UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from..................to..................
Commission file number 0-3922
PATRICK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1057796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 South 14th Street, Elkhart, IN 46516
(Address of principal executive offices)
(ZIP Code)
(219) 294-7511
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Shares of Common Stock Outstanding as of November 3, 2000: 4,719,666
1
<PAGE>
PATRICK INDUSTRIES, INC.
INDEX
Page No.
PART I: Financial Information
Unaudited Condensed Balance Sheets
September 30, 2000 & December 31, 1999 3
Unaudited Condensed Statements of Income
Three Months Ended September 30, 2000 & 1999, and
Nine Months Ended September 30, 2000 & 1999 4
Unaudited Condensed Statements of Cash Flows
Nine Months Ended September 30, 2000 & 1999 5
Notes to Unaudited Condensed Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II: Other Information 18
Signatures 19
2
<PAGE>
PART I: FINANCIAL INFORMATION
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Note)
SEPTEMBER 30 DECEMBER 31
2000 1999
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,847,410 $ 6,686,182
Trade receivables 23,191,221 18,498,685
Income taxes receivable 469,580 - - -
Inventories 38,822,694 42,039,348
Prepaid expenses 632,132 663,189
------------ ------------
Total current assets 64,963,037 67,887,404
------------ ------------
PROPERTY AND EQUIPMENT, at cost 92,170,228 90,450,403
Less accumulated depreciation 50,847,461 40,554,763
------------ ------------
41,322,767 49,895,640
------------ ------------
DEFERRED TAX ASSETS 287,000 - - -
------------ ------------
INTANGIBLE AND OTHER ASSETS 6,558,806 8,420,056
------------ ------------
Total assets $113,131,610 $126,203,100
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,671,428 $ 3,671,428
Accounts payable, trade 13,189,120 11,155,999
Accrued liabilities 4,404,905 5,506,326
------------ ------------
Total current liabilities 21,265,453 20,333,753
------------ ------------
LONG-TERM DEBT, less current maturities 19,485,716 22,457,144
------------ ------------
DEFERRED COMPENSATION OBLIGATIONS 2,061,764 1,945,058
------------ ------------
DEFERRED TAX LIABILITIES -- 1,900,000
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 19,222,238 21,389,940
Retained earnings 51,096,439 58,177,205
------------ ------------
70,318,677 79,567,145
------------ ------------
Total liabilities and shareholders' equity $113,131,610 $126,203,100
============ ============
</TABLE>
NOTE: The balance sheet at December 31, 1999 has been taken from the audited
financial statements at that date. See accompanying notes to Unaudited
Condensed Financial Statements.
3
<PAGE>
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET SALES $ 89,944,512 $ 116,980,578 $ 290,671,025 $ 347,361,878
------------- ------------- ------------- -------------
COST AND EXPENSES
Cost of goods sold 78,822,081 103,490,544 256,229,412 303,617,939
Warehouse and delivery expenses 3,815,775 4,172,772 11,879,685 12,374,781
Selling, general, and administrative expenses 6,161,205 6,710,034 19,483,014 20,025,376
Impairment charges -- -- 6,937,163 --
Restructuring charges (credit) (173,127) -- 159,215 --
Interest expense, net 309,966 394,933 977,221 1,084,068
------------- ------------- ------------- -------------
88,935,900 114,768,283 295,665,710 337,102,164
INCOME (LOSS) BEFORE INCOME TAXES 1,008,612 2,212,295 (4,994,685) 10,259,714
INCOME TAXES (CREDIT) 403,800 875,300 (1,877,200) 4,053,200
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 604,812 $ 1,336,995 $ (3,117,485) $ 6,206,514
============= ============= ============= =============
BASIC AND DILUTED EARNINGS
PER COMMON SHARE $ .11 $ .23 $ (.59) $ 1.08
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,141,275 5,695,539 5,251,691 5,722,245
See accompanying notes to Unaudited Condensed Financial Statements.
</TABLE>
4
<PAGE>
PATRICK INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (3,117,485) $ 6,206,514
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,440,563 6,527,089
Impairment charges 6,937,163 --
(Gain) loss on sale of fixed assets 5,622 (637,238)
Deferred income taxes (2,187,000) --
Other 226,706 103,161
Change in assets and liabilities:
Decrease (increase) in:
Trade receivables (4,692,536) (10,281,849)
Inventories 3,216,654 (5,542,422)
Prepaid expenses 31,057 16,970
Income taxes receivable (469,580) --
Increase (decrease) in:
Accounts payable and accrued liabilities 1,103,651 10,274,604
Income taxes payable (404,725) 977,326
------------ ------------
Net cash provided by operating activities 7,090,090 7,644,155
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,805,760) (5,287,373)
Proceeds from sale of fixed assets 32,192 872,976
Other (67,500) (63,000)
------------ ------------
Net cash (used in) investing activities (2,841,068) (4,477,397)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (2,971,428) (3,285,963)
Proceeds from exercise of common stock options -- 26,875
Repurchase of common stock (5,405,350) (2,537,208)
Cash dividends paid (648,859) (691,837)
Other (62,157) (83,471)
------------ ------------
Net cash (used in) financing activities (9,087,794) (6,571,604)
------------ ------------
Decrease in cash and cash equivalents (4,838,772) (3,404,846)
Cash and cash equivalents, beginning 6,686,182 3,704,693
------------ ------------
Cash and cash equivalents, ending $ 1,847,410 $ 299,847
============ ============
See accompanying notes to Unaudited Condensed Financial Statements.
</TABLE>
5
<PAGE>
PATRICK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly financial position as of
September 30, 2000, and December 31, 1999, and the results of operations
and cash flows for the three months and the nine months ended September 30,
2000 and 1999.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1999
audited financial statements. The results of operations for the three and
nine month periods ended September 30, 2000 and 1999 are not necessarily
indicative of the results to be expected for the full year.
3. The inventories on September 30, 2000 and December 31, 1999 consist of the
following classes:
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
<S> <C> <C>
Raw materials $23,710,352 $23,286,250
Work in process 2,125,893 1,555,319
Finished 4,894,643 4,668,813
----------- -----------
Total manufactured goods $30,730,888 $29,510,382
Distribution products 8,091,806 12,528,966
----------- -----------
TOTAL INVENTORIES $38,822,694 $42,039,348
=========== ===========
</TABLE>
The inventories are stated at the lower of cost, First-In First-Out (FIFO)
method, or market.
4. Stock options outstanding are immaterial and had an immaterial effect on
diluted earnings per share.
Earnings per common share for the nine months ended September 30, 2000 and
1999 have been computed based on the weighted average common shares
outstanding of 5,251,691 and 5,722,245 respectively.
5. The Company recognized a non-cash accounting charge in the first quarter of
2000 related to an impairment of certain long-lived assets as required by
SFAS 121. As a result of the implications of the downturn in the
manufactured housing industry, the competitive pricing adversely affecting
margins in certain of the Company's operating units, and insufficient
efficiency gains from operational changes implemented by management,
updated analyses were prepared to determine if there was impairment of any
long-lived assets primarily in the Company's Wood and Other Segments. The
carrying values of these assets were calculated on the basis of discounted
estimated future cash flow and resulted in a charge to operations of
$6,937,163, or $.80 per share, net of tax. The SFAS 121 charge had no
impact on the Company's 2000 cash flow or its ability to generate cash flow
in the future. As a result of the SFAS 121 charge, depreciation and
amortization expense related to these assets will decrease in future
periods.
6. In December, 1999, the Securities and Exchange Commission issued SAB No.
101, which summarizes the Staff's view in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company must comply with SAB No. 101 beginning with the quarter ended
December 31, 2000. Based upon management's evaluation, we do not believe
SAB No. 101 will have a material impact on future operating results.
6
<PAGE>
7. In April, 2000, the Company recorded a restructuring charge based on its
decision to close one of its cabinet door manufacturing facilities and
consolidate its operation into other existing facilities and due to the
relocation of its Fabricated Metals facility. The Company looked at future
costs, levels of business, and determined that it was not feasible to keep
the cabinet door facility open in this particular region. The Company
recorded estimated and actual costs related to these restructuring
activities of $332,342, or $.04 per share, on an after tax basis. In the
third quarter of 2000 the Company concluded its consolidation of its
cabinet door and Fabricated Metals facilities. Management's original
estimate of $332,342 was higher than what was actually incurred which
resulted in a credit of $173,127, or $.02 per share, (after tax) to the
restructuring charges in the third quarter.
8. 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 unaudited information about the revenue and
operating income of those segments:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
-------------------------------------
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
---------- ------------ ---- ----- -----
<S> <C> <C> <C> <C> <C>
Net outside sales $38,165,378 $33,701,472 $ 8,300,991 $ 9,776,671 $ 89,944,512
Intersegment sales 1,491,451 9,899 309,784 3,931,986 5,743,120
Total sales $39,656,829 $33,711,371 $ 8,610,775 $13,708,657 $ 95,687,632*
----------------------------------------------------------------------------------
EBIT** $ 543,840 $ 89,675 $ (228,931)*** $ (20,849)*** $ 383,735
----------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------
Net outside sales $46,125,918 $49,372,110 $ 10,271,141 $11,201,357 $116,970,526
Intersegment sales 1,654,117 43,871 329,322 4,862,019 6,889,329
----------------------------------------------------------------------------------
Total sales $47,780,035 $49,415,981 $ 10,600,463 $16,063,376 $123,859,855*
----------------------------------------------------------------------------------
EBIT** $ 869,978 $ 962,756 $ (595,163) $ 659,523 $ 1,897,094
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------
SEGMENT
LAMINATING DISTRIBUTION WOOD OTHER TOTAL
---------- ------------ ---- ----- -----
<S> <C> <C> <C> <C> <C>
Net outside sales $124,878,454 $108,168,318 $ 27,396,452 $ 30,230,167 $ 290,673,391
Intersegment sales 4,754,772 50,352 855,882 13,487,646 19,148,652
-------------------------------------------------------------------------------------------
Total sales $129,633,226 $108,218,670 28,252,334 $ 43,717,813 $ 309,822,043*
-------------------------------------------------------------------------------------------
EBIT** $ 2,356,039 $ 1,214,096 $ (6,556,119)*** $ (1,584,294)*** $ (4,570,278)
Identifiable assets $ 39,462,000 $ 18,908,000 $ 7,110,000 $ 13,920,000 $ 79,400,000
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------
Net outside sales $140,729,514 $140,237,068 $ 32,470,240 $ 33,424,557 $ 346,861,379
Intersegment sales 4,982,287 45,245 920,224 16,131,346 22,079,102
-------------------------------------------------------------------------------------------
Total sales $145,711,801 $140,282,313 $ 33,390,464 $ 49,555,903 $ 368,940,481*
-------------------------------------------------------------------------------------------
EBIT** $ 4,980,644 $ 3,379,739 $ (2,170,018) $ 2,314,827 $ 8,505,192
Identifiable assets $ 47,160,000 $ 28,943,000 $ 14,076,000 $ 15,061,000 $ 105,240,000
</TABLE>
Reconciliation of segment operating income to consolidated operating income
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
EBIT** for segments $ 383,735 $ 1,897,094 $(4,570,278) $ 8,505,192
Corporate incentive agreements 1,310,348 925,240 1,798,720 2,482,573
Consolidation reclassifications (91,703) (205,307) (408,661) (598,466)
Gain on sale of assets 3,899 -- (5,123) 641,096
Other (287,701) (9,799) (832,122) 313,387
----------- ----------- ----------- ------------
Consolidated EBIT** $ 1,318,578 $ 2,607,228 $(4,017,464) $ 11,343,782
=========== =========== =========== ============
</TABLE>
There has been no material change in assets in the above segments.
*Does not agree to Financial Statements due to consolidation elimination's.
**Earnings before interest and taxes.
***The Company recognized a charge in the first quarter 2000 of $5,371,295 and
$1,565,868 to the Wood and Other segments, respectively, related to the
impairment of long-lived assets as discussed in Note 5 to the September 30, 2000
financial statements. The identifiable asset values for each segment have been
reduced accordingly. Additionally, as discussed in Note 6, the Company
recognized a charge in the second and third quarters of 2000 of $48,667 and
$110,548 to the Wood and Other segments, respectively, related to restructuring
charges for the closing and consolidation of one of its cabinet door
manufacturing facilities and to the relocation of its Fabricated Metals
facility.
8
<PAGE>
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. The sales in 1999 were 0.8% ahead of the 1998 record year. The increase
in sales resulted from the continued strength of both the economy and the
manufactured housing and recreational vehicle industries. In the last quarter of
1999 it became apparent that the manufactured housing industry had produced
units in excess of the retail demand resulting in approximately 7.0% decline in
production that year. Retail sales lots were overstocked and unit production was
reduced. The industry, through September 30, 2000, is down nearly 25% in units
shipped and produced due to the limited availability of dealer and retail
financing and excessive retail inventory levels, which include repossessed
units. These conditions will probably continue through the end of the year and
even into next year. The Company's sales in the first nine months of 2000 are
55% to manufactured housing, 25% to recreational vehicle, and 20% to other
industries.
The following table sets forth the percentage relationship to net sales of
certain items in the Company's Statements of Operations:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.6 88.5 88.2 87.4
Gross profit 12.4 11.5 11.8 12.6
Warehouse and delivery 4.2 3.6 4.0 3.6
Selling, general & administrative 6.9 5.7 6.7 5.8
Impairment charges -- -- 2.4 --
Restructuring charges (credit) (0.2) -- 0.1 --
Operating income (loss) 1.5 2.2 (1.4) 3.2
Net income (loss) 0.6 1.1 (1.1) 1.8
</TABLE>
RESULTS OF OPERATIONS
Quarter Ended September 30, 2000 Compared to Quarter Ended September 30,
1999
Net Sales. Net sales decreased by $27.1 million, or 23.1%, from $117.0
million in the quarter ended September 30, 1999 to $89.9 million in the quarter
ended September 30, 2000. This decrease was a direct result of an estimated 25%
decrease in units shipped and produced in the manufactured housing industry in
the first nine months of fiscal 2000.
Gross Profit. Gross profit decreased by $2.4 million, or 17.6%, from $13.5
million in the third quarter 1999 compared to $11.1 million in the same quarter
in 2000. Gross profit as a percentage of net sales increased by 0.8% from 11.5%
in the third quarter of 1999 to 12.3% in the third quarter 2000. The decrease in
overall gross profit was due primarily to a 23% decrease in consolidated net
sales. The increase in gross profit as a percentage of net sales was due to the
Company concentrating on maintaining margin levels in the highly competitive
markets as well as significant concentration on operating efficiencies in the
Laminating and Wood operating segments.
Warehouse and Delivery Expenses. Warehouse and delivery expenses decreased
$0.4 million, from $4.2 million in the third quarter 1999 to $3.8 million in the
third quarter 2000. As a percentage of net sales, warehouse and delivery
expenses increased 0.7%, from 3.5% in the third quarter of 1999 to 4.2% in the
third quarter 2000. This increase is attributable to lower sales levels,
especially in the Distribution segment, and higher shipping costs specifically
related to the increase in gasoline prices from the same quarter in 1999.
9
<PAGE>
Selling, General and Administrative Expenses. To make the year to year
comparison similar, a $0.2 million restructuring credit has been adjusted from
the selling, general and administrative expense discussion for the period ended
September 30, 2000. Selling, general and administrative expenses decreased 8.1%,
or $0.5 million, from $6.7 million in the quarter ended September 30, 1999 to
$6.2 million in the same period in 2000. As a percentage of net sales, September
30, 2000 expenses were 6.9% compared to 5.7% for the three month period ended
September 30, 1999. This 1.2% increase was due to the larger than anticipated
decline in consolidated net sales.
Restructuring Charges. As discussed in Note 7 of the financial statements,
the Company recognized a credit in the amount of $173,000 in the third quarter
of 2000 as a result of an over accrual related to estimated restructuring
charges recorded in the second quarter.
Operating Income. Operating income decreased $1.3 million, from $2.6
million in the quarter ended September 30, 1999 to $1.3 million in the quarter
ended September 30, 2000. The decrease in operating income in the third quarter
of 2000 was due to the factors described above.
Interest Expense, Net. Interest expense, net of interest income, decreased
21.5%, from $395,000 in the third quarter of 1999 to $310,000 in the same period
in 2000. This decrease is attributable to more funds being invested in the third
quarter of 2000 compared to the third quarter of 1999 as a result of lower
inventory and receivable levels, and lower borrowing levels.
Net Income. Net income decreased $0.7 million, or 55%, for the quarter
ended September 30, 2000 compared to the same quarter in 1999. As a percentage
of net sales, net income decreased 0.5%, from 1.2% in the third quarter of 1999
to 0.7% in the third quarter of 2000. This decrease is due primarily to the
factors described above.
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30,
1998
Net Sales. Net sales decreased by $2.1 million, or 1.8%, from $119.1
million for the quarter ended September 30, 1998, to $117.0 million in the
quarter ended September 30, 1999. This sales decrease was attributable to a
decrease in the number of units produced in the manufactured housing industry,
to whom the Company is a major supplier. The Company's sales in the quarter were
62% to manufactured housing, 23% to recreational vehicle, and 15% to other
industries.
Gross Profit. Gross profit decreased by approximately $2.4 million, or
15.1%, from $15.9 million in the third quarter of 1998, to $13.5 million in the
same 1999 quarter. As a percentage of net sales, gross profit decreased from
13.3% in 1998 to 11.5% in the third quarter of 1999. The decrease in gross
profit was due to most manufacturing operations showing declines in volume and
operating efficiencies when compared to the same 1998 period. In most markets
highly competitive pricing had negative impact on gross profits making several
of the Company's manufacturing operations unprofitable in this period.
Warehouse and Delivery Expenses. Warehouse and delivery expenses decreased
approximately $62,000, or 1.5%. As a percentage of net sales, warehouse and
delivery expenses remained the same in the third quarter of 1999 and 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $105,000, or 1.5%, from $6.8 million in
1998, to $6.7 million in 1999. As a percentage of net sales, selling, general
and administrative expenses also remained the same in both years' third quarter.
Operating Income. Operating income decreased by approximately $2.2 million
because of the decreased sales and the reduced gross profits. As a percentage of
sales, operating income decreased from 4.0% in the 1998 third quarter to 2.2% in
the same 1999 period.
Interest Expense, Net. Interest expense, net increased by approximately
$90,000 from $305,000 in 1998 to $395,000 in the third quarter of 1999. The
Company's borrowing levels during the 1999 period were approximately the same
while invested cash was lower.
Net Income. Net income decreased by approximately $1.4 million from $2.7
million in 1998 to $1.3 million in 1999 for the third quarter ended September
30. This decrease is attributable to the factors described above.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
10
<PAGE>
Net Sales. Net sales decreased $56.7 million, or 16.3%, from $347.4 million
for the nine months ended September 30, 1999 to $290.7 million for the nine
months ended September 30, 2000. This decrease is attributable to the decline in
the number of units shipped and produced in the manufactured housing industry.
The Company's sales in the first nine months of fiscal 2000 are 55% to
manufactured housing, 25% to recreational vehicle, and 20% to other industries.
Gross Profit. Gross profit decreased 21.3%, or $9.3 million, from $43.7
million in the first nine months of 1999 to $34.4 million in the first nine
months of 2000. As a percentage of net sales, gross profit decreased 0.7%, from
12.6% in the nine months ended September 30, 1999 to 11.9% in the nine months
ended September 30, 2000. This decrease is attributable to the 16.3% reduction
in sales for the nine month period as well as highly competitive pricing
pressures forcing the Company to reduce prices to maintain certain business.
Warehouse and Delivery Expenses. Warehouse and delivery expenses decreased
4.0%, or $0.5 million, from $12.4 million in 1999 to $11.9 million in the first
nine months of 2000. As a percentage of net sales, warehouse and delivery
expenses increased 0.5%, from 3.6% in 1999 to 4.1% in the nine months ended
September 30, 2000. This increase as a percentage of net sales is due to higher
fuel costs for the three quarters ended September 30, 2000 and the 16.3%
decrease in consolidated net sales, and especially the 23% decline in net sales
of the Distribution segment.
Selling, General and Administrative Expenses. For the nine months ended
September 30, 2000, a $6.9 million impairment charge and a $0.2 million
restructuring charge has been included in the selling, general and
administrative expenses. For the nine months ended September 30, 1999, a $0.6
million gain on sale of assets has been included in the selling, general and
administrative expenses. Exclusive of the impairment charges, restructuring
charges, and gain on sale of assets, selling, general and administrative
expenses remained consistent with 1999 at $19.4 million. As a percentage of net
sales, however, September 30, 2000 expenses were 6.7% compared to 5.6% for the
nine months ended September 30, 1999. This increase as a percentage of net sales
was due primarily to the larger than anticipated 16.3% decrease in net sales for
the nine months ended September 30, 2000.
Impairment Charges. As discussed in Note 5 of the financial statements, the
Company recognized an impairment charge of $6.9 million in the first quarter of
2000.
Restructuring Charges. As discussed in Note 7 of the financial statements,
the Company recognized restructuring charges of $159,000 in the nine months
ended September 30, 2000.
Operating Income (Loss). The Company experienced an operating loss of $4.0
million for the nine months ended September 30, 2000 compared to operating
income of $11.3 million for the nine months ended September 30, 1999. The
operating loss in the nine months ended September 30, 2000 is due primarily to
the factors described above.
Interest Expense, Net. Interest expense, net of interest income decreased
9.9%, from $1,084,000 million in the nine months ended September 30, 1999 to
$977,000 million in the same period in 2000. This decrease is due to more funds
being invested as a result of lower inventory and receivable levels, and lower
borrowing levels.
Net Income (Loss). The Company experienced a net loss for the nine months
ended September 30, 2000 of $3.1 million compared to net income of $6.2 million
in the same period in 1999. This decrease is due primarily to the factors
described above.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
11
<PAGE>
Net Sales. Net sales increased by $5.6 million, or 1.6%, from $341.8
million for the nine months ended September 30, 1998, to $347.4 million in the
nine months ended September 30, 1999. This sales increase was attributable to
increases in the number of units produced in the recreational vehicle industry,
while production in the manufactured housing industry remained level. The
Company's sales in the first nine months were 61% to manufactured housing, 22%
to recreational vehicle, and 17% to other industries.
Gross Profit. Gross profit decreased by $0.9 million, or 1.9%, from $44.6
million in the first nine months of 1998, to $43.7 million in the same period in
1999. As a percentage of net sales, gross profit decreased from 13.0% in the
first nine months of 1998 to 12.6% in 1999. The decrease in gross profit was due
to most manufacturing operations showing reductions in volume and efficiencies
when compared to the same 1998 period. In certain markets highly competitive
pricing continues to have a negative impact on gross profits making several of
the Company's manufacturing operations unprofitable in the period.
Warehouse and Delivery Expenses. Warehouse and delivery expenses increased
approximately $370,000, or 3.1%, from $12.0 million in 1998, to $12.4 million in
the first nine months of 1999. As a percentage of net sales, warehouse and
delivery expenses remained approximately the same in both years.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained about the same in dollars in both years. As a
percentage of net sales, selling, general and administrative expenses decreased
from 5.9% for 1998 to 5.8% in 1999.
Operating Income. Operating income decreased by approximately $1.2 million
because of the lower gross profits and the higher warehouse and delivery
expenses. As a percentage of sales, operating income decreased from 3.6% in 1998
to 3.3% in 1999.
Interest Expense, Net. Interest expense, net increased by $260,000 from
$824,000 in 1998, to $1,084,000 In 1999. This increase was due to lower invested
funds providing less interest income during the first nine months of 1998.
Net Income. Net income decreased by approximately $825,000, from $7.0
million in 1998 to $6.2 million in 1999. As a percentage of net sales, net
income decreased from 2.1% in the 1998 period to 1.8% in the 1999 nine months.
This is primarily attributable to the factors described above.
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BUSINESS SEGMENTS
Quarter Ended September 30, 2000 Compared to Quarter Ended September 30, 1999
Laminating Segment Discussion
Net sales decreased in the third quarter of 2000 by $8.1 million, or 17.0%,
from $47.8 million in the period ended September 30, 1999 to $39.7 million in
the period ended September 30, 2000. This decline in sales volume was due to
approximately 25% less shipments nationwide in the manufactured housing
industry.
EBIT declined 37.5% from $870,000 in the three month period ended September
30, 1999 compared to $500,000 in the three month period ended September 30,
2000. As a percentage of net sales, EBIT decreased 0.5%, from 1.8% in the third
quarter 1999 to 1.3% in the third quarter 2000. The ability to increase selling
prices became more difficult due to the Company having to make concessions in
pricing to maintain business as a result of the decline in the overall industry.
Distribution Segment Discussion
Net sales decreased 31.8%, or $15.7 million, from $49.4 million in the
third quarter 1999 to $33.7 million in the third quarter 2000. This decrease is
due to the decline in units shipped in the manufactured housing industry for
which this segment serves, and the Company choosing not to accept certain lower
margin business.
EBIT decreased 90.1%, or $873,000, due to the decrease in sales,
competitive pricing situations, and higher fuel costs.
Wood Segment Discussion
Net sales decreased 18.8%, or $2.0 million, from $10.6 million in the
period ended September 30, 1999 to $8.6 million in the period ended September
30, 2000. This decline is due to the overall decline in the industry as well as
some operating divisions choosing not to accept lower margin business.
EBIT increased 18.2% in the wood segment from a loss of $595,000 in the
third quarter of 1999 to a loss of $487,000, excluding restructuring credits, in
the third quarter of 2000. As a percentage of net sales, EBIT remained fairly
consistent at a loss of 5.6% in the third quarters of both 1999 and 2000.
Other Segment Discussion
Net sales in the Other segment decreased by 14.7%, or $2.4 million, from
$16.1 million in the three months ended September 30, 1999 to $13.7 million in
the three month period ending September 30, 2000. This decrease is primarily
attributable to decreased sales in all of the Company's Other segment business
units as a result of the overall decline in the industries to which the Company
serves.
The Other segment experienced an EBIT of $64,000, excluding restructuring
charges, for the quarter ended September 30, 2000 compared to EBIT of $660,000
for the quarter ended September 30, 1999. This decrease of $596,000, or 90.3%,
is a result of the reduced sales and one of the Company's Other segment business
units experiencing operating inefficiencies related to the relocation of its
existing business.
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Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998
Laminating Segment Discussion
Net sales were lower in this segment in the third quarter of 1999 by $1.9
million, or 3.8% less than 1998. This resulted from less demand from
manufactured housing customers and eliminating low margin business.
EBIT in the laminating segment was down approximately $1.4 million, or
62.2%, in the 1999 quarter primarily due to increased material and labor costs,
and competitive market conditions not allowing price increases.
Distribution Segment Discussion
Net sales increased in the 1999 third quarter by $2.0 million, or 4.2%,
primarily because of increased production in the recreational vehicle industry,
which this segment serves. Although manufactured housing units produced was
lower in the 1999 third quarter, the Company gained market share in certain
areas.
EBIT in this segment was lower by $0.5 million, or 32.9%, in 1999 because
of lower margins resulting from increasing competitive market situations.
Wood Segment Discussion
Net sales in this segment were lower in the 1999 third quarter by $3.4
million, or 24.2%, primarily because of one division. That division closed an
operation which was all intersegment sales and also stopped serving certain
markets because of low gross profit margins.
EBIT for this segment in the third quarter was affected by the sales
decline and continued competitive pricing situations that caused most divisions
in the segment to report negative operating results.
Other Segment Discussion
Net sales in this segment decreased 5.8% in the third quarter of 1999 with
all divisions, except two, showing sales declines because of the reduction in
manufactured housing units produced in the period.
EBIT in this segment was lower by $400,000, or 37.3%, in 1999 because of
lower sales, material cost increases in one division, and continued losses in a
start-up operation.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Laminating Segment Discussion
Net sales decreased $16.1 million from $145.7 million in the nine months
ended September 30, 1999 to $129.6 million for the nine months ended September
30, 2000, primarily due to the decline in volume in the manufactured housing
industry.
EBIT decreased $2.6 million, or 52.7%, because of lower sales volumes and
highly competitive pricing.
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Distribution Segment Discussion
Net sales decreased $32.1 million, or 22.9%, from $140.3 million in the
nine month period ended September 30, 1999 to $108.2 million in the same period
in 2000. This decline is due primarily to the overall decline in volume in the
manufactured housing industry.
EBIT decreased $2.2 million, or 64.1%, from $3.4 million in the first nine
months of 1999 compared to $1.2 million in the first nine months of 2000. This
decline is due to lower sales volumes and the increase in gasoline prices in the
first nine months of fiscal 2000.
Wood Segment Discussion
Net sales decreased $5.1 million, or 15.4%, due to the decline in the
manufactured housing industry.
EBIT, exclusive of the impairment and restructuring charges, decreased
approximately $1.0 million, from a loss of $2.2 million for the nine months
ended September 30, 1999 to a loss of $1.1 million for the nine months ended
September 30, 2000. This decrease in operating loss is a direct result of the
Company gaining operating efficiencies at several of its wood segment business
units.
Other Segment Discussion
Net sales decreased by $5.9 million, or 11.8%, from $49.6 million in the
nine months ended September 30, 1999 to $43.7 million in the nine months ended
September 30, 2000. This decline is due to the overall decline in the industries
to which the Company serves.
EBIT, exclusive of the impairment and restructuring charges, decreased $2.2
million, or 96.0%, from $2.3 million in the nine months ended September 30, 1999
to $92,000 in the nine months ended September 30, 2000. Operating efficiencies
were lost in this segment in the first nine months of 2000 due to plant
reorganizing and low sales volumes.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Laminating Segment Discussion
Net sales were lower by $6.3 million, or 4.2%, in the first nine months of
1999 due to the closing of a facility in this segment in the second half of 1998
and reduced demand from manufactured housing customers.
EBIT in laminating in the first nine months of 1999 was down $1.4 million,
or 21.9%, because of lower sales, new product costs in one division, and
competitive pricing situations.
Distribution Segment Discussion
Net sales increased in the first nine months of this year by $14 million,
or 11.1%, because of increased production in the recreational vehicle industry,
new products, and more penetration to certain markets.
EBIT in this segment was 8.9% higher in this years nine months because of
the increased sales.
15
<PAGE>
Wood Segment Discussion
Net sales in this segment were lower by $5.2 million, or 13.4%, in the
first nine months of 1999, primarily because of one division. That division
closed an operation which was all intersegment sales and also stopped serving
certain markets because of low gross profit margins.
EBIT in the first nine months was affected by this same division. The sales
decline and continued competitive pricing situations caused this division to
report negative operating results. Certain other operations in this segment did
not reach profitable operating levels because of competitive pricing situations.
Other Segment Discussion
Net sales were lower by $2.9 million, or 5.5%, in 1999 in this segment due
to one division losing production time in the first quarter because of equipment
breakdowns, and another division having reduced demand from manufactured housing
customers.
EBIT in this segment decreased by $1.1 million, or 32.5%, in 1999 because
of the lost production time at one division due to equipment failure and to
material cost increases at one other division.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are to meet working capital
needs, support its capital expenditure plans, and meet debt service
requirements.
The Company, in September, 1995, issued to an insurance company in a
private placement, $18,000,000 of senior unsecured notes. The ten year notes
bear interest at 6.82%, with semi-annual interest payments that began in 1996
and seven annual principal repayments of $2,571,428 which began September 15,
1999. These funds were used to reduce existing bank debt and for working capital
needs.
The Company has an unsecured bank Revolving Credit Agreement that provides
loan availability of $10,000,000 with maturity in the year 2003.
Pursuant to the private placement and the Credit Agreement, the Company is
required to maintain certain financial ratios, all of which are currently
complied with.
The Company believes that cash generated from operations and borrowings
under its credit agreements will be sufficient to fund its working capital
requirements and normal recurring capital expenditures as currently
contemplated. The fluctuations in inventory and accounts receivable balances,
which affect the Company's cash flows, are part of normal business cycles
SEASONALITY
Manufacturing operations in the manufactured housing and recreational
vehicle industries historically have been seasonal and are generally at the
highest levels when the climate is moderate. Accordingly, the Company's sales
and profits are generally highest in the second and third quarters.
16
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INFLATION
The Company does not believe that inflation had a material effect on
results of operations for the periods presented.
SAFE HARBOR STATEMENT
Statements that do not address historical performance are "forward-looking
statements" within the meaning of the Private Securities Litigation reform Act
of 1995 and are based on a number of assumptions, including but not limited to;
(1) continued domestic economic growth and demand for the Company's products;
and (2) the Company's belief with respect to its capital expenditures,
seasonality and inflation. Any developments significantly deviating from these
assumptions could cause actual results to differ materially from those forecast
or implied in the aforementioned forward-looking statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
17
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) There were no reports filed on Form 8-K
18
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATRICK INDUSTRIES, INC.
(Registrant)
Date NOVEMBER 8, 2000 /S/MERVIN D. LUNG
---------------- ----------------------------------
Mervin D. Lung
(Chairman of the Board)
Date NOVEMBER 8, 2000 /S/DAVID D. LUNG
---------------- ----------------------------------
David D. Lung
(President)
Date NOVEMBER 8, 2000 /S/KEITH V. KANKEL
---------------- ----------------------------------
Keith V. Kankel
(Vice President Finance)
(Principal Accounting Officer)
