UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from .................. to ..................
Commission file number 0-3922
PATRICK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1057796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 South 14th Street, Elkhart, IN 46516
(Address of principal executive offices)
(ZIP Code)
(219) 294-7511
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Shares of Common Stock Outstanding as of April 30, 2000: 5,273,266
1
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PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
Unaudited Condensed Balance Sheets
March 31, 2000 & December 31, 1999 3
Unaudited Condensed Statements of Income
Three Months Ended March 31, 2000 & 1999 4
Unaudited Condensed Statements of Cash Flows
Three Months Ended March 31, 2000 & 1999 5
Notes to Unaudited Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II: Other Information 13
Signatures 14
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PART I: FINANCIAL INFORMATION
<TABLE>
PATRICK INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
<CAPTION>
(Unaudited)
MARCH 31 DECEMBER 31
2000 1999
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 380,722 $ 6,686,182
Trade receivables 25,833,400 18,498,685
Inventories 45,700,435 42,039,348
Prepaid expenses 765,055 663,189
------------ ------------
Total current assets 72,679,612 67,887,404
------------ ------------
PROPERTY AND EQUIPMENT, at cost 91,887,941 90,450,403
Less accumulated depreciation 48,671,692 40,554,763
------------ ------------
43,216,249 49,895,640
------------
DEFERRED TAX ASSETS 754,000 - - -
------------ ------------
INTANGIBLE AND OTHER ASSETS 6,724,023 8,420,056
------------
Total assets $123,373,884 $126,203,100
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,671,428 $ 3,671,428
Accounts payable, trade 19,969,236 11,155,999
Accrued liabilities 4,073,581 5,506,326
------------ ------------
Total current liabilities 27,714,245 20,333,753
------------ ------------
LONG-TERM DEBT, less current maturities 22,457,144 22,457,144
------------ ------------
DEFERRED COMPENSATION OBLIGATIONS 1,982,252 1,945,058
------------ ------------
DEFERRED TAX LIABILITIES - - - 1,900,000
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 20,245,333 21,389,940
Retained earnings 50,974,910 58,177,205
------------ ------------
Total shareholders' equity 71,220,243 79,567,145
------------ ------------
Total liabilities and shareholders' equity $123,373,884 $126,203,100
============ ============
See accompanying notes to Unaudited Condensed Financial Statements.
</TABLE>
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<TABLE>
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDED
MARCH 31
2000 1999
<S> <C> <C>
NET SALES $ 99,824,073 $ 107,352,034
------------- -------------
COST AND EXPENSES
Cost of goods sold 89,070,610 93,368,182
Warehouse and delivery expenses 4,106,037 3,832,100
Selling, general, and administrative expenses 6,861,282 6,131,461
Impairment charges 6,937,163 - - -
Interest expense, net 313,633 366,335
------------- -------------
107,288,725 103,698,078
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (7,464,652) 3,653,956
INCOME TAXES (CREDIT) (2,862,300) 1,443,300
------------- -------------
NET INCOME (LOSS) $ (4,602,352) $ 2,210,656
============= =============
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ (.86) $ .38
============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,346,346 5,786,480
See accompanying notes to Unaudited Condensed Financial Statements
</TABLE>
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<TABLE>
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
<CAPTION>
THREE MONTHS ENDED
MARCH 31
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(4,602,352) $ 2,210,656
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,464,823 2,061,724
Impairment charges 6,937,163 - - -
(Gain) loss on sale of fixed assets 2,368 (642,876)
Deferred income taxes (2,654,000) - - -
Other 147,194 37,773
Change in assets and liabilities:
Decrease (Increase) in:
Trade receivables (7,334,715) (9,843,245)
Inventories (3,661,087) 1,290,004
Prepaid expenses (101,866) 18,965
Increase (Decrease) in:
Accounts payable and accrued liabilities 7,787,064 4,042,704
Income taxes payable (406,572) 1,518,088
----------- -----------
Net cash provided by (used in) operating activities (1,421,980) 693,793
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,097,110) (1,472,764)
Proceeds from sale of fixed assets 2,000 852,676
Other (22,500) (21,000)
----------- -----------
Net cash (used in) investing activities (1,117,610) (641,088)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Reacquisition of common stock (3,534,001) (2,142,830)
Proceeds from exercise of common stock options - - - 5,375
Principal payments on long-term debt - - - (157,701)
Cash dividends paid (210,549) (234,321)
Other (21,320) (36,992)
----------- -----------
Net cash (used In) financing activities (3,765,870) (2,566,469)
----------- -----------
Decrease in cash and cash equivalents (6,305,460) (2,513,764)
Cash and cash equivalents, beginning 6,686,182 3,704,693
----------- -----------
Cash and cash equivalents, ending $ 380,722 $ 1,190,929
=========== ===========
Cash Payments for:
Interest $ 638,240 $ 111,140
Income taxes 176,611 7,711
See accompanying notes to Unaudited Condensed Financial Statements
</TABLE>
5
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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 adjustment for the impairment of certain
long-lived assets as discussed in Note 5) necessary to present fairly
the financial position as of March 31, 2000, and December 31, 1999, and
the results of operations and cash flows for the three months ended
March 31, 2000 and 1999.
2. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed financial statements be read in conjunction with
the financial statements and notes thereto included in Company's
December 31, 1999 audited financial statements. The results of
operations for the three month periods ended March 31, 2000 and 1999
are not necessarily indicative of the results to be expected for the
full year.
3. The inventories on March 31, 2000 and December 31, 1999 consist of the
following classes:
March 31 December 31
2000 1999
Raw materials $26,953,320 $23,286,250
Work in process 1,090,056 1,555,319
Finished 5,066,072 4,668,813
----------- -----------
Total manufactured goods 33,109,448 29,510,382
Distribution products 12,590,987 12,528,966
----------- -----------
TOTAL INVENTORIES $45,700,435 $42,039,348
=========== ===========
The inventories are stated at the lower of cost, First-In, First-Out
(FIFO) method, or market.
4. Stock options outstanding are immaterial and had no effect on earnings
per share.
Earnings per common share for the three months ended March 31, 2000
and 1999 have been computed based on the weighted average common
shares outstanding of 5,346,346 and 5,786,480 respectively.
5. The Company recognized a non-cash accounting charge in the first
quarter of 2000 related to an impairment of certain long-lived assets
as required by SFAS 121. As a result of the implications of the
downturn in the manufactured housing industry, the competitive pricing
adversely affecting margins in certain of the Company's operating
units, and insufficient efficiency gains from operational changes
implemented by management, updated analyses were prepared to determine
if there was impairment of any long-lived assets primarily in the
Company's Wood and Other Segments. The carrying values of these assets
were calculated on the basis of discounted estimated future cash flow
and resulted in a charge to operations of $6,937,163 or $.80 per share,
net of tax. 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 will decrease in
future periods.
6. In April 2000 the Company decided to close one of its cabinet door
manufacturing facilities and consolidate its operations into other
existing facilities. The Company expects to incur restructuring charges
of approximately $670,000, most of which is expected to be incurred in
the second quarter. Accordingly, no charges have been accrued in the
March 31, 2000 financial statements.
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
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laminated products are utilized to produce furniture, shelving, wall,
counter, and cabinet products with a wide variety of finishes and
textures.
Distribution - Distributes primarily pre-finished wall and ceiling
panels, particleboard, hardboard, and vinyl siding, roofing products,
passage doors, building hardware, insulation, and other products.
Wood - Uses raw lumber including solid oak, other hardwood materials,
and laminated particleboard or plywood to produce cabinet door product
lines.
Other - Includes aluminum extrusion, painting and distribution,
manufacture of adhesive products, pleated shades, plastic
thermoforming, and manufacturer of laminating equipment.
The table below presents unaudited information about the revenue and
operating income of those segments:
<TABLE>
THREE MONTHS ENDED MARCH 31, 2000
---------------------------------
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
---------- ------------ ---- ----- -----
<S> <C> <C> <C> <C> <C>
Net outside sales $ 43,563,694 $ 35,874,665 $ 9,663,555 $10,722,159 $ 99,824,073
Intersegment sales 1,827,626 8,810 271,253 4,938,076 7,045,765
-------------------------------------------------------------------------------------------------------
Total sales $ 45,391,320 $ 35,883,475 $ 9,934,808 $15,660,235 $ 106,869,838*
-----------------------------------------------------------------------------------------
EBIT** $ 494,138 $ 397,038 $ (6,034,164)*** $(1,618,264)*** $ (6,761,252)
Total assets $ 43,481,458 $ 23,603,629 $ 8,073,637 $15,098,136 $ 90,256,860
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------
Net outside sales $ 45,102,806 $ 41,205,691 $ 10,686,970 $10,182,261 $107,177,728
Intersegment sales 1,617,431 - - - 217,161 5,193,930 7,028,522
---------------------------------------------------------------------------------------------
Total sales $ 46,720,237 $ 41,205,691 $ 10,904,131 $15,376,191 $114,206,250*
-----------------------------------------------------------------------------------------
EBIT** $ 2,315,015 $ 1,069,655 $ (781,477) $ 598,071 $ 3,201,264
Total assets $ 44,248,320 $ 24,860,380 $ 13,752,313 $18,369,220 $101,230,233
</TABLE>
Reconciliation of segment operating income to consolidated operating income
2000 1999
---- ----
EBIT** for segments $(6,761,252) $ 3,201,264
Consolidation reclassifications (185,163) (188,798)
Gain (loss) on sale of property
and equipment (2,368) 638,672
Other (202,234) 369,153
----------- ----------
Consolidated EBIT** $(7,151,017) $4,020,291
=========== ===========
*Does not agree to Financial Statements due to consolidation eliminations.
**Earnings before interest and taxes
***The Company recognized a charge in the first quarter 2000 of $5,371,295 and
$1,565,868 to the Wood and Other Segments respectively, related to the
impairment of long-lived assets as discussed in Note 5 to the March 31, 2000
financial statements.
The identifiable asset values for each segment have been reduced accordingly at
March 31, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
7
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GENERAL
The Company's business has shown significant revenue growth since 1991,
as net sales increased annually from $143 million to over $457 million in eight
years. The sales in 1999 were 0.8% ahead of the 1998 record year. The increase
in sales resulted from the continued strength of both the economy and the
manufactured housing and recreational vehicle industries. In the last quarter of
1999 it became apparent that the manufactured housing industry had produced
units in excess of the retail demand and consumer credit availability had
decreased, resulting in approximately 7.0% decline in production that year.
Retail sales lots were overstocked and unit production was reduced. In the first
quarter 2000 the industry is down nearly 21% in units shipped and this reduction
may continue. The Company's sales were 67% to manufactured housing, 16% to
recreational vehicle, and 17% to other industries in 1999. In the first quarter
of 2000, the sales are 54% to manufactured housing, 27% to recreational vehicle,
and 19% to other industries.
The following table sets forth the percentage relationship to net sales
of certain items in the Company's Statements of Operations:
Quarterly Ended
March 31,
2000 1999
Net sales 100.0% 100.0%
Cost of sales 89.2 87.0
Gross profit 10.8 13.0
Warehouse and delivery 4.1 3.6
Selling, general & administrative 6.9 5.7
Impairment charges 6.9 - -
Operating income (loss) (7.2) 3.7
Net income (loss) (4.6) 2.1
RESULTS OF OPERATIONS
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999
Net Sales. Net sales decreased by $7.5 million, or 7.0%, from $107.3
million in the quarter ended March 31, 1999 to $99.8 million in the quarter
ended March 31, 2000. This decrease was a direct result of an estimated 21%
decrease in units shipped and 22% decrease in units produced in the manufactured
housing industry in the first quarter 2000.
Gross Profit. Gross profit decreased by $3.2 million, or 23.1%, from
$14.0 million in the first quarter of 1999 compared to $10.8 million in the same
quarter in 2000. As a percentage of net sales, gross profit decreased 2.2%, from
13.0% in the first quarter of 1999 to 10.8% in the first quarter 2000. This
decrease was due to a 7.0% decrease in consolidated net sales as well as highly
competitive market conditions affecting margins. Several of our operations have
reduced prices in order to maintain sales which has resulted in lower gross
profits.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased $0.3 million, from $3.8 million in the first quarter 1999 to $4.1
million in the first quarter 2000. As a percentage of net sales, warehouse and
delivery expenses increased from 3.6% in the first quarter of 1999 to 4.1% in
the first quarter 2000. This increase is attributable to lower sales levels and
higher shipping costs specifically related to the increase in gasoline prices in
the first quarter 2000.
Selling, General, and Administrative Expenses. For the period ended
March 31, 1999, a $0.6 million gain on sale of assets has been included in the
selling, general, and administrative expenses. Exclusive on the gain of the sale
of assets, selling, general, and administrative expenses increased 1.4% in the
quarter ended March 31, 2000 compared to the same period in 1999. These expenses
remained fairly constant at $6.8 million for both quarters. As a percentage of
net sales however, March 31, 2000 expenses were 6.9% compared to 6.3% for the
three-month period ended March 31, 1999.
Impairment Charges. As discussed in Note 5 of the financial statement,
the Company recognized an impairment charge of $6.9 million in the first quarter
of 2000.
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Operating Income (Loss). The Company experienced a quarterly operating
loss of $7.2 million compared to operating income in the first quarter of 1999
of $4.0 million. The operating loss in the first quarter of 2000 was due to the
factors described above.
Interest Expense, Net. Interest expense, net of interest income,
decreased 14.4% from $366,000 in the first quarter of 1999 to $314,000 in the
same period in 2000. This decrease is attributable to more funds invested in the
first quarter 2000 as well as lower long-term debt levels due to normal debt
service requirements.
Net Income (Loss). The Company experienced a net operating loss in the
first quarter of 2000 of $4.6 million compared to net income of $2.2 million in
the period ended March 31, 1999. This decrease is due primarily to the factors
described above.
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
Net Sales. Net sales increased by $2.4 million, or 2.3%, from $105.0
million in the quarter ended March 31, 1998 to $107.4 million in the quarter
ended March 31, 1999. This sales increase was attributable to higher unit
production in the manufactured housing and recreational vehicle industries. The
Company's sales are 60% to manufactured housing, 20% to recreational vehicles,
and 20% to other industrial industries.
Gross Profit. Gross profit increased by approximately $0.7 million, or
5.5%, from $13.3 million in the first quarter of 1998, to $14.0 million in the
same quarter of 1999. As a percentage of net sales, gross profit increased from
12.6% in the first quarter of 1998 to 13.0% in 1999. The increase in gross
profit was due to certain operations showing improvement over the same 1998
quarter, while highly competitive market pricing of many of the Company's
products continued in the first quarter of 1999.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased approximately $0.1 million, or 3.0%, from $3.7 million in 1998 to $3.8
million in the 1999 first quarter. As a percentage of net sales, warehouse and
delivery expenses increased from 3.5% in the first quarter of 1998 to 3.6% in
1999.
Selling, General, and Administrative Expenses. For the period ended
March 31, 1999, a $0.6 million gain on the sale of assets has been included in
the selling, general, and administrative expenses. Exclusive on the gain of the
sale of assets, selling, general, and administrative expenses increased by
approximately $0.5 million, or 8.1%, from $6.3 million in 1998, to $6.8 million
in 1999. As a percentage of net sales, selling, general, and administrative
expenses increased from 6.0% in 1998 to 6.3% in 1999. Expense increases were
partially attributable to the Management Information System implementation
expenses and additional personnel required as a result of the growth the Company
has experienced over the last several years.
Operating Income. Operating income increased by approximately $0.7
million because of the gain on the sale of real estate and increased gross
profits. As a percentage of net sales, operating income increased from 3.1%
in1998 to 3.7% in the 1999 first quarter.
Interest Expense, Net. Interest expense, net of interest income,
increased by approximately $0.1 million in 1999 from $254,000 in 1998 to
$366,000 in 1999. The Company's borrowing level increased because of a new
industrial revenue bond issued in the third quarter of 1998 and the Company had
less invested funds in 1999.
Net Income. Net income increased by approximately $0.4 million from
$1.8 million in the 1998 first quarter to $2.2 million in 1999. This increase is
primarily attributable to the factors described above.
9
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BUSINESS SEGMENTS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Laminating Segment Discussion
Net sales decreased in the first quarter of 2000 by $1.3 million, or
2.8%, from $46.7 million in the period ended March 31, 1999 to $45.4 million in
the period ended March 31, 2000. This decline in sales volume was due to
approximately 21% less shipments nationwide in the manufactured housing industry
and declines over 30% in some of the Company's market areas.
EBIT declined 78.6% in the laminating segment from $2.3 million in the
period ended March 31, 1999 compared to $0.5 million in the period ended March
31, 2000. As a percentage of net sales, EBIT decreased 3.9% from 5.0% in the
first quarter 1999 to 1.1% in the first quarter 2000. The ability to increase
selling prices in the first quarter of 1999 became more difficult in the second
half of that year and in the first quarter of 2000 the Company had to make
concessions in pricing to maintain business as a result of the decline in the
overall industry.
Distribution Segment Discussion
Net sales decreased 12.9%, or $5.3 million, from $41.2 million in the
first quarter 1999 to $35.9 million in the first quarter 2000. This decrease is
due to the decline in units shipped in the manufactured housing industry for
which this segment serves.
EBIT decreased 67.8%, or $673,000, due to the decrease in sales and
competitive pricing situations.
Wood Segment Discussion
Net sales decreased 8.9%, or $1.0 million, from $10.9 million in the
period ended March 31, 1999 to $9.9 million in the period ended March 31, 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.
The EBIT for the first quarter includes a charge of approximately $5.4
million related to the impairment of certain long lived assets in three of the
Company's six Wood segment operating units. Excluding these charges, the EBIT in
2000 of $663,000 is less than the loss experienced in the first quarter of 1999
of $781,000 by $118,000, or 15.2%. As mentioned in Note 6 to the March 31, 2000
consolidated financial statements above, one of the operations that has
continued to experience operating losses, will be phased out by mid 2000.
Other Segment Discussion
Net sales in the Other segment increased by 1.9%, or $284,000, from
$15.4 million in the three months ended March 31, 1999 to $15.7 million in the
three month period ending March 31, 2000. This increase is primarily
attributable to increased sales in the Company's aluminum extrusion division
which sells to areas mainly outside the manufactured housing industry.
The EBIT for the first quarter includes a charge of approximately $1.5
million related to the impairment of certain long-lived assets in one of the
Company's seven Other segment operating units. Excluding these charges, the
Other segment experienced an EBIT for the first quarter 2000 of $52,000,
compared to EBIT in the first quarter 1999 of $598,000. This decrease in
operating income was due to one division, which was profitable in 1999, becoming
unprofitable in 2000 and another division continuing to lose market share due to
operational inefficiencies.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Laminating Segment Discussion
Net Sales in the 1999 period were lower in this segment by 8.3%. One
operation was closed in June of 1998 that represented approximately $3.2 million
less sales in the March 31, 1999 quarter, and another operation was started in
March of 1998 that contributed approximately $1.0 million of additional sales to
the 1999 period. The Company also chose not to meet some competitive market
pricing situations with certain existing business.
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EBIT in the laminating segment increased 14.0% in the 1999 period and
as a percentage of sales, the increase was from 4.0% to 5.0%. The Company
reduced material costs in most operations by increasing selling prices when raw
product costs increased and by reducing the sales of lower margin business.
Distribution Segment Discussion
Net sales in the 1999 quarter increased by 18.4% in the distribution
segment primarily because of the growth in the manufactured housing and
recreational vehicle industries, which this segment serves.
The EBIT from this segment increased by 82.7%. Gross profit margins
increased and distribution expenses, selling, general and administrative
expenses all decreased as percentages of sales in the 1999 period. These factors
and the increased sales provided this positive income change.
Wood Segment Discussion
Net sales in the wood segment increased by 5.4% in the 1999 first
quarter.
The overall operating results also showed no significant change in the
1999 period, with losses showing a slight reduction as percentages of sale from
7.8% in the 1998 first quarter to 7.2% in the current year. Several operations
in this segment had EBIT improvement in the 1999 period, while one operation had
EBIT gains offset by the relocation and consolidation of one of its facilities.
Other Segment Discussion
Net sales in this segment were lower in 1999 by 14% from the first
quarter of 1998 primarily because the Company's aluminum extrusion division had
to shut down one press for major repairs.
The EBIT in this segment was lower by 51.5%. The reduced sales in the
extrusion operation and inventory cost increases in another division accounted
for most of the income reduction.
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 that 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
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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.
YEAR 2000 ISSUE
The Company began a new management information system implementation
project in 1996, which was fully operational by November, 1999. The project was
started because of the need to upgrade all hardware and software to meet
capacity and information needs at that time and for the future, and to solve the
Year 2000 issue. The new system did solve the Year 2000 issue and no external
factors affected the Company.
The total cost of Year 2000 activities cannot be specifically
determined because the internal information system project was planned for
management and operation purposes and Year 2000 compliance was a benefit of that
system. The expenditures of implementing the new information hardware and
software system was approximately $8.0 million.
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
12
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(q) - First Amendment to Credit Agreement as of January
28, 2000 between the Company and Bank One, Indiana,
N.A., filed herewith
27 Financial Data Schedule
(b) There were no reports filed on Form 8-K
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATRICK INDUSTRIES, INC.
(Company)
Date May 11, 2000 /S/Mervin D. Lung
------------ ----------------------
Mervin D. Lung
(Chairman of the Board)
Date May 11, 2000 /S/David D. Lung
------------ ----------------------
David D. Lung
(President)
Date May 11, 2000 /S/Keith V. Kankel
------------ ----------------------
Keith V. Kankel
(Vice President Finance)
(Principal Accounting Officer)
14
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of January 28, 2000
(this "Amendment"), is between PATRICK INDUSTRIES, INC., an Indiana corporation
(the "Company"), and BANK ONE, INDIANA, N.A., a national banking association,
formerly known as NBD Bank (the "Bank").
RECITALS
--------
A. The Company and the Bank are parties to a Credit Agreement dated as
of February 2, 1997 (as now and hereafter amended, the "Credit Agreement")
pursuant to which the Bank agreed, subject to the terms and conditions thereof,
to extend credit to the Company in a revolving credit facility in the amount of
$10,000,000.
B. The parties now desire to renew the revolving credit facility and to
amend certain terms and provisions of the Credit Agreement as set forth herein.
TERMS
-----
In consideration of the premises and of the mutual agreements herein
contained, the parties agree as follows:
ARTICLE I. AMENDMENTS. Effective upon the date that the conditions set forth in
Article III of this Amendment are satisfied (the "Amendment Date"), which date
shall be determined by the Bank in its sole discretion, the Credit Agreement
shall be amended as follows:
1.1 The definitions of the terms "Bonds" and "Revolving Credit
Termination Date" in Section 1.1 are amended and restated in their entirety as
follows:
"Bonds" shall mean (i) the Five Million Dollars
($5,000,000) principal amount The Stanly County Industrial
Facilities And Pollution Control Financing Authority Variable
Rate Demand Industrial Development Revenue Bonds (Patrick
Industries, Inc. Project), Series 1998, (ii) the Six Million
Dollars ($6,000,000) principal amount State of Oregon Economic
Development Revenue Bonds, Series CLI (Patrick Industries,
Inc. Project), dated December 22, 1994, (iii) the Three
Million Nine Hundred Thousand Dollars ($3,900,000) principal
amount The Indiana Development Finance Authority Limited
Obligation Refunding Revenue Bonds (Patrick Industries, Inc.
Project), Series 1991, and (iv) all other obligations of the
Company or any of its Subsidiaries to the Bank under or in
connection with any future bond issuance for the benefit of
the Company or any of its Subsidiaries.
"Revolving Credit Termination Date" shall mean the
earlier to occur of (a) January 28, 2003 and (b) the date on
which the Commitment shall be terminated pursuant to Section
2.2 or Section 6.2.
<PAGE>
1.2 The following definition of the term "Amendment Fee" is added to
Section 1.1 in alphabetical order:
"Amendment Fee" shall mean the fee payable in
connection with the First Amendment to Credit Agreement, dated
as of January 28, 2000 (the "First Amendment") on the
Amendment Date as defined in the First Amendment in the amount
of $12,500.
1.3 Section 5.2(c) shall be amended and restated as follows:
(c) Tangible Net Worth. Permit or suffer the consolidated
Tangible Net Worth of the Company and its Subsidiaries to be
less than $57,000,000 at any time, which amount shall be
increased by an amount equal to (i) 50% of the Cumulative Net
Income of the Company and its Subsidiaries on and after
December 31, 1998, and (ii) 100% of the net cash proceeds of
any stock issuance by the Company after the Effective Date.
1.4 The following subsection (c) is added to the end of Section 2.3 as
follows:
(c) In addition to the commitment fees payable
pursuant to Section 2.3(a) and the facility fee payable
pursuant to Section 2.3(b), the Company agrees to pay to the
Bank on the Amendment Date an Amendment Fee of $12,500.
1.5 Exhibit A annexed to the Credit Agreement is deleted in its
entirety and Exhibit A annexed to this Amendment shall be deemed substituted in
place thereof. The Company shall execute and deliver to the Bank a replacement
revolving credit note in the form of Exhibit A annexed to this Amendment (the
"Replacement Revolving Credit Note") to be exchanged for the existing Revolving
Credit Note issued by the Company to the Bank under the Credit Agreement (the
"Existing Revolving Credit Note"). On the Amendment Date, the principal balance
of the Existing Revolving Credit Note, as well as all other information which
has been endorsed on the schedule attached to the Existing Revolving Credit Note
or elsewhere on the books and records of the Bank with respect to the Existing
Revolving Credit Note, shall be endorsed on the schedule attached to the
Replacement Revolving Credit Note or elsewhere on the books and records of the
Bank with respect to the Replacement Revolving Credit Note. The execution and
delivery by the Company of the Replacement Revolving Credit Note shall not in
any circumstances be deemed a novation or to have terminated, extinguished or
discharged the Company's indebtedness evidenced by the Existing Revolving Credit
Note, all of which indebtedness shall continue under and be evidenced and
governed by the Replacement Revolving Credit Note and the Credit Agreement, as
amended, and, subject to Article III of this Amendment, the Bank shall be
entitled to all of the benefits of the security documents with respect to the
entire indebtedness evidenced by the Replacement Revolving Credit Note.
2
<PAGE>
1.6 Each reference in the Credit Agreement, the Note and all related
documents, instruments and agreements to "NBD Bank" shall be deleted and "Bank
One, Indiana, N.A." shall be substituted in place thereof.
1.7 Schedules 4.4, 4.5, 4.13, 5.2(e) and 5.2(f) annexed to the Credit
Agreement are deleted in their entirety and Schedules 4.4, 4.5, 4.13, 5.2(e) and
5.2(f) annexed to this Amendment shall be deemed substituted in place thereof.
ARTICLE II. REPRESENTATIONS. The Company represents and warrants to the Bank
that:
2.1 The execution, delivery and performance of this Amendment are
within its powers, have been duly authorized and are not in contravention with
any law, of the terms of its Articles of Incorporation or By-laws, or any
material undertaking to which it is a party or by which it is bound.
2.2 This Amendment is the legal, valid and binding obligation of the
Company enforceable against it in accordance with the respective terms hereof.
2.3 After giving effect to the amendments herein contained, the
representations and warranties contained in Article IV of the Credit Agreement
are true on and as of the date hereof with the same force and effect as if made
on and as of the date hereof, provided, that, the representations and warranties
contained in Section 4.6 of the Credit Agreement shall be deemed to have been
made with respect to the financial statements most recently delivered pursuant
to Section 5.1(d) of the Credit Agreement.
2.4 No Event of Default or event or condition which, with notice or
lapse of time or both, could become such an Event of Default exists or has
occurred and is continuing on the date hereof.
ARTICLE III. CONDITIONS OF EFFECTIVENESS. This Amendment shall not become
effective until each of the following has been satisfied:
3.1 Copies of resolutions adopted by the Board of Directors of the
Company, certified by an officer of the Company, as being true and correct and
in full force and effect without amendment as of the date hereof, authorizing
the Company to enter into this Amendment and any other documents or agreements
executed pursuant hereto, if any, shall have been delivered to the Bank.
3.2 This Amendment shall be signed by the Company and the Bank.
3.3 The Company shall have executed the Revolving Credit Note annexed
to this Amendment as Exhibit A.
---------
3.4 The Bank shall receive a favorable written opinion of Warrick &
Boyn, counsel for the Company, in a form reasonable satisfactory to the Bank.
3
<PAGE>
3.5 The Company shall have paid the Amendment Fee and the fees of
counsel to the Bank.
3.6 The Bank shall receive such other documents and the Company shall
satisfy such other conditions and complete such other matters as the Bank may
reasonable request.
ARTICLE IV. MISCELLANEOUS.
-------------
4.1 References in the Credit Agreement to "this Agreement" and
references in any note, certificate, instrument or other document to the "Credit
Agreement" shall be deemed to be references to the Credit Agreement as amended
hereby and as further amended from time to time.
4.2 The Company agrees to pay and to save the Bank harmless for the
payment of all costs and expenses arising in connection with this Amendment,
including the reasonable fees of counsel to the Bank in connection with
preparing this Amendment and the related documents.
4.3 The Company acknowledges and agrees that the Bank has fully
performed all of its obligations under all documents executed in connection with
the Credit Agreement and all actions taken by the Bank are reasonable and
appropriate under the circumstances and within its rights under the Credit
Agreement and all other documents executed in connection therewith and otherwise
available. The Company represents and warrants that it is not aware of any
claims or causes of action against the Bank, or any of its successors or
assigns. Notwithstanding this representation and as further consideration for
the agreements and understandings herein, the Company and its heirs, successors
and assigns, hereby release the Bank and its heirs, successors and assigns from
any liability, claim, right or cause of action which now exists, arising from or
in any way related to facts in existence as of the date hereof to any agreements
or transactions between the Bank and the Company or to any acts or omissions of
the Bank in connection therewith or otherwise.
4.4 Except as expressly amended hereby, the Company agrees that the
Credit Agreement, the promissory note and all other documents and agreements
executed by the Company in connection with the Credit Agreement in favor of the
Bank are ratified and confirmed and shall remain in full force and effect and
that it has no set off, counterclaim or defense with respect to any of the
foregoing. Terms used but not defined herein shall have the respective meanings
ascribed thereto in the Credit Agreement.
4.5 This Amendment shall be deemed to be a contract made under and for
all purposes shall be governed by and construed in accordance with the laws of
the State of Indiana applicable to contracts made and to be performed entirely
within such State, without regard to the choice of law principles of such State.
4.6 This Amendment may be signed upon any number of counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
(The rest of this page intentionally left lank.)
4
<PAGE>
IN WITNESS WHEREOF, the parties signing this Amendment have caused this
Amendment to be executed and delivered as of the date first above written.
PATRICK INDUSTRIES, INC.
/S/Keith V. Kankel
------------------
By: Keith V. Kankel
Its: Vice President - Finance
BANK ONE, INDIANA, N.A.
/S/Donald E. Hobik
------------------
By: Donald E. Hobik
Its: Vice President
5
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