<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 June 26, 1998
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
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(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 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 August 3, 1998 -
23,787,114.
<PAGE> 2
PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JUNE 26, MARCH 27,
1998 1998
--------- ---------
Unaudited
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 39,981 $ 21,073
Investments 7,886 5,091
Receivables 78,868 71,171
Inventories 106,946 108,185
Other current assets 6,283 5,163
--------- ---------
Total current assets 239,964 210,683
Other assets 75,592 75,803
Property, plant and equipment, net 69,840 67,360
--------- ---------
TOTAL ASSETS $ 385,396 $ 353,846
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 46,316 $ 44,547
Floor plan payable 107,083 79,564
Line of credit 17,000
Accrued liabilities 56,380 46,338
Current portion of long-term debt 221 944
--------- ---------
Total current liabilities 210,000 188,393
Long-term debt, less current portion 3,325 3,382
Deferred income taxes 4,890 5,015
Shareholders' equity:
Common stock, $.01 par value 191 191
Additional paid-in capital 54,197 54,197
Retained earnings 112,990 102,865
--------- ---------
167,378 157,253
Less treasury shares (197) (197)
--------- ---------
Total shareholders' equity 167,181 157,056
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 385,396 $ 353,846
========= =========
</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
JUNE 26, JUNE 27,
1998 1997
--------- ---------
Unaudited
<S> <C> <C>
Net sales $ 204,130 $ 159,097
Cost of sales 146,833 118,561
Selling, general and
administrative expenses 38,909 27,569
--------- ---------
Income from operations 18,388 12,967
Interest expense (2,250) (1,044)
Other income 684 518
--------- ---------
Income before income taxes 16,822 12,441
Income tax expense 6,697 4,773
--------- ---------
Net income $ 10,125 $ 7,668
========= =========
Net income per common share -
basic and diluted $ 0.53 $ 0.41
========= =========
Weighted average common shares
outstanding 19,029 18,870
========= =========
Weighted average common shares
outstanding - assuming dilution 19,078 18,895
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 4
PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 26, JUNE 27,
1998 1997
-------- --------
Unaudited
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,125 $ 7,668
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,665 1,334
Amortization 966 386
Deferred income tax benefit (125) (189)
Gain on sale of loans (2,947)
Gain on disposition of assets (76) (5)
Changes in operating assets and liabilities:
Trade accounts receivable (1,295) 1,357
Inventories 1,239 (1,134)
Other current assets (1,120) 1,312
Other assets (755) 846
Accounts payable and accrued expenses 11,811 16,887
-------- --------
Cash provided by operations 19,488 28,462
Loans originated (44,254)
Sales of loans 40,799
-------- --------
Net cash provided by operating activities 16,033 28,462
INVESTING ACTIVITIES
Purchases of property, plant and equipment (4,165) (5,145)
Purchases of investments (2,995) (1,244)
Sales of investments 200 3,225
Proceeds from disposition of assets 96 8
-------- --------
Net cash used in investing activities (6,864) (3,156)
FINANCING ACTIVITIES
Net proceeds from (payments on) floor plan payable 27,519 (9,245)
Payments on short-term debt (17,000)
Principal payments on notes payable and long-term debt (780) (49)
Notes receivable from shareholders, net 13
-------- --------
Net cash provided by (used in) financing activities 9,739 (9,281)
-------- --------
Net increase in cash and cash equivalents 18,908 16,025
Cash and cash equivalents at beginning of period 21,073 26,346
-------- --------
Cash and cash equivalents at end of period $ 39,981 $ 42,371
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,024 $ 1,060
Income taxes 150 553
</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 include 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 consolidated
financial statements should be read in conjunction with the audited
financial statements for the year ended March 27, 1998. Results of
operations for any interim period are not necessarily indicative of
results to be expected for a full year.
2. Stock Dividend
On June 30, 1998, 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 14, 1998. The stock dividend was paid on
July 28, 1998. Historical common share and per share data for all
periods presented have not been adjusted to reflect the stock split.
3. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 26, MARCH 27,
1998 1998
---------- ---------
Unaudited
<S> <C> <C>
Raw materials $ 8,303 $ 8,625
Work in process 2,792 2,803
Finished goods - manufacturing 125 156
- retail 95,726 96,601
--------- ---------
$ 106,946 $ 108,185
========= =========
</TABLE>
4. Other Assets
Other assets include goodwill of $65.7 million at June 26, 1998 and
$63.5 at March 27, 1998, with accumulated amortization of $3.9 million
and $3.0 million, respectively.
5. Floor Plan Payable
The Company has floor plan credit facilities totaling $170.0 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
(8.50% at June 26, 1998) to prime minus .50%. The Company had $107.1
million and $79.6 million outstanding on these floor plan credit
facilities at June 26, 1998 and March 27, 1998, respectively.
4
<PAGE> 6
6. Line of Credit
The Company has 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. The Company had zero and $17.0 million
outstanding on this line of credit on June 26, 1998 and March 27, 1998,
respectively.
7. Reclassification
Certain prior period amounts have been reclassified to conform to the
current period presentation.
8. Financial Services Revenue Recognition
The Company has adopted Statement of Financial Accounting Standards No.
125 (SFAS 125) "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," which became effective
after December 31, 1996. SFAS 125 modifies the Company's accounting
policies for the origination and sale of loan contracts through
CountryPlace Mortgage, Ltd. ("CountryPlace"), the Company's finance
subsidiary. CountryPlace sells the loan contracts to national consumer
finance companies and retains a residual interest in the interest
generated by the sold contracts. The fair value of the residual
interest is determined using a number of market based assumptions. The
gain on the sale of these contracts is included in revenues net of any
estimated credit losses. The effect of SFAS 125 on prior periods was
not material. The Company also recognizes income from the sale of
property and casualty insurance policies.
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
JUNE 26, JUNE 27,
1998 1997
------- -------
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of sales 71.9 74.5
------- -------
Gross profit 28.1 25.5
Selling, general and
administrative expenses 19.1 17.3
------- -------
Income from operations 9.0 8.2
Interest expense (1.1) (0.7)
Other income 0.4 0.3
------- -------
Income before income taxes 8.3 7.8
Income tax expense 3.3 3.0
------- -------
Net income 5.0% 4.8%
======= =======
</TABLE>
6
<PAGE> 8
The following table summarizes certain key sales statistics as of and for the
three months ended June 26, 1998 and June 27, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 26, JUNE 27,
1998 1997
-------- --------
<S> <C> <C>
Company homes sold through
Company-owned retail superstores 2,481 1,815
Total new homes sold 4,209 3,477
Internalization rate (1) 59% 52%
Average new home price - retail $ 54,000 $ 53,000
Number of retail superstores at
end of period 99 59
Homes sold to independent retailers 1,313 1,596
</TABLE>
(1) The internalization rate is the percentage of new homes that are
manufactured by the Company and sold through Company-owned retail
superstores.
THREE MONTHS ENDED JUNE 26, 1998 COMPARED TO THREE MONTHS ENDED JUNE 27, 1997
NET SALES. Net sales increased 28.3% to $204.1 million in the first
quarter of fiscal 1999 from $159.1 million in the first quarter of fiscal 1998.
Of this increase, 25.2% was the result of an increase in manufactured housing
sales and 3.1% was the result of an increase in financial services income. The
increase in manufactured housing sales was primarily due to a 54.0% increase in
the volume of homes sold through Company-owned retail superstores. The Company
had 99 superstores at the end of the first quarter of fiscal 1999 compared to 59
at the end of the first quarter of fiscal 1998. The increase in financial
services income was primarily due to an increase in the gain on the sale of
loans in which CountryPlace Mortgage, Ltd., the Company's finance subsidiary,
retains a residual interest. See "Financial Services Revenue Recognition" in
Notes to Condensed Consolidated Financial Statements.
GROSS PROFIT. Gross profit increased 41.4% to $57.3 million in the
quarter ended June 26, 1998 compared to $40.5 million in the quarter ended June
27, 1997. During the same period, gross profit margin as a percentage of net
sales increased to 28.1% compared to 25.5%. This increase was the result of
selling 59% of the Company's homes through Company-owned retail superstores in
the first quarter of fiscal 1999 versus 52% in the first quarter of fiscal 1998
and production efficiencies at manufacturing facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 41.1% to $38.9 million in the quarter ended
June 26, 1998 from $27.6 million in the quarter ended June 27, 1997, primarily
due to increased promotion and advertising expenditures, expenses associated
with the 40 additional retail superstores, and performance based compensation
expense. As a percentage of net sales, selling, general and administrative
expenses increased, as planned, to 19.1% in the first quarter of fiscal 1999
from 17.3% in the
7
<PAGE> 9
first quarter of fiscal 1998. 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 41.8% to $18.4 million in the quarter ended June 26, 1998
compared to $13.0 million in the quarter ended June 27, 1997.
INTEREST EXPENSE. Interest expense increased 115.5% to $2.3 million for
the first quarter of fiscal 1999 from $1.0 million in the first quarter of
fiscal 1998. This increase was primarily due to an increase in floor plan credit
facilities.
OTHER INCOME. Other income increased 32.1% to $0.68 million in the first
quarter of fiscal 1999 from $0.52 million in the first quarter of fiscal 1998.
This increase was primarily the result of additional interest earned on cash
used for investments.
LIQUIDITY AND CAPITAL RESOURCES. The Company has floor plan credit
facilities totaling $170.0 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 (8.50% at
June 26, 1998) to prime minus .50%. The Company had $107.1 million and $79.6
million outstanding on these credit facilities at June 26, 1998 and March 27,
1998, respectively. The Company has 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. The Company had zero and $17.0
million outstanding on this line of credit at June 26, 1998 and March 27, 1998,
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 currently 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. The Company is also considering other various sources of financing
including, but not limited to, a private placement of debt. 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
8
<PAGE> 10
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 June 30, 1998.
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
Scott W. Chaney
Thomas G. Cannon
c) The tabulation of votes for each Director nominee was
as follows:
<TABLE>
<CAPTION>
Election of Directors: For Withheld
<S> <C> <C>
Lee Posey 16,150,920 93,083
Larry H. Keener 16,151,000 92,803
William R. Thomas 16,151,164 92,639
Walter D. Rosenberg, Jr. 16,151,153 92,651
Frederick R. Meyer 16,151,136 92,667
John H. Wilson 16,151,164 92,639
A. Gary Shilling 16,151,164 92,639
Scott W. Chaney 16,151,109 92,713
Thomas G. Cannon 16,150,891 92,911
</TABLE>
d) To appoint Ernst & Young LLP as independent auditors
for the year ending March 26, 1999.
<TABLE>
<CAPTION>
For Withheld Abstaining
<S> <C> <C>
16,234,656 3,330 5,815
</TABLE>
10
<PAGE> 12
e) To increase the number of authorized shares of Common
Stock from 20,000,000 to 50,000,000.
<TABLE>
<CAPTION>
For Withheld Abstaining
<S> <C> <C>
14,770,638 1,467,696 5,468
</TABLE>
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: August 3, 1998
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
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 THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF JUNE 26, 1998 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 26, 1998 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> 3-MOS
<FISCAL-YEAR-END> MAR-26-1999
<PERIOD-START> MAR-28-1998
<PERIOD-END> JUN-26-1998
<CASH> 39,981
<SECURITIES> 7,886
<RECEIVABLES> 78,868
<ALLOWANCES> 0
<INVENTORY> 106,946
<CURRENT-ASSETS> 239,964
<PP&E> 69,840
<DEPRECIATION> 0
<TOTAL-ASSETS> 385,396
<CURRENT-LIABILITIES> 210,000
<BONDS> 3,325
0
0
<COMMON> 191
<OTHER-SE> 166,990
<TOTAL-LIABILITY-AND-EQUITY> 385,396
<SALES> 204,130
<TOTAL-REVENUES> 204,130
<CGS> 146,833
<TOTAL-COSTS> 146,833
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,250
<INCOME-PRETAX> 16,822
<INCOME-TAX> 6,697
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,125
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
