<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1996
Commission file number 0-26188
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 Number)
incorporation or organization)
15303 Dallas Parkway, Suite 800, Dallas, Texas 75248
--------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
972-991-2422
-------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 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) Yes X No
----- ------
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No .
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of common stock $.01 par value, outstanding on November 7, 1996 -
15,096,308.
<PAGE> 2
PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 27, MARCH 29,
1996 1996
------------- ---------
Unaudited
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 31,315 $ 23,441
Investments 5,690 5,087
Due from affiliate 3,848
Receivables 48,758 33,052
Inventories 53,408 18,863
Other current assets 5,638 4,693
--------- ---------
Total current assets 144,809 88,984
Other assets 35,456 19,535
Property, plant and equipment, net 45,889 35,193
--------- ---------
TOTAL ASSETS $ 226,154 $ 143,712
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts and flooring payable $ 72,581 $ 34,748
Accrued liabilities 38,153 31,323
Current portion of long-term debt 192 186
--------- ---------
Total current liabilities 110,926 66,257
Long-term debt, less current portion 3,686 3,784
Deferred income taxes 4,697 4,689
Shareholders' equity:
Common stock, $.01 par value 151 109
Additional paid-in capital 48,994 23,012
Retained earnings 58,001 46,272
--------- ---------
107,146 69,393
Less treasury shares (197) (205)
Notes receivable from shareholders (104) (206)
--------- ---------
Total shareholders' equity 106,845 68,982
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 226,154 $ 143,712
========= =========
</TABLE>
See accompanying notes.
1
<PAGE> 3
PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
1996 1995 1996 1995
------------ ----------- ------------ -----------
Unaudited Unaudited
<S> <C> <C> <C> <C>
Net sales $ 152,717 $ 103,247 $ 273,452 $ 202,013
Cost of products sold 118,261 85,980 216,341 168,412
Selling, general and
administrative expenses 24,786 12,745 40,718 24,846
--------- --------- --------- ---------
Income from operations 9,670 4,522 16,393 8,755
Interest expense (85) (268) (162) (530)
Other income 443 211 808 444
--------- --------- --------- ---------
Income before income from
affiliate and income taxes 10,028 4,465 17,039 8,669
Income from affiliate 853 1,049 1,670
--------- --------- --------- ---------
Income before income taxes 10,028 5,318 18,088 10,339
Income tax expense 3,727 1,701 6,323 3,286
--------- --------- --------- ---------
Net income $ 6,301 $ 3,617 $ 11,765 $ 7,053
========= ========= ========= =========
Income per common share $ .42 $ .30 $ .82 $ .58
========= ========= ========= =========
Weighted average common
shares outstanding 15,105 12,201 14,382 12,076
========= ========= ========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 4
PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
-------- --------
Unaudited
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,765 $ 7,053
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,070 1,309
Deferred income taxes (25) 41
Income from affiliate (1,049) (1,670)
Gain on disposition of assets (6) (4)
Changes in operating assets and liabilities:
Trade accounts receivable (238) (5,390)
Due from affiliate 3,848 (2,213)
Inventories (8,106) (1,376)
Other current assets (596) 520
Other assets 6,541 (580)
Accounts and flooring payable
and accrued expenses 4,863 10,543
-------- --------
Net cash provided by operating activities 19,067 8,233
INVESTING ACTIVITIES
Purchases of property, plant and equipment (10,010) (2,599)
Purchase of Energy Efficient Housing, Inc.,
Standard Casualty Company and Newco
Homes, Inc. (net of cash acquired
and stock issued) (3,284) --
Purchases of short-term investments (6,989) --
Sales of short-term investments 9,040 510
Proceeds from disposition of assets 6 4
-------- --------
Net cash used in investing activities (11,237) (2,085)
FINANCING ACTIVITIES
Proceeds from sale of stock, net -- 5,264
Principal payments on long-term debt (92) (2,700)
Notes receivable from shareholders, net 102 --
Net sales of treasury stock 34 --
-------- --------
Net cash provided by financing activities 44 2,564
-------- --------
Net increase in cash and cash equivalents 7,874 8,712
Cash and cash equivalents at beginning of period 23,441 11,421
-------- --------
Cash and cash equivalents at end of period $ 31,315 $ 20,133
======== ========
Supplemental schedule of non-cash investing activities:
Common stock issuance for acquisition of Energy
Efficient Housing, Inc. and Newco Homes, Inc. $ 25,998 --
</TABLE>
See accompanying notes.
3
<PAGE> 5
PALM HARBOR HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements reflect all adjustments,
which included only normal recurring adjustments, which are, in the
opinion of management, necessary for a fair and accurate presentation.
Certain footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been omitted. The condensed financial statements should be read in
conjunction with the audited financial statements for the year ended March
29, 1996. Results of operations for any interim period are not necessarily
indicative of results to be expected for a full year.
2. Acquisitions
On April 12, 1996, the Company acquired Energy Efficient Housing, Inc., a
retailer consisting of eight superstores in North Carolina, for a
combination of cash and 68,301 common shares of the Company.
On August 1, 1996, the Company acquired the remaining 58.4% of Newco
Homes, Inc. ("Newco"), a Texas-based retailer of manufactured homes. The
Company had previously owned 41.6% of Newco's outstanding shares. The
Company's purchase price for the remaining 58.4% of Newco's outstanding
shares consisted of $17.3 million cash and 1,444,445 shares of the
Company's common stock (after giving effect of the stock dividend below).
Prior to the acquisition of the remaining 58.4% of Newco, the Company
recorded its 41.6% equity interest in the net earnings of Newco as income
from affiliate.
3. Stock Dividend
On July 12, 1996, the Board of Directors of the Company declared a 5-for-4
stock split effected in the form of a 25% stock dividend to shareholders
of record on July 26, 1996. The stock dividend was paid on August 2, 1996.
Historical common share and per share data for all periods presented have
been adjusted to reflect the stock split.
4
<PAGE> 6
4. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 27, MARCH 29,
1996 1996
---------- --------
Unaudited
<S> <C> <C>
Raw materials $ 7,283 $ 7,014
Work in progress 2,541 2,405
Finished goods - manufacturing 1,477 1,062
- retail 42,107 8,382
------- -------
$53,408 $18,863
======= =======
</TABLE>
5. Related Party Transaction
In conjunction with the acquisition of Newco, the Company purchased
certain properties from significant shareholders of the Company. The
purchase price of $1,603,000 was based on independent appraisals.
6. Flooring Payable
The Company has revolving lines of credit totaling $67.4 million from
financial institutions, with interest rates ranging from prime to prime
plus one percent, for floor planning of homes at the Company's retail
superstores. The Company had $34.0 million outstanding on these lines of
credit as of September 27, 1996 compared to $3.4 million at March 29, 1996.
5
<PAGE> 7
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 1 through 5.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 77.4 83.3 79.1 83.4
----- ----- ----- -----
Gross profit 22.6 16.7 20.9 16.6
Selling, general and
administrative expenses 16.2 12.3 14.9 12.3
----- ----- ----- -----
Income from operations 6.4 4.4 6.0 4.3
Interest expense (0.1) (0.3) (0.1) (0.2)
Other income 0.3 0.2 0.3 0.2
----- ----- ----- -----
Income before income from
affiliate and income taxes 6.6 4.3 6.2 4.3
Income from affiliate 0.0 0.8 0.4 0.8
Income tax expense 2.5 1.6 2.3 1.6
----- ----- ----- -----
Net income 4.1% 3.5% 4.3% 3.5%
===== ===== ===== =====
</TABLE>
6
<PAGE> 8
The following table reflects the percentage changes in retail sales by
Company-owned superstores and in wholesale sales on a pro forma basis as if
the results of Newco and Energy Efficient Housing were consolidated for both
periods presented. It also shows percentage increases in the average number of
Company-owned superstores and in average home price. Comparative percentages
for the second quarters and six months ended September 27, 1996 and September
29, 1995 were as follows:
<TABLE>
<CAPTION>
Pro forma Pro forma
Second Quarter of First Six Months of
Fiscal 1997 vs 1996 Fiscal 1997 vs 1996
------------------- -------------------
Retail:
<S> <C> <C>
Dollar sales +18.2% +17.9
Weighted average number
of superstores +28.9% +26.8
Average home price + 9.6% +10.2
Wholesale:
Dollar sales +17.9% +21.7
Average home price + 8.0% +6.4
</TABLE>
THREE MONTHS ENDED SEPTEMBER 27, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 29, 1995
NET SALES. Net sales increased 47.9% to $152.7 million in the second
quarter of fiscal 1997 from $103.2 million in the second quarter of fiscal
1996. Of this increase, 32.0% was a result of the acquisition of the remaining
58.4% of Newco. The 47.9% increase in net sales reflects a 25.5% increase in
the volume of homes sold and a 17.8% increase in selling prices. In addition
to the Company's acquisitions, the increase in volume and average selling
prices also resulted from opening new retail superstores and increasing
production at relatively new manufacturing facilities.
GROSS PROFIT. Gross profit increased 99.6% to $34.5 million in the
quarter ended September 27, 1996 compared to $17.3 million in the quarter
ended September 29, 1995. During the same period, gross profit margin as a
percentage of net sales increased to 22.6% compared to 16.7%. This increase
was primarily the result of selling 35% of the Company's homes through
Company-owned retail superstores in the second quarter of fiscal 1997 versus
8% in the second quarter of fiscal 1996. Additionally, the maturation of
relatively new manufacturing facilities contributed to the positive gross
margin trend.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 94.5% to $24.8 million in the quarter ended
September 27, 1996 from $12.7 million in the quarter ended September 29, 1995,
primarily due to operating expenses related to acquired superstores, increased
sales and start-up expenses for a new manufacturing facility. As a percentage
of net sales, selling, general and administrative expenses increased to 16.2%
in the second quarter of fiscal 1997 from 12.3% in the second
7
<PAGE> 9
quarter of fiscal 1996. Of the 3.9% increase, approximately 2.0% related to
performance compensation based on operating results at acquired superstores.
INCOME FROM OPERATIONS. As a result of the foregoing factors, income
from operations increased 113.8% to $9.7 million in the quarter ended
September 27, 1996 compared to $4.5 million in the quarter ended September 29,
1995.
INCOME FROM AFFILIATE. Income from affiliate was $0.85 million in the
quarter ended September 29, 1995 compared to $0.0 in the quarter ended
September 27, 1996. The decrease was due to consolidating Newco's operating
results with the Company's operations in the second quarter of fiscal 1997.
See "Acquisitions" in Notes to Consolidated Financial Statements.
SIX MONTHS ENDED SEPTEMBER 27, 1996 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 29, 1995
NET SALES. Net sales increased 35.4% to $273.5 million in the six
months ended September 27, 1996 from $202.0 million in the six months ended
September 29, 1995. Of this increase, 23.5% was a result of the acquisition of
the remaining 58.4% of Newco and the April 1996 acquisition of Energy
Efficient Housing, Inc. The 35.4% increase in net sales reflects a 19.3%
increase in the volume of homes sold and a 13.5% increase in selling prices.
The increase in volume and average selling prices is due to the Company's
acquisitions, the opening of new retail superstores and increasing production
at relatively new manufacturing facilities.
GROSS PROFIT. Gross profit increased 70.0% to $57.1 million in the six
months ended September 27, 1996 compared to $33.6 million in the six months
ended September 29, 1995. During the same period, gross profit margin as a
percentage of sales increased to 20.9% from 16.6%. This increase was primarily
the result of selling 33% of the Company's produced homes through
Company-owned retail superstores in the first six months of fiscal 1997 versus
8.0% in the first six months of fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 63.9% to $40.7 million in the six months
ended September 27, 1996 from $24.8 million in the six months ended September
29, 1995, primarily due to operating expenses related to the acquired
superstores, increased sales and start-up expenses for a new manufacturing
facility. As a percentage of net sales, selling, general and administrative
expenses increased 2.6% to 14.9% in the six months ended September 27, 1996
from 12.3% in the six months ended September 29, 1995. Of the 2.6% increase,
approximately 1.5% was related to performance compensation based on operating
results at acquired superstores.
8
<PAGE> 10
INCOME FROM OPERATIONS. As a result of the foregoing factors, income
from operations increased 87.2% to $16.4 million in the six months ended
September 27, 1996 compared to $8.8 million in the six months ended September
29, 1995.
INCOME FROM AFFILIATE. Income from affiliate decreased 37.2% to $1.0
million in the six months ended September 27, 1996 from $1.7 million in the
six months ended September 29, 1995. The decrease was due to consolidating
Newco's operating results with the Company's operations beginning in the
second quarter of fiscal 1997. See "Acquisitions" in Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES. On August 1, 1996, the Company
acquired the remaining 58.4% of Newco Homes, Inc., a Texas-based retailer of
manufactured homes. The Company had previously owned 41.6% of Newco's
outstanding shares. The purchase price of the remaining 58.4% of Newco's
shares consisted of $17.3 million in cash and 1,444,445 shares of the
Company's common stock.
The Company has revolving lines of credit totaling $67.4 million from
financial institutions, with interest rates ranging from prime to prime plus
one percent, for floor planning of homes at the Company's retail superstores.
The Company had $34.0 million outstanding on these lines of credit as of
September 27, 1996 compared to $3.4 million at March 29, 1996.
The Company believes that cash flow from operations and floor plan
financing will be adequate to support its working capital and planned capital
expenditures in the foreseeable future. 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.
FORWARD-LOOKING INFORMATION
Certain statements contained in this report are forward-looking
statements within the meaning of Section 17A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. 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.
9
<PAGE> 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Not applicable
Item 2. Changes in Securities - Not applicable
Item 3. Defaults upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote by Security Holders
a) The Annual Meeting of Shareholders of Palm Harbor Homes,
Inc. was held on July 17, 1996.
b) The following nominees were elected Directors until the
next Annual Meeting of Shareholders and until their
respective successors shall have been elected and qualified.
Lee Posey
Larry H. Keener
William R. Thomas
Walter D. Rosenberg, Jr.
Frederick R. Meyer
John H. Wilson
A. Gary Shilling
c) The tabulation of votes for each Director nominee was
as follows:
Election of Directors: For Withheld
Lee Posey 9,459,838 13,310
Larry H. Keener 9,459,838 13,310
William R. Thomas 9,459,838 13,310
Walter D. Rosenberg, Jr 9,459,838 13,310
Frederick R. Meyer 9,459,838 13,310
John H. Wilson 9,458,334 14,814
A. Gary Shilling 9,459,838 13,310
d) To appoint Ernst & Young LLP as independent auditors
for the year ending March 28, 1997.
For Withheld Abstaining
9,469,049 1,938 2,161
Item 5. Other Information - Not applicable
10
<PAGE> 12
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule
(EDGAR filing only).
(b) A report on Form 8-K, dated July 5, 1996, was filed
by the registrant; such Report contained information
under Item 5 (Other Events) and included as an
Exhibit under Item 7 a copy of a press release
issued by the registrant.
A report on Form 8-K, dated August 1, 1996, was
filed by the registrant; such Report contained
information under Item 2 (Acquisition or Disposition
of Assets) and included under Item 7 financial
statements of businesses acquired and as Exhibits a
copy of the merger documents and a press release
issued by the registrant.
A report on Form 8-K/A, dated September 19, 1996,
was filed by the registrant; such Report contained
amended information under Item 7 financial
statements of businesses acquired.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Date: November 11, 1996
Palm Harbor Homes, Inc.
-----------------------
(Registrant)
By: /s/ KELLY TACKE
---------------------------------
Kelly Tacke
Chief Financial and
Accounting Officer
By: /s/ LEE POSEY
---------------------------------
Lee Posey
Chairman & Chief
Executive Officer
11
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 27, 1996 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE SIX MONTHS ENDED SEPTEMBER 27, 1996 LOCATED IN THE
COMPANY'S 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-28-1997
<PERIOD-START> MAR-30-1996
<PERIOD-END> SEP-27-1996
<CASH> 31,315
<SECURITIES> 5,690
<RECEIVABLES> 48,758
<ALLOWANCES> 0
<INVENTORY> 53,408
<CURRENT-ASSETS> 144,809
<PP&E> 45,889
<DEPRECIATION> 0
<TOTAL-ASSETS> 226,154
<CURRENT-LIABILITIES> 110,926
<BONDS> 3,686
0
0
<COMMON> 151
<OTHER-SE> 106,995
<TOTAL-LIABILITY-AND-EQUITY> 226,154
<SALES> 273,452
<TOTAL-REVENUES> 273,452
<CGS> 216,341
<TOTAL-COSTS> 216,341
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (162)
<INCOME-PRETAX> 17,039
<INCOME-TAX> 6,323
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,765
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
</TABLE>
