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, architectural, and the automotive aftermarket. The Company manufactures decorative vinyl and paper panels, cabinet doors, countertops, aluminum extrusions, drawer sides, pleated shades, 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, high pressure laminates, 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 seven manufacturing plants and a distribution facility near its principal offices in Elkhart, Indiana, and operates eleven other warehouse and distribution centers and fourteen other manufacturing plants in twelve other 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 51% of the Company's sales are to the Manufactured Housing industry, 24% to the Recreational Vehicle industry, and 25% 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.
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 5 years, the Company has invested approximately $33.5 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. The 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 1998 the Company expanded existing product lines and capacity with the opening of a new manufacturing and distribution complex in New London, North Carolina. In 1999 the Company expanded the Sun Adhesive facility in Decatur, Alabama to increase capacity.
Restructuring and Impairment - ----------------------------
In the last two years the Company has incurred restructuring charges of $1.1 million related to the closing, consolidation, and relocation of five manufacturing divisions and two distribution divisions in various states. The charges included severance payments, write-down of obsolete inventories, equipment relocation, and future rental commitments related to closed facilities. These strategic initiatives were done to eliminate duplication of efforts, close negative performing operations, and increase volume levels at other locations. The majority of cost savings related to these plans will be realized in future years.
Additionally, in the last two years the Company has incurred impairment charges of $9.7 million related to the write-down of the net book value of long-lived assets primarily in the Company's Wood and Other segments. The impairment costs were calculated by estimating discounted future cash flow and comparing it to the carrying value of these assets. These write-downs were non-cash charges and effectively eliminated all of the goodwill on the Company's books as well as reducing future yearly depreciation and amortization expense.
Business Segments - -----------------
The Company's operations comprise four reportable segments. Information related to those segments is contained in "Note 14-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 pre-finished wall and ceiling panels, particleboard, hardboard siding, roofing products, high pressure laminates, 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 36.0%, 38.5%, and 39.7% for the years ended December 31, 2001, 2000, and 1999 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 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 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 the Company continues to market to the cabinet manufacturers and "ready-to-assemble" furniture manufacturers.
The Company's 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 reached a peak in 1998 at 373,000, which represents 118% more units than in 1991. The industry has seen a decline in unit shipments since the record year in 1998 with shipments finishing the 2001 year at 193,000.
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 had caused the manufactured housing cycle to change positively until 1999. Beginning in mid 1999 and continuing through 2001, the Manufactured Housing industry has had to contend with increased inventory levels, credit requirements that became more stringent, and a reduction in availability of lenders for both retail and dealers. This resulted in a decline of nearly 29% in units shipped in 2000, and an additional decline of 23% in 2001. While inventory levels are improved and repossessions have stabilized, the availability of retail and floor plan financing is reduced and appears to be the major factor determining the rate of increase in shipments in the coming year.
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 2000 - 250,600 2001 - 193,200
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 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 a record 321,000 units in 1999. Due to increased gasoline prices and uncertainty with regards to the economy, the industry has been in a decline over the past two years with 257,000 units shipped in 2001, or 20% less than that of 1999. The industry is expected to begin rebounding in 2002 due to improved consumer confidence, depleted dealer inventories, lower interest rates and gasoline prices, and a fear of flying after the September 11 attacks.
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 2000 - 300,100 2001 - 256,800
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.
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 28% and 33% of the Company's total sales in 2001 and 2000. Ten other customers collectively accounted for approximately 21% of 2001 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 43% of the Company's distribution segment products are shipped 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 twelve warehouse and distribution centers and twenty-one manufacturing plants located in Alabama, Arizona, California, Florida, Georgia, Indiana, Kansas, Minnesota, 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, 2001, the Company purchased approximately 62% of its raw materials and distributed products from twenty different suppliers. The five largest suppliers accounted for approximately 40% 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, 2001, the Company had 1,196 employees of which 1,084 employees are engaged directly in production, warehousing, and delivery operations, 46 in sales, and 66 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.
Executive Officers of the Company - ---------------------------------
The following table sets forth the executive officers of the Company, as of December 31, 2001:
Name Position ---- --------
David D. Lung Chief Executive Officer and President
Keith V. Kankel Vice President Finance and Secretary-treasurer
R. Lynn Brandon Vice President Operations
Alan M. Rzepka Vice President Sales & Marketing
David D. Lung (age 54) has served as President and Chief Executive Officer since December, 2000 and was President and Chief Operating Officer since 1989. Mr. Lung had held various management positions with the Company before becoming Vice President of Administration and Purchasing in 1987.
Keith V. Kankel (age 59) has served as Vice President of Finance and Secretary-treasurer since 1987 and was Secretary-treasurer since 1974.
*R. Lynn Brandon (age 50) assumed the position of Vice President of Operations of the Company in August, 1999. Mr. Brandon was Executive Vice President at Peters-Remington Furniture Company from 1998 until joining the Company in June of 1999. Prior to that he was Vice President of Manufacturing for This End Up Furniture Company since 1987.
Alan M. Rzepka (age 45) assumed the position of Vice President of Sales & Marketing in May, 2000. Mr. Rzepka was National Sales Manager from January, 1997 to May, 2000 and prior to that was Director of Manufacturing Purchasing since 1994.
ITEM 2.
ITEM 2. PROPERTIES AND EQUIPMENT
As of December 31, 2001, the Company maintained the following warehouse, manufacturing and distribution facilities:
Additionally, the Company has a 43,600 square foot manufacturing building leased to May, 2002, which has been sub-leased. The Company also has a 62,000 square foot vacant building in Bristol, IN for sale. The manufacturing facility in Goshen, IN is for sale. As of December 31, 2001, the Company owned or leased 37 trucks, 51 tractors, 88 trailers, 139 forklifts, 1 automobile and a corporate aircraft. All owned and leased facilities and equipment are in good condition and well maintained.
ITEM 3.
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.
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.
PART II
ITEM 5.
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 MarketSM 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:
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 500 holders of the Company's common stock as of March 15, 2002 as taken from the transfer agent's shareholder listing. It is estimated that there are approximately 2,000 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, 2001. 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.
ITEM 6.
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:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's business has shown a consistent revenue drop since 1999 as net sales have decreased from a record high of $457 million in 1999 to $293 million in 2001. This 36% decline in sales volume over a two year period is the result of the overall downturn in the Manufactured Housing and Recreational Vehicle industries and softer economic conditions.
The downturn in the Manufactured Housing industry began in the fourth quarter of 1999 due to retail sales lots being overstocked and unit production being reduced approximately 7% that year. In fiscal
2001 and 2000 the Manufactured Housing industry was down nearly 23% and 29%, respectively, in units shipped and produced, due to the limited availability of dealer and retail financing, as well as excessive retail inventory levels, which included repossessed units.
The decline in the Recreational Vehicle industry began in the second quarter of 2000 due to higher gasoline costs and interest rates, an uncertain economy, and Recreational Vehicle dealers making inventory reductions. The end result of this was an approximate 7% decline in units shipped and produced in 2000 and a 14% decline in units shipped and produced in 2001. While the conditions in the above mentioned industries are uncertain and expected to continue through the first half of calendar 2002, the Company has made significant cost cutting measures and plant closings and consolidations over the past two years to help mitigate any future effects of this downturn. The Company's sales in 2001 were 51% to Manufactured Housing, 24% to Recreational Vehicle, and 25% to other industries.
The following table sets forth the percentage relationship to net sales of certain items in the Company's statements of operations:
Year Ended December 31, 2001 2000 1999
Net sales 100.0% 100.0% 100.0% Cost of sales 88.4 88.4 87.5 Gross profit 11.6 11.6 12.5 Warehouse and delivery 4.9 4.2 3.6 Selling, general and administrative 8.5 7.0 5.9 Impairment charges 1.0 1.9 - - Restructuring charges 0.1 0.2 - - Operating income (loss) (2.9) (1.7) 3.0 Net income (loss) (2.0) (1.3) 1.6
RESULTS OF CONSOLIDATED OPERATIONS
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Net Sales. Net sales decreased $68.5 million, or 19.0%, from $361.6 million for the year ended December 31, 2000 to $293.1 million for the year ended December 31, 2001. This decrease is attributable to the 23% decline in units shipped and produced in the Manufactured Housing industry and 14% decline in units shipped and produced in the Recreational Vehicle industry. The Company's sales for the year were 51% to Manufactured Housing, 24% to Recreational Vehicle, and 25% to other industries.
Gross Profit. Gross profit decreased by approximately $7.9 million, or 18.8%, from $41.9 million in 2000 to $34.0 million in 2001. As a percentage of net sales, gross profit remained consistent at 11.6% of net sales. The overall decrease in gross profit is due to the reduced sales volume in the industries to which the Company serves.
Warehouse and Delivery Expenses. Warehouse and delivery expenses decreased $0.7 million, or 4.8%, from $15.1 million in 2000 to $14.4 million in 2001. As a percentage of net sales, warehouse and delivery expenses increased 0.7%, from 4.2% in 2000 to 4.9% in 2001. The overall decrease is attributable to
lower sales levels. The increase as a percentage of net sales is due to the Company shipping less full truckloads than in the previous period, and an increase in fuel and insurance costs from year to year.
Selling, General, and Administrative Expenses. Selling, general, and administrative expenses decreased by $0.3 million, or 1.2%, from $25.2 million for 2000 to $24.9 million in 2001. As a percentage of net sales, selling, general, and administrative expenses increased 1.5%, from 7.0% in 2000 to 8.5% in 2001. This increase is attributable to reduced volume as a result of the decline in shipments in the Manufactured Housing and Recreational Vehicle industries.
Impairment Charges. As discussed in Note 10 to the financial statements, the Company recognized impairment charges of $2.8 million and $6.9 million in 2001 and 2000, respectively.
Restructuring Charges. As discussed in Note 10 to the financial statements, the Company recognized restructuring charges of $424,000 and $718,000 in 2001 and 2000, respectively.
Operating Loss. The Company experienced operating losses of $8.6 million and $6.1 million in 2001 and 2000, respectively. The increase in operating loss is attributable to the significantly reduced sales volume and consistent operating costs from year to year.
Interest Expense, Net. Interest expense, net of interest income decreased 21.4%, or $262,000, from $1.2 million in 2000 to $962,000 in 2001. The decrease is attributable to lower long term debt levels due to normal debt service requirements.
Net Loss. The net loss increased $1.2 million, or 27.3%, from a net loss of $4.5 million in 2000 to a net loss of $5.8 million in 2001. The increase in net loss is attributable to the factors described above.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Sales. Net sales decreased by approximately $95.7 million, or 20.9%, from $457.3 million for the year ended December 31, 1999 to $361.6 million in the year ended December 31, 2000. In 1999 the Company recorded record sales in the first half and record sales for the year as a whole. The decrease in sales from 1999 to 2000 was the result of an approximate 29% decline in units shipped and produced in the Manufactured Housing industry and an approximate 7% decline in units shipped and produced in the Recreational Vehicle industry. The Company's sales for the year were 55% to Manufactured Housing, 25% to Recreational Vehicle, and 20% to other industries.
Gross Profit. Gross profit decreased by approximately $15.4 million, or 26.9%, from $57.3 million in 1999 to $41.9 million in 2000. As a percentage of net sales, gross profit decreased approximately 0.9% from 12.5% in fiscal 1999 to 11.6% in fiscal 2000. This overall decline in gross profit was due to a 20.9% decrease in net sales and competitive pricing situations nationwide which made some of the Company's manufacturing operations unprofitable for the year.
Warehouse and Delivery Expenses. Warehouse and delivery expenses decreased approximately $1.6 million from $16.7 million in 1999 to $15.1 million in 2000. As a percentage of net sales these expenses increased approximately 0.6%. The overall decrease is attributable to lower sales levels. The increase in the percentage to net sales is attributable to higher gasoline costs specifically related to the increase in gasoline prices from 1999 to 2000, and higher shipping costs due to the transportation companies running at capacity as a result of the steady overall economy in fiscal 2000.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased approximately $1.8 million, or 6.7%, from $27.1 million in 1999 to $25.2 million in 2000. As a percentage of net sales, selling, general and administrative expenses increased 1.1% from 5.9% in 1999 to 7.0% in 2000. This increase is attributable to reduced sales volumes as a result of the larger than anticipated decline in shipments in the Manufactured Housing and Recreational Vehicle industries in fiscal 2000.
Impairment Charges. As discussed in Note 10 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 10 of the financial statements, the Company recognized restructuring charges of $718,000 in the twelve months ended December 31, 2000.
Operating Income (Loss). The Company experienced an operating loss of $6.1 million for 2000 compared to operating income of $13.6 million in fiscal 1999. The operating loss for 2000 is due to the asset impairment and restructuring charges as well as reduced sales, gross profits, and similar operating costs in fiscal 2000 compared to 1999.
Interest Expense, Net. Interest expense, net of interest income, decreased 12.1% from $1.4 million in 1999 to $1.2 million in 2000. This decrease is attributable to more funds being invested during the year as a result of reduced working capital needs and lower borrowing levels.
Net Income (Loss). Net income (loss) decreased $11.9 million, or 161.2% from income of $7.4 million in 1999 to a loss of $4.5 million in fiscal 2000. This reduction is attributable to the factors described above.
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, high pressure laminates, 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, 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 14 of the Company's 2000 financial statements.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Laminating Segment Discussion
Net sales decreased by 19.2%, or $31.2 million, from $162.3 million in 2000 to $131.1 million in 2001. This decrease is attributable to the 23% decline in units shipped and produced in the Manufactured Housing industry and 14% decrease in units shipped and produced in the Recreational Vehicle industry.
EBIT was lower by $2.9 million, or 163.5%, from income of $1.8 million in 2000 to a loss of $1.1 million in 2001. This decline is attributable to lower margins as a result of competitive market conditions not allowing price increases, and similar operating costs relative to significantly reduced sales volume.
Distribution Segment Discussion
Net sales decreased $28.9 million, or 21.7%, from $133.2 million in 2000 to $104.3 million in 2001. This sales decrease is attributable to the 23% decrease in units shipped and produced in the Manufactured Housing industry.
EBIT decreased 44.2%, or $491,000, from $1.1 million in 2000 to $619,000 in 2001, due to the decrease in sales volume.
Wood Segment Discussion
Net sales in the wood segment decreased $4.9 million, or 14.0%, from $35.1 million in 2000 to $30.2 million in 2001. This decline is consistent with the overall decline in the Recreational Vehicle industry, which is the primary industry to which this segment serves.
The operating loss in this segment decreased from a loss of $1.6 million in 2000 to a loss of $1.0 million in 2001. The decrease in operating loss is due largely to depreciation expense being reduced by approximately $300,000, as a result of the Company recognizing a non-cash accounting charge in the first quarter of 2000 related to the impairment of certain long-lived assets as discussed in Note 10 . The Company also closed one operating unit in this segment in fiscal 2000 which contributed to savings in 2001 of approximately $751,000.
Other Segment Discussion
Net sales in the other segment decreased 13.7%, or $7.3 million, from $53.7 million in 2000 to $46.4 million in 2001. This decline is due to reduced sales volume in the Recreational Vehicle industry.
Operating losses in this segment increased from a loss of $636,000 in 2000 to an operating loss of $1.7 million in 2001. This increase is due to the decline in sales volume as well as several of the operating units in this segment operating inefficiently. As a result of the performance of this segment, the Company closed three operating units in this segment in 2001.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Laminating Segment Discussion
Net sales were lower by $29.7 million, or 15.5%, from 1999. This was a result of less demand from the manufactured housing customers as well as the Company eliminating low margin business.
EBIT in this segment decreased 66.2%, or $3.5 million, from $5.2 million in 1999 to $1.8 million in 2000. This decrease is the result of increased material and labor cost and competitive market conditions not allowing price increases.
Distribution Segment Discussion
Net sales in 2000 decreased $51.9 million, or 28.0%, from $185.1 million in 1999 to $133.2 million in 2000. This sales decrease is due primarily to the 29% decline in shipments and production in the Manufactured Housing industry.
EBIT in this segment was lower by $3.5 million, or 75.8%, from $4.6 million in 1999 to $1.1 million in 2000. This decline is due to the decrease in shipments and production in the Manufactured Housing industry as well as lower margins resulting from competitive market conditions.
Wood Segment Discussion
Net sales decreased 19.6%, or $8.5 million, in this segment due to a decline in the overall demand in the Recreational Vehicle industry, which is the major industry that this segment serves, and the elimination of certain lower margin business.
Operating losses in this segment decreased approximately $1.0 million, or 37.9%. This was partially due to reduced depreciation as a result of the Company recognizing a non-cash accounting charge in the first quarter of 2000 related to an impairment of certain long-lived assets which was recorded as a Corporate expense. The impairment costs were calculated by estimating discounted future cash flow and comparing it to the carrying values of these assets. The result was a one-time charge to operations. Management's continued commitment to improving operating results in this segment and returning it to profitability caused the improvement of one of the segment's major operating units.
Other Segment Discussion
Net sales were lower in this segment by 17.5%, or $11.4 million, from $65.1 million in 1999 to $53.7 million in 2000, due to an overall decline in the industries to which the Company serves.
EBIT decreased in this segment from operating income of $2.6 million in 1999 to an operating loss of $636,000 in 2000. This is the result of competitive pricing situations which negatively affected margins in this segment, the physical reorganizing of two operating units in this segment, and the 17.5% reduction in volume in the industries to which this segment serves.
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'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.
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. A summary of our contractual cash obligations at December 31, 2001 is as follows:
We also have a commercial commitment as described below:
We believe that our cash balance, availability under our line of credit, if needed, an anticipated cash flows from operations will be adequate to fund our cash requirements for fiscal 2002.
Critical Accounting Policies
Our significant accounting policies are summarized in the footnotes to our financial statements. Some of the most critical policies are also discussed below.
As a matter of policy, we review our major assets for impairment. Our major operating assets are accounts receivable, inventory, and property and equipment. We have not experienced significant bad debts expense and our reserve for doubtful accounts of $175,000 should be adequate for any exposure to loss in our December 31, 2001 accounts receivable. We have also established reserves for slow moving and obsolete inventories and believe them to be adequate. We depreciate our property and equipment over their estimated useful lives and we have not identified any items that are impaired.
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.
SALE OF PROPERTY
No material transactions.
PURCHASE OF PROPERTY
The Company agreed to purchase in 2002 a presently leased building complex near its principal offices in Elkhart, Indiana for $2 million from a major shareholder and Chairman Emeritus of the Company.
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.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 8.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item with respect to directors is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 15, 2002, under the caption "Election of Directors," which information is hereby incorporated herein by reference. The information with respect to executive officers is set forth at the end of Part I of this Form 10-K.
ITEM 11.
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 15, 2002, under the caption "Compensation of Executive Officers and Directors," which information is hereby incorporated herein by reference.
ITEM 12.
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 15, 2002, under the caption "Election of Directors," which information is hereby incorporated herein by reference.
ITEM 13.
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 15, 2002, under the caption "Certain Transactions," which information is hereby incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
(a) 1. FINANCIAL STATEMENTS
Independent auditor's report
Balance sheets - December 31, 2001 and 2000
Statements of operations-years ended December 31, 2001, 2000, and 1999
Statements of shareholders' equity- years ended December 31, 2001, 2000, 1999
Statements of cash flow- years ended December 31, 2001, 2000, and 1999
Notes to the financial statements -21
(a) 2. FINANCIAL STATEMENT SCHEDULES
Independent auditor's report on supplemental schedule & consent
Schedule II - Valuation and qualifying accounts and reserves
All other schedules have been omitted as not required, not applicable, not deemed 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 48, 49, and 50 are filed or incorporated by reference as part of this report.
(b) REPORTS ON FORM 8-K
None
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
Dated: March 21, 2002 By Harold E. Wyland ---------------------- Harold E. Wyland, Chairman of the Board
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.
CONTENTS
- -------------------------------------------------------------------------------- INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheets Consolidated statements of operations Consolidated statements of shareholders' equity Consolidated statements of cash flows Notes to financial statements -F-21
- -------------------------------------------------------------------------------- INDEPENDENT AUDITOR'S REPORT ON THE SUPPLEMENTARY INFORMATION - --------------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Schedule II - Valuation and qualifying accounts and reserves - --------------------------------------------------------------------------------
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, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2001. 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 auditing standards generally accepted in the United Sates of America. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ McGladrey & Pullen, LLP
Elkhart, Indiana February 12, 2002
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS December 31, 2001 and 2000
- -------------------------------------------------------------------------------- 2001 2000 ASSETS
Current Assets Cash and cash equivalents $ 5,914,283 $ 6,716,128 Trade receivables 13,722,216 14,281,674 Inventories 28,625,747 30,937,954 Income tax refund claims receivable 3,046,799 1,031,086 Prepaid expenses 804,398 770,017 Deferred tax assets 2,014,000 1,946,000 ------------ ------------
Total current assets 54,127,443 55,682,859
Property and Equipment, net 34,633,449 40,589,738
Intangible and Other Assets 3,208,928 6,247,573 ------------ ------------
$ 91,969,820 $102,520,170 ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities Current maturities of long-term debt $ 3,671,428 $ 3,671,428 Accounts payable 7,180,706 7,040,285 Accrued liabilities 4,192,487 3,555,008 ------------ ------------
Total current liabilities 15,044,621 14,266,721 ------------ ------------
Long-Term Debt, less current maturities 15,114,288 18,785,716 ------------ ------------
Deferred Compensation Obligations 2,226,390 2,042,198 ------------ ------------
Deferred Tax Liabilities 81,000 1,176,000 ------------ ------------
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 2001 4,529,666 shares; 2000 4,568,666 17,620,517 17,689,417 Retained earnings 41,883,004 48,560,118 ------------ ------------
59,503,521 66,249,535 ------------ ------------
$ 91,969,820 $102,520,170 ============ ============
See Notes to Financial Statements.
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
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 accounting principles generally accepted in the United States of America 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., and Patrick Door, Inc., and its majority-owned subsidiary, Patrick Mouldings, L.L.C. ("the Company"). During the year ended December 31, 2000, Patrick Door, Inc. ceased operations and is not a consolidated subsidiary at December 31, 2001. All significant inter-company 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 all overnight repurchase agreements and commercial paper with a maturity of 30 days or less acquired in connection with its sweep account arrangements with its bank to be cash equivalents.
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 2000, the Company owned marketable debt securities in the total amount of approximately $4,500,000. These available for sale debt securities were stated at fair value which approximated their cost at December 31, 2000 and accrued interest at a weekly adjusted variable rate which was 6.2% at December 31, 2000. These securities matured on January 22, 2001 and have been classified as cash equivalents in the accompanying consolidated balance sheet December 31, 2000.
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. 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. In the event that an impairment is evident, the Company records an expense for that impairment. During the year ended December 31, 2001, recorded goodwill was considered to be impaired and was written off (see Note 10).
REVENUE RECOGNITION:
The Company ships product based on specific orders from customers and revenue is recognized upon delivery.
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE:
Following is information about the computation of the earnings per share data for the years ended December 31, 2001, 2000, and 1999:
NOTE 2. BALANCE SHEET DATA
TRADE RECEIVABLES:
Trade receivables in the accompanying balance sheets at December 31, 2001 and 2000 are stated net of an allowance for doubtful accounts of $175,000 and $750,000 respectively.
INVENTORIES: 2001 2002 ----------- -----------
Raw materials $15,908,710 $17,130,635 Work in process 2,049,879 2,040,040 Finished goods 4,335,875 4,647,673 Materials purchased for resale 6,331,283 7,119,606 ----------- ----------- $28,625,747 $30,937,954 =========== ===========
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
2001 2000 --------------------------- Land and improvements $ 3,508,329 $ 3,509,609 Buildings and improvements 25,283,954 24,487,881 Machinery and equipment 56,737,001 58,680,294 Transportation equipment 1,950,731 2,304,343 Leasehold improvements 3,455,793 3,439,192 --------------------------- 90,935,808 92,421,319 Less accumulated depreciation 56,302,359 51,831,581 --------------------------- $34,633,449 $40,589,738 ===========================
INTANGIBLE AND OTHER ASSETS:
Goodwill, at amortized cost $ - $ 2,921,060 Cash value of life insurance 2,549,928 2,526,659 Other 659,000 799,854 --------------------------- $ 3,208,928 $ 6,247,573 ===========================
ACCRUED LIABILITIES:
Payroll and related expenses $ 1,188,348 $ 1,132,012 Property taxes 968,600 879,900 Other 2,035,539 1,543,096 --------------------------- $ 4,192,487 $ 3,555,008 ===========================
NOTE 3. PLEDGED ASSETS AND LONG-TERM DEBT
Long-term debt at December 31, 2001 and 2000 is as follows:
2001 2000
Senior Notes, insurance company $ 10,285,716 $ 12,857,144 Indiana Development Finance Authority Bonds 1,500,000 1,800,000 State of Oregon Economic Development Revenue Bonds 3,200,000 3,600,000 State of North Carolina Economic Development Revenue Bonds 3,800,000 4,200,000 -------------------------- 18,785,716 22,457,144 Less current maturities 3,671,428 3,671,428 -------------------------- $ 15,114,288 $ 18,785,716 ==========================
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 notes are due in annual principal installments of $2,571,428 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 (1.95% at December 31, 2001). 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 totaling approximately $1,590,000.
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 (1.95% at December 31, 2001). 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 totaling approximately $3,345,000.
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 (1.95% at December 31, 2001). 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 totaling approximately $3,937,000.
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 expires on January 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 the years ending December 31, 2002 through 2004 are $3,671,428; 2005 $3,671,432; 2006 $1,100,000 and thereafter $3,000,000.
In addition, the Company is contingently liable for standby letters of credit of approximately $3,000,000 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, 2001, 2000, and 1999 was approximately $1,280,000, $1,662,000, and $1,826,000 respectively.
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. EQUITY TRANSACTIONS
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 5. 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 emeritus/major shareholder and expire at various dates through September 30, 2005.
The total minimum rental commitment at December 31, 2001 under the leases mentioned above is approximately $5,480,000 which is due approximately $2,687,000 in 2002, $1,593,000 in 2003, $849,000 in 2004, $311,000 in 2005 and $40,000 in 2006.
The total rent expense included in the statements of operations for the years ended December 31, 2001, 2000, and 1999 is approximately $4,300,000, $3,900,000, and $4,100,000 respectively, of which approximately $1,300,000 each year was paid to the chairman emeritus/major shareholder.
NOTE 6. MAJOR CUSTOMERS
Net sales for the years ended December 31, 2001 and 2000 included sales to one customer accounting for 11.9% and 14.4% respectively of total net sales of the Company.
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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%.
The balances due from these customers at December 31, 2001 and 2000 were not significant to the total trade receivables balance.
NOTE 7. INCOME TAX MATTERS
Federal and state income taxes (credits) for the years ended December 31, 2001, 2000, and 1999, all of which are domestic, consist of the following:
2001 2000 1999 --------------------------------------------------- Current: Federal $(2,133,000) $ (120,000) $ 3,600,000 State (473,000) (31,000) 943,000 Deferred (1,163,000) (2,670,000) 226,000 --------------------------------------------------- $(3,769,000) $(2,821,000) $ 4,769,000 ===================================================
The provisions for income taxes (credits) for the years ended December 31, 2001, 2000, and 1999 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:
2001 2000 1999 ------------------------------------------
Rate applied to pretax income $(3,339,000) $(2,570,000) $ 4,260,000 State taxes, net of federal tax effect (572,000) (368,000) 550,000 Write off of nondeductible goodwill - 121,000 - Other 142,000 (4,000) (41,000) ------------------------------------------ $(3,769,000) $(2,821,000) $ 4,769,000 ==========================================
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.
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The composition of the deferred tax assets and liabilities at December 31, 2001 and 2000 is as follows:
2001 2000 -------------------------------- Gross deferred tax liability, accelerated depreciation $(2,006,000) $(1,983,000) -------------------------------- Gross deferred tax assets: Trade receivables allowance 69,000 296,000 Inventory capitalization 257,000 308,000 Accrued expenses 1,247,000 696,000 Deferred compensation 879,000 807,000 Unvested stock awards 149,000 197,000 Inventory reserves 2,000 217,000 AMT credit carryforward 100,000 100,000 Goodwill 1,046,000 - Other 190,000 132,000 -------------------------------- 3,939,000 2,753,000 -------------------------------- Net deferred tax assets $ 1,933,000 $ 770,000 ================================
NOTE 8. 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 Company is potentially responsible for annual claims not to exceed approximately $2,800,000 in aggregate at December 31, 2001. 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 $500,000 individually and $1,998,000 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 9. 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.
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 $540,000, $560,000, and $2,170,000 for the years ended December 31, 2001, 2000, and 1999 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, 2001, 2000, and 1999 were immaterial.
STOCK OPTION PLAN:
The Company has a stock option plan with shares of common stock reserved for options to key employees. As permitted under accounting principles generally accepted in the United States of America, 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:
2001 2000 1999 --------------------------------------------------- Net income (loss): As reported $ (5,771,410) $ (4,533,870) $ 7,404,290 Pro forma (5,922,109) (4,895,300) 7,060,174
Primary earnings (loss) per share: As reported $ (1.28) $ (0.89) $ 1.30 Pro forma (1.31) (0.96) 1.24
Fully diluted earnings (loss) per share: As reported $ (1.28) $ (0.89) $ 1.29 Pro forma (1.31) (0.96) 1.23
The fair value of each grant is estimated at the grant date using the Black-Scholes option-pricing model with the following assumptions for 2001: dividend rate of 2.25% for all years; risk-free interest rate of 5.25%; expected lives of 5 years; and price volatility of 52%.
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Following is a summary of transactions of granted shares under option for the years ended December 31, 2001, 2000 and 1999:
A further summary about fixed options outstanding at December 31, 2001 is as follows:
STOCK AWARD PLAN:
The Company has adopted a stock award plan for the seven existing non-employee directors. Grants awarded during May 2001 and 2000 of 24,000 shares 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.
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. ASSET IMPAIRMENTS AND RESTRUCTURINGS
During 2001 and 2000, the Company recorded asset impairments of approximately $2,834,000 and $6,937,000 respectively. These charges approximated $1,700,000 after tax or $.38 per share in 2001 and approximately $4,283,000 after tax or $.84 per share in 2000. Additionally, the Company recorded restructuring charges of approximately $424,000 and $718,000 in 2001 and 2000 respectively. The restructuring charges approximated $254,000 after tax or $.06 per share in 2001, and approximately $431,000 after tax or $.08 per share in 2000.
Asset impairment charges were required to write down the net book values of long-lived assets primarily in the Company's Wood and Other Segments in both 2001 and 2000. These charges approximated $2,834,000 in pre-tax charges to the Other Segment in 2001 and approximately $5,371,000 and $1,566,000 in pre-tax charges to the Wood and Other Segments in 2000 respectively. Estimated future cash flows of these operations had indicated that an impairment had occurred.
Restructuring charges in 2001 were incurred from the strategic decision to relocate two manufacturing plants in the Other Segment and consolidate them into other existing plant locations. Restructuring charges in 2000 were incurred from the strategic decisions to close a manufacturing plant in the Wood Segment, moving manufacturing to other existing plant locations, the merging of certain facilities in the Southeast to gain operating efficiencies, and the closing of an unprofitable manufacturing facility in the Other Segment. The charges in both years include severance payments, write down of obsolete inventories, and future rental commitments related to the closed facilities. The remaining restructuring reserves amount to approximately $408,000 and $400,000 in 2001 and 2000 respectively. The reserves for 2000 were utilized in the second quarter of 2001 and the reserves for 2001 are expected to be utilized by the second quarter 2002. The majority of the cost savings related to these plans will be realized in future years.
NOTE 11. CONTINGENCIES
The Company is subject to claims and suits in the ordinary course of business. In management's opinion, current 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.
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. CASH FLOWS INFORMATION
Supplemental information relative to the statements of cash flows for the years ended December 31, 2001, 2000, and 1999 is as follows:
2001 2000 1999 ---------------------------------------- Supplemental disclosures of cash flows information: Cash payments for: Interest $1,062,450 $1,275,745 $1,597,626 ========================================
Income taxes $ 125,234 $1,248,811 $4,850,244 ========================================
NOTE 13. UNAUDITED INTERIM FINANCIAL INFORMATION
Presented below is certain selected unaudited quarterly financial information for the years ended December 31, 2001 and 2000 (dollars in thousands, except per share data):
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. 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, 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 based on a percentage of sales. Assets are identified with the segments with the exception of cash, land and buildings, and intangibles 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.
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, 2001, 2000, and 1999.
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Laminating Distribution Wood Other Total --------------------------------------------------------- --------------------------------------------------------- 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 43,667 65,128 485,932
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 39,750 20,270 11,956 15,444 87,420
Depreciation 2,398 437 1,630 1,360 5,825
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, 2001, 2000, and 1999 is as follows (dollars in thousands):
2001 2000 1999 -------------------------------------- Sales: Total sales for reportable segments $ 312,060 $ 384,441 $ 485,932 Elimination of intersegment revenue (18,990) (22,821) (28,576) -------------------------------------- Consolidated sales $ 293,070 $ 361,620 $ 457,356 ======================================
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. SUBSEQUENT EVENT
On February 11, 2002, the Company agreed to purchase certain leased real estate from the chairman emeritus/major shareholder for $2,000,000.
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, 2001. 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 February 12, 2002, 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, 2001.
/s/ McGladrey & Pullen, LLP
Elkhart, Indiana February 12, 2002
PATRICK INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES DECEMBER 31, 2001, 2000, AND 1999
- --------------------------------------------------------------------------------
Balance At Deductions Balance At Begining Charged To From Close Of Period Operations Reserves Of Period ------------------------------------------------
Allowance for doubtful accounts - - deducted from trade receiv- ables in the balance sheets: 1999 $125,000 $268,595 $118,595 $275,000 ===============================================
2000 $275,000 $641,676 $166,676 $750,000 ===============================================
2001 $750,000 $196,195 $771,195 $175,000 ===============================================
Allowance for restructuring charges - in accrued liabilities in the balance sheets: 1999 $ - $ - $ - $ - ===============================================
2000 $ - $714,598 $588,598 $126,000 ===============================================
2001 $126,000 $423,617 $141,617 $408,000 ===============================================
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) ...........
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 (filed as Exhibit 10(o) to the Company's Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference) ..........
10(p) -Commercial Lease dated September 1, 2000 between Mervin D. Lung Building Company, Inc., as lessor, and the Company, as lessee (filed as Exhibit 10(p) to the Company's Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference)..........
Exhibit Number Exhibits -------------- --------
10(q) -Commercial Lease dated November 1, 2000 between Mervin D. Lung Building Company, Inc., as lessor, and the Company, as lessee (filed as Exhibit 10(q) to the Company's Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference)..........
10(r) -Credit Agreement dated as of January 28, 2000 among the Company, Bank One, Indiana, N.A. (filed as Exhibit 10(r) to the Company's Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference) ..........
10(s)** -Commercial Lease dated August 1, 2001 between Mervin D. Lung Building Company, Inc., 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) .....
*Management contract or compensatory plan or arrangement **Filed herewith