<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 26, 1997
Commission file number 0-26188
PALM HARBOR HOMES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Florida 59-1036634
(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
15303 Dallas Parkway, Suite 800, Dallas, Texas 75248
(Address of principal executive offices) (Zip code)
</TABLE>
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 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) 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 October 30, 1997 -
18,871,045. .
<PAGE> 2
PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 26, MARCH 28,
1997 1997
----------- -----------
Unaudited
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 28,744 $ 26,346
Investments 4,374 5,752
Receivables 63,018 53,424
Inventories 71,375 66,275
Other current assets 4,710 5,738
-------- ---------
Total current assets 172,221 157,535
Other assets 34,718 35,333
Property, plant and equipment, net 60,338 53,467
-------- ---------
TOTAL ASSETS $267,277 $246,335
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 39,408 $ 37,276
Floor plan payable 46,836 45,255
Accrued liabilities 37,443 35,572
Current portion of long-term debt 208 200
-------- ---------
Total current liabilities 123,895 118,303
Long-term debt, less current portion 3,492 3,583
Deferred income taxes 4,370 4,500
Shareholders' equity:
Common stock, $.01 par value 151 151
Additional paid-in capital 48,994 48,994
Retained earnings 86,572 71,011
-------- ---------
135,717 120,156
Less treasury shares (197) (194)
Notes receivable from shareholders (13)
-------- ---------
Total shareholders' equity 135,520 119,949
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $267,277 $ 246,335
======== =========
</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 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
------------ ----------- ------------ ------------
Unaudited Unaudited
<S> <C> <C> <C> <C>
Net sales $153,106 $152,717 $312,203 $273,452
Cost of sales 112,881 118,261 231,442 216,341
Selling, general and
administrative expenses 27,080 24,029 54,649 39,662
--------- --------- -------- --------
Income from operations 13,145 10,427 26,112 17,449
Interest expense (1,134) (842) (2,178) (1,218)
Other income 639 443 1,157 808
--------- --------- -------- --------
Income before income from
affiliate and income taxes 12,650 10,028 25,091 17,039
Income from affiliate 1,049
--------- --------- -------- --------
Income before income taxes 12,650 10,028 25,091 18,088
Income tax expense 4,757 3,727 9,530 6,323
--------- --------- -------- --------
Net income $ 7,893 $ 6,301 $ 15,561 $ 11,765
========= ========= ======== ========
Income per common share $ 0.42 $ 0.33 $ 0.83 $ 0.65
========= ========= ======== ========
Weighted average common
shares outstanding 18,878 18,882 18,871 17,978
========= ========= ======== ========
</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 26, SEPTEMBER 27,
1997 1996
------------- -------------
Unaudited
<S> <C> <C>
OPERATING ACTIVITIES
Net income $15,561 $11,765
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,506 2,070
Deferred income tax benefit (324) (25)
Income from affiliate (1,049)
Gain on disposition of assets (12) (6)
Changes in operating assets and liabilities:
Trade accounts receivable (9,594) (238)
Due from affiliate 3,848
Inventories (5,100) (8,106)
Other current assets 1,222 (596)
Other assets (188) 6,541
Accounts payable and accrued expenses 4,003 (2,268)
-------- --------
Net cash provided by operating activities 9,074 11,936
INVESTING ACTIVITIES
Purchases of property, plant and equipment (9,577) (10,010)
Purchase of Energy Efficient Housing, Inc., Standard
Casualty Company and Newco Homes, Inc. (net of
cash acquired and stock issued) (3,284)
Purchases of investments (1,847) (6,989)
Sales of investments 3,225 9,040
Proceeds from disposition of assets 15 6
-------- --------
Net cash used in investing activities (8,184) (11,237)
FINANCING ACTIVITIES
Net proceeds from floor plan payable 1,581 7,131
Principal payments on long-term debt (83) (92)
Net (purchases) sales of treasury stock (3) 34
Notes receivable from shareholders, net 13 102
-------- --------
Net cash provided by financing activities 1,508 7,175
-------- --------
Net increase in cash and cash equivalents 2,398 7,874
Cash and cash equivalents at beginning of period 26,346 23,441
-------- --------
Cash and cash equivalents at end of period $ 28,744 $ 31,315
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,165 $ 1,203
Income taxes 12,003 7,922
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 28, 1997. Results of operations
for any interim period are not necessarily indicative of results to be
expected for a full year.
2. Acquisitions
On August 1, 1996, the Company acquired an additional 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 1,805,556
shares of the Company's common stock. 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 June 24, 1997, 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 8, 1997. The stock dividend was paid
on July 21, 1997. Historical common share and per share data for all
periods presented have been adjusted to reflect the stock split.
4. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 26, MARCH 28,
1997 1997
---------- -----------
Unaudited
<S> <C> <C>
Raw materials $8,087 $ 7,966
Work in process 2,940 2,600
Finished goods - manufacturing 659 463
- retail 59,689 55,246
------- -------
$71,375 $66,275
======= =======
</TABLE>
4
<PAGE> 6
5. Other Assets
Other assets include goodwill of $29.3 million at September 26, 1997
and $28.7 at March 28, 1997, with accumulated amortization of $2.0
million and $1.3 million, respectively.
6. Floor Plan Payable
The Company has floor plan credit facilities totaling $67.0 million
from financial institutions to finance a major portion of its home
inventory at the Company's retail superstores. These facilities are
secured by a portion of the Company's home inventory and cash in
transit from financial institutions. Interest rates range from prime
(8.5% at September 26, 1997) to prime plus one-quarter percent. The
Company had $46.8 million and $45.3 million outstanding on these
credit facilities at September 26, 1997 and March 28, 1997,
respectively.
7. Line of Credit
On July 11, 1997, the Company obtained a $25.0 million unsecured
revolving line of credit from a financial institution for general
corporate purposes. The line of credit bears interest, at the option
of the Company (under certain conditions), at either the LIBOR rate
plus .625% or the prime rate minus 1%. The line of credit contains
provisions regarding minimum net worth requirements and certain
indebtedness limitations which would limit the amount available for
future borrowings. The line of credit also requires an annual
commitment fee of $20,000 and is available through July 10, 1999.
There was no amount outstanding on this line of credit at September
26, 1997.
8. Reclassification
Certain prior period amounts have been reclassified to conform to the
current period presentation.
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 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.7 77.4 74.1 79.1
------ ------ ------ ------
Gross profit 26.3 22.6 25.9 20.9
Selling, general and
administrative expenses 17.7 15.7 17.5 14.5
------ ------ ------ ------
Income from operations 8.6 6.9 8.4 6.4
Interest expense (0.7) (0.6) (0.7) (0.5)
Other income 0.4 0.3 0.4 0.3
------- ------ ------- -------
Income before income from
affiliate and income taxes 8.3 6.6 8.1 6.2
Income from affiliate - - - 0.4
Income tax expense 3.1 2.5 3.1 2.3
------- ------- ------- -------
Net income 5.2% 4.1% 5.0% 4.3%
======= ======= ======= =======
</TABLE>
The following table summarizes certain key sales statistics as of and for the
three and six months ended September 26, 1997 and September 27, 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Company homes sold through
Company-owned retail superstores 1,892 1,055 3,707 1,516
Total new homes sold 3,448 3,767 6,925 7,062
Internalization rate (1) 55% 28% 54% 21%
Average new home price - retail $56,000 $53,000 $55,000 $55,000
Number of retail superstores at
end of period 63 51 63 51
Manufacturing shipments 3,404 3,263 7,041 6,715
Manufacturing shipments to
Independent dealers 1,804 2,267 3,757 5,266
</TABLE>
(1) The internalization rate is the percentage of new homes that are
manufactured by the Company and sold through Company-owned retail
superstores.
6
<PAGE> 8
THREE MONTHS ENDED SEPTEMBER 26, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
27, 1996
NET SALES. Net sales increased 0.3% to $153.1 million in the second
quarter of fiscal 1998 from $152.7 million in the second quarter of fiscal
1997. Although retail sales increased 24% and wholesale sales increased 2%,
the minimal increase in consolidated net sales of 0.3% was due primarily to two
factors. First, a rise in the internalization rate from 28% in the quarter
ended September 27, 1996 to 55% in the quarter ended September 26, 1997,
limited sales growth as more of the homes manufactured by the Company were sold
through Company-owned retail superstores. Second, net sales were impacted by
the increase in retail stock inventory as the number of Company-owned retail
superstores increased from 51 in the second quarter of fiscal 1997 to 63 in the
second quarter of fiscal 1998.
GROSS PROFIT. Gross profit increased 16.7% to $40.2 million in the
quarter ended September 26, 1997 compared to $34.5 million in the quarter
ended September 27, 1996. During the same period, gross profit margin as a
percentage of net sales increased to 26.3% compared to 22.6%. This increase
was primarily the result of selling 55% of the Company's homes through
Company-owned retail superstores in the second quarter of fiscal 1998 versus
28% in the second quarter of fiscal 1997 and production efficiencies at
maturing manufacturing facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 12.7% to $27.1 million in the quarter ended
September 26, 1997 from $24.0 million in the quarter ended September 27, 1996,
primarily due to increased promotion and advertising expenditures as well as
start-up expenses for nine retail superstores and a manufacturing facility. As
a percentage of net sales, selling, general and administrative expenses
increased, as planned, to 17.7% in the second quarter of fiscal 1998 from
15.7% in the second quarter of fiscal 1997. This planned increase is due to
the growth in the Company's retail operations which, generally, have higher
selling, general and administrative expenses as a percentage of net sales as
compared to wholesale operations.
INCOME FROM OPERATIONS. As a result of the foregoing factors, income
from operations increased 26.1% to $13.1 million in the quarter ended September
26, 1997 compared to $10.4 million in the quarter ended September 27, 1996.
INTEREST EXPENSE. Interest expense increased 34.7% to $1.13 million for
the second quarter of fiscal 1998 from $.84 million in the second quarter of
fiscal 1997. This increase was primarily due to an increase in the floor plan
credit facilities.
OTHER INCOME. Other income increased 44.2% to $.64 million in the second
quarter of fiscal 1998 from $.44 million in the second quarter of fiscal 1997.
This increase was primarily the result of additional interest earned due to an
increase in the loan portfolio originated by CountryPlace Mortgage, Ltd., the
Company's finance subsidiary.
SIX MONTHS ENDED SEPTEMBER 26, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 27,
1996
NET SALES. Net sales increased 14.2% to $312.2 million in the six months
ended September 26, 1997 from $273.5 million in the six months ended
September 27, 1996. Of this
7
<PAGE> 9
increase, 7.6% was due to the acquisition of the remaining 58.4% of Newco
following the first quarter of fiscal 1997 resulting in net sales from those
acquired retail superstores in the first quarter of fiscal 1998 not to have
comparable net sales from the first quarter of fiscal 1997. Although retail
sales increased 79% and wholesale sales increased 3%, consolidated net sales
increased only 14.2% due primarily to two factors. First, a rise in the
internalization rate from 21% in the six months ended September 27, 1996 to 54%
in the six months ended September 26, 1997 limited sales growth as more of the
homes manufactured by the Company were sold through Company-owned retail
superstores. Second, net sales were impacted by the increase in retail stock
inventory as the number of Company-owned retail superstores increased from 51 in
the six months ended September 27, 1996 to 63 in the six months ended September
26, 1997.
GROSS PROFIT. Gross profit increased 41.4% to $80.8 million in the six
months ended September 26, 1997 compared to $57.1 million in the six months
ended September 27, 1996. During the same period, gross profit margin as a
percentage of net sales increased to 25.9% compared to 20.9%. This increase
was primarily the result of selling 54% of the Company's homes through
Company-owned retail superstores in the six months ended September 26, 1997
versus 21% in the six months ended September 27, 1996 and production
efficiencies at maturing manufacturing facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 37.8% to $54.6 million in the six months
ended September 26, 1997 from $39.7 million in the six months ended September
27, 1996, primarily due to operating expenses related to acquired superstores
and increased sales. As a percentage of net sales, selling, general and
administrative expenses increased, as planned, to 17.5% in the six months ended
September 26, 1997 from 14.5% in the six months ended September 27, 1996. This
planned increase is due to the growth in the Company's retail operations which,
generally, have higher selling, general and administrative expenses as a
percentage of net sales as compared to wholesale operations.
INCOME FROM OPERATIONS. As a result of the foregoing factors, income
from operations increased 49.7% to $26.1 million in the six months ended
September 26, 1997 compared to $17.4 million in the six months ended September
27, 1996.
INTEREST EXPENSE. Interest expense increased 78.9% to $2.2 million for
the six months ended September 26, 1997 from $1.2 million in the six months
ended September 27, 1996. This increase was primarily due to an increase in
the floor plan credit facilities.
OTHER INCOME. Other income increased 43.2% to $1.16 million in the six
months ended September 26, 1997 from $.81 million in the six months ended
September 27, 1996. This increase was primarily the result of additional
interest earned due to an increase in the loan portfolio originated by
CountryPlace Mortgage, Ltd., the Company's finance subsidiary.
INCOME FROM AFFILIATE. Income from affiliate was $1.05 million in the
six months ended September 27, 1996 compared to zero in the six months ended
September 26, 1997. 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 Condensed Consolidated Financial
Statements.
8
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES. On July 11, 1997, the Company obtained
a $25.0 million unsecured revolving line of credit from a financial
institution for general corporate purposes. The line of credit bears interest,
at the option of the Company (under certain conditions), at either the LIBOR
rate plus .625% or the prime rate minus 1%. The line of credit contains
provisions regarding minimum net worth requirements and certain indebtedness
limitations which would limit the amount available for future borrowings. The
line of credit also requires an annual commitment fee of $20,000 and is
available through July 10, 1999. There was no amount outstanding on this line
of credit at September 26, 1997. The Company has floor plan credit facilities
totaling $67.0 million from financial institutions to finance a major portion
of its home inventory at the Company's retail superstores. These facilities
are secured by a portion of the Company's home inventory and cash in transit
from financial institutions. Interest rates range from prime (8.5% at
September 26, 1997) to prime plus one-quarter percent. The Company had $46.8
million and $45.3 million outstanding on these credit facilities at September
26, 1997 and March 28, 1997, respectively.
The Company believes that cash flow from operations, together with floor
plan financing and the revolving line of credit, will be adequate to support
its working capital and planned capital expenditure needs in the foreseeable
future. The Company may, from time to time, obtain additional 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.
FORWARD-LOOKING INFORMATION. Certain statements contained in this report
are forward-looking statements within the meaning of Section 27A 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.
RECENT ACCOUNTING PRONOUNCEMENTS. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share" which will become effective in fiscal
1998. SFAS No. 128 will eliminate the disclosure of primary earnings per share
which includes the dilutive effect of stock options, warrants and other
convertible securities ("Common Stock Equivalents") and instead requires
reporting of "basic" earnings per share, which will exclude Common Stock
Equivalents. Additionally, SFAS No. 128 changes the methodology for fully
diluted earnings per share. In the opinion of the Company's management, it is
not anticipated that the adoption of this new accounting standard will have a
material effect on the reported earnings per share of the Company.
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 - Not
applicable
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Date Schedule (EDGAR filing
only).
(b) Reports on Form 8-K - Not applicable
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: October 30, 1997
Palm Harbor Homes, Inc.
------------------------------
(Registrant)
By: /s/ Kelly Tacke
------------------------------
Kelly Tacke
Chief Financial and Accounting
Officer
By: /s/ Lee Posey
------------------------------
Lee Posey
Chairman of the Board
10
<PAGE> 12
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 26, 1997 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE SIX MONTHS ENDED SEPTEMBER 26, 1997 LOCATED IN THE
COMPANY'S 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-27-1998
<PERIOD-START> MAR-29-1997
<PERIOD-END> SEP-26-1997
<CASH> 28,744
<SECURITIES> 4,374
<RECEIVABLES> 63,018
<ALLOWANCES> 0
<INVENTORY> 71,375
<CURRENT-ASSETS> 172,221
<PP&E> 60,338
<DEPRECIATION> 0
<TOTAL-ASSETS> 267,277
<CURRENT-LIABILITIES> 123,895
<BONDS> 3,492
0
0
<COMMON> 151
<OTHER-SE> 135,566
<TOTAL-LIABILITY-AND-EQUITY> 267,277
<SALES> 312,203
<TOTAL-REVENUES> 312,203
<CGS> 231,442
<TOTAL-COSTS> 231,442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,178
<INCOME-PRETAX> 25,091
<INCOME-TAX> 9,530
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,561
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
