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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____ to ____
Commission File Number 0-24268
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PALM HARBOR HOMES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-1036634
(State or other jurisdiction of (I.R.S. Employer identification no.)
incorporation or organization)
15303 DALLAS PARKWAY, SUITE 800, DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 991-2422
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of May 27, 1996, was $111,961,527 based on
the closing price on that date of the Common Stock as quoted on the Nasdaq
National Market.
As of May 27, 1996, 10,920,438 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the
year ended March 29, 1996, are incorporated by reference in Parts II and IV.
Portions of the registrant's Proxy Statement relating to its Annual
Meeting of Shareholders to be held July 17, 1996 are incorporated by reference
in Part III.
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PART I.
ITEM 1. BUSINESS
GENERAL
Palm Harbor Homes, Inc. (the "Company") is one of the largest
producers of multi-section manufactured homes in the United States. At March
29, 1996, the Company operated 14 manufacturing facilities that sell homes
through retailers in 34 states including approximately 600 independent retail
sales centers and 44 Company-owned or affiliated superstores. In April 1996,
the Company acquired an additional manufacturing facility in Georgia and
expects to commence production of homes at such facility in August 1996.
At March 29, 1996, the Company owned and operated 16 superstores in
Florida, North Carolina, South Carolina and Washington and had options to
acquire nine additional superstores. Effective April 1, 1996, the Company
exercised its option to purchase eight of nine such superstores. The
additional superstores will operate under the name "Energy Efficient Housing"
("EEH"). The Company's retail operations are modeled after those of Newco,
Inc. ("Newco"), a Texas- based retailer, of which the Company is a co-founder
and 41.6% stockholder. Newco currently operates 19 superstores, which
management believes are the leading retail sales centers for multi-section
manufactured homes in Texas, based upon 1996 sales and unit volume. These
superstores' weighted average new home sales per sales center totaled 211, or
approximately $9.9 million, for Newco's fiscal year ended March 31, 1996.
Through its subsidiary, CountryPlace Mortgage, Ltd. ("CountryPlace"),
the Company began in July 1995 offering installment financing to purchasers of
manufactured homes sold by certain Company-owned or affiliated superstores.
The Company believes that the ability to finance its home sales will
potentially provide it with an advantage over certain of its competitors and
create a source of additional earnings.
On May 31, 1996, the Company acquired all of the outstanding stock of
Standard Casualty Company, which writes property and casualty insurance for
owners of manufactured homes. Management of the Company believes that having
the internal capability to provide this type of insurance will complement the
services of CountryPlace and be additive to earnings.
PRODUCTS
The Company manufactures a variety of single and multi-section homes
under the Palm Harbor(R), River Bend and Windsor Homes(TM) brand names. Palm
Harbor offers over 150 floor plans and approximately 82% of the homes produced
by the Company are structurally or decoratively customized to the home buyer's
specifications. Although the Company produces homes for a wide retail price
range, approximately 82% of the Company's homes are multi-section with an
average retail price (excluding land) of $53,000.
A typical home built by the Company contains two to five bedrooms, a
living room, family room, dining room, kitchen, two or three bathrooms and
features central heating, a range, refrigerator, carpeting and drapes. In
addition, the Company offers optional amenities, including dishwashers,
washers, dryers, furniture packages and cabinets, as well as a wide range of
colors, moldings and finishes. The Company has also attempted to broaden its
base of potential customers by offering optional features associated with
site-built homes such as stone fireplaces, sky lights, vaulted ceilings and
whirlpool baths. The Company also offers a unique package of energy saving
construction features referred to as "EnerGmiser" which includes, among other
things, additional insulation to reduce heating and cooling costs, and which
exceeds statutorily-mandated energy efficiency levels.
The Company's homes are designed and copyrighted after extensive field
research and consumer feedback. The Company has developed engineering systems
which, through the use of computer - aided technology, permit customization of
homes and assist with product development and enhancement.
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MANUFACTURING OPERATIONS
The Company's homes are currently manufactured at 14 facilities
located in Alabama, Arizona, Florida, North Carolina, Ohio, Oregon and Texas.
In April 1996, the Company acquired an additional manufacturing facility in
Georgia and expects to commence production of homes at such facility in August
1996. A typical Company manufacturing facility has approximately 100,000
square feet of floor space, and employs approximately 200 associates.
The Company's facilities generally operate on a one shift per day,
five days per week basis, and the Company currently manufactures a typical home
in approximately three to five days. The Company's facilities have the
capacity to produce an aggregate of approximately 123 sections per day. The
current rate of production is 98 sections per day. The Company believes that
its overall production can be significantly increased as the new manufacturing
facilities opened during the past 24 months mature and the associates employed
at these facilities gain experience in the Company's operating procedures.
The following table sets forth the total sections produced and homes
sold, as well as the number of manufacturing facilities operated by the
Company, for the fiscal years indicated:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Homes sold:
Single-section . . . . . . . . . . 941 1,382 1,327 1,474 2,192
Multi-section . . . . . . . . . . 3,907 4,831 6,661 8,723 9,983
----- ----- ----- ------ ------
Total homes sold . . . . . . . . . . 4,848 6,213 7,988 10,197 12,175
===== ===== ===== ====== ======
Sections produced . . . . . . . . . . 8,793 11,162 14,815 19,163 22,049
Manufacturing facilities
(at end of fiscal year) . . . . . 7 9 12 13 14
</TABLE>
The Company's homes are constructed at the Company's manufacturing
facilities. Typically, independent trucking companies transport finished homes
to retailers at the retailer's expense. Retailers or other independent
installers are responsible for placing the home on site, making utility
hook-ups and, in certain instances, providing installation and finish-out
services. The industry practice is to have third parties hired by the retailer
provide the installation and finish-out services. The Company believes that
its factory finish-out program ensures that Palm Harbor quality is applied to
the entire process, lessens customer concerns, strengthens the Company's
relationship with its retailers and provides the Company an advantage over many
of its competitors.
The principal materials used in the production of the Company's homes
include wood, wood products, gypsum wallboard, steel, fiberglass insulation,
carpet, vinyl, fasteners, appliances, electrical items, windows and doors. The
Company believes that the materials used in the production of its homes are
readily available at competitive prices from a wide variety of suppliers. Two
suppliers, which accounted for more than five percent of the Company's total
purchases during the Company's fiscal year ended March 29, 1996, represented
approximately 10.2% and 5.4%, respectively, of total purchases during such
fiscal year. Accordingly, the Company does not believe that the loss of any
single supplier would have a material adverse effect on its business.
SALES AND MARKETING
RETAIL NETWORK. The Company's homes are sold through a distribution
network consisting of (i) superstores owned by the Company, Newco and
affiliated retailers as to which the Company has an option to acquire a
controlling interest; and (ii) independent retailers. The following table sets
forth the number of homes sold by the Company through each of these
distribution channels, as well as the number of superstores and retail sales
centers in each channel, during the past three fiscal years:
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<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------
March 25, March 31, March 29,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Homes sold by retailers:
Company-
owned/affiliated . . . 1,726 2,846 3,501
Independent . . . . . . 6,262 7,351 8,673
----- ----- -----
Total . . . . . . 7,988 10,197 12,175
===== ====== ======
Number of sales centers:
Company-
owned/affiliated . . . 25 33 44
Independent . . . . . . 567 516 600
----- ------ -----
Total . . . . . . 592 549 644
===== ====== =====
</TABLE>
In 1992, based in part on the experience gained in the development of
Newco, the Company established wholly- owned superstores, and currently has 25
superstores in Florida, North Carolina, South Carolina and Washington. The
Company's independent retailer network principally consists of local retailers,
developers that market land/home packages and developers of retirement
lifestyle communities. No single independent retailer accounted for five
percent or more of the Company's net sales during fiscal 1996. The Company's
five largest retailers (including Newco and the Company-owned or affiliated
superstores) accounted for approximately 31% of net sales in fiscal 1996. The
Company's retailer arrangements are terminable at will by either party without
penalty.
MARKETS SERVED. Management believes that the Company's broad
geographic presence lessens the impact of adverse economic trends specific to
any one region, while at the same time enabling the Company to capitalize on
favorable regional economic trends. During the fiscal year ended March 29,
1996, the percentage of the Company's revenues by region was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
REGION PRIMARY STATES REVENUE BY REGION
- --------- ------------------------------------------------------------ -----------------
<S> <C> <C>
Southeast Florida, North Carolina, Alabama, Georgia, South Carolina,
Mississippi, Tennessee, Virginia 45.0%
Central Texas, Oklahoma, Louisiana 28.0
West New Mexico, Arizona, Colorado, Oregon, Washington, Idaho,
Montana, Nevada, Utah 20.0
Midwest Ohio, Michigan, Indiana, Kentucky, West Virginia, Illinois 7.0
-----
100.0%
=====
</TABLE>
Manufactured housing is a regional business and the primary geographic
market for a typical manufacturing facility is within a 250-mile radius. Each
of the Company's manufacturing facilities typically serves 45 to 80 retailers,
and the facility sales staff maintain personal contact with each retailer. The
Company's decentralized operations allow it to be more responsive to retailers'
concerns with respect to leadership in product innovation, local home design
and customer satisfaction. The sales associates at the manufacturing facility
level are responsible for the day-to-day contact with the Company's independent
retailers. The Company provides comprehensive sales training to its retailers,
and has instituted a process of bringing retail sales associates to the
manufacturing facilities for product training and to view new product designs
as they are developed. These training seminars, known as "Palm Harbor
University," facilitate the sale of the Company's homes by increasing the skill
and knowledge of the retail sales consultants. In addition, the Company
displays its products in trade shows and supports its retailers through the
distribution of floor plan literature, brochures, decor boards, banners and
videos. The Company believes that a close working relationship between its
marketing oriented management and its retailers is an important factor in the
Company's success.
Retail customers typically include first-time home buyers, owners of
rural property, fixed income retirees and other cost-sensitive buyers. The
Company believes the retailer can have significant influence over the
customer's purchase decision. Accordingly, a component of the Company's
business strategy is to continually
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strengthen its retailer relations and improve retailer profitability on the
Company's products through programs such as volume incentive purchase plans,
special promotions, unique product features and close monitoring of a
retailer's inventory position.
WARRANTY, QUALITY CONTROL AND SERVICE
The Company adheres to specific quality requirements and continually
refines its design and production procedures to enhance customer satisfaction
and to reduce warranty costs. In addition, in accordance with the construction
codes promulgated by HUD, an independent HUD-certified inspector regularly
inspects the Company's homes for compliance during construction at the
Company's manufacturing facilities.
The Company provides the initial home buyer with a HUD-mandated, one
year limited warranty against manufacturing defects. Warranty services after
sale are performed, at the expense of the Company, by local manufacturing
facilities personnel, local independent contractors or, in certain cases, by
independent retailers. In addition to the Company's warranty, direct
warranties often are provided by the manufacturers of components and
appliances. Warranty service constitutes a significant cost to the Company and
management has placed emphasis on diagnosing potential problem areas (product
design, manufacturing processes, training and quality systems) to minimize
costly field repairs. Warranty and service expense during the fiscal years
ended March 25, 1994, March 31, 1995 and March 29, 1996, was approximately
4.6%, 5.0% and 5.0% of net sales, respectively.
Management believes that the empowerment and training of its
associates will continue to result in higher quality homes being built at its
facilities with correspondingly lower warranty costs and higher levels of
customer satisfaction. In certain areas, associates from the manufacturing
facilities provide installation and factory finish- out services upon delivery
of a home.
CONSUMER FINANCING
Historically, the Company has facilitated retail sales of its homes by
maintaining relationships with conventional lenders. While the Company intends
to maintain its relationships with conventional lenders, it believes that the
ability to provide financing to its customers on competitive terms will not
only improve its responsiveness to the financing needs of prospective
purchasers, but will also provide an additional source of earnings for the
Company. In July 1995, the Company began offering through CountryPlace a
variety of financing options, including customary retail installment sales
contracts, land in lieu of down payment and land/home financing to best suit
the needs of its retail customers. Financing services by CountryPlace are
initially being offered through Company-owned or affiliated superstores.
Loan applications originate at the superstore and are forwarded to
CountryPlace for final credit approval. CountryPlace then assigns the approved
loan contracts to a national consumer finance company. CountryPlace and the
national consumer finance company share on a predetermined basis the interest
income and losses resulting from the majority of the loans unless the loan is
also secured by the related land, whereby the national consumer finance company
assumes all losses.
Retail installment loans assigned by CountryPlace are serviced and
administered by the national consumer finance company. CountryPlace's share of
the interest income is, in part, in consideration for the following services
provided by CountryPlace: (i) contract origination services, including the
training of retailers with respect to the loan evaluation process; (ii) receipt
and processing of the retail installment sale contracts; (iii) collection
assistance with delinquent accounts, upon the request of the finance company;
and (iv) repossession assistance.
RETAILER INVENTORY FINANCING
In accordance with manufactured housing industry practice,
substantially all retailers (including Newco) finance all or a portion of their
purchases of manufactured homes through wholesale "floor plan" financing
arrangements. Under a typical floor plan financing arrangement, a financial
institution provides the retailer with a loan for the purchase price of the
home and maintains a security interest in the home as collateral. The
financial institution which provides financing to the retailer customarily
requires the Company to enter into a separate
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repurchase agreement with the financial institution under which the Company is
obligated, upon default by the retailer and under certain other circumstances,
to repurchase the financed home at declining prices over the term of the
repurchase agreement (which generally ranges from 12 to 18 months). The price
at which the Company may be obligated to repurchase a home under these
agreements is based upon the Company's original invoice price plus certain
administrative and shipping expenses. The Company's obligation under these
repurchase agreements ceases upon the purchase of the home by the retail
customer.
The risk of loss under such repurchase agreements is mitigated by the
fact that (i) a majority of the homes sold by the Company to independent
retailers are pre-sold to specific retail customers; (ii) the Company monitors
each retailer's inventory position on a regular basis; (iii) sales of the
Company's manufactured homes are spread over a large number of retailers, only
one of which accounted for more than five percent of the Company's net sales in
fiscal 1996; (iv) the price the Company is obligated to pay declines over time;
and (v) the Company is, in most cases, able to resell homes repurchased from
credit sources in the ordinary course of business without incurring significant
losses. The Company estimates that its potential obligations under such
repurchase agreements was approximately $103 million as of March 29, 1996.
During the fiscal years ended March 25, 1994, March 31, 1995 and March 29,
1996, net expenses (income) incurred by the Company under these repurchase
agreements totaled $28,000, $22,000 and ($3,000), respectively.
COMPETITION
The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon several factors,
including price, product features, reputation for service and quality, depth of
field inventory, promotion, merchandising and the terms of retail customer
financing. In addition, manufactured homes compete with new and existing
site-built homes, as well as apartments, town houses and condominiums. The
Company does not view any of its competitors as being dominant in the industry,
although some of the Company's competitors possess substantially greater
financial (including captive retail financing), manufacturing, distribution and
marketing resources than the Company. While the Company believes mortgage and
personal property financing have generally become more available to the
manufactured housing industry in recent years, a contraction in consumer credit
could provide an advantage to those competitors with substantial capital
resources.
GOVERNMENT REGULATION
The Company's manufactured homes are subject to a number of federal,
state and local laws and codes. Construction of manufactured housing is
governed by the National Manufactured Housing Construction and Safety Standards
Act of 1974 (the "Home Construction Act"). In 1976, HUD issued regulations
under the Home Construction Act establishing comprehensive national
construction standards. The HUD regulations, known collectively as the Federal
Manufactured Home Construction and Safety Standards, cover all aspects of
manufactured home construction, including structural integrity, fire safety,
wind loads, thermal protection and ventilation. Such regulations preempt
conflicting state and local regulations. The Company's manufacturing
facilities and the plans and specifications of its manufactured homes have been
approved by a HUD-certified inspection agency. Further, an independent
HUD-certified third-party inspector regularly reviews the Company's
manufactured homes for compliance with the HUD regulations during construction.
Failure to comply with applicable HUD regulations could expose the Company to a
wide variety of sanctions, including mandated closings of Company manufacturing
facilities. The Company believes its manufactured homes meet or surpass all
present HUD requirements.
Manufactured and site-built homes are all typically built with
paneling and other products that contain formaldehyde resins. Since February
1985, HUD has regulated the allowable concentrations of formaldehyde emissions
in certain products used in manufactured homes and requires manufacturers to
warn purchasers as to formaldehyde-associated risks. The Environmental
Protection Agency (the "EPA") and other governmental agencies currently are
evaluating the effects of formaldehyde. The Company uses materials in its
manufactured homes that meet HUD standards for formaldehyde emissions and
believes it otherwise complies with HUD and other applicable government
regulations in this regard.
The Company's manufactured homes are subject to local zoning and
housing regulations. In certain cities and counties in areas where the
Company's homes are sold, local governmental ordinances and regulations have
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been enacted which restrict the placement of manufactured homes on
privately-owned land or which require the placement of manufactured homes in
manufactured home communities. Such ordinances and regulations may adversely
affect the Company's ability to sell homes for installation in communities
where they are in effect. A number of states have adopted procedures governing
the installation of manufactured homes. Utility connections are subject to
state and local regulation, and must be complied with by the retailer or other
person installing the home.
The Company is subject to the Magnuson-Moss Warranty Federal Trade
Commission Improvement Act, which regulates the descriptions of warranties on
products. The description and substance of the Company's warranties are also
subject to a variety of state laws and regulations. A number of states require
manufactured home producers to post bonds to ensure the satisfaction of
consumer warranty claims.
The Company's operations are also subject to federal, state and local
laws and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Governmental
authorities have the power to enforce compliance with their regulations, and
violations may result in the payment of fines, the entry of injunctions or
both. The requirements of such laws and enforcement policies have generally
become more strict in recent years. Accordingly, the Company is unable to
predict the ultimate cost of compliance with environmental laws and enforcement
policies. See "Item 3. Legal Proceedings."
ASSOCIATES
As of March 29, 1996, the Company had approximately 3,400 associates.
All of the Company's associates are non- union. The Company has not
experienced any labor-related work stoppages, and believes that its
relationship with its associates is good.
ITEM 2. PROPERTIES
The Company's homes are currently manufactured at 14 facilities in
seven states. The Company owns substantially all of its machinery and
equipment. The Company believes its facilities are adequately maintained and
suitable for the purposes for which they are used. The following table sets
forth certain information with respect to the Company's manufacturing
facilities:
<TABLE>
<CAPTION>
COMMENCEMENT APPROXIMATE
STATE CITY OF PRODUCTION OWNED/LEASED SQUARE FEET
----- ---- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Alabama Boaz December 1986 Leased 97,683
January 1993 Leased 75,164
Arizona Tempe January 1978 Owned 103,500
Florida Plant City September 1981 Owned 93,600
June 1985 Owned 87,200
Georgia LaGrange August 1996(1) Owned 200,000
North Carolina Albemarle January 1994 Owned 112,700
Siler City January 1988 Owned 91,200
Ohio Sabina January 1988 Owned 85,000
Oregon Millersburg April 1995 Owned 168,650
</TABLE>
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<TABLE>
<CAPTION>
COMMENCEMENT APPROXIMATE
STATE CITY OF PRODUCTION OWNED/LEASED SQUARE FEET
----- ---- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Texas Austin January 1981 Owned 103,800
April 1992 Owned 77,000
Burleson June 1993 Owned 94,300
Fort Worth April 1993 Owned 121,300
Buda November 1994 Owned 88,275
</TABLE>
- ---------------------
(1) In April 1996, the Company acquired the manufacturing facility in
LaGrange, Georgia and expects to commence production of homes at such
facility in August 1996.
- ---------------------
In addition to its production facilities, the Company leases
approximately 24,000 square feet of office space in Dallas, Texas as its
corporate headquarters. The Company's corporate headquarters lease expires in
2003.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not subject to any pending or threatened
litigation, other than routine litigation arising in the ordinary course of
business, none of which is expected to have a material adverse effect on the
business, financial condition or results of operations of the Company.
In late 1992, the Company removed an underground storage tank formerly
used to store gasoline from the site of its Tempe, Arizona manufacturing
facility. The Company is currently working in cooperation with the Arizona
Department of Environmental Quality to assess and respond to gasoline related
hydrocarbons detected in soil and groundwater at this site. Under certain
circumstances, a state fund may be available to compensate responsible parties
for petroleum releases from underground storage tanks. The Company is
evaluating the extent of the corrective action that may be necessary. Site
characterization is complicated by virtue of the presence of contaminants
associated with the Indian Bend Wash Area Superfund Site described below. At
this time, the Company does not expect that the costs of any corrective action
or assessments related to the tank will have a material adverse effect on its
results of operations or financial condition.
The Company's Tempe facility is partially located within a large area
that has been identified by the EPA as the Indian Bend Wash Area Superfund Site
(the "Indian Bend Superfund Site"). Under federal law, certain persons known
as potentially responsible parties ("PRPs") may be held strictly liable on a
joint and several basis for all cleanup costs and natural resource damages
associated with the release of hazardous substances from a facility. The
average cost to clean up a site listed on the National Priorities List is over
$30 million. The Indian Bend Superfund Site is listed on the National
Priorities List. Groups of PRPs may include current owners and operators of a
facility, owners and operators of a facility at the time of disposal of
hazardous substances, transporters of hazardous substance and those who arrange
for the treatment or disposal of hazardous substances at a site. No government
agency, including the EPA, has indicated that the Company has been or will be
named as a PRP or that it is otherwise responsible for the contamination
present at the Indian Bend Superfund Site. In general, although no assurance
can be given as to the future actions of either the EPA or PRPs who may incur
cleanup costs related to this site, the Company does not believe that its
ownership of property partially located within the Indian Bend Superfund Site
will have a material adverse effect on its results of operations or financial
condition.
In 1994, the Company removed two underground storage tanks used to
store petroleum substances from property it owns in Georgia. The Company is
currently working in cooperation with the Georgia Department of Natural
Resources to assess and respond to petroleum related hydrocarbons detected in
soil and groundwater at this site, and to evaluate the extent of corrective
action that may be necessary. At this time, the Company does not
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expect that the costs of future assessment and corrective action related to the
tanks will have a material adverse effect on its results of operations or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this Report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq National
Market under the symbol "PHHM" since July 31, 1995, the date on which the
Company completed its initial public offering. The following table sets forth,
for the period indicated, the high and low sale price per share of the Common
Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
----------- ------ ------
<S> <C> <C>
Second Quarter (from July 31) . . . . . . . . . . . . . . $17.75 $11.00
Third Quarter . . . . . . . . . . . . . . . . . . . . . . $22.50 $16.25
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . $25.75 $19.00
</TABLE>
On May 27, 1996, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $29.50. As of May 27, 1996, there were
approximately 1,206 record holders of the Common Stock, and approximately 3,400
holders of the Common Stock overall based on an estimate of the number of
individual participants represented by security position listings.
The Company has never paid cash dividends on its Common Stock. The
Board of Directors intends to retain any future earnings generated by the
Company to support operations and to finance expansion and does not intend to
pay cash dividends on the Common Stock for the foreseeable future. The payment
of cash dividends in the future will be at the discretion of the Board of
Directors and will depend upon factors such as the Company's earnings levels,
capital requirements, financial condition and other factors deemed relevant by
the Board of Directors. Future loan agreements may restrict or prohibit the
payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to this Item 6 is incorporated herein by
reference from page 9 of the Company's Annual Report to Shareholders for the
year ended March 29, 1996, filed as Exhibit 13.1 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information with respect to this Item 7 is incorporated herein by
reference from pages 10 through 12 of the Company's Annual Report to
Shareholders for the year ended March 29, 1996, filed as Exhibit 13.1 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements for the year ended March 29, 1996
are listed in the accompanying Index to Consolidated Financial Statements at
page F-1 and are incorporated by reference from pages 13 through 23 of the
Company's Annual Report to Shareholders for the year ended March 29, 1996,
filed as Exhibit 13.1 hereto.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Information with respect to the Company's Board of Directors
and executive officers is incorporated by reference from pages 2 through 4 of
the Company's definitive Proxy Statement filed June 10, 1996 in connection with
the Annual Meeting of Shareholders to be held July 17, 1996.
(b) Based solely upon a review of Forms 3 and 4 and amendments
thereto furnished to the Company pursuant to Rule 16a-3(e) promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") during the
Company's most recent fiscal year and Form 5 and amendments thereto furnished
to the Company with respect to its most recent fiscal year, no person who, at
any time during the most recent fiscal year was a director, officer, beneficial
owner of more than 10% of any class of equity securities of the Company
registered pursuant to Section 12 of the Exchange Act, or any other person
subject to Section 16 of the Exchange Act failed to file on a timely basis,
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is incorporated by
reference from pages 4 and 5 of the Company's definitive Proxy Statement filed
June 10, 1996 in connection with the Annual Meeting of Shareholders to be held
July 17, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management is incorporated by reference from page 8 of the Company's
definitive Proxy Statement filed June 10, 1996 in connection with the Annual
Meeting of Shareholders to be held July 17, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions is incorporated by reference from page 7 of the Company's
definitive Proxy Statement filed June 10, 1996 in connection with the Annual
Meeting of Shareholders to be held July 17, 1996.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The Company's financial statements for the year ended March
29, 1996 are listed in the accompanying Index to Consolidated Financial
Statements at page F-1 and are incorporated herein by reference from pages 13
through 23 of the Company's Annual Report to Shareholders for the year ended
March 29, 1996.
(2) Financial Statement Schedules
None
9
<PAGE> 11
(3) Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1
to the Registrant's Registration Statement on Form S-1, Registration No. 33-79164)
3.2 Articles of Amendment (Incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-79164)
3.3 Restated Bylaws (Incorporated by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-79164)
4.1 Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-1, Registration No. 33-79164)
10.1 Credit Modification Agreement dated as of July 31, 1995, by and among the Company,
Capital Southwest Corporation and Capital Southwest Venture Corporation (Incorporated by
reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1,
Registration No. 33-79164)
10.2 Associate Stock Purchase Plan (Incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form S-1, No. 33-97676)
10.3 Form of Indemnification Agreement between the Company and each of its directors and
certain officers (Incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-79164)
10.5 Compensation Agreement between the Company and Lee Posey (Incorporated by reference to
Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, Registration No.
33-79164)
10.6 Amendment to Compensation Agreement between the Company and Lee Posey (Incorporated by
reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-1, No.
33-97676)
*13.1 Selected pages of the Company's Annual Report to Shareholders for the year ended March
29, 1996
*21.1 List of Subsidiaries
*23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (included on the signature page of the Report)
*27.1 Financial Data Schedule
</TABLE>
- ---------------------
* Filed herewith
(b) No reports on Form 8-K were filed during the last quarter of
the period covered by this Annual Report on Form 10-K.
(c) See Item 14(a)(3) above.
(d) None.
10
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
June 13, 1996 PALM HARBOR HOMES, INC.
/s/ Lee Posey
---------------------------------------
Lee Posey, Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby
constitute and appoint Lee Posey and Kelly Tacke, and each of them, each with
full power to act without the other, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to the annual report on Form 10-K for the year ended March 29, 1996
of Palm Harbor Homes, Inc., and to file the same, with any and all exhibits
thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all of
each of said attorneys- in-fact and agents or any of them may lawfully do or
cause to be done by virtue thereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Lee Posey Chairman of the Board, Chief Executive June 13, 1996
- ----------------------------------- Officer and Director (Principal
Lee Posey Executive Officer)
/s/ Larry Keener President, Chief Operating Officer and June 13, 1996
- ----------------------------------- Director
Larry Keener
/s/ Kelly Tacke Vice President-Finance and Chief June 13, 1996
- ----------------------------------- Financial Officer (Principal Financial
Kelly Tacke and Accounting Officer)
/s/ William R. Thomas Director June 13, 1996
- -----------------------------------
William R. Thomas
/s/ Walter D. Rosenberg, Jr. Director June 13, 1996
- -----------------------------------
Walter D. Rosenberg, Jr.
/s/ Frederick R. Meyer Director June 13, 1996
- -----------------------------------
Frederick R. Meyer
/s/ John H. Wilson Director June 13, 1996
- -----------------------------------
John H. Wilson
/s/ A.Gary Shilling Director June 13, 1996
- -----------------------------------
A. Gary Shilling
</TABLE>
<PAGE> 13
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements of the Company and its
subsidiaries required to be included in Item 14(a)(1) are listed below:
<TABLE>
<CAPTION>
PALM HARBOR HOMES, INC. AND SUBSIDIARIES Page
----
<S> <C>
Consolidated Financial Statements (incorporated by reference under Item 8 of
Part II from pages 13 through 23 of the Company's Annual Report to Shareholders
for the year ended March 29, 1996):
Consolidated Balance Sheets as of March 31, 1995 and March 29, 1996
Consolidated Statements of Income for the years ended March 25, 1994,
March 31, 1995 and March 29, 1996
Consolidated Statements of Shareholders' Equity for the years ended
March 25, 1994, March 31, 1995 and March 29, 1996
Consolidated Statements of Cash Flows for the years ended
March 25, 1994, March 31, 1995 and March 29, 1996
Notes to Consolidated Financial Statements
Report of Independent Auditors
</TABLE>
F-1
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
------ ----------- --------
<S> <C>
3.1 Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit
3.1 to the Registrant's Registration Statement on Form S-1, Registration No. 33-79164)
3.2 Articles of Amendment (Incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-79164)
3.3 Restated Bylaws (Incorporated by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-79164)
4.1 Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-1, Registration No. 33-79164)
10.1 Credit Modification Agreement dated as of July 31, 1995, by and among the Company,
Capital Southwest Corporation and Capital Southwest Venture Corporation (Incorporated
by reference to Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1, Registration No. 33-79164)
10.2 Associate Stock Purchase Plan (Incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form S-1, No. 33-97676)
10.3 Form of Indemnification Agreement between the Company and each of its directors and
certain officers (Incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-79164)
10.5 Compensation Agreement between the Company and Lee Posey (Incorporated by reference
to Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, Registration
No. 33-79164)
10.6 Amendment to Compensation Agreement between the Company and Lee Posey (Incorporated
by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-1,
No. 33-97676)
*13.1 Selected pages of the Company's Annual Report to Shareholders for the year ended
March 29, 1996
*21.1 List of Subsidiaries
*23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (included on the signature page of the Report)
*27.1 Financial Data Schedule
</TABLE>
- -------------------
* Filed herewith
<PAGE> 1
EXHIBIT 13.1
P A L M H A R B O R H O M E S
SELECTED FINANCIAL DATA
(In thousands, except per share and operating data)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------
March 27, March 26, March 25, March 31, March 29,
1992 1993 1994 1995 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Net sales $ 119,455 $ 162,945 $ 231,832 $ 330,547 $ 417,214
Cost of products sold 98,592 134,584 194,634 275,848 345,508
--------------------------------------------------------------------
Gross profit 20,863 28,361 37,198 54,699 71,706
Selling, general and
administrative expenses 17,787 22,452 29,996 40,776 52,676
--------------------------------------------------------------------
Income from operations 3,076 5,909 7,202 13,923 19,030
Interest expense (878) (434) (409) (395) (751)
Other income 197 132 131 514 1,276
--------------------------------------------------------------------
Income before income from
affiliate, income taxes and
cumulative effect of
accounting change 2,395 5,607 6,924 14,042 19,555
Income from affiliate 285 877 1,823 2,745 2,995
--------------------------------------------------------------------
Income before income taxes
and cumulative effect of
accounting change 2,680 6,484 8,747 16,787 22,550
Income tax expense 1,074 2,197 2,649 5,562 7,572
--------------------------------------------------------------------
Income before cumulative
effect of accounting change 1,606 4,287 6,098 11,225 14,978
Cumulative effect of change in
method of accounting for
income taxes (1) - (379) - - -
Net income $ 1,606 $ 3,908 $ 6,098 $ 11,225 $ 14,978
====================================================================
Net income per common share $ 0.17 $ 0.40 $ 0.61 $ 1.16 $ 1.47
====================================================================
Weighted average common and
common equivalent shares
outstanding 9,371 9,776 9,932 9,679 10,175
OPERATING DATA:
Number of homes sold 4,848 6,213 7,988 10,197 12,175
Multi-section homes sold as a
percentage of total homes sold 81% 78% 83% 86% 82%
Number of manufacturing
facilities (2) 7 9 12 13 14
BALANCE SHEET DATA:
Working capital $ 5,299 $ 3,473 $ 3,852 $ 1,966 $ 22,727
Total assets 34,917 46,811 65,914 97,650 143,712
Long-term debt 5,825 3,700 3,616 7,700 3,784
Shareholders' equity 11,854 16,042 22,736 32,907 68,982
</TABLE>
(1) Reflects the cumulative effect as of March 28, 1992 of the adoption by
the Company of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
(2) As of the end of the applicable period.
p.9
<PAGE> 2
P A L M H A R B O R H O M E S
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Consumers continue to purchase our homes at record levels. Net sales,
net income and earnings per share rose to $417.2 million, $15.0 million and
$1.47, respectively. These results reflect a four year compounded growth rate
of 37%, 75% and 72%, respectively. The Company added 11 Company-owned or
affiliated retail superstores, reaching a total of 44 locations. A fourteenth
manufacturing facility, located in Oregon, began production in April 1995. The
Company continued to implement its vertical integration plan with the start-up
of its finance subsidiary, CountryPlace Mortgage.
The following table sets forth certain items of the Company's
statement of income as a percentage of net sales for the period indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
March 25, March 31, March 29,
1994 1995 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of products sold 84.0 83.5 82.8
----------------------------------------
Gross profit 16.0 16.5 17.2
Selling, general and administrative expenses 12.9 12.3 12.6
----------------------------------------
Income from operations 3.1 4.2 4.6
Interest expense (0.2) (0.1) (0.2)
Other income - 0.2 0.3
----------------------------------------
Income before income from affiliate and
income taxes 2.9 4.3 4.7
Income from affiliate 0.8 0.8 0.7
Income tax expense 1.1 1.7 1.8
----------------------------------------
Net income 2.6% 3.4% 3.6%
========================================
</TABLE>
1996 COMPARED TO 1995
Net Sales. Net sales increased 26.2% to $417.2 million in 1996 from
$330.5 million in 1995. The 26.2% increase in net sales reflected a 19.4%
increase in the volume of homes sold and a 5.7% increase in selling prices. The
increase in volume and average selling prices is due to the growth in the
Company's retail operations and expansion of manufacturing facilities. The
number of Company-owned or affiliated retail superstores, excluding the 19
operated by Newco Homes, Inc. ("Newco"), a Texas-based retailer in which the
Company is a 41.6% stockholder, increased from 15 in 1995 to 25 in 1996; and
the volume of homes sold increased 71%. Net sales for 1996 include $41.1
million from two manufacturing facilities that were not open for the full 1995
fiscal year.
Gross Profit. Increased sales volume contributed to an increase in
gross profit of 31.1% to $71.7 million in 1996 compared to $54.7 million in
1995. During the same period, gross profit margin as a percentage of net sales
increased to 17.2% from 16.5%. Gross profit for 1996 increased due to the
expansion of the Company's retail operations, the continued maturation of
relatively new manufacturing facilities and slight decreases in material costs.
Selling, General and Administrative Expenses. Primarily due to
start-up expenses for ten retail superstores, increased sales and the addition
of manufacturing facilities, selling, general and administrative expenses
increased 29.2% to $52.7 million in 1996 from $40.8 million in 1995. Selling,
general and administrative expenses as a percentage of net sales increased to
12.6% in 1996 from 12.3% in 1995.
p.10
<PAGE> 3
Income from Operations. As a result of the foregoing factors, income
from operations increased 36.7% to $19.0 million in 1996 compared to $13.9
million in 1995.
Income from Affiliate. Income from affiliate, which consists of the
Company's 41.6% equity interest in the net earnings of Newco, increased 9.1% to
$3.0 million in 1996 from $2.7 million in 1995. Newco's volume of homes sold
increased 13.2% and average selling prices increased 11.3%.
1995 COMPARED TO 1994
Net Sales. Net sales increased 42.6% to $330.5 million in 1995 from
$231.8 million in 1994. The 42.6% increase in net sales reflected a 27.6%
increase in the volume of homes sold and an 11.7% increase in selling prices.
The number of Company-owned or affiliated retail superstores (excluding Newco)
increased from 10 to 15 during 1995 and the volume of homes sold increased
127%. During November 1994, the Company commenced production at a new
manufacturing facility which had approximately $3.5 million of net sales in
1995.
Gross Profit. Increased sales volume contributed to an increase in
gross profit of 47.0% to $54.7 million in 1995 compared to $37.2 million in
1994. During the same period, gross profit margin increased to 16.5% from
16.0%. The increase in gross profit margin was largely due to increased
productivity and improved efficiencies as manufacturing facilities which began
production during the last two fiscal years matured. Additionally, gross profit
margin was favorably impacted by reduced start-up expenses.
Selling, General and Administrative Expenses. Primarily as a result of
increased sales and the addition of a new manufacturing facility, selling,
general and administrative expenses increased 36.0% to $40.8 million in 1995
from $30.0 million in 1994. Selling, general and administrative expenses as a
percentage of net sales decreased to 12.3% from 12.9%.
Income from Operations. As a result of the foregoing factors, income
from operations increased 93.3% to $13.9 million in 1995 compared to $7.2
million in 1994.
Income from Affiliate. Income from affiliate, which consists of the
Company's 41.6% equity interest in the net earnings of Newco, increased 50.6%
to $2.7 million in 1995 from $1.8 million in 1994. Newco's volume of homes sold
increased 23.9% and average selling prices increased 10.4%
The following table reflects certain key statistics for the last three
years (dollars in thousands):
<TABLE>
<CAPTION>
----------------------------------------
1994 1995 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Company owned/affiliated retail superstores:
Locations at the end of the year 25 33 44
Weighted average new home sales per location 153 163 148
Independent retailers 539 510 600
Homes sold 7,988 10,197 12,175
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
On July 31, 1995, the Company completed a public offering of 302,700
shares of common stock at $12 per share to its employees, officers, directors
and certain of its retailers, vendors and consultants. An additional 752,142
shares were distributed by Capital Southwest Corporation, a significant
shareholder
p.11
<PAGE> 4
P A L M H A R B O R H O M E S
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
of the Company, to its shareholders. Further, principal shareholders exercised
warrants to purchase 5,483,197 shares of common stock at $.39744 per share.
Proceeds to the Company approximated $5,400,000. On October 30, 1995, the
Company completed a secondary public offering of 1,000,000 shares of common
stock at $17 per share. Net proceeds to the Company approximated $15,900,000.
The proceeds received from both offerings are being used to fund expansion of
the Company's retail operations.
Historically, the Company primarily financed its operations and
capital expansion program through cash flow from operations and borrowings from
Capital Southwest and Capital Southwest Venture Corporation ("CSVC"). The
Company repaid its indebtedness to Capital Southwest and CSVC during 1996.
Additionally, the Company repaid its indebtedness of approximately $700,000 to
a significant shareholder.
Capital expenditures were $7.0 million, $13.3 million and $6.8 million
in 1994, 1995 and 1996, respectively. Capital expenditures during these
periods were for expansion of manufacturing facilities and retail superstores
and for normal property, plant and equipment maintenance and replacement. In
1995, capital expenditures included the August 1994 acquisition of a
manufacturing facility in Texas for $1.3 million and the construction of a
manufacturing facility in Oregon completed in April 1995 for $6.3 million.
Additionally, in the first quarter of 1996, the Company acquired four retail
superstores in the State of Washington, which are owned by the Company's
wholly-owned subsidiary, Magic Living. The Company plans to spend
approximately $15.0 million during 1997. These expenditures include the April
1996 acquisition of eight retail superstores in North Carolina, the addition of
a manufacturing facility in Georgia and the purchase of a manufactured home
property and casualty insurance company. The Company also plans to upgrade and
expand its current manufacturing facilities as well as add 12 retail
superstores in 1997.
The Company believes that cash flow from operations, together with
proceeds from the public offering, will be adequate to support its working
capital and currently planned capital expenditure needs in the foreseeable
future. The Company may, from time to time, obtain floor plan financing for its
retail inventories. Such practice is customary in the industry. However,
because future cash flows and the availability of financing will depend on a
number of factors, including prevailing economic and financial conditions,
business and other factors beyond the Company's control, no assurances can be
given in this regard.
In accordance with customary business practice in the manufactured
housing industry, the Company has entered into repurchase agreements with
various financial institutions and other credit sources pursuant to which the
Company has agreed, under certain circumstances, to repurchase homes sold to
independent retailers in the event of a default by a retailer in its obligation
to such credit sources. Under such agreements, the Company agrees to repurchase
homes at declining prices over the term of the agreement (which generally
ranges from 12 to 18 months). The Company estimates that its potential
obligations under such repurchase agreements approximated $103 million at March
29, 1996. During 1994, 1995 and 1996, net expenses (income) incurred by the
Company under these repurchase agreements totaled $28,000, $22,000 and
($3,000), respectively.
FORWARD-LOOKING INFORMATION
Management is unaware of any trends or conditions that could have a
material adverse effect on the Company's consolidated financial position,
future results of operations or liquidity. However, investors should also be
aware of factors which could have a negative impact on prospects and the
consistency of progress. These include political, economic or other factors
such as inflation rates, recessionary or expansive trends, taxes and
regulations and laws affecting the business in each of the Company's markets;
competitive product, advertising, promotional and pricing activity; dependence
on the rate of development and degree of acceptance of new product
introductions in the marketplace; and the difficulty of forecasting sales at
certain times in certain markets.
p.12
<PAGE> 5
P A L M H A R B O R H O M E S
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
-------------------------
1995 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,421 $ 23,441
Investments 803 5,087
Trade accounts receivable 21,135 33,052
Due from affiliate 1,875 3,848
Inventories 16,494 18,863
Prepaid expenses and other assets 1,058 1,111
Deferred income taxes 2,086 3,582
-------------------------
Total current assets 54,872 88,984
Other assets:
Investments in and advances to affiliate 6,720 9,715
Notes receivable 1,722 5,905
Other assets 1,887 3,272
Tax benefits purchased 721 643
-------------------------
11,050 19,535
Property, plant and equipment, at cost:
Land and improvements 4,238 5,698
Buildings and improvements 18,140 24,746
Machinery and equipment 13,927 17,203
Construction in progress 8,263 3,275
-------------------------
44,568 50,922
Accumulated depreciation 12,840 15,729
-------------------------
31,728 35,193
-------------------------
Total assets $ 97,650 $ 143,712
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,481 $ 34,748
Accrued liabilities 24,425 31,323
Revolving credit note 2,000 -
Current portion of long-term debt - 186
-------------------------
Total current liabilities 52,906 66,257
Long-term debt, less current portion 7,700 3,784
Deferred income taxes 4,137 4,689
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value:
Authorized shares - 2,000,000
Issued and outstanding shares - none
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued shares - 4,077,701 at March 31, 1995, and
10,863,598 at March 29, 1996 41 109
Additional paid-in capital 1,572 23,012
Retained earnings 31,294 46,272
-------------------------
32,907 69,393
Less treasury shares, at cost, none at March 31, 1995
and 13,281 at March 29, 1996 - (205)
Notes receivable from shareholders - (206)
-------------------------
Total shareholders' equity 32,907 68,982
-------------------------
Total liabilities and shareholders' equity $ 97,650 $ 143,712
=========================
</TABLE>
See accompanying notes.
p.13
<PAGE> 6
P A L M H A R B O R H O M E S
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
March 25, March 31, March 29,
1994 1995 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 231,832 $ 330,547 $ 417,214
Cost of products sold 194,634 275,848 345,508
Selling, general and administrative expenses 29,996 40,776 52,676
---------------------------------------
Income from operations 7,202 13,923 19,030
Interest expense (409) (395) (751)
Other income 131 514 1,276
---------------------------------------
Income before income from affiliate and income taxes 6,924 14,042 19,555
Income from affiliate 1,823 2,745 2,995
---------------------------------------
Income before income taxes 8,747 16,787 22,550
Income tax expense 2,649 5,562 7,572
---------------------------------------
Net income $ 6,098 $ 11,225 $ 14,978
=======================================
Earnings per common share $ 0.61 $ 1.16 $ 1.47
=======================================
Weighted average common shares and
common equivalents 9,932 9,679 10,175
=======================================
</TABLE>
See accompanying notes.
p.14
<PAGE> 7
P A L M H A R B O R H O M E S
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of dollars)
<TABLE>
<CAPTION>
Notes
Common Stock Additional Treasury Shares Receivable
-------------------- Paid-In Retained ----------------- from
Shares Amount Capital Earnings Shares Amount Shareholders Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
March 26, 1993 2,866,304 $ 28 $ 3,504 $ 13,415 (49,413) $ (282) $(623) $ 16,042
Net income - - - 6,098 - - - 6,098
Shares issued for cash 64,693 1 231 - - - - 232
Treasury shares sold-
net of purchases - - (118) - 49,413 282 - 164
1.25 to 1 stock split 732,793 7 (7) - - - - -
Payments on
shareholder notes - - - - - - 200 200
---------------------------------------------------------------------------------------
Balance at
March 25, 1994 3,663,790 36 3,610 19,513 - - (423) 22,736
Net income - - - 11,225 - - - 11,225
Shares issued 3,750 - 9 - - - - 9
Treasury shares
purchased and
cancelled (203,099) (4) (1,615) - - - - (1,619)
Payments on and
cancellation of
shareholder notes (202,500) - (423) - - - 423 -
Unrealized gain
on marketable
securities,
net of taxes - - - 556 - - - 556
1.25 to 1 stock split 815,760 9 (9) - - - - -
---------------------------------------------------------------------------------------
Balance at
March 31, 1995 4,077,701 41 1,572 31,294 _ _ - 32,907
Net income - - - 14,978 - - - 14,978
Shares issued:
offerings 1,302,700 13 19,316 - - - - 19,329
warrants 5,483,197 55 2,124 - - - - 2,179
Treasury shares
purchased - - - - (13,281) (205) - (205)
Shareholders' notes -
net of payments - - - - - - (206) (206)
---------------------------------------------------------------------------------------
Balance at
March 29, 1996 10,863,598 $ 109 $ 23,012 $ 46,272 (13,281) $ (205) $(206) $ 68,982
=======================================================================================
</TABLE>
See accompanying notes.
p.15
<PAGE> 8
P A L M H A R B O R H O M E S
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
March 25, March 31, March 29,
1994 1995 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,098 $ 11,225 $ 14,978
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,748 2,246 3,147
Deferred income tax benefit (412) (1,373) (944)
Income from affiliate (1,823) (2,745) (2,995)
Loss (gain) on disposition of assets (10) (16) 26
Changes in operating assets and liabilities:
Trade accounts receivable (5,994) (6,637) (11,917)
Due from affiliate (1,180) 1,299 (1,973)
Inventories (3,895) (5,049) (2,369)
Notes receivable 640 (164) (4,183)
Prepaid expenses and other current assets (14) (251) (53)
Other assets (26) (19) (1,381)
Accounts payable and accrued expenses 12,352 14,774 15,165
---------------------------------------
Net cash provided by operating activities 7,484 13,290 7,501
Investing Activities
Purchases of property, plant and equipment (6,971) (13,277) (6,765)
Purchases of short-term investments - (803) (4,820)
Sales of short-term investments - - 536
Proceeds from disposition of assets 34 16 201
Other 43 - -
---------------------------------------
Net cash used in investing activities (6,894) (14,064) (10,848)
Financing Activities
Proceeds from notes payable and long-term borrowings - 7,000 -
Principal payments on notes payable and long-term debt - (1,000) (5,730)
Proceeds from sale of stock, net 113 10 21,508
Net sale (purchases) of treasury stock 282 (1,619) (205)
Notes receivable from shareholders, net 200 _ (206)
---------------------------------------
Net cash provided by financing activities 595 4,391 15,367
Net increase in cash and cash equivalents 1,185 3,617 12,020
Cash and cash equivalents at beginning of period 6,619 7,804 11,421
---------------------------------------
Cash and cash equivalents at end of period $ 7,804 $ 11,421 $ 23,441
=======================================
</TABLE>
See accompanying notes.
p.16
<PAGE> 9
P A L M H A R B O R H O M E S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Palm
Harbor Homes, Inc. (the Company) and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation. Investments in affiliated companies that are 20% to 50% owned
are accounted for by the equity method. The Company's fiscal year ends on the
last Friday in March. Fiscal years 1994, 1995 and 1996 contained 52, 53 and 52
weeks, respectively.
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the notes thereto. Actual results could differ from the assumptions used by
management in preparation of the financial statements.
Revenue recognition
Revenue is recognized on sales to independent retailers when the home
is shipped which is when the title passes to the retailer. Revenue on retail
sales is recognized when the title passes to the customer and, in the case of
credit sales, when a down payment and required documentation are received.
Most of the homes sold to independent retailers are financed through
standard industry arrangements which include repurchase agreements (see Note
11). The Company extends credit in the normal course of business under normal
trade terms and its receivables are subject to normal industry risk.
Cash and cash equivalents
Cash and cash equivalents are all liquid investments with maturities
of three months or less when purchased.
Investments
The Company holds investments as trading and available-for-sale. The
trading account assets consist of marketable equity securities and are stated
at fair value. Marketable equity securities not classified as trading are
classified as available-for-sale. Available-for-sale securities are stated at
fair value, with the unrealized gains and losses, net of tax, reported in
shareholders' equity.
Inventories
Inventories are valued at the lower of cost (first-in, first-out
method which approximates actual cost) or market.
Property, plant and equipment
Property, plant and equipment are carried at cost. Depreciation is
calculated using the straight-line method over the assets' estimated useful
lives. Leasehold improvements are amortized using the straight-line method over
the shorter of the lease period or the improvements' useful lives.
Product warranties
Products are warranted against manufacturing defects for a period of
one year commencing at the time of sale to the retail customer. Estimated costs
relating to product warranties are provided at the date of sale to the
retailer.
Start-up costs
Costs incurred in connection with the start-up of manufacturing
facilities and retail sales centers are expensed as incurred.
Earnings per share
Earnings per share are computed based upon the weighted average number
of common stock and common stock equivalents outstanding during the periods
presented. Historical earnings per share data for fiscal years 1994 and 1995
have been adjusted to reflect the effect of the 1.25 to 1 stock split approved
by the Board of Directors as of May 15, 1995 effective as of March 31, 1995.
2. PUBLIC OFFERINGS
On July 31, 1995, the Company completed an initial public offering of
302,700 shares of common stock at $12 per share to its employees, officers,
directors and certain of its retailers, vendors and
p.17
<PAGE> 10
P A L M H A R B O R H O M E S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
consultants. An additional 752,142 shares were distributed by a significant
shareholder of the Company to its shareholders. Further, principal shareholders
exercised warrants to purchase 5,483,197 shares of common stock at $.39744 per
share. Proceeds to the Company approximated $5,400,000.
On October 30, 1995, the Company completed a secondary public offering
of 1,000,000 shares of common stock at $17 per share. Net proceeds to the
Company approximated $15,900,000.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
-------------------------
March 31, March 29,
1995 1996
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Raw materials $ 6,106 $ 7,014
Work in process 2,036 2,405
Finished goods - manufacturing 1,607 1,062
Finished goods - retail 6,745 8,382
-------------------------
$ 16,494 $ 18,863
=========================
</TABLE>
4. NOTES RECEIVABLE
Notes consist principally of floor plan financing receivables from
certain of the Company's retailers. The notes are collateralized by
manufactured homes. Interest rates are approximately prime plus one-half
percent (8.75% at March 29, 1996).
Interest income relating to these notes for the fiscal years ended
March 25, 1994, March 31, 1995 and March 29, 1996 approximated $237,000,
$189,000 and $424,000, respectively.
5. INVESTMENTS
The Company's investments, which totaled $803,000 and $5,087,000 on
March 31, 1995 and March 29, 1996, respectively, consist of marketable equity
securities and municipal bonds with original maturities beyond three months and
less than twelve months.
Investments in and advances to affiliate consist of a 41.6% equity
investment in Newco Homes, Inc. ("Newco"), a Texas-based retailer. The
Company's equity investment totaled $6,320,000 and $9,315,000 at March 31, 1995
and March 29, 1996, respectively.
Summarized financial information with respect to Newco is as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------
1994 1995 1996
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Income statement data:
Net sales $ 103,692 $ 141,852 $ 178,657
Net income 4,640 6,576 7,651
</TABLE>
<TABLE>
<CAPTION>
March 31,
-------------------------
1995 1996
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Balance sheet data:
Total assets $ 38,311 $ 45,246
Shareholders' equity 15,830 23,482
</TABLE>
Sales to Newco approximated 17.4%, 17.8% and 15.3% of net sales in
fiscal 1994, 1995 and 1996, respectively. No other independent retailer
accounted for more than five percent of net sales.
p.18
<PAGE> 11
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
-------------------------
March 31, March 29,
1995 1996
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Sales incentives $ 6,761 $ 8,169
Salaries, wages and benefits 8,093 11,645
Warranty 4,193 5,564
Other 5,378 5,945
-------------------------
$ 24,425 $ 31,323
=========================
</TABLE>
7. NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
-------------------------
March 31, March 29,
1995 1996
- -----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Economic development revenue bonds; interest payable monthly
at 7.54%; monthly interest and principal payments of $40,029
through January 2006; final payment of $2,002,040 in
February 2006 $ 4,000 $ 3,970
Term note; interest payable quarterly at 10% per annum until
January 1, 1998; $250,000 principal payment due January 1,
1998, with the remaining principal due ratably on a quarterly
basis ending in 1999 2,000 -
12% subordinated promissory note dOctober 1999 1,000 -
Note to shareholder; interest at 10% until July 1996; payable
thereafter in 36 monthly payments of $19,444, including
principal and interest, through June 1999 700 -
-------------------------
7,700 3,970
Less current portion - 186
-------------------------
$ 7,700 $ 3,784
=========================
</TABLE>
Prior to the Company's initial public offering, a line of credit was
maintained with a significant shareholder. During fiscal 1995, the Company
borrowed $3,000,000 under the credit arrangement, of which $2,000,000 was
outstanding at March 31, 1995. The credit arrangement terminated upon
completion of the public offering.
The revenue bonds require the maintenance of certain financial
statement ratios, are collateralized by certain fixed assets having a carrying
value as of March 29, 1996 of $6,720,000, and prohibit the payment of
dividends.
The term and subordinated promissory notes were repaid by the Company
during fiscal 1996. The $700,000 note payable related to the purchase of a
manufacturing facility and land from a significant shareholder and was repaid
by the Company during fiscal 1996.
p.19
<PAGE> 12
P A L M H A R B O R H O M E S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Total interest paid in fiscal 1994, 1995 and 1996 was $461,000,
$542,000 and $670,000, respectively.
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 186
1998 201
1999 216
2000 233
2001 and thereafter 3,134
</TABLE>
8. INCOME TAXES
Income tax provisions for the three fiscal years ended March 29, 1996
were determined by the liability method.
<TABLE>
<CAPTION>
----------------------------------------
March 25, March 31, March 29,
1994 1995 1996
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 2,698 $ 5,821 $ 7,381
State 363 895 1,303
Deferred (412) (1,154) (1,112)
----------------------------------------
Total income taxes $ 2,649 $ 5,562 $ 7,572
========================================
</TABLE>
Components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
-------------------------
March 31, March 29,
1995 1996
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Tax benefits purchased $ 3,596 $ 3,541
Property and equipment 719 701
Unremitted earnings of affiliate 437 664
Other 85 13
-------------------------
Total deferred tax liabilities 4,837 4,919
Deferred tax assets:
Warranty reserves 1,455 1,907
Accrued liabilities 1,035 1,348
Inventory 126 304
Other 170 253
-------------------------
Total deferred tax assets 2,786 3,812
=========================
Net deferred income tax liability $ 2,051 $ 1,107
=========================
</TABLE>
p.20
<PAGE> 13
The effective income tax rate on pretax earnings differed from the
U.S. federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
----------------------------------------
March 25, March 31, March 29,
1994 1995 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $ 2,974 $ 5,875 $ 7,892
Add (deduct):
Equity in earnings of affiliate (496) (769) (839)
State taxes - net of federal tax benefit 240 581 847
Jobs tax credit (56) (84) -
Tax exempt interest (15) (80) (234)
Other 2 39 (94)
----------------------------------------
Income tax provision $ 2,649 $ 5,562 $ 7,572
========================================
Effective tax rate 30.3% 33.1% 33.6%
========================================
</TABLE>
Tax benefits purchased are investments in Safe Harbor lease agreements
that are carried net of tax benefits realized. The balance will be amortized
over the remaining term of the related lease.
Cash payments of income taxes were $3,794,000, $6,415,000 and
$8,169,000 in fiscal years 1994, 1995 and 1996, respectively.
9. SHAREHOLDERS' EQUITY
The Board of Directors may, without further action by the Company's
shareholders, from time to time, authorize the issuance of shares of preferred
stock in series and may, at the time of issuance, determine the powers, rights,
preferences and limitations, including the dividend rate, conversion rights,
voting rights, redemption price and liquidation preference, and the number of
shares to be included in any such series. Any preferred stock so issued may
rank senior to the common stock with respect to the payment of dividends or
amounts upon liquidation, dissolution or winding up, or both. In addition, any
such shares of preferred stock may have class or series voting rights.
On June 1, 1992, the Company provided interest bearing notes
receivable to an officer for the purchase of shares of common stock for $2.75
per share. On June 25, 1994, in connection with the officer's resignation, the
Company repurchased the officer's outstanding shares and canceled the
outstanding balance of the notes.
In connection with the Company's initial public offering,
approximately 100 employees purchased stock whereby the Company accepted notes
receivable for half of the purchase. Such notes totaled $206,000 at March 29,
1996 and are payable over two years from date of purchase with interest at 9%.
10. EMPLOYEE PLAN
The Company sponsors an employee savings plan (the Plan) that is
intended to provide participating employees with additional income upon
retirement. Employees may contribute between 1% and 15% of eligible
compensation to the Plan. The Company matches 50% of the first 6% deferred by
employees. Employees are eligible to participate after one year of employment
and employer contributions are vested after five years of service. Contribution
expense was $266,000, $596,000 and $700,000 in fiscal years 1994, 1995 and
1996, respectively.
11. COMMITMENTS AND CONTINGENCIES
Future minimum lease payments for all noncancelable operating leases
having a remaining term in excess of one year at March 29, 1996, are as follows
(in thousands):
<TABLE>
<S> <C>
1997 $ 2,325
1998 1,686
1999 890
2000 506
2001 and thereafter 505
---------
$ 5,912
=========
</TABLE>
p.21
<PAGE> 14
P A L M H A R B O R H O M E S
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Rent expense (net of sublease income) was $1,217,000, $1,644,000 and
$2,337,000 for the years ended March 25, 1994, March 31, 1995 and March 29,
1996, respectively.
The Company is contingently liable under the terms of repurchase
agreements covering retailers' floor plan financing. Under such agreements, the
Company agrees to repurchase homes at declining prices over the term of the
agreement, generally 12 to 18 months. At March 29, 1996, the Company estimates
that its potential obligations under such repurchase agreements were
approximately $103 million. However, it is management's opinion that no
material loss will occur from the repurchase agreements. During the past three
fiscal years, no significant costs have been incurred relating to such
repurchase agreements.
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not materially
affect the financial position or results of operations of the Company.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial
information for the fiscal years ended March 31, 1995 and March 29, 1996.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- -------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED
March 31, 1995
Net sales $ 75,484 $ 82,297 $ 79,410 $ 93,356 $ 330,547
Gross profit 12,541 13,314 12,823 16,021 54,699
Income from operations 2,978 3,733 3,302 3,910 13,923
Net income 2,576 3,144 2,697 2,808 11,225
Earnings per share .27 .32 .28 .29 1.16
FISCAL YEAR ENDED
March 29, 1996
Net sales $ 98,766 $ 103,247 $ 104,976 $ 110,225 $ 417,214
Gross profit 16,334 17,267 17,685 20,420 71,706
Income from operations 4,233 4,522 4,576 5,699 19,030
Net income 3,436 3,617 3,581 4,344 14,978
Earnings per share .36 .37 .34 .40 1.47
</TABLE>
p.22
<PAGE> 15
P A L M H A R B O R H O M E S
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Palm Harbor Homes, Inc.
We have audited the accompanying consolidated balance sheets of Palm
Harbor Homes, Inc. and subsidiaries (the Company) as of March 31, 1995 and
March 29, 1996, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended March 29, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Palm
Harbor Homes, Inc., and subsidiaries at March 31, 1995 and March 29, 1996, and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended March 29, 1996, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, Texas
May 3, 1996
p.23
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF PALM HARBOR HOMES, INC.
V. P. Homes, Inc.
Timberland Homes, Inc.
Magic Living, Inc.
Better Homes Systems, Inc.
Palm Harbor Finance Corporation
Palm Harbor Investments, Inc.
CountryPlace Mortgage, Ltd.
Energy Efficient Housing, Inc.
Palm Harbor Holding, Inc.
Palm Harbor GP, Inc.
Palm Harbor Homes I, L.P.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Palm Harbor Homes, Inc. and subsidiaries of our report dated May
3, 1996, included in the 1996 Annual Report to Shareholders of Palm Harbor
Homes, Inc.
/s/ Ernst & Young LLP
Dallas, Texas
June 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet as of March 29, 1996 and Consolidated
statement of Income for the year ended March 29, 1996 located in the Company's
1996 Annual Report to Shareholders and is qualified in its entirety by reference
to such financial statements and the notes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-29-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-29-1996
<CASH> 23,441
<SECURITIES> 5,087
<RECEIVABLES> 33,052
<ALLOWANCES> 0
<INVENTORY> 18,863
<CURRENT-ASSETS> 88,984
<PP&E> 50,922
<DEPRECIATION> 15,729
<TOTAL-ASSETS> 143,712
<CURRENT-LIABILITIES> 66,257
<BONDS> 3,784
<COMMON> 109
0
0
<OTHER-SE> 69,284
<TOTAL-LIABILITY-AND-EQUITY> 143,712
<SALES> 417,214
<TOTAL-REVENUES> 417,214
<CGS> 345,508
<TOTAL-COSTS> 345,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (751)
<INCOME-PRETAX> 19,555
<INCOME-TAX> 7,572
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,978
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.47
</TABLE>
