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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 [NO FEE REQUIRED]
For the fiscal year ended March 26, 1999
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
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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, ADDISON, TEXAS 75001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972)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. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of May 15, 1999, was $ 198,260,313 based on
the closing price on that date of the Common Stock as quoted on the Nasdaq
National Stock Market.
As of May 15, 1999, 23,763,174 shares of the registrant's Common Stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended March 26, 1999, 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 June 30, 1999 are incorporated by reference
in Part III.
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This report contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including, without limitation,
those regarding the growth and financing strategies of Palm Harbor Homes, Inc.
(the "Company"), projections of revenues, income or other financial items, the
effective implementation of the Company's business or growth strategy, the
adequacy of the Company's capital resources and other statements regarding
trends relating to the manufactured home industry and various other items
involving known and unknown risks, uncertainties and other factors which may
cause the actual results, performance and achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors 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; demographic changes; competitive product, advertising,
promotional and pricing activity; raw material and labor costs and availability;
dependence on the rate of development and degree of acceptance of new product
introductions in the marketplace; relationships with customers or dealers; the
availability, terms and development of capital; changes in or failure to
identify or consummate successful acquisitions or to assimilate the operations
of any acquired businesses with those of the Company; the difficulty of
forecasting sales at certain times in certain markets; and government
regulation.
PART I.
ITEM 1. BUSINESS
GENERAL
Palm Harbor Homes, Inc. is one of the largest producers of
multi-section manufactured homes in the United States. The Company's operations
are vertically integrated and encompass manufacturing, marketing, financing and
insurance. At March 26, 1999, the Company operated 16 manufacturing facilities
that sell homes through retailers in 32 states including approximately 300
independent retail sales centers and 120 Company-owned superstores.
At March 26, 1999, the Company owned and operated 120 superstores in
Alabama, Arizona, Arkansas, Colorado, Florida, Georgia, Indiana, Kansas,
Kentucky, Louisiana, Nevada, New Mexico, North Carolina, Ohio, Oklahoma, Oregon,
South Carolina, Tennessee, Texas, Virginia, and Washington. With the opening of
29 superstores in fiscal 1999, the Company took significant steps in fiscal year
1999 toward its plan to increase sales through Company-owned superstores.
Through its subsidiary, CountryPlace Mortgage, Ltd. ("CountryPlace"),
the Company offers installment financing to purchasers of manufactured homes
sold by Company-owned 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.
Through its subsidiary, Standard Casualty Company, the Company provides
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 complements the services of CountryPlace and will be additive to
earnings.
PRODUCTS
The Company manufactures a variety of single and multi-section homes
under various brand names including Palm Harbor, Masterpiece, Keystone, River
Bend and Windsor Homes. Palm Harbor offers over 150 floor plans and
approximately 85% of the homes produced by the Company are structurally or
decoratively customized to the home buyer's specifications. Although the Company
produces a wide retail price range of homes, the average retail price (excluding
land) of the Company's homes is approximately $55,000 and approximately 78% of
the Company's homes are multi-section.
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 16 facilities located
in Alabama, Arizona, Florida, Georgia, North Carolina, Ohio, Oregon and Texas. A
typical Company manufacturing facility has approximately 100,000 square feet of
floor space, and employs approximately 240 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 153 sections per day. The current rate of
production is 113 sections per day.
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>
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Homes sold:
Single-section ............ 1,474 2,192 2,781 2,687 3,474
Multi-section ............. 8,723 9,983 11,092 11,547 12,154
------ ------ ------ ------ ------
Total homes sold ............. 10,197 12,175 13,873 14,144 15,628
====== ====== ====== ====== ======
Sections Produced ............ 19,163 22,049 24,545 26,014 27,380
Manufacturing facilities
(at end of fiscal year) ... 13 14 15 16 16
</TABLE>
The Company's homes are constructed at the Company's manufacturing
facilities. Independent trucking companies transport finished homes to either
the retailer or the customer's site. Typically, 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 Company
believes that its factory finish-out program, whereby Palm Harbor associates
perform installation and finish-out services, ensures that Palm Harbor quality
is applied to the entire process, lessens customer concerns, strengthens the
Company's relationship with its customers and provides the Company an advantage
over many of its competitors.
The Company's backlog of orders as of May 21, 1999 was approximately
$7.9 million, as compared to approximately $26.0 million as of May 29, 1998.
Since retailers may cancel orders prior to production without penalty, the
Company does not consider its order backlog to be firm orders; however, such
cancellations rarely occur. Because of the seasonality of the housing market,
the level of backlog generally declines during the winter months.
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. Four
suppliers, which accounted for more than 5% of the Company's total purchases
during the Company's fiscal year ended March 26, 1999, represented approximately
9.4%, 7.3%, 5.8% and 5.3%, respectively, of total purchases during such fiscal
year. The Company does not believe that the loss of any single supplier would
have a material adverse effect on its business.
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RETAIL OPERATIONS
The Company's homes are sold through a distribution network consisting
of (i) superstores owned by the Company; 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:
<TABLE>
<CAPTION>
March 28, March 27, March 26,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Homes sold by retailers:
Company-owned.............. 5,211 7,696 10,776
Independent ............... 8,662 6,448 4,852
------ ------ ------
Total ..................... 13,873 14,144 15,628
====== ====== ======
Number of sales centers:
Company- owned ............ 54 94 120
Independent ............... 600 300 300
------ ------ ------
Total ..................... 654 394 420
====== ====== ======
</TABLE>
The Company originally established wholly-owned superstores in 1992,
and currently has 120 superstores in Alabama, Colorado, Florida, Georgia,
Indiana, Louisiana, Nevada, New Mexico, North Carolina, Ohio, Oregon, South
Carolina, Texas and Washington. The Company plans to add 15 to 20 retail
superstores in fiscal 2000.
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
5% or more of the Company's net sales during fiscal 1999. The Company provides
comprehensive sales training to its retail sales associates and brings them 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's five largest retailers (including Company-owned or
affiliated superstores) accounted for approximately 51% of net sales in fiscal
1999. The Company's independent 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 26, 1999, 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, 42%
Mississippi, Tennessee, Virginia
Central Texas, Oklahoma, Louisiana, Arkansas, Kansas 32
West New Mexico, Arizona, Colorado, California, Oregon, 20
Washington, Idaho, Montana, Nevada, Utah
Midwest Ohio, Michigan, Indiana, Kentucky, West Virginia, Illinois 6
-----
100.0%
=====
</TABLE>
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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 17 to 79 retailers, and
the facility sales staff maintains personal contact with each retailer, whether
Company-owned or independent. 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.
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. The Company
offers 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 currently being offered through Company-owned superstores.
Loan applications originate at the superstore and are forwarded to
CountryPlace for final credit approval. CountryPlace then assigns the approved
loan contracts to one of three national consumer finance companies. CountryPlace
and the national consumer finance companies 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
companies assume all losses.
Retail installment loans assigned by CountryPlace are serviced and
administered by the national consumer finance companies. 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 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 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) only 37% of the Company's homes are sold to independent retailers;
(ii) a majority of the homes sold by the Company to independent retailers are
pre-sold to specific retail customers; (iii) the Company monitors each
retailer's inventory position on a regular basis; (iv) sales of the Company's
manufactured homes are spread over a large number of retailers, (v) none of the
Company's independent retailers accounted for more than 5% of the Company's net
sales in fiscal 1999; (vi) the price the Company is obligated to pay declines
over time; and (vii) 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 $ 65 million as
of March 26, 1999. During the fiscal years ended March 28, 1997, March 27, 1998
and March 26, 1999, net expenses (income) incurred by the Company under these
repurchase agreements totaled $55,000, ($13,000) and $ 29,000, 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.
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GOVERNMENT REGULATION
The Company's manufactured homes are subject to a number of federal,
state and local laws, codes and regulations. Construction of manufactured
housing is governed by the National Manufactured Housing Construction and Safety
Standards Act of 1974, as amended (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 on such matters, and are subject to
continual change. 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 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 have in the past evaluated 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 transportation of manufactured homes on highways is subject to
regulation by various federal, state and local authorities. Such regulations may
prescribe size and road use limitations and impose lower than normal speed
limits and various other requirements.
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 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.
A variety of laws affect the financing of manufactured homes by the
Company. The Federal Consumer Credit Protection Act (Truth-in-Lending) and
Regulation Z promulgated thereunder require written disclosure of information
relating to such financing, including the amount of the annual percentage rate
and the finance charge. The Federal Fair Credit Reporting Act also requires
certain disclosures to potential customers concerning credit information used as
a basis to deny credit. The Federal Equal Credit Opportunity Act and Regulation
B promulgated thereunder prohibit discrimination against any credit applicant
based on certain specified grounds. The Real Estate Settlement Procedures Act
and Regulation X promulgated thereunder require certain disclosures regarding
the nature and costs of real estate settlements. The Federal Trade Commission
has adopted or proposed various Trade Regulation Rules dealing with unfair
credit and collection practices and the preservation of consumers' claims and
defenses. Installment sales contracts eligible for inclusion in a Government
National Mortgage Association program are subject to the credit underwriting
requirements of the Federal Housing Association. A variety of state laws also
regulate the form of the installment sale contracts or financing documents and
the allowable deposits, finance charge and fees chargeable pursuant to
installment sale contracts or financing documents. The sale of insurance
products by the Company is subject to various state insurance laws and
regulations which govern allowable charges and other insurance practices.
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."
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ASSOCIATES
As of March 26, 1999, the Company had approximately 5,400 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 16 facilities in 8
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
Casa Grande July 1997 Owned 90,000
Florida Plant City September 1981 Owned 93,600
June 1985 Owned 87,200
Georgia LaGrange August 1996 Owned 200,000
North Carolina Albemarle January 1994 Owned 112,700
Siler City January 1988 Owned 91,200
July 1996 Leased 40,000
Ohio Sabina January 1988 Owned 85,000
Oregon Millersburg April 1995 Owned 168,650
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>
In addition to its production facilities, the Company owns certain
properties upon which 23 of its retail superstores are located. The Company also
leases approximately 29,000 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
Except as described below, 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.
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<PAGE> 8
The Company's Tempe facility is partially located within a large area
that has been identified by the Environmental Protection Agency ("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 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.
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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 Stock
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 sales information per share of the Common
Stock as reported on the Nasdaq National Stock Market.
<TABLE>
<CAPTION>
FISCAL 1999 HIGH LOW
- ----------- ------ ------
<S> <C> <C>
First Quarter(1) ................................ $38.10 $27.20
Second Quarter .................................. 37.40 24.00
Third Quarter ................................... 27.63 19.00
Fourth Quarter .................................. 30.00 19.75
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998 HIGH LOW
- ----------- ------ ------
<S> <C> <C>
First Quarter(2) ................................ $26.40 $17.00
Second Quarter .................................. 30.00 24.80
Third Quarter ................................... 30.50 24.75
Fourth Quarter .................................. 38.38 27.50
</TABLE>
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(1) On June 30, 1998, the Board of Directors of the Company declared a 5-4
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.
(2) On June 24, 1997, the Board of Directors of the Company declared a 5-4
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.
On May 15, 1999, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $21.31. As of May 15, 1999, there were
approximately 1700 record holders of the Common Stock, and approximately 4100
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 11 of the Company's Annual Report to Shareholders for the
year ended March 26, 1999, such pages being 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 12 through 15 of the Company's Annual Report to
Shareholders for the year ended March 26, 1999, such pages being filed as
Exhibit 13.1 hereto.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements for the year ended March 26, 1999
are listed in the accompanying Index to Consolidated Financial Statements at
page F-1 and are incorporated by reference from pages 16 through 29 of the
Company's Annual Report to Shareholders for the year ended March 26, 1999, such
pages being filed as Exhibit 13.1 hereto.
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 6 of the
Company's definitive Proxy Statement filed with the Securities and Exchange
Commission on June 3, 1999 in connection with the Annual Meeting of Shareholders
to be held June 30, 1999.
(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 7 through 9 of the Company's definitive Proxy Statement
filed June 3, 1999 in connection with the Annual Meeting of Shareholders to be
held June 30, 1999.
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 pages 4 and 5 of the
Company's definitive Proxy Statement filed June 3, 1999 in connection with the
Annual Meeting of Shareholders to be held June 30, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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
26, 1999 are listed in the accompanying Index to Consolidated Financial
Statements at page F-1 and are incorporated herein by reference from pages 16
through 29 of the Company's Annual Report to Shareholders for the year ended
March 26, 1999.
(2) Financial Statement Schedules
None
(3) Index to Exhibits
-9-
<PAGE> 11
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of June 30, 1996, by
and among Palm Harbor Homes, Inc., Newco Homes, Inc., Scott W.
Chaney, Christopher M. Finke, Thomas B. Kesterson and Joseph
H. Kesterson (Incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated August 1, 1996
(File No. 0-24268)).
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated August
1, 1996 (Incorporated by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K dated August 1, 1996
(File No. 0-24268)).
2.3 Stock Purchase Agreement dated February 9, 1998, by and among
Palm Harbor Homes, Inc., Cannon Manufactured Housing Group,
Inc., Cannon Mobile Homes, Inc., Pleasant Valley Mobile Homes,
Inc., Countryside Mobile Homes, Inc., Cumberland Homes, Inc.,
First Home Mortgage Corporation, Thomas G. Cannon, Dale F.
Cannon, Jack H. Coffey, John G. Blake, Todd R. Cannon and the
Estate of Grover R. Cannon (Incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated February 9, 1998 (File No. 000-24268)).
2.4 Amendment Number One to Stock Purchase Agreement dated March
7, 1998, by and among Palm Harbor Homes, Inc., Cannon
Manufactured Housing Group, Inc., Cannon Mobile Homes, Inc.,
Pleasant Valley Mobile Homes, Inc., Countryside Mobile Homes,
Inc., Cumberland Homes, Inc., First Home Mortgage Corporation,
Thomas G. Cannon, Dale F. Cannon, Jack H. Coffey, John G.
Blake, Todd R. Cannon and the Estate of Grover R. Cannon
(Incorporated by reference to Exhibit 2.2 to the Registrant's
Current Report on Form 8-K dated April 7, 1998 (File No.
000-24268)).
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 Associate Stock Purchase Plan (Incorporated by reference to
Exhibit 10.2 to the Registrant's Registration Statement on
Form S-1, No. 33-97676).
10.2 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).
10.3 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).
10.4 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).
*10.5 Amended and Restated Compensation Agreement by and between the
Company and Lee Posey dated to be effective as of March 27,
1999.
*13.1 Selected pages of the Company's Annual Report to Shareholders
for the year ended March 26, 1999.
*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 [Filed in electronic format only].
</TABLE>
- ----------
* Filed herewith
(b) None.
(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 on June 15, 1999.
PALM HARBOR HOMES, INC.
/s/ LEE POSEY
--------------------------------
Lee Posey, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
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 26, 1999
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 and Director June 15, 1999
Lee Posey (Principal Executive Officer)
/s/ LARRY KEENER
- ---------------------------- Chief Executive Officer, President and June 15, 1999
Larry Keener Director
/s/ SCOTT W. CHANEY
- ---------------------------- Executive Vice President and Director June 15, 1999
Scott W. Chaney
/s/ KELLY TACKE
- ---------------------------- Vice President-Finance, Chief Financial June 15, 1999
Kelly Tacke Officer and Secretary (Principal
Financial and Accounting Officer)
/s/ WILLIAM R. THOMAS
- ---------------------------- Director June 15, 1999
William R. Thomas
/s/ WALTER D. ROSENBERG, JR.
- ---------------------------- Director June 15, 1999
Walter D. Rosenberg, Jr.
/s/ FREDERICK R. MEYER
- ---------------------------- Director June 15, 1999
Frederick R. Meyer
/s/ JOHN H. WILSON
- --------------------------- Director June 15, 1999
John H. Wilson
/s/ A. GARY SHILLING
- ---------------------------- Director June 15, 1999
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:
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
Consolidated Financial Statements (incorporated by reference under Item 8 of
Part II from pages 11 through 29 of the Company's Annual Report to Shareholders
for the year ended March 26, 1999):
Consolidated Balance Sheets as of March 27, 1998 and March 26, 1999
Consolidated Statements of Income for the years ended March 28, 1997,
March 27, 1998 and March 26, 1999 Consolidated Statements of
Shareholders' Equity for the years ended
March 28, 1997, March 27, 1998 and March 26, 1999 Consolidated
Statements of Cash Flows for the years ended
March 28, 1997, March 27, 1998 and March 26, 1999
Notes to Consolidated Financial Statements
Report of Independent Auditors
F-1
<PAGE> 14
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of June 30, 1996, by
and among Palm Harbor Homes, Inc., Newco Homes, Inc., Scott W.
Chaney, Christopher M. Finke, Thomas B. Kesterson and Joseph
H. Kesterson (Incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated August 1, 1996
(File No. 0-24268)).
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated August
1, 1996 (Incorporated by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K dated August 1, 1996
(File No. 0-24268)).
2.3 Stock Purchase Agreement dated February 9, 1998, by and among
Palm Harbor Homes, Inc., Cannon Manufactured Housing Group,
Inc., Cannon Mobile Homes, Inc., Pleasant Valley Mobile Homes,
Inc., Countryside Mobile Homes, Inc., Cumberland Homes, Inc.,
First Home Mortgage Corporation, Thomas G. Cannon, Dale F.
Cannon, Jack H. Coffey, John G. Blake, Todd R. Cannon and the
Estate of Grover R. Cannon (Incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated February 9, 1998 (File No. 000-24268)).
2.4 Amendment Number One to Stock Purchase Agreement dated March
7, 1998, by and among Palm Harbor Homes, Inc., Cannon
Manufactured Housing Group, Inc., Cannon Mobile Homes, Inc.,
Pleasant Valley Mobile Homes, Inc., Countryside Mobile Homes,
Inc., Cumberland Homes, Inc., First Home Mortgage Corporation,
Thomas G. Cannon, Dale F. Cannon, Jack H. Coffey, John G.
Blake, Todd R. Cannon and the Estate of Grover R. Cannon
(Incorporated by reference to Exhibit 2.2 to the Registrant's
Current Report on Form 8-K dated April 7, 1998 (File No.
000-24268)).
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 Associate Stock Purchase Plan (Incorporated by reference to
Exhibit 10.2 to the Registrant's Registration Statement on
Form S-1, No. 33-97676).
10.2 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).
10.3 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).
10.4 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).
*10.5 Amended and Restated Compensation Agreement by and between the
Company and Lee Posey dated to be effective as of March 27,
1999.
*13.1 Selected pages of the Company's Annual Report to Shareholders
for the year ended March 26, 1999.
*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 [Filed in electronic format only].
</TABLE>
- ----------
* Filed herewith
<PAGE> 1
EXHIBIT 10.5
AMENDED AND RESTATED
COMPENSATION AGREEMENT
This Amended and Restated Compensation Agreement ("Agreement") is made
and entered into by and between Palm Harbor Homes, Inc., a Florida corporation
("Palm Harbor"), and Lee Posey ("Employee"), dated to be effective as of March
27, 1999.
WITNESSETH:
WHEREAS, effective April 1, 1995, Palm Harbor and Employee entered into
that certain Compensation Agreement (the "Original Agreement"); and
WHEREAS, the parties desire to amend and restate the Original Agreement
to reflect the current agreement between the parties;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the employment and payment of compensation to Employee upon the terms
and conditions set forth herein and each act done pursuant hereto, the parties
hereto agree as follows:
EMPLOYMENT
1. Nature of Employment. For the term of employment as below stated,
and subject to general supervision by the Board of Directors of Palm Harbor
(the "Board"), to whom Employee shall exclusively report, Palm Harbor hereby
employs Employee as its Chairman of the Board to supervise and manage the
operations of Palm Harbor, and to perform such other duties as are customarily
provided by persons in similar officer positions with companies of the same
general size and engaged in comparable businesses as the Company and as the
Board shall from time to time reasonably prescribe. Employee shall have the
authority to bind Palm Harbor to contracts to the same extent as the Chief
Executive Officer and/or President of Palm Harbor, without the necessity of
having the Board adopt a specific resolution in each such instance in which the
Chief Executive Officer and/or President has or is given authority to execute
contracts.
2. Initial Term. Subject to earlier termination as hereinafter
provided, the initial term of employment of Employee hereunder shall commence
on the date hereof, and continue for a period of eight years, which eight-year
term shall be renewable at the end of such eight-year period upon mutual
written agreement of Palm Harbor and Employee. As used herein, the phrase "term
of employment" shall mean said initial eight-year term of employment as well as
any renewal terms thereof.
3. Termination. This Agreement shall be terminated prior to the
expiration of the term of employment only as follows:
(a) by mutual consent of the parties;
<PAGE> 2
(b) upon the death or permanent disability (as determined in
accordance with the then existing policy of Palm Harbor) of
Employee;
(c) by Palm Harbor, upon conviction of a felony by Employee;
(d) by Palm Harbor, upon commission of any intentional misconduct
relating to the business of Palm Harbor which causes material
damage to Palm Harbor; or
(e) at Employee's option.
4. Relationship. In performing the services described under this
Agreement, it is mutually understood and agreed that Employee will at all times
be acting and performing as an employee. This Agreement creates the relationship
of principal and agent between Palm Harbor and Employee during the employment
period. Subject to the limitations in Section 1, Employee shall have the
authority to create obligations and make any contracts, agreements,
representations and warranties on behalf of and in the name of Palm Harbor
during the employment period.
5. Services. During the term of employment, Employee shall furnish the
services of Chairman of the Board to Palm Harbor for 100 days per year during
the three fiscal years following the date of this Agreement, and 50 days per
year during the five fiscal years thereafter, and shall perform such other
services reasonably related thereto as the Board may from time to time
reasonably request.
6. Compensation. As compensation for his services to Palm Harbor and
other duties and responsibilities herein contemplated during the term of
employment, Employee shall receive from Palm Harbor $400,000 per annum during
the term of employment that he provides 100 days of service to Palm Harbor, and
$300,000 per annum during the term of employment that he provides 75 days of
service to Palm Harbor, such amounts to be paid evenly during Palm Harbor's 24
pay periods.
7. Sick Leave, etc. During the term of employment, Employee shall be
entitled to sick leave of such duration as he is currently entitled, and dental,
medical and other insurance and other fringe benefits, as are consistent with
Palm Harbor's policy for its executive level employees. All reasonable travel
expenses and other business expenses incurred by Employee in connection with the
performance of his services for Palm Harbor shall be reimbursed to Employee by
Palm Harbor. Such reimbursement shall be made upon presentation to Palm Harbor
of vouchers, receipts, business purpose summaries and other statements itemizing
such expenses in detail complying with all tax reporting requirements therefor
and reimbursement policies of Palm Harbor.
8. Compensation in the Event of Termination. If this Agreement is
terminated for any reason, Employee or his estate, as applicable, shall be
entitled to receive the lesser of (i) $1,000,000 or (ii) $16,667 multiplied by
the remainder of 96 minus the number of months Employee provided services as an
employee under this Agreement after March 27, 1999. Any amounts due and owing to
Employee or his estate under this Section 8 shall be payable in cash, at
Employee's or his
-2-
<PAGE> 3
executor's, as applicable, sole option (i) in equal monthly installments over a
number of months selected by Employee or the executor of his estate, as
applicable; or (ii) in one lump sum payment within 30 days of the date of
termination.
9. ARBITRATION. THE PARTIES AGREE THAT ANY AND ALL DISPUTES BETWEEN
THEM RELATED HERETO AND ANY RELATED CLAIM BY ANY PARTY THAT CANNOT AMICABLY BE
SETTLED SHALL BE DETERMINED SOLELY AND EXCLUSIVELY BY ARBITRATION IN ACCORDANCE
WITH THE RULES THEN PROMULGATED BY THE AMERICAN ARBITRATION ASSOCIATION ("AAA")
OR ANY SUCCESSOR AT ITS OFFICES NEAREST DALLAS, TEXAS, UNLESS THE PARTIES
OTHERWISE AGREE IN WRITING. A DISPUTE SUBJECT TO THE PROVISIONS OF THIS SECTION
9 WILL EXIST IF EITHER PARTY NOTIFIES THE OTHER IN WRITING THAT A DISPUTE
SUBJECT TO ARBITRATION EXISTS AND STATES WITH REASONABLE SPECIFICITY THE ISSUES
SUBJECT TO DISPUTE (THE "ARBITRATION NOTICE"). THE PARTIES AGREE THAT AFTER THE
ISSUANCE OF AN ARBITRATION NOTICE, THE PARTIES WILL TRY IN GOOD FAITH TO RESOLVE
THE DISPUTE BY MEDIATION IN ACCORDANCE WITH THE COMMERCIAL MEDIATION RULES OF
THE AAA BETWEEN THE DATE OF ISSUANCE OF THE ARBITRATION NOTICE AND THE DATE SET
FOR ARBITRATION. THE PARTIES ALSO AGREE THAT THE AAA OPTIONAL RULES FOR
EMERGENCY MEASURES OF PROTECTION SHALL APPLY TO THE PROCEEDING. IF THE DISPUTE
IS NOT SETTLED BY THE DATE SET FOR ARBITRATION, THEN ANY REMAINING UNRESOLVED
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE BREACH
THEREOF WILL BE RESOLVED BY BINDING ARBITRATION IN ACCORDANCE WITH THE
COMMERCIAL ARBITRATION RULES OF THE AAA, AND JUDGMENT UPON THE AWARD RENDERED BY
THE ARBITRATOR(S) MAY BE ENTERED AND ENFORCED IN ANY COURT OF COMPETENT
JURISDICTION. ANY MEDIATOR OR ARBITRATOR SELECTED TO RESOLVE SUCH A DISPUTE MUST
HAVE AT LEAST 10 YEARS EXPERIENCE IN THE FINANCE FIELD AND MUST HAVE ACTED AS
MEDIATOR OR ARBITRATOR IN AT LEAST FIVE PRIOR DISPUTES WHERE THE AMOUNT IN
CONTROVERSY EQUALS OR EXCEEDS THE AMOUNT IN CONTROVERSY IN THE SUBJECT DISPUTE.
ANY SUCH MEDIATOR OR ARBITRATOR MUST BE ACCEPTABLE TO EMPLOYEE AND PALM HARBOR
AND MUST BE KNOWLEDGEABLE ABOUT MANUFACTURED HOUSING AND RELATED FINANCIAL
ISSUES; PROVIDED, HOWEVER, THAT SUCH MEDIATOR OR ARBITRATOR SHALL NOT BE
EMPLOYED BY OR ACTING AS A CONSULTANT TO A COMPETITOR OF PALM HARBOR. IF THE
PARTIES ARE UNABLE TO REACH AGREEMENT ON A MEDIATOR OR ARBITRATOR WITHIN SEVEN
DAYS AFTER RECEIPT OF THE ARBITRATION NOTICE, THEN A MEDIATOR OR ARBITRATOR
MEETING THE REQUIREMENTS OF THIS SECTION 9 WILL BE SELECTED BY THE AAA.
10. Confidentiality. During the term of this Agreement, and thereafter,
Employee shall not use for his personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company other than Palm Harbor or its affiliates,
-3-
<PAGE> 4
any Confidential Information. "Confidential Information" means information
relating to the operations of Palm Harbor or any subsidiaries or affiliates
thereof that is not generally known, is proprietary to Palm Harbor, its
subsidiaries or affiliates or is made known to Employee or learned or acquired
by Employee while in the employ of Palm Harbor, including, without limitation,
information relating to advertising, marketing, accounting, purchasing, selling,
finance and business methods and techniques.
11. Notice. Whenever, in connection with this Agreement, any notice is
required to be given or any other act or event is to be done or occur on or by a
particular number of days, and the date thus particularized should be a
Saturday, Sunday, or bank holiday in the City of Dallas, Texas, such date shall
be postponed to the next day which shall not be a Saturday, Sunday, or bank
holiday in the City of Dallas, Texas. In the event a notice or other document is
required to be given hereunder to Palm Harbor or Employee, such notice or other
document shall either be personally delivered or be mailed to the party entitled
to receive the same by registered or certified mail, return receipt requested,
at the appropriate address set forth below or at such other address as such
party shall designate in a written notice given in accordance with this Section:
CORPORATION: EMPLOYEE:
Palm Harbor Homes, Inc. Lee Posey
15303 Dallas Parkway, Suite 800 17427 Club Hill Drive
Addison, Texas 75001 Dallas, Texas 75248
Notice shall be deemed given on the date of actual delivery, if delivered in
person, or, if mailed, then on the date noted on the return receipt.
12. Severability and Reformation. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future law,
and if the rights or obligations of Employee or Palm Harbor under this Agreement
would not be materially and adversely affected thereby, such provision shall be
fully severable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part thereof,
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance herefrom, and in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible, and Palm Harbor and
Employee hereby request the court or any arbitrator to whom disputes relating to
this Agreement are submitted to reform the otherwise unenforceable covenant in
accordance with this Section 12.
13. Waiver, Modification, and Integration. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by any party. This instrument
contains the entire agreement of the parties and supersedes all prior and
contemporaneous representations, understandings and agreements, either oral or
in writing, between the parties and all such prior or contemporaneous
representations, understandings and agreements (including, but not limited to,
the Original Agreement) are hereby terminated. This
-4-
<PAGE> 5
Agreement may not be modified, altered or amended except by written agreement
executed by all the parties hereto.
14. Binding Effect and Assignability. Employee and Palm Harbor
understand and acknowledge that Employee's duties and responsibilities under
this Agreement are personal in nature and shall not be assigned by Employee or
Palm Harbor to any other person or entity without the prior written consent of
the other party hereto, which consent may be withheld in such party's sole
discretion.
15. Law Applicable; Venue. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas; this
Agreement is performable in, and venue for any litigation shall lie in, Dallas
County, Texas.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original instrument, and
all of which together shall constitute one and the same Agreement.
17. Attorney's Fees. The prevailing party in any arbitration brought by
or against the other party to enforce any provision of this Agreement shall be
entitled to recover against the non-prevailing party the reasonable attorney's
fees, court or arbitration costs and other expenses incurred by the prevailing
party.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
set above.
PALM HARBOR HOMES, INC., EMPLOYEE
a Florida corporation
- -------------------------------- --------------------------------
LARRY KEENER, CHIEF EXECUTIVE LEE POSEY
OFFICER AND PRESIDENT
-5-
<PAGE> 1
EXHIBIT 13.1
11
PALM HARBOR HOMES 1999 ANNUAL REPORT
SELECTED FINANCIAL DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------------
March 31, March 29, March 28, March 27, March 26,
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Net sales $ 330,547 $ 417,214 $ 563,192 $ 637,268 $ 761,374
Cost of sales 275,848 345,508 436,850 466,494 530,698
Gross profit 54,699 71,706 126,342 170,774 230,676
Selling, general and administrative expenses 40,776 52,676 86,927 117,018 158,916
---------- ---------- ---------- ---------- ----------
Income from operations 13,923 19,030 39,415 53,756 71,760
Interest expense (395) (751) (3,085) (4,700) (9,728)
Other income 514 1,276 2,250 2,718 4,933
---------- ---------- ---------- ---------- ----------
Income before income from affiliate and income taxes 14,042 19,555 38,580 51,774 66,965
Income from affiliate 2,745 2,995 1,049 -- --
---------- ---------- ---------- ---------- ----------
Income before income taxes 16,787 22,550 39,629 51,774 66,965
Income tax expense 5,562 7,572 14,890 19,920 26,788
---------- ---------- ---------- ---------- ----------
Net income $ 11,225 $ 14,978 $ 24,739 $ 31,854 $ 40,177
========== ========== ========== ========== ==========
Net income per common share - basic and diluted $ 0.59 $ 0.75 $ 1.07 $ 1.35 $ 1.69
========== ========== ========== ========== ==========
Weighted average common shares outstanding 18,905 19,863 23,013 23,589 23,783
Weighted average common shares
outstanding - assuming dilution 18,905 19,863 23,036 23,632 23,838
OPERATING DATA:
Number of homes sold 10,197 12,175 13,873 14,144 15,628
Multi-section homes sold as a
percentage of total homes sold 86% 82% 81% 81% 78%
Number of manufacturing facilities(1) 13 14 15 16 16
Number of company-owned superstores(1) 9 16 54 94 120
BALANCE SHEET DATA:
Working capital $ 1,966 $ 22,727 $ 39,232 $ 22,290 $ 40,316
Total assets 97,650 143,712 246,335 353,846 427,410
Long-term debt 7,700 3,784 3,583 3,382 3,149
Shareholders' equity 32,907 68,982 119,949 157,056 195,325
</TABLE>
(1) As of the end of the applicable period.
<PAGE> 2
12
Palm Harbor Homes 1999 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(In thousands of dollars, except per share and operating data)
Palm Harbor reported record net sales, net income and earnings per share in
fiscal 1999. These results reflect a compound growth rate over the last five
years of 27%, 46% and 40% for net sales, net income and earnings per share,
respectively.
The Company's strategic commitment to vertically integrating its operations
has had positive results. During the year, the Company increased the number of
Company-owned retail superstores by 26 to 120. This increase in Company-owned
retail superstores resulted in a rise in the internalization rate, which is the
percentage of homes manufactured by the Company and sold through the Company's
retail superstores. For fiscal 1999, the Company's internalization rate was 63%
up from 53% in the preceding fiscal year. CountryPlace Mortgage, the Company's
finance subsidiary, reached record funding levels and Standard Casualty Company,
the Company's insurance subsidiary, continued its consistent contribution
through premiums on its property and casualty insurance.
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 28, March 27, March 26,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 77.6 73.2 69.7
---------- ---------- ----------
Gross profit 22.4 26.8 30.3
Selling, general and administrative expenses 15.4 18.4 20.9
---------- ---------- ----------
Income from operations 7.0 8.4 9.4
Interest expense (0.6) (0.7) (1.3)
Other income 0.4 0.4 0.7
---------- ---------- ----------
Income before income from affiliate and income taxes 6.8 8.1 8.8
Income from affiliate 0.2 -- --
Income tax expense 2.6 3.1 3.5
---------- ---------- ----------
Net income 4.4% 5.0% 5.3%
========== ========== ==========
</TABLE>
The following table summarizes certain key sales statistics as of and for
the period indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------
March 28, March 27, March 26,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Homes sold through company-owned retail superstores 5,211 7,696 10,776
Total new homes sold 13,873 14,144 15,628
Internalization rate (1) 31% 53% 63%
Average new home price - retail $ 54,000 $ 55,000 $ 55,000
Number of retail superstores at end of period 54 94(2) 120
Homes sold to independent retailers 8,662 6,448 4,852
</TABLE>
(1) The internalization rate is the percentage of new homes that are
manufactured by the Company and sold through Company-owned retail
superstores.
(2) Includes the 18 retail superstores acquired at the close of business in
fiscal 1998.
<PAGE> 3
13
1999 COMPARED TO 1998
Net Sales. Net sales increased 19.5% to $761.4 million in 1999 from $637.3
million in 1998. Of this increase, 17.0% was the result of an increase in
manufactured housing sales and 2.5% was the result of an increase in financial
services revenues. The increase in manufactured housing sales was primarily due
to a 40.0% increase in the volume of homes sold through Company-owned retail
superstores. The Company ended fiscal 1999 with 120 retail superstores compared
to 76 in 1998, excluding the 18 retail superstores acquired at the close of
business in fiscal 1998. The increase in financial services revenues 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.
Gross Profit. Gross profit increased 35.1% to $230.7 million in 1999
compared to $170.8 million in 1998. During the same period, gross profit margin
as a percentage of net sales increased to 30.3% compared to 26.8%. This increase
was the result of selling 63% of the Company's homes through Company-owned
retail superstores in 1999 versus 53% in 1998 and production efficiencies at
manufacturing facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 35.8% to $158.9 million in 1999 from $117.0
million in 1998, primarily due to planned increases in promotion and advertising
expenditures, expenses associated with the 44 additional retail superstores and
performance-based compensation expense. As a percentage of net sales, selling,
general and administrative expenses increased, as planned, to 20.9% in 1999 from
18.4% in 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 33.5% to $71.8 million in 1999 compared to $53.8 million in
1998.
Interest Expense. Interest expense increased 107.0% to $9.7 million in 1999
from $4.7 million in 1998. This increase was primarily due to increased
borrowings under the Company's floor plan credit facilities.
Other Income. Other income increased 81.5% to $4.9 million in 1999 from $2.7
million in 1998. This increase was primarily the result of increased interest
income and gains on sales of investments.
1998 COMPARED TO 1997
Net Sales. Net sales increased 13.2% to $637.3 million in 1998 from $563.2
million in 1997. Although retail sales increased 50% and wholesale sales
increased 6%, consolidated net sales increased only 13.2% due primarily to two
factors. First, net sales were impacted by the increase in retail stock
inventory as the number of Company-owned retail superstores increased from 54 in
1997 to 76 in 1998, excluding the 18 retail superstores acquired at the close of
business in fiscal 1998. Second, the increasing internalization rate limits
sales in certain markets to independent retailers.
Gross Profit. Gross profit increased 35.2% to $170.8 million in 1998
compared to $126.3 million in 1997. During the same period, gross profit margin
as a percentage of net sales increased to 26.8% compared to 22.4%. This increase
was primarily the result of selling 53% of the Company's homes through
Company-owned retail superstores in 1998 versus 31% in 1997 and production
efficiencies at manufacturing facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 34.6% to $117.0 million in 1998 from $86.9
million in 1997. As a percentage of net sales, selling, general and
administrative expenses increased, as planned, to 18.4% in 1998 from 15.4% in
1997. This planned increase is partially 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. Selling, general and administrative expenses were also impacted by
increased promotion and advertising expenditures and performance-based
compensation expense.
<PAGE> 4
14
Palm Harbor Homes 1999 Annual Report
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(In thousands of dollars, except per share and operating data)
Income from Operations. As a result of the foregoing factors, income from
operations increased 36.4% to $53.8 million in 1998 compared to $39.4 million in
1997.
Interest Expense. Interest expense increased 52.4% to $4.7 million in 1998
from $3.1 million in 1997. This increase was primarily due to an increase in the
floor plan payable.
Other Income. Other income increased 20.8% to $2.7 million in 1998 from $2.3
million in 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.
Income from Affiliate. Income from affiliate was $1.0 million in 1997
compared to zero in 1998. The decrease was due to consolidating the operations
of Newco Homes, Inc. ("Newco") 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
Cash provided by operating activities increased to $20.1 million in 1999
compared to $16.3 million in 1998, after reflecting substantial increases in
inventory required to open new Company-owned retail superstores. Cash provided
by operations combined with additional floor plan financing and the borrowings
on the revolving line of credit has been adequate to support the Company's
acquisitions and working capital needs since its public offerings.
On August 1, 1996, the Company acquired the remaining 58.4% of Newco, a
Texas-based retailer of manufactured homes. The Company had previously owned
41.6% of Newco's outstanding shares. The 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.
On March 27, 1998, the Company acquired the Cannon Group, a privately-owned,
Atlanta-based operator of 18 retail manufactured home centers. The purchase
price consisted of $26.8 million cash and 157,975 shares of the Company's common
stock. The purchase prices of other acquisitions during fiscal year 1998 totaled
$7.8 million in cash.
Capital expenditures were $21.6 million, $16.7 million and $20.8 million in
1997, 1998 and 1999, respectively. Capital expenditures during these periods
were for expansion of retail superstores and manufacturing facilities and for
normal property, plant and equipment improvements. In 1997, capital expenditures
included the April 1996 acquisition and renovation of a manufacturing facility
in Georgia for $3.2 million, the November 1996 acquisition of a manufacturing
facility in Arizona for $1.4 million and expansion of retail superstores for
$9.1 million. Approximately $7.0 million was expended for improvements on mature
manufacturing facilities. In 1998, capital expenditures included $4.1 million
for renovation of the manufacturing facility in Arizona that was acquired in
November 1996 and expansion of retail superstores for $8.0 million.
Approximately $4.6 million was expended for improvements on mature manufacturing
facilities. In 1999, capital expenditures included $11.7 million for expansion
of retail superstores and approximately $9.1 million for improvements on mature
manufacturing facilities. The Company expects capital expenditures to
approximate $20.0 million during 2000 to add 15-20 retail superstores and to
upgrade current manufacturing facilities.
The Company has floor plan credit facilities totaling $80.0 million and
$150.0 million from financial institutions as of March 27, 1998 and March 26,
1999, respectively, 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 are prime (7.75% at March 26, 1999). The Company had $79.6
million and $128.9 million outstanding on these floor plan credit facilities at
March 27, 1998 and March 26, 1999, respectively.
In July 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 (4.94% at March 26, 1999) plus 0.625% or
the prime rate (7.75% at March 26, 1999) 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 $17.0 million and
<PAGE> 5
15
zero outstanding on this line of credit at March 27, 1998 and March 26, 1999,
respectively. The increase in floor plan credit facilities has effectively
reduced the amount available under the line of credit to zero.
The Company believes that cash flow from operations, together with floor
plan financing, 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. 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 $65.0 million at March 26, 1999. During 1997,
1998 and 1999, net (income)/expenses incurred by the Company under these
repurchase agreements totaled $55,000, ($13,000) and $29,000, respectively.
Year 2000 Issue. The "Year 2000 Issue" is the result of computer programs
that use two digits instead of four to record the applicable year. Computer
programs that have date-sensitive software may be unable to properly categorize
and process dates occurring after December 31, 1999. This could result in a
system failure of miscalculations in the Company's computer programs causing
significant, unanticipated liabilities, expenses and possible disruption of its
business.
Based on an assessment by the Company of operating, financial and management
information systems, the Company implemented a plan during the third quarter of
fiscal 1997 to modify or upgrade certain equipment and software necessary to
address the Year 2000 Issue. Costs are estimated to be significantly less than
$0.50 million. Under the plan, all modifications and upgrading of critical
systems will be completed and tested by September 30, 1999. The plan is designed
to utilize resources from within the Company with minimal impact on other
non-Year 2000 Issue management information system projects.
Additionally, risk of business disruption exists if Year 2000 Issue-related
failures occur among the Company's lenders, suppliers, transporters and other
upon which the Company relies, but over which the Company has no control. There
can be no guarantee that the systems of these third parties on which the Company
relies will be modified on a timely basis and will not have an adverse effect on
the Company's systems or operations. The Company is maintaining contact with
these critical third parties to determine the extent to which the Company would
be affected if there were Year 2000 Issue-related failures among these third
parties. To date no known Year 2000 Issue-related failures among these third
parties exist.
There are no formal contingency plans in place if the Company does not
complete all Year 2000 management information system projects. The Year 2000
Issue is being closely monitored, and additional measures will be taken as risks
are determined.
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 market place; and the
difficulty of forecasting sales at certain times in certain markets.
<PAGE> 6
16
PALM HARBOR HOMES 1999 ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
March 27, March 26,
1998 1999
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 21,073 $ 39,413
Investments 5,091 17,167
Receivables 71,171 79,219
Inventories 108,185 122,662
Prepaid expenses and other assets 602 554
Deferred income taxes 4,561 5,795
---------- ----------
Total current assets 210,683 264,810
Notes receivable 3,977 2,200
Goodwill, net 60,509 59,236
Other assets, net 11,317 20,598
---------- ----------
75,803 82,034
Property, plant and equipment, at cost:
Land and improvements 14,166 16,189
Buildings and improvements 44,187 51,023
Machinery and equipment 29,025 35,422
Construction in progress 3,580 8,742
---------- ----------
90,958 111,376
Accumulated depreciation 23,598 30,810
---------- ----------
67,360 80,566
---------- ----------
Total assets $ 353,846 $ 427,410
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 44,547 $ 48,026
Floor plan payable 79,564 128,852
Line of credit 17,000 --
Accrued liabilities 46,338 47,383
Current portion of long-term debt 944 233
---------- ----------
Total current liabilities 188,393 224,494
Long-term debt, less current portion 3,382 3,149
Deferred income taxes 5,015 4,442
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 - 50,000,000
Issued shares - 19,045,668 at March 27, 1998,
and 23,807,879 at March 26, 1999 191 239
Additional paid-in capital 54,197 54,149
Retained earnings 102,865 143,681
---------- ----------
157,253 198,069
Less treasury shares - 16,611 at March 27, 1998,
and 30,765 at March 26, 1999 (197) (442)
Unearned compensation -- (2,302)
---------- ----------
Total shareholders' equity 157,056 195,325
---------- ----------
Total liabilities and shareholders' equity $ 353,846 $ 427,410
========== ==========
</TABLE>
See accompanying notes.
<PAGE> 7
17
PALM HARBOR HOMES 1999 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
March 28, March 27, March 26,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 563,192 $ 637,268 $ 761,374
Cost of sales 436,850 466,494 530,698
Selling, general and administrative expenses 86,927 117,018 158,916
---------- ---------- ----------
Income from operations 39,415 53,756 71,760
Interest expense (3,085) (4,700) (9,728)
Other income 2,250 2,718 4,933
---------- ---------- ----------
Income before income from affiliate and income taxes 38,580 51,774 66,965
Income from affiliate 1,049 -- --
---------- ---------- ----------
Income before income taxes 39,629 51,774 66,965
Income tax expense 14,890 19,920 26,788
---------- ---------- ----------
Net income $ 24,739 $ 31,854 $ 40,177
========== ========== ==========
Net income per common share - basic and diluted $ 1.07 $ 1.35 $ 1.69
========== ========== ==========
Weighted average common shares outstanding 23,013 23,589 23,783
========== ========== ==========
Weighted average common shares outstanding - assuming dilution 23,036 23,632 23,838
========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE> 8
18
PALM HARBOR HOMES 1999 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------- Paid-In Retained
Shares Amount Capital Earnings
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at
March 29, 1996 10,863,598 $ 109 $ 23,012 $ 46,272
Net income -- -- -- 24,739
1.25 to 1 stock split 2,733,408 27 (27) --
Issuance related
to acquisitions 1,512,746 15 25,983 --
Treasury shares
purchased -
net of sales -- -- 26 --
Payments on
shareholders' notes -- -- -- --
------------ ------------ ------------ ------------
Balance at
March 28, 1997 15,109,752 151 48,994 71,011
Net income -- -- -- 31,854
1.25 to 1 stock split 3,777,941 38 (38) --
Issuance related
to acquisition 157,975 2 5,241 --
Treasury shares
sold - net
of purchases -- -- -- --
Payments on
shareholders' notes -- -- -- --
------------ ------------ ------------ ------------
Balance at
March 27, 1998 19,045,668 191 54,197 102,865
Net income -- -- -- 40,177
1.25 to 1 stock split 4,762,211 48 (48) --
Treasury shares
purchased -- -- -- --
Unrealized gain -- -- -- 639
Long-Term
Incentive Plan -- -- -- --
------------ ------------ ------------ ------------
Balance at
March 26, 1999 23,807,879 $ 239 $ 54,149 $ 143,681
============ ============ ============ ============
<CAPTION>
Notes
Treasury Shares Receivable
---------------------------- From Unearned
Shares Amount Shareholders Compensation Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at
March 29, 1996 (13,281) $ (205) $ (206) -- $ 68,982
Net income -- -- -- -- 24,739
1.25 to 1 stock split (2,586) -- -- -- --
Issuance related
to acquisitions -- -- -- -- 25,998
Treasury shares
purchased -
net of sales 2,423 11 -- -- 37
Payments on
shareholders' notes -- -- 193 -- 193
------------ ------------ ------------ ------------ ------------
Balance at
March 28, 1997 (13,444) (194) (13) -- 119,949
Net income -- -- -- -- 31,854
1.25 to 1 stock split (3,361) -- -- -- --
Issuance related
to acquisition -- -- -- -- 5,243
Treasury shares
sold - net
of purchases 194 (3) -- -- (3)
Payments on
shareholders' notes -- -- 13 -- 13
------------ ------------ ------------ ------------ ------------
Balance at
March 27, 1998 (16,611) (197) -- -- 157,056
Net income -- -- -- -- 40,177
1.25 to 1 stock split (4,154) -- -- -- --
Treasury shares
purchased (10,000) (245) -- -- (245)
Unrealized gain -- -- -- -- 639
Long-Term
Incentive Plan -- -- -- $ (2,302) (2,302)
------------ ------------ ------------ ------------ ------------
Balance at
March 26, 1999 (30,765) $ (442) $ - $ (2,302) $ 195,325
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
<PAGE> 9
19
PALM HARBOR HOMES 1999 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
March 28, March 27, March 26,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Operating Activities
Net income $ 24,739 $ 31,854 $ 40,177
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 6,026 5,641 7,588
Amortization 123 1,870 3,982
Deferred income tax benefit (898) (1,597) (1,807)
Income from affiliate (1,049) -- --
Gain on sale of loans -- -- (11,438)
Gain on disposition of assets (32) (27) (45)
Purchases of stock for long-term incentive plan -- -- (2,302)
Changes in operating assets and liabilities
Accounts receivable (4,868) (14,838) 6,586
Due from affiliate 3,848 -- --
Inventories (20,973) (19,684) (14,477)
Prepaid expenses and other current assets (20) 804 48
Other assets 6,202 (2,148) (10,213)
Accounts payable and accrued expenses (7,169) 14,449 4,524
---------- ---------- ----------
Cash provided by operations 5,929 16,324 22,623
Loans originated -- -- (160,690)
Sale of loans -- -- 158,133
---------- ---------- ----------
Net cash provided by operating activities 5,929 16,324 20,066
Investing Activities
Purchases of property, plant and equipment (21,608) (16,707) (20,846)
Cash consideration for acquisitions (net of cash acquired) (3,284) (34,648) --
Purchases of investments (10,206) (5,302) (23,900)
Sales of investments 12,195 3,308 11,824
Proceeds from disposition of assets 35 69 97
---------- ---------- ----------
Net cash used in investing activities (22,868) (53,280) (32,825)
Financing Activities
Net proceeds from (payments on) floor plan payable 19,801 14,858 49,288
Borrowings on line of credit -- 22,000 --
Payments on line of credit -- (5,000) (17,000)
Principal payments on notes payable and long-term debt (187) (185) (944)
Net sales (purchases) of treasury stock 37 (3) (245)
Notes receivable from shareholders, net 193 13 --
---------- ---------- ----------
Net cash provided by financing activities 19,844 31,683 31,099
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 2,905 (5,273) 18,340
Cash and cash equivalents at beginning of year 23,441 26,346 21,073
---------- ---------- ----------
Cash and cash equivalents at end of year $ 26,346 $ 21,073 $ 39,413
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,988 $ 4,674 $ 9,024
Income taxes $ 16,190 $ 22,592 $ 28,625
Supplemental schedule of non-cash investing activities:
Common stock issuance for acquisitions $ 25,998 $ 5,243 $ --
Unrealized gain on sale of loans $ -- $ -- $ 639
</TABLE>
See accompanying notes.
<PAGE> 10
20
PALM HARBOR HOMES 1999 ANNUAL REPORT
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.
The Company's fiscal year ends on the last Friday in March. Headquartered in
Dallas, Texas, the Company markets manufactured homes nationwide through
vertically integrated operations, encompassing manufacturing, marketing,
financing and insurance.
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
Retail sales are recognized when cash payment is received or, in the case of
credit sales, when a down payment is received, the customer enters into an
installment sales contract and the home is delivered. Wholesale sales are
recognized when the home is shipped which is when the title passes to the
independent retailer.
Most of the homes sold to independent retailers are financed through
standard industry arrangements which include repurchase agreements (see Note
14). The Company extends credit in the normal course of business under normal
trade terms and its receivables are subject to normal industry risk.
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 while
unrealized gains are included as a component of retained earnings. 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.
During fiscal year 1999, the Company recognized approximately $11.4 million
in gains and $639,000 in unrealized gains on the sale of loan contracts through
CountryPlace in accordance with SFAS 125. Additionally, as of March 26, 1999,
the Company had net receivables of approximately $8.7 million related to the
retained residual interests of loan contracts previously sold by CountryPlace,
of which $7.0 million is long-term and has been included as other assets.
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 debt and 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
Raw materials inventories are valued at the lower of cost (first-in,
first-out method which approximates actual cost) or market. Finished goods are
valued at the lower of cost or market, using the specific identification method.
<PAGE> 11
21
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.
Goodwill
Goodwill is the excess of cost over fair value of net assets of businesses
acquired and is amortized on the straight-line method over the expected periods
to be benefited - in most cases between 10 and 20 years. The Company evaluates
the existence of goodwill impairment on the basis of whether the goodwill is
fully recoverable from projected, undiscounted future cash flows.
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.
Start-up costs
Costs incurred in connection with the start-up of manufacturing facilities
and retail superstores are expensed as incurred.
Income taxes
Deferred income taxes are determined by the liability method and reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes.
Earnings per share
During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128 (SFAS 128) "Earnings per Share." SFAS 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. The adoption of SFAS 128 did not
result in a change to the reported earnings per share of the Company.
In computing both basic and diluted earnings per share, the number of
weighted average shares outstanding during the periods presented, adjusted for
subsequent common stock splits, were used. Historical earnings per share data
has been adjusted to reflect the effects of the 1.25 to 1 stock splits effective
as of July 26, 1996, July 8, 1997 and July 14, 1998.
Business segment information
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131) "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 establishes standards for the way public
companies report information about operating segments in annual financial
statements and requires those companies to report selected information about
reportable segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
<PAGE> 12
22
PALM HARBOR HOMES 1999 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 May 31, 1996, the Company acquired Standard Casualty Company, a property
and casualty insurer of manufactured homes headquartered in Texas.
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 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. Goodwill relating to the
acquisition totaled approximately $25.8 million at March 28, 1997, and is being
amortized over 20 years. 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.
On March 27, 1998, the Company acquired the Cannon Group, a privately-owned,
Atlanta-based operator of 18 retail manufactured home centers. The purchase
price consisted of $26.8 million cash and 157,975 shares of the Company's common
stock. The purchase prices of other acquisitions during fiscal year 1998 totaled
$7.8 million in cash. Goodwill relating to all of these acquisitions totaled
approximately $34.6 million.
All acquisitions were accounted for using the purchase method of accounting.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 27, March 26,
1998 1999
---------- ----------
(in thousands)
<S> <C> <C>
Raw materials $ 8,625 $ 8,936
Work in process 2,803 3,208
Finished goods - manufacturing 156 247
Finished goods - retail 96,601 110,271
---------- ----------
$ 108,185 $ 122,662
========== ==========
</TABLE>
4. INVESTMENTS
The Company's investments, which totaled $5,091,000 and $17,167,000 at March
27, 1998 and March 26, 1999, respectively, consist of marketable debt and equity
securities with original maturities beyond three months.
5. GOODWILL
Goodwill was $63,522,000 at March 27, 1998 and $66,109,000 at March 26,
1999, with accumulated amortization of $3,013,000 and $6,873,000, respectively,
as of those dates.
6. FLOOR PLAN PAYABLE
The Company has floor plan credit facilities totaling $80.0 million and
$150.0 million from financial institutions as of March 27, 1998 and March 26,
1999, respectively, 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 are prime (7.75% at March 26, 1999). The Company had $79.6
million and $128.9 million outstanding on these floor plan credit facilities at
March 27, 1998 and March 26, 1999, respectively.
<PAGE> 13
23
The Company has entered into a floor plan financing agreement with a
financial institution. As part of this agreement, the Company is able to earn
interest on investments made with the financial institution, which can be
withdrawn without any imposed restrictions. The interest rate on the outstanding
borrowings is prime (7.75% at March 26, 1999). The agreement also calls for a
minimum of $50.0 million to be maintained as the outstanding balance on the
related credit facility. The agreement is effective until December 31, 1999. At
March 26, 1999, the Company had $36.0 million invested and has classified this
amount as Cash and Cash Equivalents in the accompanying Consolidated Balance
Sheet.
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 (4.94% at March 26, 1999) plus 0.625% or
the prime rate (7.75% at March 26, 1999) 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 $17.0 million and zero
outstanding on this line of credit at March 27, 1998 and March 26, 1999,
respectively. At March 26, 1999, the additional floor plan credit facilities
discussed in Note 6 effectively reduced the amount available under the line of
credit to zero. The weighted average interest rate for borrowings under the
Company's revolving line of credit was 6.3% and 6.4% during fiscal 1998 and
1999, respectively.
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
March 27, March 26,
1998 1999
---------- ----------
(in thousands)
<S> <C> <C>
Salaries, wages and benefits $ 14,296 $ 16,228
Accrued closing costs on homes sold 6,429 8,863
Warranty 6,016 6,490
Customer deposits 4,676 5,806
Sales incentives 4,311 1,561
Other 10,610 8,435
---------- ----------
$ 46,338 $ 47,383
========== ==========
</TABLE>
<PAGE> 14
24
Palm Harbor Homes 1999 Annual Report
Notes to Consolidated Financial Statements
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 27, March 26,
1998 1999
--------- ---------
(in thousands)
<S> <C> <C>
Economic development revenue bonds; interest payable monthly at 7.54%; monthly
interest and principal payments of $40,029 through February 2001, $31,393 through
January 2006 with final payment of $2,002,040 in February 2006 $ 3,598 $ 3,382
Promissory note; interest payable monthly at 9% per annum until March 13, 1999
with outstanding principal payment due March 13, 1999 728 --
--------- ---------
4,326 3,382
Less current portion 944 233
--------- ---------
Long-term debt, less current portion $ 3,382 $ 3,149
========= =========
</TABLE>
The revenue bonds require the maintenance of certain financial statement
ratios, prohibit the payment of dividends and are collateralized by certain
fixed assets having a carrying value as of March 26, 1999 of $5,918,000.
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Amount
- ----------- ------
<S> <C>
2000 $ 233
2001 243
2002 163
2003 176
2004 and thereafter 2,567
------
$3,382
======
</TABLE>
The carrying value of the Company's long-term debt approximates its fair
value.
10. INCOME TAXES
Income tax expense for fiscal years 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
March 28, March 27, March 26,
1997 1998 1999
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 14,010 $ 19,941 $ 25,144
State 1,888 2,269 2,831
Deferred (1,008) (2,290) (1,187)
-------- -------- --------
Total income taxes $ 14,890 $ 19,920 $ 26,788
======== ======== ========
</TABLE>
<PAGE> 15
25
Significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
March 27, March 26,
1998 1999
--------- ---------
(in thousands)
<S> <C> <C>
Current deferred tax assets
Warranty reserves $ 2,106 $ 2,272
Accrued liabilities 969 2,041
Inventory 214 465
Other 1,272 1,017
--------- ---------
4,561 5,795
Non-current deferred tax assets
Unrecognized income 1,842 2,240
--------- ---------
Total deferred tax assets 6,403 8,035
Deferred tax liabilities
Tax benefits purchased 3,168 2,921
Property and equipment 678 (200)
Other 1,169 1,721
--------- ---------
Total deferred tax liabilities 5,015 4,442
--------- ---------
Net deferred income tax assets (liabilities) $ 1,388 $ 3,593
========= =========
</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.
The effective income tax rate on pretax earnings differed from the U.S.
federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
March 28, March 27, March 26,
1997 1998 1999
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Tax at statutory rate $ 13,873 $ 18,121 $ 23,437
Increases (decreases)
Equity in earnings of affiliate (367) -- --
State taxes - net of federal tax benefit 1,227 1,475 1,840
Goodwill amortization 400 612 1,023
Tax exempt interest (230) (87) --
Other (13) (201) 488
--------- --------- ---------
Income tax expense $ 14,890 $ 19,920 $ 26,788
========= ========= =========
Effective tax rate 37.6% 38.5% 40.0%
========= ========= =========
</TABLE>
11. 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.
<PAGE> 16
26
PALM HARBOR HOMES 1999 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. LONG-TERM INCENTIVE PLAN
Effective March 29, 1999, the Company adopted the Fiscal Year 2000
Long-Term Incentive Plan (the "Plan") whereby certain key associates will
receive awards of restricted common stock. These restricted stock awards will
give the associate the right to receive a specific number of shares of common
stock contingent upon remaining an associate of the Company for a specified
period.
The cost of the common stock acquired by the Company for the
participants in the Plan is reflected as "Unearned Compensation" in the
accompanying Consolidated Balance Sheet. The Plan is administered by a committee
authorized by the Board of Directors.
13. EMPLOYEE PLAN
The Company sponsors an employee savings plan (the "401k 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 401k Plan. The Company matches 50% of the first 6% deferred by employees.
Employees are eligible to participate after three months of employment and
employer contributions, which begin one year after employment, are vested at the
rate of 20% per year and are fully vested after five years of employment.
Contribution expense was $1,099,000, $1,891,000 and $2,469,000 in fiscal years
1997, 1998 and 1999, respectively.
14. COMMITMENTS AND CONTINGENCIES
Future minimum lease payments for all noncancelable operating leases having
a remaining term in excess of one year at March 26, 1999, are as follows
(in thousands):
<TABLE>
<CAPTION>
Fiscal Year Amount
- ----------- ------
<S> <C>
2000 $ 5,484
2001 4,351
2002 2,936
2003 1,986
2004 and thereafter 7,119
-------
$21,876
=======
</TABLE>
Rent expense (net of sublease income) was $4,357,000, $5,191,000 and
$7,868,000 for fiscal years 1997, 1998 and 1999, respectively.
The Company is contingently liable under the terms of repurchase
agreements covering independent 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 26, 1999, the Company
estimates that its potential obligations under such repurchase agreements were
approximately $65.0 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.
15. RELATED PARTY TRANSACTIONS
Through acquisitions, the Company has existing lease commitments
totaling $6,752,000 to former business owners of acquired locations. Rent
expense related to these lease commitments was $253,000 for fiscal year 1999.
<PAGE> 17
27
16. BUSINESS SEGMENT INFORMATION
The Company operates primarily in three business segments, retail sales,
manufacturing and financial services. The following table summarizes, for
the periods indicated, the amounts of consolidated net sales, income from
operations, identifiable assets, depreciation and amortization, and capital
expenditures attributable to these segments. Intersegment sales are primarily
sales by the manufacturing segment to the retail segment and are transferred at
market prices. Income from affiliate in the consolidated statements of income
relates to the retail segment.
<TABLE>
<CAPTION>
March 28, March 27, March 26,
1997 1998 1999
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Net sales
Retail $ 289,387 $ 433,495 $ 612,730
Manufacturing 452,221 480,215 509,869
Financial services 3,862 8,335 24,219
---------- ---------- ----------
745,470 922,045 1,146,818
Intersegment sales (182,278) (284,777) (385,444)
---------- ---------- ----------
$ 563,192 $ 637,268 $ 761,374
========== ========== ==========
Income from operations
Retail $ 10,798 $ 22,595 $ 27,088
Manufacturing 33,363 35,178 40,496
Financial services 227 1,208 13,183
General corporate expenses (2,481) (3,681) (5,888)
---------- ---------- ----------
41,907 55,300 74,879
Intersegment profits (2,492) (1,544) (3,119)
---------- ---------- ----------
$ 39,415 $ 53,756 $ 71,760
========== ========== ==========
Interest expense $ (3,085) $ (4,700) $ (9,728)
Other income 2,250 2,718 4,933
Income from affiliate 1,049 -- --
---------- ---------- ----------
Income before taxes $ 39,629 $ 51,774 $ 66,965
========== ========== ==========
Identifiable assets
Retail $ 85,568 $ 149,771 $ 167,444
Manufacturing 136,345 166,632 215,403
Financial services 15,682 27,350 34,888
Other 8,740 10,093 9,675
---------- ---------- ----------
$ 246,335 $ 353,846 $ 427,410
========== ========== ==========
Depreciation and amortization
Retail $ 1,812 $ 1,856 $ 2,912
Manufacturing 3,969 5,182 8,191
Financial services 63 96 148
Other 305 377 319
---------- ---------- ----------
$ 6,149 $ 7,511 $ 11,570
========== ========== ==========
Capital expenditures
Retail $ 9,134 $ 8,035 $ 11,722
Manufacturing 12,179 8,540 8,757
Financial services 195 132 88
Other 100 -- 279
---------- ---------- ----------
$ 21,608 $ 16,707 $ 20,846
========== ========== ==========
</TABLE>
<PAGE> 18
28
PALM HARBOR HOMES 1999 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial
information for the fiscal years 1998 and 1999.
<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 27, 1998
Net sales $ 159,097 $ 153,106 $ 161,969 $ 163,096 $ 637,268
Gross profit 40,536 40,225 43,115 46,898 170,774
Income from operations 12,967 13,145 13,021 14,623 53,756
Net income 7,668 7,893 7,792 8,501 31,854
Earnings per share .33 .34 .33 .35 1.35
Fiscal Year Ended
March 26, 1999
Net sales $ 204,130 $ 190,853 $ 186,054 $ 180,337 $ 761,374
Gross profit 57,297 57,853 56,137 59,389 230,676
Income from operations 18,388 19,471 15,869 18,032 71,760
Net income 10,125 10,425 9,440 10,187 40,177
Earnings per share .42 .44 .40 .43 1.69
</TABLE>
<PAGE> 19
29
Palm Harbor Homes 1999 Annual Report
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 27, 1998 and
March 26, 1999, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three fiscal years in the period ended
March 26, 1999. 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 27, 1998 and March 26, 1999, and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended March 26, 1999, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, Texas
April 30, 1999
<PAGE> 1
Exhibit 21.1
Subsidiaries
<TABLE>
<CAPTION>
Name Jurisdiction of Organization
---- ----------------------------
<S> <C>
AAA Factory Model Center, Inc. Tennessee
Palm Harbor Finance Corporation Texas
Palm Harbor G.P., Inc. Nevada
Standard Casualty Corp. Texas
Better Homes Systems, Inc. Washington
Palm Harbor Investments, Inc. Nevada
Palm Harbor Holding, Inc. Nevada
Standard Insurance Agency, Inc. Texas
CountryPlace Mortgage, Ltd. Texas
Palm Harbor Homes I, L.P. Texas
First Home Mortgage Corporation Georgia
</TABLE>
<PAGE> 1
EXHIBIT 23.1
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Palm Harbor Homes, Inc. and subsidiaries, and in the Registration Statement
(Form S-8 No. 333-24135) pertaining to the Palm Harbor Homes, Inc. Employee
Savings Plan, and in the Registration Statement (Form S-3 No. 333-52535) and in
the related Prospectus of Palm Harbor Homes, Inc. and subsidiaries of our report
dated April 30, 1999, with respect to the consolidated financial statements
included in the 1999 Annual Report to Shareholders of Palm Harbor Homes, Inc.
and subsidiaries.
/s/ Ernst & Young LLP
Dallas, TX
June 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF MARCH 26, 1999 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED MARCH 26, 1999 LOCATED IN THE COMPANY'S
1999 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-26-1999
<PERIOD-START> MAR-28-1998
<PERIOD-END> MAR-26-1999
<CASH> 39,413
<SECURITIES> 17,167
<RECEIVABLES> 79,219
<ALLOWANCES> 0
<INVENTORY> 108,185
<CURRENT-ASSETS> 264,810
<PP&E> 80,566
<DEPRECIATION> 0
<TOTAL-ASSETS> 427,410
<CURRENT-LIABILITIES> 224,494
<BONDS> 3,149
0
0
<COMMON> 239
<OTHER-SE> 195,086
<TOTAL-LIABILITY-AND-EQUITY> 427,410
<SALES> 761,374
<TOTAL-REVENUES> 761,374
<CGS> 530,698
<TOTAL-COSTS> 530,698
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,728
<INCOME-PRETAX> 66,965
<INCOME-TAX> 26,788
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,177
<EPS-BASIC> 1.69
<EPS-DILUTED> 1.69
</TABLE>
