus, President since 1961 846,596 17.83%
incorporation in 1961 until 1989.
Father of David D. Lung.
Harold E. Wyland, 68 . . . Chairman in 2001. 1989 12,000 less
Retired Vice President of Sales than 1%
of Patrick Industries, Inc. from
1990 through 1998.
- - - - - - - -
(1) Each individual has sole voting and dispositive power over the shares
indicated.
4
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION SECURITIES
-------------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS(#) COMPENSATION ($)(4)
- --------------------------- ---- ---------- --------- ---------- -------------------
Keith V. Kankel 2004 191,720 - - - - - - 640
Interim President and CEO 2003 72,369 9,000 (3) - - - 560
2002 146,801 - - - - - - 480
Paul E. Hassler 2004 282,601 28,000 24,500 624
President and CEO 2003 138,497 33,803 (1) - - - 395
2002 135,333 44,478 (1) - - - 323
Andy L. Nemeth 2004 192,887 18,000 14,500 386
Executive Vice President of Finance, 2003 163,460 13,000 (3) - - - 353
CFO, and Secretary-Treasurer 2002 118,163 - - - - - - 236
Gregory J. Scharnott 2004 192,727 18,000 14,500 520
Executive Vice President of Operations 2003 155,040 13,000 (3) - - - 470
and Distribution 2002 131,308 34,053 (2) - - - 268
(1) The bonus for Paul E. Hassler is related to compensation as an
executive director of Western Operations. Mr. Hassler was elected Vice
President of Operations and Distribution West in December 2003 and
subsequently elected President and Chief Executive Officer of the
Company effective April 5, 2004.
(2) The bonus for Gregory J. Scharnott for 2002 is related to compensation
as an executive director of the Midwest regional business units. Mr.
Scharnott joined the Company in February 2001.
(3) The bonus for the executive officers was a discretionary bonus awarded
by the Board of Directors in February 2003. This award was based on
management's efforts to contain costs as a result of the December 31,
2002 operating results.
(4) Company contributions to 401(k) Savings Plan.
EMPLOYMENT CONTRACTS
The Company entered into Employment Agreements with Paul E. Hassler, Andy
L. Nemeth, and Gregory J. Scharnott, pursuant to which they agreed to serve as
executive officers of the Company. The agreements contain a non-compete clause
and certain other stipulations and provide for a severance package that includes
twelve (12) months base salary for Paul E. Hassler and six (6) months base
salary for Andy L. Nemeth and Gregory J. Scharnott. The employment agreements
renew automatically.
The executive officers of the Company have deferred compensation agreements
which provide that the Company will pay each of these employees, or their
beneficiaries, up to 40% of their base salary for 120 months upon retirement (if
the employee continues in the employment of the Company until the age of 65) or
upon the employee's death or total disability. Keith V. Kankel has a deferred
compensation agreement which is fully vested and provides for payments of
$72,000 per year for ten years. Mr. Kankel's payments were postponed during the
term that he served as Interim President and CEO of the Company and will resume
after his employment with the Company ends.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FY- OPTIONS AT FY-
SHARES ACQUIRED END (#) END ($)*
ON EXERCISE VALUE REALIZED EXERCISABLE / EXERCISABLE /
NAME (#) ($) (1) NONEXERCISABLE NONEXERCISABLE
- ---- --------------- -------------- --------------- --------------
Paul E. Hassler . . . . . . - - - - - - 13,500/24,500 $52,890/3,185
Andy L. Nemeth . . . . . . - - - - - - 3,875/14,500 $15,230/1,885
Gregory J. Scharnott . . . - - - - - - 0/14,500 $0/1,885
- - - - -
* Market value of the underlying stock at exercise date, or year-end as the case
may be, minus the exercise price of the options.
(1) Represents the difference between the closing price of the Corporation's
common stock on the date of exercise and the exercise price of the option.
5
CORPORATE GOVERNANCE
GENERAL:
The Board believes that good corporate governance is important to ensure
that the Company is managed for the long-term benefit of the shareholders. The
Board annually reviews its corporate governance practices and policies as set
forth in its Corporate Governance Guidelines, Code of Ethics and various
Committee Charters, all of which were updated in accordance with the listing
standards of the NASDAQ national market and the new rules of the SEC.
The Company's Code of Ethics, Audit Committee Charter, Compensation
Committee Charter, and Corporate Governance and Nominations Committee Charter
are all available on our Website at www.patrickind.com, or by writing to:
Patrick Industries, Inc.
Attn: Andy L. Nemeth
Secretary
P.O. Box 638
Elkhart, IN 46515-0638
BOARD OF DIRECTORS, COMMITTEES, AND COMMITTEE REPORTS
BOARD OF DIRECTORS:
The Board of Directors had four regular meetings in 2004 and all directors
attended all four meetings except Mervin D. Lung, who attended three meetings.
Non-employee directors are paid an annual retainer of $5,000, $1,000 for each
board meeting they attend, and $1,000 for each committee meeting they attend
with a maximum of $2,000 per combined event. Committee members receive an
additional annual retainer of $5,000, regardless of the number of committees on
which they serve. Employee directors receive no compensation as such. On an
annual basis in May, each non-employee director is automatically granted a
restricted stock award for 3,000 shares of the Company's Common Stock which will
vest upon such director's continued service as a member of the Board of
Directors for one year or earlier upon certain events.
The Board and committees regularly meet in executive session without the
presence of any management directors or representatives. Robert C. Timmins,
Chair of the Audit Committee, was designated as the lead independent director
for 2004 and will preside over the executive sessions of the Board.
The Corporation expects all Board members to attend the annual meeting of
shareholders, but from time to time, other commitments may prevent all directors
from attending each meeting. All directors attended the most recent annual
meeting of shareholders, which was held on May 14, 2004.
INDEPENDENT DIRECTORS:
The Board of Directors is comprised of nine (9) members, of which, five (5)
are classified as independent directors and thus comprise a majority of the
Board. The five independent directors are Robert C. Timmins (Lead Director),
Terrence D. Brennan, John H. McDermott, Larry D. Renbarger, and Walter E. Wells.
The independent directors met six (6) times in 2004.
CORPORATE GOVERNANCE AND NOMINATIONS COMMITTEE PROCESSES
The Corporate Governance and Nominations Committee will consider board
nominees recommended by shareholders. Those recommendations should be sent to
the Chair of the Corporate Governance and Nominations Committee, care of the
Corporate Secretary of Patrick Industries, Inc., P.O. Box 638, Elkhart, IN
46515-0638. In order for a shareholder to nominate a candidate for director,
under the Company's By-Laws, timely notice of the nomination must be given in
writing to the Secretary of the Company. To be timely, such notice must be
received at the principal executive offices of the Company not less than 90
days, or more than 110 days prior to the next annual meeting of shareholders.
Notice of nomination must include the name, address and number of shares owned
by the person submitting the nomination; the name, age, business address,
residence address, and principal occupation of the nominee; and the number of
shares beneficially owned by the nominee. It must also include the information
that would be required to be disclosed in the solicitation of proxies for
election of directors under the federal securities laws, as well as whether the
individual can understand basic financial statements and the candidate's other
board memberships (if any). The nominee's consent to be elected and serve must
be submitted. The Corporate Governance and Nominations Committee may require any
nominee to furnish any other information, within reason, that may be needed to
determine the eligibility of the nominee. As provided in its Charter, the
Corporate Governance and Nominations Committee will follow procedures which the
committee deems reasonable and appropriate in the identification of candidates
for election to the board and evaluating the background and qualification of
6
those candidates. Those processes include consideration of nominees suggested by
an outside search firm, by incumbent board members, and by shareholders. The
committee will seek candidates having experience and abilities relevant to
serving as a director of the Company, and who represent the best interests of
shareholders as a whole and not any specific group or constituency.
The committee will consider a candidate's qualifications and background,
including, but not limited to, responsibility for operating a public company or
a division of a public company, international business experience, a candidate's
technical background or professional qualification, and any other public company
boards on which the candidate is a director. The committee will also consider
whether the candidate would be "independent" for purposes of the NASDAQ National
Market and rules and regulations of the Securities Exchange Commission. The
committee may, from time to time, engage the service of a professional search
firm to identify and evaluate potential nominees.
AUDIT COMMITTEE:
The Board of Directors has an Audit Committee comprised of Robert C.
Timmins (Chairman), Terrence D. Brennan, John H. McDermott, Larry D. Renbarger,
and Walter E. Wells who are not employees of the Company. The Audit Committee's
responsibilities include recommending to the Board of Directors the independent
accountants to be employed for the purpose of conducting the annual examination
of the Company's financial statements, discussing with the independent
accountants the scope of their examination, reviewing the Company's financial
statements and the independent accountants' report thereon with Company
personnel and the independent accountants, and inviting the recommendations of
the independent accountants regarding internal controls and other matters.
Additionally, the Audit Committee is responsible for approving all non-audit
services provided by the independent accountants and reviews these engagements
on a per occurrence basis.
All of the members of the Audit Committee are independent as defined in the
NASDAQ listing standards and Robert C. Timmins, Terrence D. Brennan, Larry D.
Renbarger, and Walter E. Wells all meet the qualifications required to be an
audit committee financial expert. Robert Timmins and Larry Renbarger both have
public accounting backgrounds. Terrence Brennan served as the President of NBD
Bank in Elkhart, Indiana and Walter Wells was the President and Chief Executive
Officer of Schult Homes. The Audit Committee met four times in 2004. The Audit
Committee Charter is attached in Exhibit A to this Document.
COMPENSATION COMMITTEE:
The Board of Directors has a Compensation Committee comprised of Terrence
D. Brennan (Chairman), John H. McDermott, Larry D. Renbarger, Robert C. Timmins,
and Walter E. Wells which met five times in 2004. The primary responsibilities
of this committee include:
o Reviewing and recommending to the independent members of the Board the
overall compensation programs for the Officers of the Company.
o Review and recommend to the Board of Directors, the compensation of
directors.
o Oversight authority for the stock based compensation programs.
For a more detailed list of the roles and responsibilities of the
Compensation Committee, please see the Compensation Committee Charter located on
the Company's website at www.patrickind.com.
CORPORATE GOVERNANCE AND NOMINATIONS COMMITTEE:
The Board of Directors has a Corporate Governance and Nominations Committee
comprised of John H. McDermott (Chairman), Terrence D. Brennan, Larry D.
Renbarger, Robert C. Timmins, and Walter E. Wells. This Committee met four times
in 2004 and their primary responsibilities are as follows:
o To assist the Board in identifying, screening, and recommending
qualified candidates to serve as directors.
o To recommend nominees to the Board to fill new positions or vacancies
as they occur.
o To recommend to the Board candidates for re-election by shareholders
at the annual meeting.
o To review and monitor corporate governance compliance as well as
recommend appropriate changes.
For a more detailed list of the roles and responsibilities of the Corporate
Governance and Nominations Committee functions, please see the Corporate
Governance and Nominations Committee Charter located on the Company's website at
www.patrickind.com.
- ------------------
7
AUDIT COMMITTEE REPORT
The responsibilities of the Audit Committee, which are set forth in the
Audit Committee Charter adopted by the Board of Directors, include providing
oversight to the Company's financial reporting process through periodic meetings
with the Company's independent auditors, principal accounting officer, and
management to review accounting, auditing, internal controls, and financial
reporting matters. The management of the Company is responsible for the
preparation and integrity of the financial reporting information and related
systems of internal controls. The Audit Committee, in carrying out its role,
relies on the Company's senior management, including senior financial
management, and its independent auditors.
We have reviewed and discussed with senior management the Company's audited
financial statements included in the 2004 Annual Report to Shareholders.
Management has confirmed to us that such financial statements (i) have been
prepared with integrity and objectivity and are the responsibility of management
and (ii) have been prepared in conformity with generally accepted accounting
principles.
We have discussed with McGladrey & Pullen, LLP, our independent auditors,
the matters required to be discussed by SAS 61 (Communications with Audit
Committee). SAS 61 requires our independent auditors to provide us with
additional information regarding the scope and results of their audit of the
Company's financial statements, including with respect to (i) their
responsibility under generally accepted auditing standards, (ii) significant
accounting policies, (iii) management judgments and estimates, (iv) any
significant audit adjustments, (v) any disagreements with management, and (vi)
any difficulties encountered in performing the audit.
We have received from McGladrey & Pullen, LLP a letter providing the
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) with respect to any
relationships between McGladrey & Pullen, LLP and the Company that in their
professional judgment may reasonably be thought to bear on independence.
McGladrey & Pullen, LLP has discussed its independence with us, and has
confirmed in such letter that, in its professional judgment, it is independent
of the Company within the meaning of the federal securities laws.
Based on the review and discussions described above, with respect to the
Company's audited financial statements included in the Company's 2004 Annual
Report to Shareholders, we have recommended to the Board of Directors that such
financial statements be included in the Company's Annual Report on Form 10-K for
filing with the Securities and Exchange Commission.
As specified in the Audit Committee Charter, it is not the duty of the
Audit Committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and in accordance with generally
accepted accounting principles. That is the responsibility of management and the
Company's independent auditors. In giving our recommendation to the Board of
Directors, we have relied on (i) management's representation that such financial
statements have been prepared with integrity and objectivity and in conformity
with generally accepted accounting principles, and (ii) the report of the
Company's independent auditors with respect to such financial statements.
Robert C. Timmins (Chairman)
Terrence D. Brennan
John H. McDermott
Larry D. Renbarger
Walter E. Wells
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report of the Compensation Committee and the following Performance
Graph shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933 or under the Securities Exchange Act of 1934, except to
the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
OVERVIEW
The Committee policy is to design compensation programs for salaries,
incentive bonus programs, other benefits, and long-term incentive programs for
all key executives, including the officers named in the Summary Compensation
Table. The goals and objectives of the Committee are to attract and retain top
quality management employees and ensure that an appropriate relationship exists
between executive pay and the creation of shareholder value. The criteria used
to determine the compensation of the Chief
8
Executive Officer will also be used in determining compensation for the other
officers. The Committee will also receive the recommendation of the Chief
Executive Officer regarding the compensation of the other officers.
Federal tax law imposes a $1 million limit on the tax deduction for certain
executive compensation payments. Because the compensation paid to any executive
office is significantly below the $1 million threshold, the Compensation
Committee has not yet had to address the issues relative thereto.
SALARIES
The executive salaries are reviewed annually. The Committee sets executive
salaries based on competitive market levels, experience, individual and company
performance, levels of responsibility, and pay practices of other companies
relating to executives of similar responsibility. The Committee considered the
compensation levels of executives at comparable companies and fixed the
compensation for the CEO and other executive officers at levels approximating
the midrange of such companies. The Committee includes in its consideration
comparable companies listed in the CRSP Index for lumber and wood products and
other in building products industries. See "Performance Graph."
ANNUAL INCENTIVE
The Company provides an annual bonus plan for executive officers that gives
them the opportunity to earn additional compensation based on the performance of
the Company. The Chief Executive Officer and the other officers share in this
program to achieve certain bonus amounts based on various levels of
profitability of the Company.
Terrence D. Brennan (Chairman)
John H. McDermott
Larry D. Renbarger
Robert C. Timmins
Walter E. Wells
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither Paul E. Hassler, President and Chief Executive Officer of the
Company, nor Keith V. Kankel, former Interim President and Chief Executive
Officer of the Company, participated in the final decisions with respect to
their compensation. John H. McDermott is of counsel to the Chicago, Illinois law
firm of McDermott, Will & Emery which provides various legal services to the
Company.
CERTAIN TRANSACTIONS
The Company leases two buildings from Mr. Mervin Lung used for distribution
and manufacturing, under an agreement expiring on April 1, 2005, with an option
to purchase on that date. The agreement provides for monthly rental of $25,029,
and the payment of property taxes and insurance premiums on the property. The
Company also leases a manufacturing facility from Mr. Mervin Lung under an
agreement that expires on August 31, 2005 and the agreement provides for monthly
rentals of $9,146, and the payment of property taxes and insurance premiums on
the property.
Mr. Mervin Lung owns a building supply firm which does not serve the
Manufactured Housing and Recreational Vehicle industries. The Company purchases
certain specialty items from and sells products to such firm. During the year
ended December 31, 2004, purchases from such firm totaled $4,466 and sales to
such firm totaled $17,415.
The Company believes that the terms of each of the above transactions are
at least as favorable as those which could have been obtained from unrelated
parties.
9
PERFORMANCE GRAPH*
Set forth below is a line graph comparing the yearly cumulative total
shareholder return on the Company's Common Stock against the cumulative total
return of the indices indicated for the period of five fiscal years commencing
December 31, 1999 and ended December 31, 2004. This graph assumes that $100 was
invested on December 31, 1999 and that all dividends were reinvested. The stock
price performance shown on the graph below is not necessarily indicative of
future price performance.
[GRAPHIC OMITTED
- ------------------------------------------------------------------------------------------------------------------------
LEGEND
Symbol CRSP Total Returns Index for: 12/1999 12/2000 12/2001 12/2002 12/2003 12/2004
- ------ ----------------------------- ------- ------- ------- ------- ------- -------
[omitted] PATRICK INDUSTRIES, INC. 100.0 63.7 80.5 75.2 96.0 117.9
[omitted] Nasdaq Stock Market (US Companies) 100.0 60.3 47.8 33.1 49.4 53.8
[omitted] NASDAQ Stocks (SIC 2400-2499 US Companies) 100.0 68.6 194.1 171.8 202.8 336.4
Lumber and wood products, except furniture
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/31/1999.
- -------------------------------------------------------------------------------------------------------------------------
*Prepared by CRSP (www.crsp.uchicago.edu), Center for Research in Security
Prices, Graduate School of Business, The University of Chicago. Used with
permission. All rights reserved. (C)
10
ACCOUNTING INFORMATION
The Audit Committee appointed McGladrey & Pullen, LLP as independent
auditors to audit the financial statements of the Company for 2004.
Representatives of McGladrey & Pullen, LLP are expected to be present at the
annual meeting and will be given the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
The Audit Committee expects to appoint McGladrey & Pullen, LLP as the
independent auditors for the 2005 fiscal year subject to approval of the audit
scope and fees.
AUDIT FEES
The following table presents fees for professional audit services rendered
by McGladrey & Pullen, LLP for the audit of the Company's annual financial
statements for the years ended December 31, 2004 and 2003, and fees billed for
other services rendered by McGladrey & Pullen, LLP and RSM McGladrey, Inc. (an
affiliate of McGladrey & Pullen, LLP).
2004 2003
---- ----
Audit Fees (1) $139,325 $130,388
Audit-Related Fees (2) 10,415 12,785
Tax Services (3) 34,055 46,154
All Other Fees (4) 9,125 17,346
(1) Audit fees consist of fees for professional services rendered for the
audit of the Company's financial statements and review of financial
statements included in the Company's quarterly reports and services
normally provided by the independent auditor in connection with
statutory and regulatory filings or engagements.
(2) Audit-related fees are fees principally for professional services
rendered for the audit of the Company's employee benefit plans and due
diligence and technical accounting consulting and research.
(3) Tax services fees consist of compliance fees for the preparation of
original and amended tax returns, claims for refunds and tax payment
planning services for tax compliance, tax planning, and tax advice.
Tax service fees also include fees relating to other tax advices, tax
consulting and planning other than for tax compliance, and
preparation.
(4) Other services in 2004 consisted primarily of consulting services for
strategic planning. Other services in 2003 consisted primarily of
consulting services for compensation strategy and wage comparisons.
The Audit Committee has advised the Company that it has determined that the
non-audit services rendered by the Company's independent auditors during the
Company's most recent fiscal year are compatible with maintaining the
independence of such auditors.
The Audit Committee has adopted a Pre-Approval policy for Audit and
Non-Audit Services pursuant to which it pre-approves all audit and non-audit
services provided by the independent auditors prior to each particular
engagement. The Committee has delegated authority to its Chairman to approve
proposed services other than the annual audit, tax and quarterly review services
and the Chairman must report any approvals to the balance of the Committee at
the next scheduled meeting.
By Order of the Board of Directors
ANDY L. NEMETH
Secretary
April 8, 2005
11
APPENDIX A:
PATRICK INDUSTRIES, INC.
AUDIT COMMITTEE CHARTER
PURPOSE
- -------
The Audit Committee is appointed by the Board of Directors for the
primary purposes of:
o Assisting the Board of Directors in fulfilling its oversight
responsibilities as they relate to the Company's accounting
policies and internal controls, financial reporting practices,
audits of the Company's financial statements, and legal and
regulatory compliance, and
o Maintaining, through regularly scheduled meetings, a line of
communication between the Board of Directors and the Company's
financial management, internal auditors, and independent
accountants.
COMPOSITION AND QUALIFICATIONS
- ------------------------------
The Audit Committee shall be appointed by the Board of Directors and
shall be comprised of three or more Directors (as determined from
time to time by the Board), each of whom shall meet the
independence requirements of the NASDAQ Stock Market, Inc. Each
member of the Audit Committee shall have the ability to
understand fundamental financial statements. In addition, at
least one member of the Audit Committee shall have past
employment experience in finance or accounting, professional
certification in accounting, or any other comparable experience
or background which results in the individual's financial
sophistication, including being or having been a chief executive
officer, chief financial officer, or other senior officer with
financial oversight responsibilities.
RESPONSIBILITIES
- ----------------
The Audit Committee will:
(1) Review the annual audited financial statements with management and the
independent accountants. In connection with such review, the Audit
Committee will:
o Discuss with the independent accountants the matters required to
be discussed by Statement on Auditing Standards No. 61 relating
to the conduct of the audit.
o Review changes in accounting or auditing policies, including
resolution of any significant reporting or operational issues
affecting the financial statements.
o Inquire as to the existence and substance of any significant
accounting accruals, reserves or estimates made by management
that had or may have a material impact on the financial
statements.
o Review with the independent accountants any problems encountered
in the course of their audit, including any change in the scope
of the planned audit work and any restrictions placed on the
scope of such work, any management letter provided by the
independent accountants, and management's response to such
letter.
o Review with the independent accountants and the senior internal
auditing executive the adequacy of the Company's internal
controls, and any significant findings and recommendations.
(2) Review with management and the independent accountants the Company's
quarterly financial statements in advance of quarterly earnings
releases. This Committee may delegate this function to any one of the
Audit Committee Financial experts.
(3) Oversee the external audit coverage. The Company's independent
accountants are ultimately accountable to the Board of Directors and
the Audit Committee, which have the ultimate authority and
responsibility to select, evaluate, and, where
A1
appropriate, replace the independent accountants. In connection with
its oversight of the external audit coverage, the Audit Committee will:
o Have the sole authority for the appointment of the independent
accountants.
o Approve the engagement letter and the fees to be paid to the
independent accountants.
o Obtain confirmation and assurance as to the independent
accountants independence and absence of conflicts of interests,
including ensuring that they submit on a periodic basis (not less
than annually) to the Audit Committee a formal written statement
delineating all relationships between the independent accountants
and the Company. The Audit Committee is responsible for actively
engaging in a dialogue with the independent accountants with
respect to any disclosed relationships or services that may
impact the objectivity and independence of the independent
accountants and for recommending that the Board of Directors take
appropriate action in response to the independent accountants'
report to satisfy itself of their independence.
o Meet with the independent accountants prior to the annual audit
to discuss planning and staffing of the audit.
o Review and evaluate the performance of the independent
accountants, as the basis for a recommendation to the Board of
Directors with respect to reappointment or replacement.
o Ensure audit partner rotation.
(4) Oversee internal audit coverage. In connection with its oversight
responsibilities, the Audit Committee will:
o Review the appointment or replacement of the senior internal
auditing executive.
o Review, in consultation with management, the independent
accountants and the senior internal auditing executive, the plan
and scope of internal audit activities.
o Review internal audit activities, budget, and staffing.
o Review significant reports to management prepared by the internal
auditing department or the Company's independent accountants and
management's responses to such reports.
o Pre-approve all audits and permitted non-audit services.
(5) Meet periodically with management to review and assess the Company's
major financial risk exposures and the manner in which such risks are
being monitored and controlled.
(6) Meet at least annually in separate executive session with each of the
chief financial officer, the senior internal auditing executive, and
the independent accountants.
(7) Review periodically with the Company's General Counsel (i) legal and
regulatory matters which may have a material affect on the financial
statements, and (ii) corporate compliance policies or codes of conduct.
(8) Prepare the report of the Audit Committee required by the rules of the
Securities and Exchange Commission to be included in the proxy
statement for each annual meeting.
(9) Review and reassess annually the adequacy of this Audit Committee
Charter and recommend any proposed changes to the Board of Directors.
(10) The audit committee has the authority to engage independent counsel and
other advisers, as it deems necessary to carry out its duties.
(11) The audit committee will review and approve all related party
transactions
A2
(12) The audit committee will be responsible for establishing procedures
related to (i) the receipt, retention, and treatment of complaints
regarding accounting, internal accounting controls, or auditing matters
and (ii) the confidential, anonymous submission by employees of
concerns regarding questionable accounting or auditing matters. See
Company's Whistleblower Policy and Procedures which are published on
the Company's intranet (internal) website.
(13) The Company will provide for appropriate funding, as determined by the
audit committee, in its capacity as a committee of the board of
directors, for payment of:
a) Compensation to any registered public accounting firm engaged for
the purpose of preparing or issuing an audit report or performing
other audit, review, or attest services for the Company;
b) Compensation to any advisers employed by the audit committee
under paragraph (12) of this section; c) Ordinary administrative
expenses of the audit committee that is necessary or appropriate
in carrying out its duties.
(14) To assist it in the conduct of its responsibilities, the committee, to
the extent it deems necessary or appropriate, may consult with
management, may seek advice and assistance from Patrick employees or
others, and may retain legal counsel, and search firms. The Committee
has the authority to retain and terminate any search firm used to
identify director candidates and has the authority to approve such
firm's fees and other terms of retention.
(15) The Committee shall annually evaluate its own performance.
(16) In accordance with best practices, this charter will be posted on the
Company's website.
This Committee shall report regularly its findings and recommendations
to the Board. The Committee may delegate any of its responsibilities and duties
to one or more members of the Committee, except to the extent that such
delegation would be inconsistent with the requirements of the Securities
Exchange Act of 1934, as amended, or the listing rules of the NASDAQ national
market.
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent accountants. Nor is
it the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent accountants or to
assure compliance with laws and regulations and the Company's corporate
policies.
A3
[logo] PATRICK
INDUSTRIES, INC.
c/o National City Bank
Corporate Trust Operations
Locator 5352
P.O. Box 92301
Cleveland, OH 44101-4301
- ---------------------------
YOUR VOTE IS IMPORTANT
Regardless of whether you plan to attend the Annual Meeting of Shareholders, you
can be sure your shares are represented at the meeting by promptly returning
your proxy in the enclosed envelope.
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
- --------------------------------------------------------------------------------
[logo] PATRICK
INDUSTRIES, INC.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDERS. IF NO SPECIFIC DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF DIRECTORS.
YOUR SIGNATURE ON THIS PROXY IS YOUR ACKNOWLEDGMENT OF RECEIPT OF THE NOTICE OF
MEETING AND PROXY STATEMENT.
Dated: , 2005
---------------------
--------------------------------
Signature
--------------------------------
(Signature if held jointly)
Please sign exactly as name
appears hereon. For joint
accounts, all tenants must sign.
Executors, Administrators,
Trustee, etc. should so indicate
when signing.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
- --------------------------------------------------------------------------------
PATRICK INDUSTRIES, INC.
107 WEST FRANKLIN STREET, P.O. BOX 638, ELKHART, INDIANA 46515
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Paul E. Hassler and Andy L. Nemeth, and each of
them, as the undersigned's proxies, each with full power of substitution, to
represent and to vote, as designated below, all of the undersigned's Common
Stock in Patrick Industries, Inc. at the annual meeting of shareholders of
Patrick Industries, Inc. to be held on Thursday, May 12, 2005, and at any
adjournment thereof, with the same authority as if the undersigned were
personally present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS BELOW:
1. The Board of Directors recommends a vote FOR the listed nominees.
/ / FOR all nominees listed / / WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) listed below.
Nominees: Terrence D. Brennan, Larry D. Renbarger, Robert C. Timmins
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting.
(Continued and to be signed on reverse side)