UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file Number 0-3922
PATRICK INDUSTRIES, INC.
(Exact name of Company as specified in its charter)
Indiana 35-1057796
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
1800 South 14th Street, P.O. Box 638, Elkhart, Indiana 46515
(Address of principal executive offices) (ZIP code)
Company's telephone number, including area code: (219) 294-7511
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
(Title of each class)
Indicate by check mark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K [ X ]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
Company on March 22, 2000 (based upon the closing price on NASDAQ and an
estimate that 76.61% of the shares are owned by non-affiliates) was $33,327,772.
The closing market price was $8.250 on that day.
As of March 22, 2000, 5,273,266 shares of the Company's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Company's Proxy Statement for its Annual
Meeting of Shareholders to be held on May 16, 2000 are
incorporated by reference into Parts III of this Form
10-K.
EXPLANATORY NOTE: This Amendment is being filed to add the correct date to
the signature page.
<PAGE>
PART I
ITEM 1. BUSINESS
The Company is a leading manufacturer and supplier of building
products and materials to the Manufactured Housing and Recreational Vehicle
Industries. In addition, the Company is a supplier to certain other industrial
markets, such as furniture manufacturing, marine, and the automotive
aftermarket. The Company manufactures decorative vinyl and paper panels, cabinet
doors, countertops, aluminum extrusions, drawer sides, pleated shades, wood
adhesives, and laminating machines. The Company is also an independent wholesale
distributor of pre-finished wall and ceiling panels, particleboard, hardboard
siding, passage doors, roofing products, building hardware, insulation, and
other related products.
The Company has a nationwide network of distribution centers for
its products, thereby reducing intransit delivery time and cost to the regional
manufacturing plants of its customers. The Company believes that it is one of
the few suppliers to the Manufactured Housing and Recreational Vehicle
Industries that has such a nationwide network. The Company maintains ten
manufacturing plants and two distribution facilities near its principal offices
in Elkhart, Indiana, and operates fourteen other warehouse and distribution
centers and sixteen other manufacturing plants in fourteen states.
Strategy
- --------
Over time, the Company has developed very strong working
relationships with its customers. In so doing, the Company has oriented its
business and expansion to the needs of these customers. These customers include
all of the larger Manufactured Housing and Recreational Vehicle manufacturers.
The Company's customers generally demand high quality standards and a high
degree of flexibility from their suppliers. The result has been that the Company
focuses on maintaining and improving the quality of its manufactured products,
and has developed a nationwide manufacturing and distribution presence in
response to its customers' need for flexibility. As the Company explores new
markets and industries, it believes that this nationwide network provides it
with a strong foundation for expansion.
The Company continually seeks to improve its position as a leading
supplier to the Manufactured Housing and Recreational Vehicle Industries and
other industries to which its products, manufacturing processes, or sales and
distribution system are applicable. Currently, approximately 67% of the
Company's sales are to the Manufactured Housing industry, 16% to the
Recreational Vehicle industry, and 17% to other industries. These industries,
and the impact that they have on their suppliers, are characterized by cyclical
demand and production, small order quantities, and short lead times. These
characteristics have an impact on the suppliers, many of whom tend to be small,
regional, and specific product line companies.
Management has identified several tools which it expects to
utilize to accomplish its operating strategies, including the following:
Diversification into Additional Industries
While the Company continually seeks to improve its position as a
leading supplier to the Manufactured Housing and Recreational Vehicle
Industries, it is also seeking to expand its product lines into other industrial
markets. Many of the Company's products, such as its countertops, cabinet doors,
laminated panels, and shelving, have applications in the furniture and cabinetry
markets. In addition, the manufacturing processes for the Company's aluminum
extrusions are easily applied to the production of products for the marine,
automotive and truck accessories markets and aftermarkets, and many other
markets. The Company's adhesives are produced for almost all industrial
applications.
<PAGE>
Because industrial order size tends to be for larger numbers of
units, the Company enjoys better production efficiencies for these orders. The
Company believes that diversification into additional industries will reduce its
vulnerability to the cyclical nature of the Manufactured Housing and
Recreational Vehicle Industries. In addition, the Company believes that it's
nationwide manufacturing and distribution capabilities enable it to more
effectively serve it's customers and position it for product expansion.
Expansion of Manufacturing Capacity
In the last 4 years, the Company has invested approximately $37.7
million to upgrade existing facilities and equipment and to build new
manufacturing facilities for its laminated paneling products, industrial
adhesives, cabinet doors, and furniture components. In addition, the Company has
invested $9.4 million to purchase existing businesses. The new capacity created
by these investments has enabled the Company to accommodate future growth in the
Company's product lines and markets.
Strategic Acquisitions and Expansion
The Company supplies a broad variety of building material products
and, with its nationwide manufacturing and distribution capabilities, is
well-positioned for the introduction of new products. The Company, from time to
time, considers the acquisition of additional product lines, facilities or other
assets to complement or expand its existing business. In 1997 the Company
purchased the assets of two pleated shade manufacturers, and in 1998 acquired
the assets of a wood component manufacturer who was a competitor. In 1996 the
Company expanded existing product lines and capacity with the opening of a new
manufacturing and distribution complex in Woodburn, Oregon, and in 1998 did the
same in New London, North Carolina. In 1998 the Company also started a new
plastic thermoforming operation in Indiana. In 1999 the Company expanded the Sun
Adhesive facility in Decatur, Alabama to increase capacity.
Business Segments
- -----------------
The Company's operations comprise four reportable segments.
Information related to those segments is contained in "Note 13-Segment
Information" appearing herein the financial statements as noted in the index
appearing under Item 14(a)(1) and (2).
Principal Products
- ------------------
The Company distributes primarily prefinished wall and ceiling
panels, particleboard, hardboard siding, roofing products, passage doors,
building hardware, insulation, and other products. Through its manufacturing
divisions, the Company fabricates decorative vinyl and paper panels, cabinet
doors, shelving, countertops, wood mouldings, aluminum extrusions, drawer sides,
furniture components, wood adhesives, and laminating presses.
Pre-finished wall panels contributed more than 10% to total sales.
The percentage contributions of this class of product to total sales was 39.7%,
42.4%, and 40.9% for the years ended December 31, 1999, 1998, and 1997
respectively.
The Company has no material patents, licenses, franchises, or
concessions and does not conduct significant research and development
activities.
Manufacturing Processes and Operations
- --------------------------------------
The Company's laminating facilities utilize various materials
including gypsum, particleboard, plywood, and fiberboard which are bonded by
adhesives or a heating process to a number of products
<PAGE>
including vinyl, paper, foil, and high pressure laminate. These laminated
products are utilized to produce furniture, shelving, wall, counter, and cabinet
products with a wide variety of finishes and textures.
The Company's plastic thermoforming operation utilizes two modern
technology vacuum presses and robotic finishing equipment to thermoform products
for our core industries and many other industries.
The Company's metals division utilizes sophisticated technology to
produce aluminum extrusions for framing and window applications. In addition,
the Company's metals division extrudes running boards, accessories for pick-up
trucks, marine industry products, and construction-related materials.
The Company manufactures two distinct cabinet door product lines.
One product line is manufactured from raw lumber utilizing solid oak and other
hardwood materials. The Company's other line of doors is made of laminated
fiberboard. The Company's doors are sold mainly to the Manufactured Housing and
Recreational Vehicle Industries, and continue to gain acceptance with cabinet
manufacturers and "ready-to-assemble" furniture manufacturers.
The Company's wood adhesive division, which supplies adhesives used
in most of the Company's manufacturing processes and to outside industrial
customers, uses a process of mixing non-toxic non-hazardous chemicals with water
to produce adhesives sold in tubes, pails, barrels, totes, and rail tank cars.
Markets
- -------
The Company is engaged in the manufacturing and distribution of
building products and material for use primarily by the Manufactured Housing and
Recreational Vehicle Industries and other industrial markets.
Manufactured Housing
The Manufactured Housing Industry has historically served as a
more affordable alternative to the home buyer. Because of the relatively lower
cost of construction as compared to site-built homes, manufactured homes
traditionally have been one of the principal means for first-time home buyers to
overcome the obstacles of large down payments and higher monthly mortgage
payments. Manufactured Housing also presents an affordable alternative to
site-built homes for retirees and others desiring a lifestyle in which home
ownership is less burdensome than in the case with site-built homes. The
increase in square footage of living space in manufactured homes created by
multi-sectional models has made them more attractive to a larger segment of home
buyers.
Manufactured homes are built in accordance with national and state
building codes. Manufactured homes are factory-built and transported to a site
where they are installed, often permanently. Some manufactured homes have design
limitations imposed by the constraints of efficient production and over-the-road
transit. Delivery expense limits the effective competitive shipping range of the
manufactured homes to approximately 400 to 600 miles.
The Manufactured Housing Industry is cyclical, and is affected by
the availability of alternative housing such as apartments, town houses, and
condominiums. In addition, interest rates, availability of financing, regional
population, employment trends, and general regional economic conditions affect
the sale of manufactured homes. The Manufactured Housing Institute reported that
during the four-year period ended December 31, 1991, shipments of manufactured
homes declined 26.6% to a total of approximately 171,000 units nationally in
1991. The reported number of units increased sharply in the five years following
1991, with increases in each of those years. Manufactured home unit shipments in
1999 were 349,000, which is 6.5% lower than 1998, but still 104% more units than
shipped in 1991. In the second half of 1999 manufactured
<PAGE>
housing shipments did not keep pace with 1998 because retail lots and
manufacturers both had significant inventories created by over-production in
earlier months. The industry production levels will remain lower than those of
1998 until the excess inventory is sold.
Manufactured Housing Shipments:
-------------------------------
1990 - 188,200
1991 - 170,700
1992 - 210,800
1993 - 254,300
1994 - 303,900
1995 - 339,600
1996 - 363,400
1997 - 353,400
1998 - 372,800
1999 - 348,700
These cycles have a historic precedent. The Company believes that
the factors responsible for the national decline prior to 1992 included weakness
in the manufacturing, the agricultural, and, in particular, the oil industry
sectors. These industry sectors have historically provided a significant portion
of the Manufactured Housing Industry's customer base. Additionally, high vacancy
rates in apartments, high levels of repossession inventories, and over-built
housing markets in certain regions of the country resulted in fewer sales of new
manufactured homes in the past. Changes in these market characteristics have
caused the Manufactured Housing cycle to change positively. Manufactured Housing
now accounts for approximately 30% of all homes built.
Recreational Vehicles
The Recreational Vehicle Industry has been characterized by cycles
of growth and contraction in consumer demand, reflecting prevailing general
economic conditions which affect disposable income for leisure time activities.
Fluctuations in interest rates, consumer confidence, and concerns about the
availability and price of gasoline, in the past, have had an adverse impact on
recreational vehicle sales. Recently the industry has been characterized by
shifting demand towards lower-priced, higher-value products which appeal to
economy-minded, value-conscious buyers.
Recreational Vehicle classifications are based upon standards
established by the Recreational Vehicle Industry Association. The principal
types of recreational vehicles include conventional travel trailers, folding
camping trailers, fifth wheels, motor homes, and van conversions. These
Recreational Vehicles are distinct from mobile homes, which are manufactured
houses designed for permanent and semi-permanent residential dwelling.
Conventional travel trailers and folding camping trailers are
non-motorized vehicles which are designed to be towed by passenger automobiles,
pick-up trucks or vans. They provide comfortable, self-contained living
facilities for short periods of time. Conventional travel trailers and folding
camping trailers are towed by means of a frame hitch attached to the towing
vehicle. Fifth wheel trailers, designed to be towed by pick-up trucks, are
constructed with a raised forward section that is attached to the bed area of
the pick-up truck. This allows for a bi-level floor plan and more living space
than a conventional travel trailer.
A motor home is a self-powered vehicle built on a motor vehicle
chassis. The interior typically includes a driver's area, kitchen, bathroom,
dining, and sleeping areas. Motor homes are self-contained with their own
lighting, heating, cooking, refrigeration, sewage holding, and water storage
facilities. Although they
<PAGE>
are not designed for permanent or semi-permanent living, motor homes do provide
comfortable living facilities for short periods of time.
Van conversions are conventional vans modified for recreational or
other use.
Sales of Recreational Vehicle products have been cyclical.
Shortages of motor vehicle fuels and significant increases in fuel prices have
had a material adverse effect on the market for Recreational Vehicles in the
past, and could adversely affect demand in the future. The Recreational Vehicle
Industry is also affected by the availability and terms of financing to dealers
and retail purchasers. Substantial increases in interest rates and decreases in
the general availability of credit have had a negative impact upon the industry
in the past and may do so in the future. Recession and lack of consumer
confidence generally results in a decrease in the sale of leisure time products
such as Recreational Vehicles. The industry shipped 321,000 units in 1999, which
was 9.7% more than in 1998 and more than any of the last 14 years.
Recreational Vehicle Shipments:
-------------------------------
1990 - 173,100
1991 - 163,300
1992 - 203,400
1993 - 227,800
1994 - 259,200
1995 - 247,000
1996 - 247,500
1997 - 254,500
1998 - 292,700
1999 - 321,200
Other Markets
Many of the Company's products, such as its countertops, laminated
panels, cabinet doors, and shelving may be utilized in the furniture and
cabinetry markets. The Company's aluminum extrusion process is easily applied to
the production of accessories for pick-up trucks and vans, architectural and
also certain other building products. The Company's adhesives are marketed in
many industrial adhesive markets. The Company's plastic thermoforming products
can be marketed in many areas including construction, automotive, marine, and
architectural.
While demand in these industries also fluctuates with general
economic cycles, the Company believes that these cycles are less severe than
those in the Manufactured Housing and Recreational Vehicle Industries. As a
result, the Company believes that diversification into these new markets will
reduce its reliance on the markets it has traditionally served and will mitigate
the impact of their historical cyclical patterns on its operating results.
Marketing and Distribution
- --------------------------
The Company's sales are to Manufactured Housing and Recreational
Vehicle manufacturers and other building products manufacturers. The Company has
approximately 4,000 customers. The Company has three customers, who together
accounted for approximately 35% of the Company's total sales in 1999 and 1998.
Ten other customers collectively accounted for approximately 26% of 1999 sales.
The Company believes it has good relationships with its customers.
Products for distribution are purchased in carload or truckload
quantities, warehoused, and then sold and delivered by the Company.
Approximately 41% of the Company's distribution products are shipped
<PAGE>
directly from the suppliers to the customers. The Company typically experiences
a two to four week delay between issuing its purchase orders and delivering of
products to the Company's warehouses or customers. The Company's customers do
not maintain long-term supply contracts, and therefore the Company must bear the
risk of accurate advance estimation of customer orders. The Company maintains a
substantial inventory to satisfy these orders. The Company has no significant
backlog of orders.
The Company operates sixteen warehouse and distribution centers
and twenty-six manufacturing plants located in Alabama, Arizona, California,
Florida, Georgia, Idaho, Indiana, Kansas, New Mexico, Nevada, North Carolina,
Oregon, Pennsylvania, and Texas. Through the use of these facilities, the
Company is able to minimize its in-transit delivery time and cost to the
regional manufacturing plants of its customers.
Suppliers
- ---------
During the year ended December 31, 1999, the Company purchased
approximately 67% of its raw materials and distributed products from twenty
different suppliers. The five largest suppliers accounted for approximately 44%
of the Company's purchases. Materials are primarily commodity products, such as
lauan, gypsum, aluminum, particleboard, and other lumber products which are
available from many suppliers. Alternate sources of supply are available for all
of the Company's important materials.
Competition
- -----------
The Manufactured Housing and Recreational Vehicle Industries are
highly competitive with low barriers to entry. This level of competition carries
through to the suppliers to these industries. Competition is based primarily on
price, product features, quality, and service. The Company has several
competitors in each of its classes of products. Some manufacturers and suppliers
of materials purchased by the Company also compete with it and sell directly to
the same industries. Most of the Company's competitors compete with the Company
on a regional basis. In order for a competitor to compete with the Company on a
national basis, the Company believes that a substantial capital commitment and
experienced personnel would be required. The industrial markets in which the
Company continues to expand are also highly competitive.
Employees
- ---------
As of December 31, 1999, the Company had 1,670 employees of which
1,428 employees are engaged directly in production, warehousing, and delivery
operations, 56 in sales, and 186 in office and administrative activities. There
are five manufacturing plants and one distribution center covered by collective
bargaining agreements. The Company considers its relationships with its
employees to be good.
The Company provides retirement, group life, hospitalization, and
major medical plans under which the employee pays a portion of the cost.
<PAGE>
ITEM 2. PROPERTIES AND EQUIPMENT
As of December 31, 1999, the Company maintained the following
warehouse, manufacturing and distribution facilities:
<TABLE>
Ownership or
Location Use Area Sq. Ft. Lease Arrangement
- -------- --- ------------ -----------------
<S> <C> <C> <C>
Argos, IN Manufacturing(4) 44,000 Leased to 2001
Elkhart, IN Manufacturing(3) 40,400 Leased to 2000
Elkhart, IN Mfg. & Dist.(1)(3) 133,600 Leased to 2005
Elkhart, IN Distribution(1) 39,760 Owned
Elkhart, IN Manufacturing(3) 32,900 Owned
Elkhart, IN Manufacturing (2) 42,000 Leased to 2001
Elkhart, IN Manufacturing(2) 31,000 Leased to 2004
Elkhart, IN Manufacturing(2) 30,000 Leased to 2000
Elkhart, IN Manufacturing(4) 36,000 Owned
Goshen, IN Manufacturing(4) 50,870 Owned
Bristol, IN Mfg. & Dist.(1)(4) 62,000 Owned
Decatur, AL Distribution(1) 30,000 Leased to 2000
Decatur, AL Distribution (1) 15,000 Leased to 2000
Decatur, AL Manufacturing(2) 35,000 Owned
Decatur, AL Manufacturing(2) 30,000 Leased to 2000
Decatur, AL Manufacturing(2)(4) 41,000 Owned
Valdosta, GA Distribution (1) 20,000 Leased to 2001
Valdosta, GA Manufacturing(2) 30,800 Owned
New London, NC Mfg. & Dist.(1)(2) 160,000 Owned, Subject to Mortgage
Halstead, KS Distribution(1) 36,000 Owned
Waco, TX Distribution(1)(2) 52,800 Leased to 2004
Waco, TX Manufacturing(2) 52,800 Leased to 2004
Waco, TX Manufacturing(2) 21,000 Leased to 2000
Mt. Joy, PA Distribution(1) 58,500 Owned
Mt. Joy, PA Manufacturing(2) 30,000 Owned
Ocala, FL Manufacturing(3) 20,600 Leased to 2004
Ocala, FL Manufacturing(3) 15,000 Leased to 2001
Ocala, FL Mfg. & Dist.(1)(2) 55,500 Owned
Fontana, CA Mfg. & Dist.(1)(2) 110,000 Owned
Fontana, CA Manufacturing(2) 71,755 Owned
Woodland, CA Distribution (1) 10,000 Leased to 2000
Phoenix, AZ Manufacturing (3) 43,600 Leased to 2002
Phoenix, AZ Manufacturing (2) 36,000 Leased to 2000
Phoenix, AZ Manufacturing (2) 15,700 Leased to 2000
Woodburn, OR Manufacturing(3) 21,500 Owned
Woodburn, OR Mfg. & Dist.(1,2,3) 153,000 Owned, Subject to Mortgage
Mishawaka, IN Manufacturing(4) 191,000 Owned, Subject to Mortgage
Elkhart, IN Manufacturing(4) 90,700 Owned
Boulder City, NV Manufacturing(4) 24,700 Leased to 2004
Elkhart, IN Admin. Offices 10,000 Owned
(1) Distribution center
(2) Vinyl/paper/foil laminating
(3) Cabinet doors and other wood related
(4) Aluminum, adhesives, and other
</TABLE>
<PAGE>
Additionally, the Company operates distribution centers out of public
warehouses in Phoenix, Arizona, Nampa, Idaho, and Belen, New Mexico. As of
December 31, 1999, the Company owned or leased 43 trucks, 71 tractors, 100
trailers, 140 forklifts, 5 automobiles and a corporate aircraft. All owned and
leased facilities and equipment are in good condition and well maintained.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of
business. In management's opinion, currently pending legal proceedings and
claims against the Company will not, individually or in the aggregate, have a
material adverse effect on the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's common stock is listed on The NASDAQ Stock Market(R)
under the symbol PATK. The high and low trade prices of the Company's common
stock as reported on NASDAQ/NMS for each quarterly period during the last two
years were as follows:
<TABLE>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
1999 16.000 - 12.750 16.250 - 10.750 16.000 - 12.000 14.125 - 7.313
1998 17.000 - 14.000 16.750 - 15.000 16.125 - 13.250 15.750 - 14.250
</TABLE>
The quotations represent prices between dealers, do not include
retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions.
There were approximately 634 holders of the Company's common stock as
of March 17, 2000 as taken from the transfer agent's shareholder listing. It is
estimated that there are approximately 2,100 holders of the Company's common
stock held in street name.
The Company declared a first time regular quarterly dividend of $.04
per common share starting June 30, 1995 and has continued it through December
31, 1999. Although this is a regular quarterly dividend, any future
determination to pay cash dividends will be made by the Board of Directors in
light of the Company's earnings, financial position, capital requirements, and
such other factors as the Board of Directors deems relevant.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for each of the five years
set forth below has been derived from financial statements audited by McGladrey
& Pullen, LLP, independent certified public accountants, certain of which have
been included elsewhere herein. The following data should be read in conjunction
with the Financial Statements and related Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein:
<TABLE>
As of or for the Year Ended December 31,
1999 1998 1997 1996 1995
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $457,356 $453,518 $410,567 $403,511 $362,519
Gross profit 57,339 59,556 52,142 53,362 49,690
Warehouse and delivery
expenses 16,715 16,076 15,158 14,645 13,244
Selling, general, and
administrative expenses 27,058 26,796 22,145 19,909 18,809
Interest expense, net 1,393 1,172 1,149 1,078 1,200
Income taxes 4,769 6,205 5,396 6,929 6,344
Net income 7,404 9,307 8,294 10,800 10,093
Basic earnings
per common share 1.30 1.58 1.40 1.81 1.70
Diluted earnings
per common share 1.29 1.57 1.39 1.80 1.69
Weighted average common
shares outstanding 5,714 5,903 5,921 5,967 5,947
Cash dividends, per
common share .16 .16 .16 .16 .12
Working capital 47,553 46,698 40,181 45,646 43,280
Total assets 126,203 127,755 112,187 106,606 95,916
Long-term debt 22,457 26,129 25,015 26,152 26,200
Shareholders' equity 79,567 76,307 68,726 62,296 52,989
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's business has shown significant revenue growth since
1991, as net sales increased annually from $143 million to over $457 million in
eight years. Although the rate of growth in 1997 slowed to 1.8%, the sales in
1998 were 10.5% ahead of the 1997 record year. The increase in sales resulted
from the continued strength of both the economy and the Manufactured Housing and
Recreational Vehicle Industries. In the last quarter of 1999 it became apparent
that the Manufactured Housing industry had produced units in excess of the
retail demand resulting in approximately 7% decline in production in that year.
Retail sales lots were over-stocked and unit production was reduced. This will
continue into the year 2000 until inventory levels resume a more appropriate
level.
<PAGE>
The following table sets forth the percentage relationship to net
sales of certain items in the Company's statements of operations:
Year Ended
December 31,
1999 1998 1997
Net sales 100.0% 100.0% 100.0%
Cost of sales 87.5 86.9 87.3
Gross profit 12.5 13.1 12.7
Warehouse and delivery 3.6 3.5 3.7
Selling, general and administrative 5.9 5.9 5.4
Operating income 3.0 3.7 3.6
Net income 1.6 2.1 2.0
RESULTS OF CONSOLIDATED OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales. Net sales increased $3.8 million, or 0.8%, from $453.5
million for the year ended December 31, 1998, to $457.3 million in the year
ended December 31, 1999. This increase was the result of record sales in the
first half of 1999, caused by increased production levels in the Manufactured
Housing and Recreational Vehicle industries. In the second half of 1999
production levels in the Manufactured Housing industry were reduced, causing an
approximate 7% decline in that industry for the year. That was the primary
reason the Company also had lower sales in the second half of 1999 compared to
1998. The Company's sales for the year were 67% to Manufactured Housing, 16% to
the Recreational Vehicle , and 17% to other industries.
Gross Profit. Gross profit decreased by approximately $2.3 million,
or 3.7%, from $59.6 million in 1998, to $57.3 million in the 1999 year. As a
percentage of net sales, gross profit was lower in 1999, going from 13.1% to
12.5%. The decrease in gross profit was due to most manufacturing operations
showing reductions in volume and efficiencies in 1999, especially in the second
half, when compared to 1998. Competitive pricing situations nationwide had a
negative impact on gross profits making several of the Company's manufacturing
operations unprofitable for the year.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased approximately $0.6 million, or 4.0%, from $16.1 million in 1998, to
$16.7 million in 1999. As a percentage of net sales, these expenses increased
because the distribution segment of the Company had sales increases
approximately 8% in 1999 and that segment represents approximately 38% of all
sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $0.3 million, or 1.0%, from $26.8 million
in 1998, to $27.1 million in 1999. As a percentage of sales, both years were
5.9%.
Operating Income. Operating income was lower by $3.1 million because
of reduced gross profit and higher operating costs. As a percentage of sales,
operating income decreased from 3.7% in 1998 to 3.0% in 1999.
<PAGE>
Interest Expense, Net. Interest expense, net increased by $220,000.
The Company's borrowing level was reduced by over $3.2 million in the last four
months of 1999, but lower invested funds also reduced interest income. Interest
expense in 1998 that related to an expansion project was capitalized and reduced
total interest expense for that year.
Net Income. Net income decreased by $1.9 million from $9.3 million in
1998 to $7.4 million in 1999. This reduction is attributable to the factors
described above.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Sales. Net sales increased by $42.9 million, or 10.5%, from
$410.6 million for the year ended December 31, 1997, to $453.5 million in the
year ended December 31, 1998. This sales increase was attributable to increases
in the number of units produced in both the Manufactured Housing and
Recreational Vehicle Industries, to whom the Company is a major supplier. The
Company's sales in the year were 62% to Manufactured Housing, 19% to
Recreational Vehicle, and 19% to other industries. The Manufactured Housing
units shipped were up 5.5% and Recreational Vehicle shipments were up 15.0% in
1998.
Gross Profit. Gross Profit increased by approximately $7.5 million,
or 14.2%, from $52.1 million in the year 1997, to $59.6 million in the same 1998
period. As a percentage of net sales, gross profit increased from 12.7% in 1997
to 13.1% in 1998. The increase in gross profit was due to certain manufacturing
operations showing improvement in volume and efficiencies over the same 1997
period. In certain markets highly competitive pricing continued to have a
negative impact on normal gross profits making several of the Company's
manufacturing operations unprofitable in 1998.
Warehouse and Delivery Expenses. Warehouse and delivery expenses
increased approximately $0.9 million, or 6.1%, from $15.2 million in 1997, to
$16.1 million in 1998. As a percentage of net sales, warehouse and delivery
expenses decreased from 3.7% in 1997 to 3.5% in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $4.7 million, or 21.0%, from $22.1 million
in 1997, to $26.8 million in 1998. As a percentage of net sales, selling,
general and administrative expenses increased from 5.4% in 1997 to 5.9% in 1998.
Expense increases were partially attributable to new management information
systems, additional personnel required due to the growth the Company has
experienced over the last several years, and for management transition plans.
Operating Income. Operating income increased by approximately $1.8
million because of the increased sales and the increased gross profits. As a
percentage of sales, operating income increased from 3.6% in 1997 to 3.7% in the
same 1998 period.
Interest Expense, Net. Interest expense, net increased by
approximately $23,000 in 1998. The Company's borrowing levels during the 1998
period were approximately the same while invested cash was lower.
Net Income. Net income increased by approximately $1.0 million from
$8.3 million in 1997 to $9.3 million in 1998. This increase is attributable to
the factors described above.
<PAGE>
BUSINESS SEGMENTS
The Company's reportable segments are as follows:
Laminating - Utilizes various materials including gypsum,
particleboard, plywood, and fiberboard which are bonded by adhesives or a
heating process to a number of products including vinyl, paper, foil, and high
pressure laminate. These laminated products are utilized to produce furniture,
shelving, wall, counter, and cabinet products with a wide variety of finishes
and textures.
Distribution - Distributes primarily pre-finished wall and ceiling
panels, particleboard, hardboard, and vinyl siding, roofing products, passage
doors, building hardware, insulation, and other products.
Wood - Uses raw lumber including solid oak, other hardwood materials,
and laminated particleboard or plywood to produce cabinet door product lines.
Other - Includes aluminum extrusion, painting and distribution,
manufacture of adhesive products, pleated shades, plastic thermoforming, and
manufacturer of laminating equipment.
The table below presents information about the revenue and earnings
before interest and taxes of those segments. A reconciliation to consolidated
totals is presented in footnote 13 of the Company's 1999 financial statements.
Year Ended
December 31
1999 1998 1997
(dollars in thousands)
Sales
Laminating $ 192,033 $ 198,448 $ 201,203
Distribution 185,104 171,700 144,881
Wood 43,667 50,853 36,566
Other 65,128 68,641 54,860
Earnings Before Interest and Taxes (EBIT)
Laminating $ 5,229 $ 8,289 $ 7,582
Distribution 4,588 3,480 3,700
Wood (2,572) (3,019) (2,250)
Other 2,623 4,590 2,299
<PAGE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Laminating Segment Discussion
Net sales were lower by 3.2% from 1998. The Company closed an
operation in mid 1998 that resulted in approximately $3.8 million less sales. In
1999 the Company also chose not to keep certain business it had because of low
margins. Certain manufactured housing customers are now using more sheetrock
drywall panels in place of laminated wall panels. Both somewhat reducing this
segment's sales in that year.
EBIT in this segment decreased 36.9% in 1999 and as a percentage of
sales went from 4.2% to 2.7%. Competitive situations in several laminating
operations caused reduced selling prices and lower margins. A new operation in
this segment had higher than anticipated start-up costs and attempted to produce
new products for new markets, resulting in a large operating loss. Selling and
administrative costs in this segment were similar to those in 1998 with only a
0.2% increase as a percentage of sales due to lower sales.
Distribution Segment Discussion
Net sales in 1999 increased 7.8% in this segment primarily due to
increased penetration in certain markets with the Company's commodity wood
products. Certain other new products introduced in 1998 and 1999 also
contributed to 1999 increased sales. The core customer base of this segment is
the Manufactured Housing and Recreational Vehicle Industries.
EBIT in the distribution segment increased 31.8% and as a percentage
of sales was 2.5% compared to 2.0% in 1998. Selling and administrative expenses
increased over $800,000 in this segment because of increased allocated corporate
expenses but remained constant as a percentage of sales.
Wood Segment Discussion
Net sales decreased by $7.2 million, or 14.1%, in 1999. The 1998
sales increase of $14 million, resulting from the acquisition of a competitor,
was not able to be maintained in 1999 due to production problems. Reduced
production in the Manufactured Housing industry in the second half of 1999 also
caused lower sales levels in certain wood operations.
Operating losses before interest and taxes in this segment continued
at the same level as in 1998, showing 5.9% in both years as a percentage of
sales. Each of the cabinet door operations showed operating losses in 1999
because of competitive pricing pressures, reduced volumes, and one operation
closing certain facilities and consolidating production into one location. The
wood segments not producing cabinet doors showed improvement in operations and
were profitable in 1999. Selling and administrative expenses were lower by
$119,000 and based on lower sales were 7.6% of sales as compared to 6.7% in
1998.
The cabinet door operations are being reviewed by management to
determine if changes of different production methods and management implemented
in late 1999 will return these facilities to profitability. Alternatives that
management will consider in 2000 to reduce operating losses and return this
segment to profitability include changing the customer and product base, plant
closings, plant relocations, and/or further plant consolidations. Any of these
methods may result in one time expenses when implemented.
<PAGE>
Other Segment Discussion
Sales were 5.1% less in 1999 in this segment because the Metals
operation lost production days caused by required equipment maintenance, and the
Company's machinery company was being utilized for more intercompany production
than in 1998.
EBIT in this segment was lower by approximately $2 million and as a
percentage of sales went from 6.7% in 1998 to 4.0% in 1999. Reduced volumes in
the metal manufacturing operation and machinery manufacturing operation reduced
their profitability. The pleated shade operation had operating profits affected
by inefficiencies caused by producing at levels over capacity and also incurring
start-up costs related to an expansion project. A 1998 thermoforming start-up
operation failed to reach profitability in 1999. Selling and administrative
expenses for the other segment increased by 5.7% and 0.9% as a percentage of
sales.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Laminating Segment Discussion
Net sales for both years were comparable, with the 1998 total
laminating segment sales lower than 1997 by 1.4%. In 1998, one operation in this
segment was closed resulting in approximately $9.0 million less sales and a new
operation was added resulting in $4.7 million of new sales. In 1998, the Company
also moved one operation into a larger facility so that additional products can
be offered in that market area.
EBIT in the laminating segment increased 9.3% in 1998 and as a
percentage of sales the increase was 0.4%. The segment was able to reduce
material costs in most of the larger operations and direct labor and
manufacturing expenses would have been less than 1997 except for the costs
associated with plant closings and new start-ups. Selling and administrative
expenses were higher in 1998 in this segment because of additional personnel and
the costs associated with the implementation of information systems.
Distribution Segment Discussion
Net sales in 1998 increased by 18.5% in the distribution segment
primarily because of the growth in both the Manufactured Housing and
Recreational Vehicle markets. In addition, the Company introduced some new
products for the distribution operations in 1998.
EBIT generated by the distribution operations in 1998 did not reach the
levels of 1997, primarily because of increased allocated corporate expenses to
this segment in 1998, resulting in a reduction of approximately $1.6 million to
operating income.
Wood Segment Discussion
Net sales in the wood segment were higher in 1998 by more than $14.2
million, or 39.1%. In 1998 the Company consolidated the assets and sales of a
company acquired during the year into its operation and this increased this
segment's sales approximately $8.0 million. The balance of the increased sales
was the result of new or expanded business.
Certain operations in this segment have gone from profitable results
two years ago to losses in both 1998 and 1997. In 1998, the consolidation of the
newly purchased business contributed to the losses because of moving expenses,
product design changes required, and overtime to meet customer demand. In
addition, new competitors have entered this segment causing significant pricing
pressures. The operating
<PAGE>
losses for the wood segment did show improvement in 1998 as percentages of
sales, and management has made changes in production methods, pricing, and
personnel to return these operations to profitability.
Other Segment Discussion
Sales increased over $13.7 million, or 25.1%, in this segment in
1998. A business acquired in the third quarter of 1997 had a full year of sales
in 1998 which resulted in $5.1 million more revenue than in 1997. The other
operations in this segment also experienced sales increases over 1997. This
segment operates in several markets and continued economic growth has benefited
the operations of this segment.
EBIT in this business segment for 1998 increased almost 100% over
1997. The addition of the acquired business in late 1997 and the increased sales
in certain other operations, while maintaining operating costs, has provided the
additional operating income. A new start-up operation in this segment had
operating losses for 1998 due to sales below anticipated levels, however, new
personnel and equipment have been added to this operation to increase product
capabilities to increase sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are to meet working
capital needs, support its capital expenditure plans, and meet debt service
requirements.
The Company, in September, 1995, issued to an insurance company in a
private placement $18,000,000 of senior unsecured notes. The ten year notes bear
interest at 6.82%, with semi-annual interest payments that began in 1996 and
seven annual principal repayments of $2,571,060 that began in September, 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, normal recurring capital expenditures, and common stock
repurchase program as currently contemplated. The changes in inventory and
accounts receivable balances, which affect the Company's cash flows, are part of
normal business cycles that cause them to change periodically.
SEASONALITY
Manufacturing operations in the Manufactured Housing and Recreational
Vehicle Industries historically have been seasonal and are generally at the
highest levels when the climate is moderate. Accordingly, the Company's sales
and profits are generally highest in the second and third quarters.
<PAGE>
YEAR 2000 ISSUE
The Company began a new management information system implementation
project 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 $7.5 million.
SALE OF PROPERTY
The Company sold a vacant facility in the first quarter of 1999. This
sale resulted in a one-time gain that added approximately $.07 per share to the
earnings in the first quarter and the year of 1999.
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; (2) the alternatives discussed in regard to the wood
segment; and (3) 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.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth in Item 14 (a) 1. on
page 22 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item is set forth in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on May 16,
2000, under the caption "Election of Directors," which information is hereby
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 16, 2000,
under the caption "Compensation of Executive Officers and Directors," which
information is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 16, 2000,
under the caption "Election of Directors," which information is hereby
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 16, 2000,
under the caption "Certain Transactions," which information is hereby
incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
(a) 1. FINANCIAL STATEMENTS
Independent auditor's report F-1
Balance sheets -
December 31, 1999 and 1998 F-2
Statements of income-years ended
December 31, 1999, 1998, and 1997 F-3
Statements of shareholders' equity-
years ended December 31,
1999, 1998, 1997 F-4
Statements of cash flow-
years ended December 31,
1999, 1998, and 1997 F-5
Notes to the financial statements F-6-19
(a) 2. FINANCIAL STATEMENT SCHEDULES
Independent auditor's report
on supplemental schedule & consent F-20
Schedule II - Valuation and qualifying
accounts and reserves F-21
All other schedules have been omitted as not required, not
applicadeemed material or because the information is included in the Notes to
Financial Statements.
(a) 3. EXHIBITS
The exhibits listed in the accompanying Exhibit Index on pages 45 and
46 are filed or incorporated by reference as part of this report.
(b) REPORTS ON FORM 8-K
A Form 8-K (Item 5) was filed on December 22, 1999 regarding the Board
of Directors announcement on December 21, 1999 to renew the Company's Stock
Repurchase Program for up to 1,000,000 shares.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the date indicated.
PATRICK INDUSTRIES, INC
By Mervin D. Lung
-------------------------------------
Mervin D. Lung, Chairman of the Board
and Chief Executive Officer
Pursuant to the Requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Title Date
Mervin D. Lung Chairman of the Board, Chief March 23, 2000
Mervin D. Lung Executive Officer and Director
David D. Lung President, Chief Operating March 23, 2000
David D. Lung Officer and Director
Keith V. Kankel Vice President-Finance, March 23, 2000
Keith V. Kankel Principal Accounting
Officer and Director
Thomas G. Baer Director March 23, 2000
Thomas G. Baer
Harold E. Wyland Director March 23, 2000
Harold E. Wyland
Terrence D. Brennan Director March 23, 2000
Terrence D. Brennan
Merlin D. Knispel Director March 23, 2000
Merlin D. Knispel
Dorothy M. Lung Director March 23, 2000
Dorothy M. Lung
John H. McDermott Director March 23, 2000
John H. McDermott
Robert C. Timmins Director March 23, 2000
Robert C. Timmins
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT F-1
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheets F-2
Consolidated statements of income F-3
Consolidated statements of shareholders' equity F-4
Consolidated statements of cash flows F-5
Notes to financial statements F-6-F-21
- --------------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PATRICK INDUSTRIES, INC.
Elkhart, Indiana
We have audited the accompanying consolidated balance sheets of PATRICK
INDUSTRIES, INC. AND SUBSIDIARIES as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PATRICK INDUSTRIES,
INC. AND SUBSIDIARIES as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
Elkhart, Indiana
January 28, 2000
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<CAPTION>
- -----------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,686,182 $ 3,704,693
Trade receivables 18,498,685 20,767,406
Inventories 42,039,348 43,498,632
Prepaid expenses 663,189 591,470
---------------------------------------
TOTAL CURRENT ASSETS 67,887,404 68,562,201
PROPERTY and EQUIPMENT, net 49,895,640 50,472,703
Intangible and OTHER ASSETS 8,420,056 8,719,759
---------------------------------------
$ 126,203,100 $ 127,754,663
=======================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,671,428 $ 3,985,963
Accounts payable 11,155,999 13,184,295
Accrued liabilities 5,506,326 4,693,559
---------------------------------------
TOTAL CURRENT LIABILITIES 20,333,753 21,863,817
---------------------------------------
LONG-TERM DEBT, less current maturities 22,457,144 26,128,572
---------------------------------------
DEFERRED COMPENSATION obligations 1,945,058 1,781,491
---------------------------------------
DEFERRED TAX LIABILITIES 1,900,000 1,674,000
---------------------------------------
COMMITMENTS and Contingencies
Shareholders' EQUITY
Preferred stock, no par value; authorized
1,000,000 shares
Common stock, no par value; authorized
12,000,000 shares; issued 1999 5,595,466
shares; 1998 5,843,966 shares 21,389,940 22,117,481
Retained earnings 58,177,205 54,189,302
---------------------------------------
79,567,145 76,306,783
---------------------------------------
$ 126,203,100 $ 127,754,663
=======================================
See Notes to Financial Statements.
</TABLE>
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 457,356,260 $ 453,518,573 $ 410,566,851
Cost of goods sold 400,017,287 393,962,419 358,425,516
-----------------------------------------------------------
GROSS PROFIT 57,338,973 59,556,154 52,141,335
-----------------------------------------------------------
Operating expenses:
Warehouse and delivery 16,714,651 16,076,212 15,158,001
Selling, general, and administrative 27,057,686 26,796,204 22,144,623
-----------------------------------------------------------
43,772,337 42,872,416 37,302,624
-----------------------------------------------------------
OPERATING INCOME 13,566,636 16,683,738 14,838,711
Interest expense, net 1,393,346 1,171,967 1,148,955
-----------------------------------------------------------
INCOME BEFORE INCOME TAXES (CREDITS) 12,173,290 15,511,771 13,689,756
Federal and state income taxes 4,769,000 6,204,700 5,395,800
-----------------------------------------------------------
NET INCOME $ 7,404,290 $ 9,307,071 $ 8,293,956
===========================================================
Basic earnings per common share $ 1.30 1.58 $ 1.40
===========================================================
Diluted earnings per common share $ 1.29 $ 1.57 $ 1.39
===========================================================
See Notes to Financial Statements.
</TABLE>
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Common Retained
Stock Stock Earnings Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ $ 22,138,494 $ 40,157,165 $ 62,295,659
Net income 8,293,956 8,293,956
Proceeds from the exercise of 1,500 stock options 16,125 16,125
Repurchase and retirement of 69,500 shares of common stock (257,797) (678,203) (936,000)
Dividends on common stock ($.16 per share) (943,481) (943,481)
-------------------------------------------------------------
Balance, December 31, 1997 21,896,822 46,829,437 68,726,259
Net income 9,307,071 9,307,071
Proceeds from the exercise of 7,500 stock options 80,625 80,625
Issuance of 30,000 shares of common stock for stock award plan 472,500 472,500
Repurchase and retirement of 89,300 shares of common stock (332,466) (1,003,262) (1,335,728)
Dividends on common stock ($.16 per share) (943,944) (943,944)
-------------------------------------------------------------
Balance, December 31, 1998 22,117,481 54,189,302 76,306,783
Net income 7,404,290 7,404,290
Proceeds from the exercise of 2,500 stock options 26,875 26,875
Issuance of 30,000 shares of common stock for stock award plan 213,750 213,750
Repurchase and retirement of 281,000 shares of common stock (968,166) (2,504,142) (3,472,308)
Dividends on common stock ($.16 per share) (912,245) (912,245)
-------------------------------------------------------------
Balance, December 31, 1999 $ $ 21,389,940 58,177,205 $ 79,567,145
=============================================================
See Notes to Financial Statements.
</TABLE>
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING Activities
Net income $ 7,404,290 $ 9,307,071 $ 8,293,956
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,904,059 7,580,928 5,780,713
Deferred income taxes 226,000 567,000 (243,000)
(Gain) loss on sale of property and equipment (643,446) 32,184 (254,927)
Other 163,567 365,489
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables 2,268,721 (2,876,930) (1,024,045)
Inventories 1,459,284 (8,278,080) 6,279,132
Prepaid expenses (71,719) 39,523 (204,174)
Increase (decrease) in:
Accounts payable and accrued liabilities (2,406,709) 3,144,893 (49,892)
Income taxes payable 780,206 (397,579) 577,920
-------------------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 18,084,253 9,484,499 19,155,683
-------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (7,505,350) (8,242,644) (12,095,357)
Investment in marketable securities 4,400,000
Acquisition of businesses, net of cash (2,581,490) (6,797,316)
Proceeds from sale of property and equipment 879,556 68,120 372,721
Other (399,042) (364,000) (312,377)
-------------------------------------------------------
NET CASH (USED IN) INVESTING
ACTIVITIES (7,024,836) (11,120,014) (14,432,329)
-------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under long-term debt agreements 5,214,483
Principal payments on long-term debt (3,985,963) (1,253,683) (1,136,309)
Proceeds from exercise of common stock options 26,875 80,625 16,125
Repurchase of common stock (3,054,421) (1,335,728) (936,000)
Cash dividends (919,158) (943,944) (943,481)
Other (145,261) (186,716)
-------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (8,077,928) 1,575,037 (2,999,665)
-------------------------------------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,981,489 (60,478) 1,723,689
Cash and cash equivalents, beginning 3,704,693 3,765,171 2,041,482
-------------------------------------------------------
Cash and cash equivalents, ending $ 6,686,182 $ 3,704,693 $ 3,765,171
=======================================================
See Notes to Financial Statements.
</TABLE>
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, USE OF ESTIMATES, RISKS AND UNCERTAINTIES, AND
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company's operations consist primarily of the manufacture and distribution
of building products and materials for use primarily by the manufactured housing
and recreational vehicle industries for customers throughout the United States.
Credit is generally granted on an unsecured basis for terms of 30 days.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES:
The Company purchases significant amounts of inventory which are commodities
from a limited number of suppliers. The purchase price of such items can be
volatile as it is subject to prevailing market conditions, both domestically and
internationally. The Company's purchases of these items are based on supplier
allocations.
SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Patrick
Industries, Inc. and its wholly-owned subsidiaries, Harlan Machinery Company,
Inc., Patrick Door, Inc., and its majority-owned subsidiary, Patrick Mouldings,
L.L.C. ("the Company"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS:
The Company has cash on deposit in financial institutions in amounts which, at
times, may be in excess of insurance coverage provided by the Federal Deposit
Insurance Corporation.
For purposes of the statement of cash flows, the Company considers overnight
repurchase agreements and commercial paper with a maturity of 30 days or less in
connection with its sweep account arrangements with its bank to be cash
equivalents.
<PAGE>
At December 31, 1999, the Company owned marketable debt securities in the total
amount of approximately $6,600,000. These available-for-sale debt securities
mature in January 2000 and bear interest at a weekly adjusted variable rate
which was 5% at December 31, 1999. The securities are stated at fair value which
approximated their cost at December 31, 1999. These securities matured and were
redeemed on January 24, 2000 and have been classified as a cash equivalent in
the accompanying balance sheet.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out (FIFO) method)
or market.
PROPERTY AND EQUIPMENT:
Property and equipment is recorded at cost. Depreciation has been computed
primarily by the straight-line method applied to individual items based on
estimated useful lives which generally range from 10 to 40 years for buildings
and improvements and from 3 to 15 years for machinery and equipment,
transportation equipment, and leasehold improvements.
GOODWILL:
Goodwill, the excess of cost over the fair value of net assets acquired, is
amortized by the straight-line method over 15-year periods. At each balance
sheet date, management assesses whether there has been a permanent impairment in
the value of goodwill. In the event that an impairment is evident, the Company
would record an expense for that impairment. Factors considered by management
include current operating results, anticipated future cash flows, trends, and
prospects, as well as the effects of obsolescence, demand, competition, and
other economic factors.
REVENUE RECOGNITION:
The Company ships product based on specific orders from customers. Shipments are
made by the Company only after receiving authorization from the customer, and
revenue is recognized upon delivery.
<PAGE>
EARNINGS PER COMMON SHARE:
Following is information about the computation of the earnings per share data
for the years ended December 31, 1999, 1998, and 1997:
<TABLE>
1999 1998 1997
--------------------------------------------------------
<S> <C> <C> <C>
Numerator for basic and diluted
earnings per share, net income $ 7,404,290 $ 9,307,071 $ 8,293,956
========================================================
Denominator:
Weighted average shares, denominator
for basic earnings per share 5,714,177 5,902,615 5,921,058
Effect of dilutive potential common
shares, employee stock options 10,867 24,395 29,120
--------------------------------------------------------
Denominator for diluted
earnings per share 5,725,044 5,927,010 5,950,178
========================================================
Basic earnings per share $ 1.30 $ 1.58 $ 1.40
========================================================
Diluted earnings per share $ 1.29 $ 1.57 $ 1.39
========================================================
</TABLE>
NOTE 1. BALANCE SHEET DATA
TRADE RECEIVABLES:
Trade receivables in the accompanying balance sheets at December 31, 1999 and
1998 are stated net of an allowance for doubtful accounts of $275,000 and
$125,000, respectively.
INVENTORIES:
1999 1998
-------------------------------------
Raw materials $ 23,286,250 $ 26,676,674
Work in process 1,555,319 1,278,367
Finished goods 4,668,813 3,103,860
Materials purchased for resale 12,528,966 12,439,731
-------------------------------------
$ 42,039,348 $ 43,498,632
=====================================
<PAGE>
PROPERTY AND EQUIPMENT:
1999 1998
-------------------------------------
Land and improvements $ 3,601,733 $ 3,645,568
Buildings and improvements 23,975,663 24,711,921
Machinery and equipment 56,670,702 49,911,446
Transportation equipment 2,666,259 2,780,895
Leasehold improvements 3,536,046 3,478,016
-------------------------------------
90,450,403 84,527,846
Less accumulated depreciation 40,554,763 34,055,143
-------------------------------------
$ 49,895,640 $ 50,472,703
=====================================
INTANGIBLE AND OTHER ASSETS:
Goodwill, at amortized cost $ 4,706,976 $ 5,152,022
Cash value of life insurance 2,630,923 2,231,879
Other 1,082,157 1,335,858
-------------------------------------
$ 8,420,056 $ 8,719,759
=====================================
ACCRUED LIABILITIES:
Payroll and related expenses $ 2,445,031 $ 2,127,462
Property taxes 973,600 919,908
Other 2,087,695 1,646,189
-------------------------------------
$ 5,506,326 $ 4,693,559
=====================================
NOTE 1. PLEDGED ASSETS AND LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 is as follows:
<TABLE>
1999 1998
-------------------------------------
<S> <C> <C>
Senior Notes, insurance company $ 15,428,572 $ 18,000,000
Indiana Development Finance Authority Bonds 2,100,000 2,400,000
State of Oregon Economic Development Revenue Bonds 4,000,000 4,400,000
State of North Carolina Economic Development Revenue Bonds
Bonds 4,600,000 5,000,000
Other 314,535
-------------------------------------
26,128,572 30,114,535
Less current maturities 3,671,428 3,985,963
-------------------------------------
$ 22,457,144 $ 26,128,572
=====================================
</TABLE>
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The senior notes bear interest at a fixed rate of 6.82% and are unsecured. The
annual principal installments of $2,571,428 commenced on September 15, 1999 and
the final installment is due September 15, 2005. This agreement requires that
the Company maintain a minimum level of tangible net worth.
The Indiana Development Finance Authority Bonds are payable in annual
installments of $300,000 plus interest at a variable tax exempt bond rate, set
periodically to enable the bonds to be sold at par (5.6% at December 31, 1999).
The final installment is due November 1, 2006. The bonds are collateralized by
real estate and equipment purchased with the bond funds and are backed by a bank
standby letter of credit.
The State of Oregon Economic Development Revenue Bonds are payable in annual
installments of $400,000 plus interest at a variable tax exempt bond rate (5.6%
at December 31, 1999). The final installment is due December 1, 2009. The bonds
are collateralized by real estate and equipment purchased with the bond funds
and are backed by a bank standby letter of credit.
The State of North Carolina Economic Development Revenue Bonds are payable in
annual installments of $400,000 plus quarterly interest payments at a variable
tax exempt bond rate (5.6% at December 31, 1999). Annual payments of $500,000
are due in each of the last two years with a final payment due August 1, 2010.
The bonds are collateralized by real estate and equipment purchased with the
bond funds and are backed by a bank standby letter of credit.
The Company has an unsecured revolving credit agreement which allows borrowings
up to $10,000,000 or a borrowing base defined in the agreement and which expires
on February 28, 2003. Interest on this note is at either prime or the Eurodollar
rate plus .75%. The Company pays .25% of the unused portion of the revolving
line. In addition, this agreement requires the Company to, among other things,
maintain minimum levels of tangible net worth, working capital, and debt to net
worth.
Aggregate maturities of long-term debt for each of the years ending December 31,
2000 through 2004 is $3,671,428 and thereafter $7,771,432.
In addition, the Company is contingently liable for standby letters of credit of
approximately $13,000,000 in support of bonds payable and to meet credit
policies of certain suppliers.
Based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the fair value of the long-term debt
instruments approximates their carrying value.
Interest expense for the years ended December 31, 1999, 1998, and 1997 was
approximately $1,550,000, $1,640,000, and $1,720,000 respectively.
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. EQUITY TRANSACTIONS
STOCK OPTIONS EXERCISED:
Common stock sold to key employees through the exercise of stock options
resulted in a tax deduction for the Company equivalent to the taxable income
recognized by the employee. For financial reporting purposes, the tax benefit
resulting from this deduction, if material, along with the proceeds from the
exercise of the options, is accounted for as an increase to common stock.
SHAREHOLDER RIGHTS PLAN:
On February 29, 1996, the Company's Board of Directors adopted a shareholder
rights agreement, granting certain new rights to holders of the Company's common
stock. Under the agreement, one right was granted for each share of common stock
held as of March 20, 1996, and one right will be granted for each share
subsequently issued. Each right entitles the holder, in an unfriendly takeover
situation, and after paying the exercise price (currently $30), to purchase
Patrick common stock having a market value equal to two times the exercise
price. Also, if the Company is merged into another corporation, or if 50 percent
or more of the Company's assets are sold, then rightholders are entitled, upon
payment of the exercise price, to buy common shares of the acquiring
corporation's common stock having a then current market value equal to two times
the exercise price. In either situation, these rights are not available to the
acquiring party. However, these exercise features will not be activated if the
acquiring party makes an offer to acquire the Company's outstanding shares at a
price which is judged by the Board of Directors to be fair to all Patrick
shareholders. The rights may be redeemed by the Company under certain
circumstances at the rate of $.01 per right. The rights will expire on March 20,
2006. The Company has authorized 100,000 shares of preferred stock, Series A, no
par value, in connection with this plan, none of which have been issued.
REPURCHASE OF COMMON STOCK:
The Company's Board of Directors from time to time has authorized the repurchase
of shares of the Company's common stock, in the open market or through
negotiated transactions, at such times and at such prices as management may
decide.
NOTE 1. COMMITMENTS AND RELATED PARTY LEASES
The Company leases office, manufacturing, and warehouse facilities and certain
equipment under various noncancelable agreements which expire at various dates
through 2005. These agreements contain various renewal options and provide for
minimum annual rentals plus the payment of real estate taxes, insurance, and
normal maintenance on the properties. Certain of the leases are with the
chairman/major shareholder and expire at various dates through September 30,
2005.
The total minimum rental commitment at December 31, 1999 under the leases
mentioned above is approximately $8,510,000 which is due approximately
$3,076,000 in 2000, $2,032,000 in 2001, $1,460,000 in 2002, $995,000 in 2003,
$697,000 in 2004, and $250,000 thereafter.
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The total rent expense included in the statements of income for the years ended
December 31, 1999, 1998, and 1997 is approximately $4,100,000, $3,900,000, and
$3,400,000 respectively, of which approximately $1,300,000 each year was paid to
the chairman/major shareholder.
NOTE 1. MAJOR CUSTOMERS
Net sales for the year ended December 31, 1999 included sales to two customers,
each of which accounted for 10% or more of the total net sales of the Company
for the year. The percentage of sales for these customers was 11.9% and 10.4%.
Net sales for the year ended December 31, 1998 included sales to two customers,
each of which accounted for 10% or more of the total net sales of the Company
for the year. The percentage of sales for these customers was 12.1% and 11.3%.
Net sales for the year ended December 31, 1997 included sales to three
customers, each of which accounted for 10% or more of the total net sales of the
Company for the year. The percentage of sales for these customers was 13.3%,
10.9%, and 10.0%.
The balances due from these customers at December 31, 1999 and 1998 were not
significant to the total trade receivables balance.
NOTE 1. INCOME TAX MATTERS
Federal and state income taxes for the years ended December 31, 1999, 1998, and
1997, all of which are domestic, consist of the following:
1999 1998 1997
----------------------------------------------------
Current:
Federal $ 3,600,000 $ 4,704,700 $ 4,987,400
State 943,000 933,000 651,400
Deferred 226,000 567,000 (243,000)
----------------------------------------------------
$ 4,769,000 $ 6,204,700 $ 5,395,800
====================================================
The provisions for income taxes for the years ended December 31, 1999, 1998, and
1997 are different from the amounts that would otherwise be computed by applying
a graduated federal statutory rate of 35% to income before income taxes. A
reconciliation of the differences is as follows:
1999 1998 1997
----------------------------------------------
Rate applied to pretax income $ 4,260,000 $ 5,430,000 $ 4,791,400
State taxes, net of federal
tax benefit 550,000 706,000 558,400
Other (41,000) 68,700 46,000
----------------------------------------------
$ 4,769,000 $ 6,204,700 $ 5,395,800
==============================================
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the current period plus or minus
the change during the period in deferred tax assets and liabilities.
The composition of the deferred tax assets and liabilities at December 31, 1999
and 1998 is as follows:
<TABLE>
1999 1998
-------------------------------------
<S> <C> <C>
Gross deferred tax liability,
accelerated depreciation $ (3,926,000) $ (3,482,000)
-------------------------------------
Gross deferred tax assets:
Trade receivables allowance A 109,000 48,000
Inventory capitalization 320,000 323,000
Accrued expenses V 641,000 662,000
Deferred compensation D 768,000 686,000
Unvested stock awards 155,000 54,000
Other 33,000 35,000
-------------------------------------
2,026,000 1,808,000
-------------------------------------
Net deferred tax liabilities $ (1,900,000) $ (1,674,000)
=====================================
</TABLE>
NOTE 1. SELF-INSURED PLANS
The Company has a self-insured health plan for its employees under which there
is both a participant stop loss and an aggregate stop loss based on total
participants. The total annual aggregate liability was approximately $3,200,000
at December 31, 1999. The excess loss portion of the employees' coverage has
been insured with a commercial carrier.
The Company is partially self insured for its workers' compensation liability.
The Company is responsible for a per occurrence limit amount not to exceed
approximately $1,600,000 in aggregate annually. The excess loss portion of the
employees' coverage has been insured with a commercial carrier.
The Company has accrued an estimated liability for these benefits based upon
claims incurred.
NOTE 1. COMPENSATION PLANS
DEFERRED COMPENSATION OBLIGATIONS:
The Company has deferred compensation agreements with certain key employees. The
agreements provide for monthly benefits for ten years subsequent to retirement,
disability, or death. The Company has accrued an estimated liability based upon
the present value of an annuity needed to provide the future benefit payments.
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
BONUS PLAN:
The Company pays bonuses to certain management personnel. Historically, bonuses
are determined annually and are based upon corporate and divisional income
levels. The charge to operations amounted to approximately $2,170,000 $2,200,000
and $1,980,000 for the years ended December 31, 1999, 1998, and 1997
respectively.
PROFIT-SHARING PLAN:
The Company has a qualified profit-sharing plan, more commonly known as a 401(k)
plan, for substantially all of its employees with over one year of service and
who are at least 21 years of age. The plan provides for a matching contribution
by the Company as defined in the agreement and, in addition, provides for a
discretionary contribution annually as determined by the Board of Directors. The
amounts of contributions for the years ended December 31, 1999, 1998, and 1997
were immaterial.
STOCK OPTION PLAN:
At December 31, 1999, the Company has a stock option plan with shares of common
stock reserved for options to key employees. As permitted under generally
accepted accounting principles, grants under this plan are accounted for
following APB Opinion No. 25 and related interpretations. Accordingly, no
compensation cost has been recognized for grants under the plan. Had
compensation cost for the plans been determined based on the grant date fair
values of awards (the method described in FASB Statement No. 123), reported net
income and earnings per common share would have been reduced to the pro forma
amounts shown below:
1999 1998 1997
-----------------------------------------
Net income:
As reported $ 7,404,290 $ 9,307,071 $ 8,293,956
Pro forma 7,060,174 9,307,071 8,293,956
Primary earnings per share:
As reported $ 1.30 $ 1.58 $ 1.40
Pro forma 1.24 1.58 1.40
Fully diluted earnings per share:
As reported $ 1.29 $ 1.57 $ 1.39
Pro forma 1.23 1.57 1.39
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following assumptions for 1999:
dividend rate of 1.25% for all years; risk-free interest rate of 5.25%; expected
lives of five years; and price volatility of 64%.
The effects of applying of applying FASB Statement No. 123 in the above proforma
disclosures are not indicative of future amounts as they do not include the
effects of awards granted prior to 1996, which would have had income statement
effects in 1998 and 1997 due to the five year vesting period associated with
fixed stock option awards.
Following is a summary of transactions of granted shares under option for the
years ended December 31, 1999 and 1998:
<TABLE>
1999 1998
----------------------------------------------------------
WEIGHTED Weighted
AVERAGE Average
EXERCISE Exercise
SHARES PRICE Shares Price
----------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 88,500 $10.75 96,000 $10.75
Issued during the year 352,500 14.75 -
Canceled during the year (21,000) 10.75 -
Exercised during the year (2,500) 10.75 (7,500) 10.75
----------------------------------------------------------
Outstanding, end of year 417,500 $14.13 88,500 $10.75
==========================================================
Eligible, end of year for exercise 65,000 $10.75 88,500 $10.75
==========================================================
Weighted average fair value of options
granted during the year $7.26
===============
</TABLE>
A further summary about fixed options outstanding at December 31, 1999 is as
follows:
<TABLE>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Outstanding Life Price Exercisable Price
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Exercise price of $10.75 65,000 0.5 $10.75 65,000 $10.75
===============================================================================
Exercise price of $14.75 352,500 9.5 $14.75
===============================================================================
</TABLE>
These options were included in computing diluted earnings per common share as
shown on the consolidated statements of income.
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
STOCK AWARD PLAN:
The Company has adopted a stock award plan for the five existing non-employee
directors. Grants awarded during May 1999 and May 1998 of 6,000 shares each year
are subject to forfeiture in the event the recipient terminates as a director
within two years from the date of grant. The related compensation expense is
being recognized over the two-year vesting period.
NOTE 1. BUSINESS COMBINATION
In August 1997, the Company purchased substantially all of the assets of United
Shade, Inc., a manufacturer of window shades and blinds. The total acquisition
cost was $5,810,400. The excess of the total acquisition cost over the fair
value of the net assets acquired of $2,760,000 is being amortized over fifteen
years by the straight-line method. The acquisition has been accounted for as a
purchase and results of operations of United Shade, Inc. since the date of
acquisition are included in the consolidated financial statements.
In April 1998, the Company acquired for cash all of the assets and liabilities
of Woodtek, L.L.C., a manufacturer of wood products. The total acquisition cost
was $2,581,490. The acquisition has been accounted for as a purchase and the
results of operations of Woodtek, L.L.C. since the date of acquisition are
included in the consolidated financial statements.
Summarized pro forma financial information for the years ended December 31, 1998
and 1997 as though the two acquisitions had occurred as of January 1, 1997 is as
follows:
1998 1997
-------------------------------------
Net sales $ 456,281,052 $ 423,513,123
Net income 9,340,957 8,461,784
Earnings per share 1.58 1.43
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. CASH FLOWS INFORMATION
Supplemental information relative to the statements of cash flows for the years
ended December 31, 1999, 1998, and 1997 is as follows:
<TABLE>
1999 1998 1997
--------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of cash flows information:
Cash payments for:
Interest $ 1,597,626 $ 1,621,879 $ 1,720,934
========================================================
Income taxes $ 4,850,244 $ 6,359,279 $ 5,360,319
========================================================
Business acquisitions:
Cash purchase price $ $ 2,581,490 $ 6,797,316
========================================================
Working capital acquired $ $ 1,081,490 $ 2,455,644
Fair value of long-lived assets acquired 1,500,000 4,341,672
--------------------------------------------------------
$ $ 2,581,490 $ 6,797,316
========================================================
</TABLE>
The changes in assets and liabilities in arriving at net cash provided by
operating activities are net of amounts related to acquisitions.
NOTE 1. UNAUDITED INTERIM FINANCIAL INFORMATION
Presented below is certain selected unaudited quarterly financial information
for the years ended December 31, 1999 and 1998 (dollars in thousands, except per
share data):
<TABLE>
Quarter Ended
---------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 107,352 $ 123,029 $ 116,981 $ 109,994
Gross profit 13,984 16,274 13,490 13,591
Net income 2,211 2,659 1,337 1,197
Earnings per common share 0.38 0.47 0.23 0.21
Weighted average common
shares outstanding 5,786,480 5,685,715 5,695,539 5,690,237
</TABLE>
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
Quarter Ended
--------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 104,987 $ 117,731 $ 119,070 $ 111,730
Gross profit 13,253 15,463 15,894 14,946
Net income 1,811 2,497 2,724 2,275
Earnings per common share 0.31 0.42 0.46 0.39
Weighted average common
shares outstanding 5,896,472 5,915,206 5,925,865 5,872,923
</TABLE>
NOTE 1. SEGMENT INFORMATION
The Company has determined that its reportable segments are those that are based
on the Company's method of internal reporting, which segregates its business by
product category and production/distribution process. The Company's reportable
segments are as follows:
Laminating -- Utilizes various materials including gypsum, particleboard,
plywood, and fiberboard which are bonded by adhesives or a heating process to
a number of products including vinyl, paper, foil, and high pressure
laminate. These laminated products are utilized to produce furniture,
shelving, wall, counter, and cabinet products with a wide variety of finishes
and textures.
Distribution -- Distributes primarily pre-finished wall and ceiling panels,
particleboard, hardboard, and vinyl siding, roofing products, passage doors,
building hardware, insulation, and other products.
Wood -- Uses raw lumber including solid oak as well as other hardwood
materials or laminated particleboard or plywood to produce cabinet door
product lines.
Other -- Includes aluminum extruding, painting and distributing divisions, an
adhesive division, a pleated shade division, a plastic thermoforming
division, and a machine manufacturing division.
The accounting policies of the segments are the same as those described in
"Significant Accounting Policies," except as described below. Segment data
includes intersegment revenues, as well as a charge allocating a majority of the
corporate costs to each of its operating segments. Assets are identified with
the segments with the exception of cash, and land and buildings, which are
identified with the corporate division. The corporate division charges rents to
the segment for use of the land and buildings based upon market rates. The
Company accounts for intersegment sales as if the sales were to third parties,
that is, at current market prices. The Company also records income from purchase
incentive agreements as corporate division revenue. The Company evaluates the
performance of its segments and allocates resources to them based on a variety
of indicators including revenues, cost of goods sold, earnings before interest
and taxes (EBIT), and total identifiable assets.
At December 31, 1999, the Company changed its policy to record accounts
receivable as a segment asset rather than a corporate asset. Segment data as of
December 31, 1998 and 1997 has been restated accordingly.
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The table below presents information about the net income (loss) and segment
assets used by the chief operating decision makers of the Company as of and for
the years ended December 31, 1999, 1998, and 1997. Segment information for
earlier years has been presented to conform with the requirements of FASB No.
131 (dollars in thousands).
<TABLE>
Laminating Distribution Wood Other Total
--------------------------------------------------------------------------------------
1999
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 185,300 $ 185,053 $ 42,458 $ 43,747 $ 456,558
Sales, intersegment 6,733 51 1,209 21,381 29,374
--------------------------------------------------------------------------------------
Total sales 192,033 185,104 0 43,667 0 65,128 0 485,932
Cost of goods sold 171,288 167,507 41,639 55,184 435,618
EBIT 5,229 4,588 (2,572) 2,623 9,868
Identifiable assets 39,738 21,545 11,962 14,175 87,420
Depreciation 2,398 437 1,630 1,360 5,825
1998
--------------------------------------------------------------------------------------
Sales $ 190,204 $ 171,700 $ 45,019 $ 45,717 $ 452,640
Sales, intersegment 8,244 5,834 22,924 37,002
--------------------------------------------------------------------------------------
Total sales 198,448 171,700 50,853 68,641 489,642
Cost of goods sold 174,673 156,303 49,061 57,020 437,057
EBIT 8,289 3,480 (3,019) 4,590 13,340
Identifiable assets 40,855 21,985 13,389 13,831 90,060
Depreciation 1,982 367 1,349 1,254 4,952
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Laminating Distribution Wood Other Total
--------------------------------------------------------------------------------------
1997
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 193,399 $ 144,870 $ 34,936 $ 36,512 $ 409,717
Sales, intersegment 7,804 11 1,630 18,348 27,793
--------------------------------------------------------------------------------------
Total sales 201,203 144,881 36,566 54,860 437,510
Cost of goods sold 179,297 131,185 34,831 47,125 392,438
EBIT 7,582 3,700 (2,250) 2,299 11,331
Identifiable assets 35,956 15,462 11,359 14,339 77,116
Depreciation 1,560 272 1,071 917 3,820
</TABLE>
A reconciliation of total segment sales, cost of goods sold, and EBIT to
consolidated sales, cost of goods sold, and segment information to the
consolidated financial statements as of and for the years ended December 31,
1999, 1998, and 1997 is as follows (dollars in thousands):
<TABLE>
1999 1998 1997
--------------------------------------------------------
<S> <C> <C> <C>
Sales:
Total sales for reportable segments $ 485,932 $ 489,642 $ 437,510
Elimination of intersegment revenue (28,576) (36,123) (26,943)
--------------------------------------------------------
Consolidated sales $ 457,356 $ 453,519 $ 410,567
========================================================
</TABLE>
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
1999 1998 1997
--------------------------------------------------------
<S> <C> <C> <C>
Cost of goods sold:
Total cost of goods sold for reportable
segments $ 435,618 $ 437,057 $ 392,438
Elimination of intersegment cost of goods
sold (28,576) (36,123) (26,943)
Consolidation reclassifications (2,890) (2,858) (2,795)
Corporate incentive agreements (3,681) (3,740) (3,484)
Other (454) (373) (790)
--------------------------------------------------------
Consolidated cost of goods sold $ 400,017 $ 393,963 $ 358,426
========================================================
Earnings before interest and taxes (EBIT):
EBIT for reportable segments $ 9,868 $ 13,340 $ 11,331
Corporate incentive agreements 3,681 3,740 3,484
Consolidation reclassifications (780) (173) (142)
Gain (loss) on sale of property
and equipment 643 (32) 254
Other 154 (191) (88)
--------------------------------------------------------
Consolidated EBIT $ 13,566 $ 16,684 $ 14,839
========================================================
Consolidated assets:
Identifiable assets for reportable segments $ 87,420 $ 90,060 $ 77,116
Corporate property and equipment 24,693 24,541 22,268
Current assets not allocated to segments 6,035 4,589 5,002
Intangible and other assets not allocated
to segments 8,420 8,720 7,862
Consolidation eliminations (365) (155) (60)
--------------------------------------------------------
Consolidated assets $ 126,203 $ 127,755 $ 112,188
========================================================
Depreciation and amortization:
Depreciation for reportable segments $ 5,825 $ 4,952 $ 3,820
Corporate depreciation and amortization 3,079 2,629 1,961
--------------------------------------------------------
Consolidated depreciation $ 8,904 $ 7,581 $ 5,781
========================================================
</TABLE>
NOTE 1. SUBSEQUENT EVENT
From January 1, 2000 through January 28, 2000, the Company repurchased 221,700
shares of common stock for approximately $2,374,000.
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON THE
SUPPLEMENTAL SCHEDULE AND CONSENT
To the Board of Directors
Patrick Industries, Inc.
Elkhart, Indiana
Our audits of the consolidated financial statements of Patrick Industries, Inc.
and Subsidiaries included Schedule II, contained herein, for each of the years
in the three-year period ended December 31, 1999. Such schedule is presented for
purposes of complying with the Securities and Exchange Commission's rule and is
not a required part of the basic consolidated financial statements. In our
opinion, such schedule presents fairly the information set forth therein, in
conformity with generally accepted accounting principles.
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-04187) and in the related Prospectus of our
report, dated January 28, 2000, with respect to the consolidated financial
statements and schedule of Patrick Industries, Inc. and Subsidiaries included in
this Annual Report on Form 10-K for the year ended December 31, 1999.
McGLADREY & PULLEN, LLP
Elkhart, Indiana
March 29, 2000
<PAGE>
PATRICK INDUSTRIES, INC.
AND SUBSIDIARIES
SCHEDULE II
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
December 31, 1997, 1998, and 1999
- -------------------------------------------------------------------------------------------------------------------
Balance At Deductions Balance At
Beginning Charged To From Close
Of Period Operations Reserves Of Period
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
- deducted from trade receiv-
ables, in the balance sheets:
$$ 80,000 $ 168,514 $ 123,515 $ 125,000
1997
============================================================================
$ 125,000 $ 235,000 $ 235,000 $ 125,000
1998
============================================================================
$ 125,000 $ 268,595 $ 118,595 $ 275,000
1999
============================================================================
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibits
- -------------- --------
3(a) -Amended Articles of Incorporation of the Company as further
amended (filed as Exhibit 3(a) to the Company's Form 10-K/A-1
amending its report on Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by reference)
3(b) -By-Laws of the Company (filed as Exhibit 3(b) to the Company's
Form 10-K/A-1 amending its report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference)
3(c) - Preferred Share Purchase Rights Agreement (filed
April 3, 1996 on Form 8-A and incorporated herein by reference)
10(a) -Second Amendment to February 2, 1994 Credit Agreement, dated as
of June 26, 1995 among the Company, NBD Bank, as agent, and NBD
Bank, N.A. (filed as Exhibit 10(a) to the Company's Form 10-K for
the fiscal year ended December 31, 1995 and incorporated herein
by reference)
10(b) -Note Agreement, dated September 1, 1995, between the Company and
Nationwide Life Insurance Company (filed as Exhibit 10(b) to the
Company's Form 10-K for the fiscal year ended December 31, 1995
and incorporated herein by reference)
10(c) -Commercial Lease and Option to Purchase dated as of October 1,
1995 between Mervin Lung Building Company, Inc., as lessor, and
the Company, as lessee (filed as Exhibit 10(c) to the Company's
Form 10-K for the fiscal year ended December 31, 1995 and
incorporated herein by reference)
10(d) -First Amendment to Credit Agreement, dated as of October 27,
1994 among the Company, NBD Bank, as agent, and NBD Bank, N.A.
(filed as Exhibit 10(a) to the Company's Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference)
10(e) -Loan Agreement dated as of December 1, 1994 between the State of
Oregon Economic Development Commission, along with the Pledge and
Security Agreement relating thereto (filed as Exhibit 10(b) to
the Company's Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference)
10(f) -Credit Agreement dated as of February 2, 1994 among the
Company, NBD Bank, as agent, and NBD Bank, N.A. (filed as Exhibit
10(a) to the Company's Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by
reference)
<PAGE>
Exhibit Number Exhibits
- -------------- --------
10(g) -Loan Agreement dated as of November 1, 1991 between the Company
and the Indiana Development Finance Authority, along with the
Pledge and Security Agreement relating thereto (filed as Exhibit
10(c) to the Company's Form 10-K/A-1 amending its report on Form
10-K for the fiscal year ended December 31, 1992 and incorporated
herein by reference)
*10(h) -Patrick Industries, Inc. 1987 Stock Option Program, as amended
(filed as Exhibit 10(e) to the Company's Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference)
*10(i) -Patrick Industries, Inc. 401(k) Employee Savings Plan (filed as
Exhibit 10(a) to the Company's Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by reference)
*10(j) -Form of Employment Agreements with Executive Officers (filed as
Exhibit 10(e) to the Company's Form 10-K/A-1 amending its report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference)
*10(k) -Form of Deferred Compensation Agreements with Executive Officers
(filed as Exhibit 10(f) to the Company's Form 10-K/A-1 amending
its report on Form 10-K for the fiscal year ended December 31,
1992 and incorporated herein by reference)
10(l) -Commercial Lease and dated as of October 1, 1994 between Mervin
D. Lung, as lessor, and the Company, as lessee (filed as Exhibit
10(k) to the Company's Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference)
10(m) -Commercial Lease dated September 1, 1994 between Mervin D. Lung
Building Company, Inc., as lessor, and the Company, as lessee
(filed as Exhibit 10(l) to the Company's Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference)
10(n) -Commercial Lease dated November 1, 1994 between Mervin D. Lung
Building Company, Inc., as lessor, and the Company, as lessee
(filed as Exhibit 10(m) to the Company's Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference)
10(o)** -Commercial Lease dated October 1, 1999 between Mervin D. Lung,
as lessor, and the Company, as lessee
12** -Computation of Operating Ratios
23 -Consent of accountants (included in Independent auditor's report
on supplemental schedule & consent on page F-20)
27** -Financial Data Schedule
*Management contract or compensatory plan or arrangement
**Filed herewith
COMMERCIAL LEASE
----------------
THIS INDENTURE WITNESSETH, that MERVIN D. LUNG of St. Joseph County,
Indiana, hereinafter referred to as "LESSOR", leases to PATRICK INDUSTRIES,
INC., an Indiana Corporation with principal offices in Elkhart County, Indiana,
hereinafter referred to as "LESSEE", for and in consideration of the covenants
and agreements hereinafter mentioned, that real estate located in McLennan
County, Texas, and more particularly described on Exhibit "A" attached hereto
and made a part hereof, to have and to hold unto the Lessee from October 1,
1999, to and including September 30, 2004, and the Lessee in consideration of
said grant does hereby covenant and agree with the Lessor as follows:
1) That Lessee represents it will use said premises for
manufacturing, warehousing, and office purposes only, all in
conformity with applicable ordinances, laws, and regulations.
2) Lessee will pay, as rent for said premises, to the Lessor at such
place as the Lessor from time to time hereafter may designate in
writing, in equal monthly installments of Twenty Five Thousand
Twenty-nine Dollars ($25,029.00) each commencing on the 1st day of
October, 1999, and on the first day of each succeeding consecutive
month thereafter during the first year of this lease to and
including the 1st day of September, 2000. It is mutually agreed by
the parties that the Lessor shall have the option to increase the
monthly rental at each one year anniversary date of this Lease
term, by a factor no greater than the percentage increase from the
applicable prior year in the "Consumer Price Index - All Urban
Consumers" as published by the "Bureau of Labor Statistics" or a
comparable index if the aforementioned one is not available. If
said option is exercised and the applicable monthly rental is
increased, said increase shall continue in effect until further
modified by the terms of this paragraph of this Commercial Lease.
Lessee shall further pay as additional rent the following:
A. Real estate taxes levied and/or assessed against the
leased premises by the State of Texas and/or any political
subdivision thereof commencing with the first installment
of said taxes payable after October 1, 1999, and ending
with the last installment of taxes payable prior to
September 30, 2004. In the event that there would be any
arrearage in real estate taxes, levied and/or assessed
against the Leased premises by
<PAGE>
the State of Texas, for any period of time prior to this
Lease term, by the terms of a predecessor Commercial
Lease, Lessee shall be responsible for said taxes.
B. Insurance premiums for fire, extended coverage and hazard
insurance on the improvements located on the leases
premises when and as the same fall due during the term
commencing on the effective date of this Lease, said
insurance to be in the amounts and with the limits of
liability as hereinafter stated.
3) Lessee has examined and knows the condition of said premises and
has received the same in good order and repair, except as herein
otherwise specified on Exhibit "B" attached hereto and made a part
thereof and that no representations as to the condition of repair
thereof have been made by the Lessor or his representative, prior
to or at the execution of this Lease that are not herein expressed
or endorsed hereon and that Lessee will keep the interior and
exterior of said premises in good repair, including the roof,
walls, overhead door systems, passage doors and windows, replacing
all broken glass with glass of the same size and quality as that
broken, and will keep said premises and appurtenances, as well as
all eaves, downspouting, catch basins, drains stools, lavatories,
sidewalks, adjoining alleys and all other facilities and equipment
in connection with said premises, in a clean and healthy
condition, according to the city ordinances, and the direction of
the proper public officers, during the term of this Lease in any
way, will yield up said premises to Lessor in good condition and
repair (loss by fire and ordinary wear excepted) and will deliver
the keys to Lessor.
4) Lessor shall not be liable for damages caused by failure to keep
said premises in repair and shall not be liable for any damage
done or occasioned by or from plumbing, gas, water, steam or other
pipes, or sewage, or the bursting or leaking of plumbing or
heating fixtures or waste or soil pipe existing in connection with
said building or premises, nor for damage occasioned by water,
snow or ice being upon said sidewalks or coming through the roof,
skylight, trap door or otherwise, nor for any damages arising from
negligence of co-tenants or other occupants of the same building,
or the agents, employees or servants of any of them, or of any
owners or occupants of adjacent or contiguous property.
<PAGE>
5) Lessor shall not be liable for any injury to the Lessee or any
other person, occurring on, adjacent to or in front of said
premises, irrespective of whether said injury is caused by a
defect in said premises or by reason of said premises becoming out
of repair or arising from another cause whatsoever, and the Lessor
shall not be liable for damage to Lessee's property or to the
property of any other person which may be located in or upon said
premises and the Lessee agrees to indemnify and save harmless the
Lessor from any and all claims arising out of injuries to persons
or property occurring on or about said premises.
During the term of this Lease the Lessee shall maintain at its
expense, for the benefit of Lessor and Lessee and naming both
Lessor and Lessee as insured parties, liability insurance with
limits of not less than Five Million Dollars ($5,000,000.00) per
injury or occurrence and Two Million Dollars ($2,000,000.00)
property damage. Lessee shall deliver from time to time during the
term of this Lease to Lessor evidence of the existence of such
liability insurance.
6) Lessee shall further maintain at its sole expense for the benefit
of Lessor during the entire term of this Lease fire, extended
coverage and hazard insurance on the improvements now located on
the leased premises in an amount equal to the insurable
replacement cost of said premises. It is agreed by and between the
parties hereto that the present improvements located on the leased
premises have an initial insurable replacement value in the sum of
________________ Dollars ($_________________). Lessee shall
further deliver to Lessor certificates of insurance issued by the
insuror of said improvement and from time to time when as the
premiums on said insurance become due and payable shall further
provide Lessor with evidence of the payment of said premiums.
In the event Lessee shall construct or erect any further
improvements upon said leased premises and/or make any additions
or alterations to the existing improvements located upon said
premises during the term of this Lease, Lessee, at its expense,
shall insure said additional
<PAGE>
improvements or additions to present improvements in an amount not
less than the costs of such further improvements or additions.
7) The parties agree that Lessee may sublet all or any portion of
said premises during the term of this Lease with the prior written
consent of Lessor. Upon the provision of said Written Consent,
Lessee shall deliver copies of any such subleases within five (5)
days after the execution thereof and provided, further, that
Lessee shall not grant any rights to any such subtenant in excess
of the rights and duties granted Lessee herein.
8) Lessee shall not assign this Lease or any part thereof without the
written consent of the Lessor first had and obtained, and will not
permit any transfer by operation of law of any interest in said
premises acquired through this Lease and will not permit said
premises to be used for any unlawful purpose or purposes which
will injure the reputation of the same or of the building of which
it is a part, nor disturb the tenants of such building or of the
neighborhood.
9) No alterations, changes, or additions in said leased premises
shall be made without first submitting written plans and
specifications for the same to the Lessor and obtaining his
written consent to make the same. Lessor shall not unreasonably
withhold his consent. In the event of any such remodeling,
alterations, or additions, Lessee shall make the same at its own
expense and shall promptly pay for all materials and labor
involved in making the same. Lessee shall not permit any liens or
claims or demands of any nature to exist against the Lessor or the
leases premises. In the event any lien, claim, or demand of any
action for enforcing the same shall be filed for made against the
Lessor or said premises, the Lessee shall defend the same at its
own expense and Lessee hereby agrees to indemnify and hold
harmless the Lessor from any and all liability or expense arising
by virtue of such claim, demand, or lien or the defense of any
action filed to enforce the same. Any such alterations, changes,
or additions shall, when made, become a part of the leased
premises and remain thereon as the property of the Lessor at the
termination of said Lease at the option of the
<PAGE>
Lessor, and if the Lessor shall require the Lessee to restore the
premises or any portion thereof to the original condition in which
it was before this Lease is executed, then the Lessee shall
restore said premises or portion to such condition at its own
expense, and all of the provision of this lease with reference to
such restoration contracts, liens, demands and expenses shall
apply to said restoration as well as the original alterations.
Upon the expiration of this Lease, Lessee shall be entitled to
remove its trade fixtures and equipment provided that Lessee
shall, at its sole expense, restore said premises to good
condition after such removal.
10) Lessee shall allow Lessor free access to the premises for the
purpose of examining or exhibiting the same and also to allow the
Lessor, within forty-five (45) days of the termination of this
Lease, to place upon said premises "For Sale" or "For Rent" signs.
11) Lessee shall promptly pay and discharge all store license taxes
and all general personal property taxes or special license fees
that may be assessed or levied by any lawful authority against the
property of Lessee or any subtenants on, against or by virtue of
the business conducted in or on the demised premises during the
term of this Lease.
12) Lessee shall promptly pay (in addition to the rents above
specified) all water, sewerage, electric, power, gas and heating
bills taxed, levied, or charged against the premises for and
during the entire term of this Lease.
13) Lessee covenants that should it make default in its agreement to
pay the rent above provided to be paid, or any part thereof, or in
any of the other covenants and agreements herein contained, it
will at once deliver peaceable possession of said premises to the
Lessor, and failing to do so, it shall be lawful for the Lessor,
its successors or assigns, without notice, to declare the said
term ended, and to re-enter said demises premises, or any part
thereof, either with or without process of law, and to expel,
remove and put out the Lessee, or any person or persons occupying
the same, using such force as may be necessary so to do, and to
repossess
<PAGE>
and use said premises as before this demise, without prejudice to
any remedies which might otherwise be used for arrears of rent or
preceding breach of covenants.
14) That after the service of notice, or the commencement of a suit,
or after final judgment for possession of said premises, Lessor
may receive and collect any rent due and the payment of said rent
shall not waive or affect said notice, said suit or said judgment.
15) If the Lessee shall make any assignment for the benefit of
creditors or if a receiver is appointed for the Lessee or its
assets or of the Lessor's interest under this Lease, and if the
appointment of a receiver is not vacated within five (5) days, or
if a voluntary or involuntary petition is filed by or against
Lessee under the Bankruptcy Act, the Lessor may, upon giving the
Lessee ten (10) days notice of such election, either terminate
Lessee's right to the possession of the demises premises or
terminate this Lease as in the case of a violation by the Lessee
of any of the terms, covenants, or conditions of this Lease.
16) It is agreed by the parties hereto that in the event Lessee is
declared bankrupt or voluntarily offers to creditors terms of
composition or in case a receiver is appointed to take charge of
and conduct the affairs of the Lessee, then Lessor shall have the
right of immediate possession of said premises.
17) That in case said premises shall be so injured by fire, windstorm,
or other catastrophe as to be rendered untenantable, within thirty
(30) days thereafter, it shall be optional with the Lessor only to
terminate the Lease by written notice at the end of such thirty
(30) days, in which case rent shall be paid at the agreed rate
above provided up to the time of such fire; but in case such
injuries are repaired and the premises rendered tenantable within
thirty (30) days, the right to terminate this Lease for such cause
shall not exist: provided, that nothing herein contained shall
relieve the Lessee from liability for rent or damages where such
damage or destruction shall be caused by the carelessness,
negligence or improper conduct of the Lessee, its agents or
servants.
<PAGE>
18) It is expressly agreed that no waiver nor apparent waiver, nor the
failure of Lessor to require strict performance of any condition,
covenant, or agreement shall estop the Lessor from enforcing such
condition, covenant, or agreement, nor any other condition,
covenant, or agreement shall at any time be implied.
19) At the expiration of this Lease, by lapse of time or otherwise,
Lessee will yield up immediate possession to Lessor, and failing
so to do, will pay as liquidated damages for each day such
possession is withheld, a sum equal or two (2) times the per diem
rental; but the provisions of this clause shall not be held as a
waiver by Lessor of any rights of re-entry as herein set forth,
nor shall the receipt of said rent or any part thereof, or any
other act in apparent affirmance of tenancy, operate as a waiver
of the right to forfeit this Lease and the term hereby granted for
the period still unexpired, for any breach of any of the covenants
herein.
20) It is also agreed that the Lessee shall pay and discharge all
reasonable costs, attorney's fees, and expenses which shall be
made and incurred by the Lessor in enforcing the covenants and
agreements of this Lease, including the agreement to deliver
possession for any reason herein provided, and all the parties to
this Lease agree that the covenants and agreements herein
contained shall be binding upon, apply and inure to their
respective heirs executors, administrators, successors and
assigns, and the terms "Lessor" and "Lessee" shall embrace all of
the parties hereto irrespective of number or gender.
21) It is agreed that all payments herein provided to be made shall be
made without relief from valuation or appraisement laws, and all
payments required to be made at the time due shall bear interest
at the rate of eighteen percent (18%) per annum, from date of
delinquency.
22) At any time prior to April 1, 2004, provided that Lessee shall
then have complied with and performed all of the agreements to be
performed by Lessee herein, Lessee shall have the option to renew
the lease for an additional term commencing October 1, 2004, and
ending September 30, 2009. Lessee shall exercise said option by
giving Lessor notice of the exercise thereof in writing, addressed
to Lessor as hereinafter stated, certified mail, return receipt
requested, which
<PAGE>
notice shall be mailed to Lessor not later than April 1, 2004. In
the event Lessee fails to serve notice of the exercise of its
option to renew this Lease as hereinabove provided shall expire
and be of no further force and effect, it being agreed by the
parties that time is of the essence of receipt of notice of such
exercise.
In the event said option is exercised, the basic rental for the
additional term shall be renegotiated between Lessor and Lessee.
All other provisions of the Lease shall be the same as for the
initial term, including the provisions relative to additional
rent. In the event Lessor and Lessee are unable to agree in
writing upon the amount of basic rental agreeable during the
renewal term on or before July 1, 2004, said notice of exercise of
such option to renew shall be deemed ineffective for all purposes
and said Lease shall automatically expire upon the expiration of
the initial term.
23) Each of said parties does each herewith and hereby release and
relieve the other and waiver their entire right of recovery
against the other for loss or damage arising out of or incident to
the perils of fire, explosion, or other peril described in the
"Extended Coverage" insurance endorsement approved for use in the
state where the above property is located, which occurs in, on or
about the premises, whether due to the negligence of any said
parties, their agents or employees or otherwise.
24) In the event the leased premises or any portion thereof shall be
acquired or condemned by eminent domain for any public or
quasi-public use or purposes, Lessor may terminate this Lease in
which event said Lease shall terminate and cease on the date upon
which the condemning authority shall take possession of the leased
premises so condemned. Lessee shall continue to perform the
obligations imposed upon it by the terms of this Lease until said
date.
Further, in the event of any such acquisition or condemnation by
eminent domain, Lessee shall have no claim against the Lessors or
the condemning authority for the value of the unexpired term of
this Lease and Lessee shall not be entitled to any part of the
award paid for
<PAGE>
the condemnation or acquisition of the leased premises, it being
agreed that Lessor shall be entitled to receive the full amount of
such award and it being further agreed that Lessee hereby
expressly waives any right or claim against any portion of said
award. Lessee shall have the right to claim and recover from the
condemning authority, but not from the Lessor, such compensation
as may be separately awarded or recoverable by the Lessee in
Lessee's own right on account of any and all damages to Lessee's
business by reason of such acquisition or condemnation and for or
on account of any cost to which Lessee might be put in removing
Lessee's equipment, fixtures, inventory, and other property from
the leased premises.
25) Nothing herein contained shall be construed as prohibiting Lessor
from assigning its right, title, and interest in and to the leased
premises, subject to the terms of this Lease, to any third party.
26) At the expiration of the lease, whether by lapse of time or
otherwise, Lessor and Lessee shall make a joint inspection of the
leased premises to determine the then present condition thereof.
In the event said leased premises are damaged, or in the event the
Lessee has committed waste and in the further event that the
premises are not in then good condition and repair, ordinary wear
and tear excepted, Lessor shall cause said premises to be restored
to good condition and repair at Lessee's expense. Lessee shall pay
the cost of such repair and restoration within ten (10) days after
receipt of notice from Lessor. 27) Until further notice in written
form is given by either of the parties hereto, all notices and/or
rent to be delivered to the opposite party shall be mailed as
follows:
TO LESSOR:
Mervin D. Lung
5020 Lincolnway East
Mishawaka, IN 46544
TO LESSEE:
Patrick Industries, Inc.
1800 South 14th Street
<PAGE>
Elkhart, IN 46516
28) Lessor covenants and agrees that so long as Lessee shall perform
all of the terms, conditions, covenants, and agreements to be kept
by Lessee, Lessee shall have the quiet enjoyment of the leased
premises.
29) The parties agree that a memorandum of lease in a form approved in
writing by Lessor, may be recorded in the records of McLennan
County, Texas.
30) This Lease is executed by duly authorized officers of the Lessee
for and on behalf of the Lessee and the persons executing this
Lease for and on behalf of the Lessee acknowledge and state that
they have full power and authority to execute this Lease pursuant
to law, the by-laws of Lessee corporation and authority of
Lessee's board of directors.
Dated effective this 30th day of September , 1999.
_Mervin D. Lung__________
Mervin D. Lung
(LESSOR)
PATRICK INDUSTRIES, INC.
_David D. Lung___________
David D. Lung
President
ATTEST:
_Keith V. Kankel_________________ (LESSEE)
Keith V. Kankel, Secretary/Treasurer
<PAGE>
STATE OF INDIANA )
) SS:
COUNTY OF ST. JOSEPH )
Before me, a Notary Public in and for said County and State,
personally appeared Mervin D. Lung and acknowledged the execution of
the above foregoing Commercial Lease as Lessor.
WITNESS my hand and Notarial Seal this 30th day of September ,
1999.
Thomas M. Walz
Thomas M. Walz Notary Public
Residing in St. Joseph County, IN
My Commission Expires
08/27/2006
---------------------
STATE OF INDIANA )
) SS:
COUNTY OF ___________ )
Before me, a Notary Public in and for said County and State,
personally appeared David D. Lung and Keith V. Kankel, the
Vice-President and Secretary/Treasurer, respectively, of PATRICK
INDUSTRIES, INC., an Indiana Corporation, and acknowledged the
execution of the above and foregoing Commercial Lease for and on behalf
of said corporation in their respective representative capacities being
authorized by it so to do.
WITNESS my hand and Notarial Seal this _______ day of
___________, 1999.
------------------------
________________, Notary Public
Residing in __________ County, IN
My Commission Expires
------------
<PAGE>
EXHIBIT "A"
REAL ESTATE DESCRIPTION
-----------------------
BEING 13.15 acres of land in the Jacob Walker League, McLennan County,
Texas, and being all that certain Tract Two as described in a deed from
the Waco Industrial Foundation to Patrick Industries, Inc., as recorded
March 13, 1980, in Col. 1347, Pg. 763 of the Deed Records of McLennan
County, Texas, described by metes and bounds as follows: BEGINNING at a
nail being the northwest corner of said Tract Two, being also in the
center of the Old Fort Graham Road; THENCE N 57 deg 3 min 54 sec E with
the north line of said Tract Two passing an iron at 25.0 feet
continuing for a total distance of 1120.3 feet to an iron stake for a
corner being the northeast corner of said tract; THENCE S 30 deg 15 min
27 sec E with the cast line of said TRACT TWO a distance of 407.57 feet
to an iron stake for a corner being in the northwest line of Texas
Central Railroad; THENCE S 18 deg 48 min 15 sec W with said railroad
R.O.W. a distance of 225.59 feet to an iron stake for a corner being
the southeast corner of said Tract Two; THENCE S 60 deg 32 min W with
the south line of said Tract Two, passing an iron stake at a distance
of 921.03 feet, continuing for a total distance of 946.03 feet to a
nail for a corner being the southwest corner of said Tract Two, being
also in the center line of Old Fort Graham Road; THENCE N 30 deg 34 min
32 sec W with the west line of said Tract Two a distance of 490.0 feet
to the place of beginning containing 13.15 acres of land more or less,
of which .028 acre is being used as a public road, and 0.25 acre is
being used as a private gravel drive, ingress, egress easement.
<PAGE>
EXHIBIT "B"
EXCEPTIONS TO CONDITION
-----------------------
EXHIBIT 12
PATRICK INDUSTRIES, INC.
STATEMENT OF COMPUTATION OF OPERATING RATIOS
Operating ratios which appear in this Form 10K, including gross profit,
warehouse and delivery expenses, selling, general, and administrative expenses,
operating income, and net income were computed dividing the respective amounts
by net sales for the period indicated.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,686,182
<SECURITIES> 0
<RECEIVABLES> 18,773,685
<ALLOWANCES> (275,000)
<INVENTORY> 42,039,348
<CURRENT-ASSETS> 67,887,404
<PP&E> 90,450,405
<DEPRECIATION> 40,554,765
<TOTAL-ASSETS> 126,203,100
<CURRENT-LIABILITIES> 20,333,753
<BONDS> 0
0
0
<COMMON> 21,389,940
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 126,203,100
<SALES> 457,356,260
<TOTAL-REVENUES> 457,356,260
<CGS> 400,017,287
<TOTAL-COSTS> 443,789,624
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,393,346
<INCOME-PRETAX> 12,173,290
<INCOME-TAX> 4,769,000
<INCOME-CONTINUING> 7,404,290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,404,290
<EPS-BASIC> 1.30
<EPS-DILUTED> 1.29
</TABLE>
