<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 1999
Commission file number 0-26188
PALM HARBOR HOMES, INC.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Florida 59-1036634
- --------------------------------------------- ---------------------------------------
<S> <C>
(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
</TABLE>
15303 Dallas Parkway, Suite 800, Addison, Texas 75001-4600
----------------------------------------------------------
(Address of principal executive offices) (Zip code)
972-991-2422
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes X No and (2) has been
--- ---
subject to such filing requirements for the past 90 days. Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of common stock $.01 par value, outstanding on July 30, 1999 -
23,762,472.
<PAGE> 2
PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JUNE 25, MARCH 26,
1999 1999
----------- ----------
<S> <C> <C>
ASSETS (Unaudited)
Cash and cash equivalents $ 52,161 $ 39,413
Investments 19,210 17,167
Receivables 91,401 79,219
Inventories 126,741 122,662
Other current assets 6,857 6,349
----------- ----------
Total current assets 296,370 264,810
Other assets 81,707 82,034
Property, plant and equipment, net 82,793 80,566
----------- ----------
TOTAL ASSETS $ 460,870 $ 427,410
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 45,405 $ 48,026
Floor plan payable 135,865 128,852
Accrued liabilities 65,852 47,383
Current portion of long-term debt 238 233
----------- ----------
Total current liabilities 247,360 224,494
Long-term debt, less current portion 3,088 3,149
Deferred income taxes 4,249 4,442
Shareholders' equity:
Common stock, $.01 par value 239 239
Additional paid-in capital 54,149 54,149
Retained earnings 155,555 143,681
----------- ----------
209,943 198,069
Less treasury shares (757) (442)
Unearned compensation (3,013) (2,302)
----------- ----------
Total shareholders' equity 206,173 195,325
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 460,870 $ 427,410
=========== ==========
</TABLE>
See accompanying notes.
1
<PAGE> 3
PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 25, JUNE 26,
1999 1998
--------- ---------
<S> <C> <C>
Net sales $218,575 $204,130
Cost of sales 151,065 146,833
Selling, general and
administrative expenses 47,111 38,909
--------- ---------
Income from operations 20,399 18,388
Interest expense (2,382) (2,250)
Other income 1,337 684
--------- ---------
Income before income taxes 19,354 16,822
Income tax expense 7,739 6,697
--------- ---------
Net income $ 11,615 $ 10,125
--------- ---------
Net income per common share -
basic and diluted $ 0.49 $ 0.42
========== =========
Weighted average common
shares outstanding - basic 23,763 23,786
========== =========
Weighted average common
shares outstanding - diluted 23,806 23,848
========== =========
</TABLE>
See accompanying notes.
2
<PAGE> 4
PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 25, JUNE 26,
1999 1998
------------- -------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 11,615 $ 10,125
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,180 1,665
Amortization 1,010 966
Deferred income tax benefit (193) (125)
Gain on sale of loans (3,388) (2,947)
Gain on disposition of assets -- (76)
Purchases of stock for long-term incentive plan (986) --
Provision for long-term incentive plan 275 --
Changes in operating assets and liabilities:
Trade accounts receivable (7,727) (1,295)
Inventories (4,079) 1,239
Other current assets (508) (1,120)
Other assets (683) (755)
Accounts payable and accrued liabilities 15,848 11,811
---------- ---------
Cash provided by operations 13,364 19,488
Loans originated (45,625) (44,254)
Sales of loans 44,817 40,799
---------- ---------
Net cash provided by operating activities 12,556 16,033
INVESTING ACTIVITIES
Purchases of property, plant and equipment (4,407) (4,165)
Purchases of investments (3,001) (2,995)
Sales of investments 958 200
Proceeds from disposition of assets -- 96
---------- ---------
Net cash used in investing activities (6,450) (6,864)
FINANCING ACTIVITIES
Net proceeds from floor plan payable 7,013 27,519
Payments on line of credit -- (17,000)
Principal payments on notes payable and long-term debt (56) (780)
Net purchases of treasury stock (315) --
---------- ---------
Net cash provided by financing activities 6,642 9,739
---------- ---------
Net increase in cash and cash equivalents 12,748 18,908
Cash and cash equivalents at beginning of period 39,413 21,073
---------- ---------
Cash and cash equivalents at end of period $ 52,161 $ 39,981
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,580 $ 2,024
Income taxes 985 150
</TABLE>
See accompanying notes.
3
<PAGE> 5
PALM HARBOR HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements reflect all
adjustments, which include only normal recurring adjustments, which
are, in the opinion of management, necessary for a fair and accurate
presentation. Certain footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The condensed consolidated
financial statements should be read in conjunction with the audited
financial statements for the year ended March 26, 1999. Results of
operations for any interim period are not necessarily indicative of
results to be expected for a full year.
2. Stock Dividend
On June 30, 1998, the Board of Directors of the Company declared a
5-for-4 stock split effected in the form of a 25% stock dividend to
shareholders of record on July 14, 1998. The stock dividend was paid
on July 28, 1998. Historical common share and per share data for all
periods presented have been adjusted to reflect the stock split.
3. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 25, MARCH 26,
1999 1999
---------- ----------
<S> <C> <C>
Raw materials $ 8,779 $ 8,936
Work in process 3,142 3,208
Finished goods - manufacturing 585 247
- retail 114,235 110,271
--------- --------
$ 126,741 $122,662
========= ========
</TABLE>
4. Other Assets
Other assets include goodwill of $66.7 million at June 25, 1999 and
$66.1 million at March 26, 1999, with accumulated amortization of $7.9
million and $6.9 million, respectively.
5. Floor Plan Payable
The Company has floor plan credit facilities totaling $150.0 million
from financial institutions to finance a major portion of its home
inventory at the Company's retail superstores. These facilities are
secured by a portion of the Company's home inventory and cash in
transit from financial institutions. Interest rates range from prime
(7.75% at June 25, 1999) to prime minus .50%. The Company had $135.9
million and $128.9 million outstanding on these floor plan credit
facilities at June 25, 1999 and March 26, 1999, respectively.
4
<PAGE> 6
The Company's floor plan financing agreement with one of the financial
institutions permits the Company 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 June 25, 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. The Company had $50.0 million and $36.0 million
invested at June 25, 1999 and March 26, 1999, respectively, and has
classified these amounts as Cash and Cash Equivalents in the
accompanying Condensed Consolidated Balance Sheet.
6. Line of Credit
The Company has a $25.0 million unsecured revolving line of credit
from a financial institution for general corporate purposes. The line
of credit bears interest, at the option of the Company (under certain
conditions), at either the LIBOR rate (5.17% at June 25, 1999) plus
.625% or the prime rate (7.75% at June 25, 1999) minus 1.0%. The line
of credit contains provisions regarding minimum net worth requirements
and certain indebtedness limitations which would limit the amount
available for future borrowings.
On June 28, 1999, the line of credit agreement was amended to provide
a $10.0 million unsecured revolving line of credit and a $15.0 million
uncommitted line of credit. The amended line is available through June
27, 2000 and requires an annual commitment fee of up to $12,500. The
Company had zero outstanding on the line of credit at June 25, 1999
and March 26, 1999.
7. Reclassification
Certain prior period amounts have been reclassified to conform to the
current period presentation.
8. Financial Services Revenue Recognition
The Company's finance subsidiary originates and sells loan contracts
to national consumer finance companies and receives cash and/or
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.
5
<PAGE> 7
9. Business Segment Information
The Company operates primarily in three business segments, retail
sales, manufacturing and financial services. The following table
summarizes information with respect to the Company's business segments
for the periods ending June 25, 1999 and June 26, 1998 (in thousands):
<TABLE>
<CAPTION>
JUNE 25, JUNE 26,
1999 1998
---------- ---------
<S> <C> <C>
Net sales
Retail $ 178,037 $ 159,703
Manufacturing 140,309 128,147
Financial services 6,571 6,678
---------- ---------
324,917 294,528
Intersegment sales (106,342) (90,398)
---------- ---------
$ 218,575 $204,130
========== ==========
Income from operations
Retail $ 8,402 $ 7,880
Manufacturing 12,665 9,908
Financial services 3,705 3,497
General corporate expenses (3,620) (2,542)
---------- ---------
21,152 18,743
Intersegment profits (753) (355)
---------- ---------
$ 20,399 $ 18,388
========== ==========
Interest expense $ ( 2,382) $( 2,250)
Other income 1,337 684
---------- ---------
Income before taxes $ 19,354 $ 16,822
========== ==========
</TABLE>
6
<PAGE> 8
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 1 through 5.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following table sets forth certain items of the Company's statements of
income as a percentage of net sales for the period indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 25, JUNE 26,
1999 1998
---------- ---------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 69.1 71.9
------ ------
Gross profit 30.9 28.1
Selling, general and
administrative expenses 21.6 19.1
------ -------
Income from operations 9.3 9.0
Interest expense (1.1) (1.1)
Other income 0.6 0.4
------ -------
Income before income taxes 8.8 8.3
Income tax expense 3.5 3.3
------ -------
Net income 5.3% 5.0%
====== =======
</TABLE>
7
<PAGE> 9
The following table summarizes certain key sales statistics as of and for the
three months ended June 25, 1999 and June 26, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 25, JUNE 26,
1999 1998
-------- -------
<S> <C> <C>
Company homes sold through
Company-owned retail superstores 2,993 2,481
Total new homes sold 4,204 4,209
Internalization rate (1) 71% 59%
Average new home price - retail $56,000 $53,000
Number of retail superstores at
end of period 126 99
Homes sold to independent retailers 1,117 1,313
</TABLE>
(1) The internalization rate is the percentage of new homes that are
manufactured by the Company and sold through Company-owned retail
superstores.
THREE MONTHS ENDED JUNE 25, 1999 COMPARED TO THREE MONTHS ENDED JUNE 26, 1998
NET SALES. Net sales increased 7.1% to $218.6 million in the first
quarter of fiscal 2000 from $204.1 million in the first quarter of fiscal 1999.
The 7.1% increase in net sales was primarily due to an increase in the volume
of homes sold through Company-owned retail superstores. Net sales were also
impacted by the $7.2 million increase in retail stock inventory as the number
of Company-owned retail superstores increased from 99 at the end of the first
quarter of fiscal 1999 to 126 at the end of the first quarter of fiscal 2000.
GROSS PROFIT. Gross profit increased 17.8% to $67.5 million in the
quarter ended June 25, 1999 compared to $57.3 million in the quarter ended June
26, 1998. During the same period, gross profit margin as a percentage of net
sales increased to 30.9% compared to 28.1%. This increase was the result of
production efficiencies at our manufacturing facilities and selling 71% of the
Company's homes through Company-owned retail superstores in the first quarter
of fiscal 2000 versus 59% in the first quarter of fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 21.1% to $47.1 million in the quarter ended
June 25, 1999 from $38.9 million in the quarter ended June 26, 1998, primarily
due to expenses associated with the opening of 27 additional retail superstores
and performance based compensation expense. As a percentage of net sales,
selling, general and administrative expenses increased, as planned, to 21.6% in
the first quarter of fiscal 2000 from 19.1% in the first quarter of fiscal
1999. 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.
8
<PAGE> 10
INCOME FROM OPERATIONS. As a result of the foregoing factors, income
from operations increased 10.9% to $20.4 million in the quarter ended June 25,
1999 compared to $18.4 million in the quarter ended June 26, 1998.
INTEREST EXPENSE. Interest expense increased 5.9% to $2.4 million for
the first quarter of fiscal 2000 from $2.3 million in the first quarter of
fiscal 1999. This increase was primarily due to an increase in floor plan
credit facilities.
OTHER INCOME. Other income increased 95.5% to $1.3 million in the first
quarter of fiscal 2000 from $0.7 million in the first quarter of fiscal 1999.
This increase was primarily the result of increased interest income.
LIQUIDITY AND CAPITAL RESOURCES. The Company has floor plan credit
facilities totaling $150.0 million from financial institutions to finance a
major portion of its home inventory at the Company's retail superstores. These
facilities are secured by a portion of the Company's home inventory and cash in
transit from financial institutions. Interest rates range from prime (7.75% at
June 25, 1999) to prime minus .50%. The Company had $135.9 million and $128.9
million outstanding on these floor plan credit facilities at June 25, 1999 and
March 26, 1999, respectively.
The Company's floor plan financing agreement with one of the financial
institutions permits the Company 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 June 25,
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. The Company had $50.0 million and $36.0
million invested at June 25, 1999 and March 26, 1999, respectively, and has
classified these amounts as Cash and Cash Equivalents in the accompanying
Condensed Consolidated Balance Sheet.
The Company has a $25.0 million unsecured revolving line of credit
from a financial institution for general corporate purposes. The line of credit
bears interest, at the option of the Company (under certain conditions), at
either the LIBOR rate (5.17% at June 25, 1999) plus .625% or the prime rate
(7.75% at June 25, 1999) minus 1.0%. The line of credit contains provisions
regarding minimum net worth requirements and certain indebtedness limitations
which would limit the amount available for future borrowings.
On June 28, 1999, the line of credit agreement was amended to provide
a $10.0 million unsecured revolving line of credit and a $15.0 million
uncommitted line of credit. The amended line is available through June 27, 2000
and requires an annual commitment fee of up to $12,500. The Company had zero
outstanding on the line of credit at June 25, 1999 and March 26, 1999.
In July 1999, the Company's Board of Directors authorized, subject to
certain business and market conditions, the use of up to $20.0 million to
repurchase the Company's common stock.
The Company believes that cash flow from operations, together with floor
plan financing and the revolving line of credit, will be adequate to support its
working capital, currently planned capital expenditure needs and potential
future share repurchases 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.
9
<PAGE> 11
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 or 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 $.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 others 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. Certain statements contained in this report
are forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934. Management is unaware of any trends or
conditions that could have a material adverse effect on the Company's
consolidated financial position, future results of operations or liquidity.
However, investors should also be aware of factors which could have a negative
impact on prospects and the consistency of progress. These include political,
economic or other factors such as inflation rates, recessionary or expansive
trends, taxes and regulations and laws affecting the business in each of the
Company's markets; competitive product, advertising, promotional and pricing
activity; dependence on the rate of development and degree of acceptance of new
product introductions in the marketplace; and the difficulty of forecasting
sales at certain times in certain markets.
10
<PAGE> 12
<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
<S> <C>
Item 1. Legal Proceedings - Not applicable
Item 2. Changes in Securities - Not applicable
Item 3. Defaults upon Senior Securities - Not applicable
Item 4. Submission on Matters to a Vote by Security Holders - Not applicable
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Date Schedule (EDGAR filing only).
(b) Reports on Form 8-K - Not applicable
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Date: August 4, 1999
Palm Harbor Homes, Inc.
----------------------------------
(Registrant)
By: /s/ Kelly Tacke
------------------------------
Kelly Tacke
Chief Financial and Accounting
Officer
By: /s/ Lee Posey
------------------------------
Lee Posey
Chairman of the Board
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF JUNE 25, 1999 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 25, 1999 LOCATED IN THE
COMPANY'S 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> MAR-27-1999
<PERIOD-END> JUN-25-1999
<CASH> 52,161
<SECURITIES> 19,210
<RECEIVABLES> 91,401
<ALLOWANCES> 0
<INVENTORY> 126,741
<CURRENT-ASSETS> 296,370
<PP&E> 82,793
<DEPRECIATION> 0
<TOTAL-ASSETS> 460,870
<CURRENT-LIABILITIES> 247,360
<BONDS> 3,088
0
0
<COMMON> 239
<OTHER-SE> 205,934
<TOTAL-LIABILITY-AND-EQUITY> 460,870
<SALES> 218,575
<TOTAL-REVENUES> 218,575
<CGS> 151,065
<TOTAL-COSTS> 151,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,382
<INCOME-PRETAX> 19,354
<INCOME-TAX> 7,739
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,615
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.49
</TABLE>
