<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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
For the fiscal year ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 0-24268
PALM HARBOR HOMES, INC.
(Exact name of registrant as specified in our 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. [X]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of May 15, 2000, was $132,635,202 based on
the closing price on that date of the Common Stock as quoted on the Nasdaq
National Stock Market.
As of May 15, 2000, 23,020,840 shares of the registrant's Common Stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to our Annual
Meeting of Shareholders to be held June 28, 2000 are incorporated by reference
in Part III.
<PAGE> 2
This report contains forward looking statements within the safe harbor
provisions of the Securities Litigation Reform Act, including, without
limitation, those regarding the growth and financing strategies of Palm Harbor
Homes, Inc. ("Palm Harbor"), projections of revenues, income or other financial
items, the effective implementation of Palm Harbor's business or growth
strategy, the adequacy of Palm Harbor'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 Palm Harbor 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, employment
conditions, interest rates, recessionary or expansive trends, taxes and
regulations and laws affecting the business in each of Palm Harbor's markets;
competitive product, advertising, promotional and pricing activity; inclement or
catastrophic weather conditions affecting revenues, inventory levels and
insurance reserves; 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; trends to consolidate the number of production
facilities; changes in or failure to identify or consummate successful
acquisitions or to assimilate the operations of any acquired businesses with
those of Palm Harbor; 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. Palm Harbor's operations
are vertically integrated and encompass manufacturing, marketing, financing and
insurance. At March 31, 2000, Palm Harbor operated 15 manufacturing facilities
that sell homes through retailers in 30 states including approximately 200
independent retail sales centers and 133 Company-owned superstores.
At March 31, 2000, the Company-owned superstores operated in Alabama,
Colorado, Florida, Georgia, Indiana, Kentucky, Louisiana, Nevada, New Mexico,
North Carolina, Ohio, Oregon, South Carolina, Tennessee, Texas, Virginia and
Washington. With the opening of 16 superstores in fiscal 2000, Palm Harbor
advanced toward achieving our plan to increase sales through Company-owned
superstores.
Through our subsidiary, CountryPlace Mortgage, Ltd. ("CountryPlace"),
Palm Harbor offers installment financing to purchasers of manufactured homes
sold by Company-owned superstores. Palm Harbor believes that the ability to
finance our home sales will potentially provide us with an advantage over
certain of our competitors and create a source of additional earnings.
Through our subsidiary, Standard Casualty Company, Palm Harbor provides
property and casualty insurance for owners of manufactured homes. Management of
Palm Harbor believes that having the internal capability to provide this type of
insurance complements the services of CountryPlace and will be additive to
earnings.
PRODUCTS
Palm Harbor manufactures single and multi-section homes under various
brand names including Palm Harbor, Masterpiece, Keystone, River Bend and Windsor
Homes(TM). Palm Harbor offers over 150 floor plans and approximately 90% of the
homes produced by Palm Harbor are structurally or decoratively customized to the
home buyer's specifications. Although Palm Harbor produces a wide retail price
range of homes, the average retail sales price (excluding land) of Palm Harbor's
homes is approximately $58,000 and approximately 80% of Palm Harbor's homes are
multi-section.
1
<PAGE> 3
A typical home built by Palm Harbor 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, Palm Harbor offers optional amenities, including dishwashers, washers,
dryers, furniture packages and specialty cabinets, as well as a wide range of
colors, moldings and finishes. Palm Harbor also offers optional features usually
associated with site-built homes such as stone fireplaces, skylights, vaulted
ceilings and whirlpool baths. Palm Harbor has 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.
Palm Harbor's homes are designed and copyrighted after extensive field
research and consumer feedback. Palm Harbor has developed engineering systems
which, through the use of computer-aided technology, permit customization of
homes and assist with product development and enhancement.
MANUFACTURING OPERATIONS
Palm Harbor currently owns or leases 16 facilities located in Alabama,
Arizona, Florida, Georgia, North Carolina, Ohio, Oregon and Texas. Due to
declining industry conditions in fiscal 2000, Palm Harbor temporarily idled one
facility and consolidated production into other facilities. A typical Palm
Harbor manufacturing facility has approximately 100,000 square feet of floor
space and employs approximately 210 associates.
Palm Harbor's facilities generally operate on a one shift per day, five
days per week basis, and Palm Harbor currently manufactures a typical home in
approximately three to five days. Palm Harbor's facilities have the capacity to
produce an aggregate of approximately 150 sections per day. The current rate of
production is 90 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 Palm Harbor,
for the fiscal years indicated:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Homes sold:
Single-section................ 2,192 2,781 2,687 3,474 2,862
Multi-section................. 9,983 11,092 11,457 12,154 11,439
----- ------ ------ ------ ------
Total homes sold................. 12,175 13,873 14,144 15,628 14,301
====== ====== ====== ====== ======
Sections produced................ 22,049 24,545 26,014 27,380 25,237
Manufacturing facilities
(at end of fiscal year)....... 13 14 16 16 15
</TABLE>
Palm Harbor's homes are constructed at our manufacturing facilities.
Typically, independent trucking companies transport finished homes to retailers
at the retailer's expense. Retailers or other 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 industry
practice is to have third parties hired by the retailer provide the installation
and finish-out services. Palm Harbor's associates, rather than independent
contractors, perform the finish out services on homes sold through Company-owned
superstores. Palm Harbor believes our finish-out services ensure that Palm
Harbor quality is applied during the entire process, increases customer
satisfaction, strengthens Palm Harbor's relationship with our retailers and
provides Palm Harbor an advantage over many of our competitors.
Palm Harbor's backlog of orders as of May 15, 2000 was approximately
$8.7 million, as compared to approximately $7.9 million as of May 21, 1999.
Since retailers may cancel orders prior to production without penalty, Palm
Harbor does not consider our order backlog to be firm orders; however, such
cancellations rarely
2
<PAGE> 4
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 Palm Harbor's homes
include wood, wood products, gypsum wallboard, steel, fiberglass insulation,
carpet, vinyl, fasteners, appliances, electrical items, windows and doors. Palm
Harbor believes that the materials used in the production of our homes are
readily available at competitive prices from a wide variety of suppliers. Four
suppliers, which accounted for more than 5% of Palm Harbor's total purchases
during the fiscal year ended March 31, 2000, represented approximately 9.2%,
5.8%, 5.7% and 5.1%, respectively, of total purchases during such fiscal year.
Accordingly, Palm Harbor does not believe that the loss of any single supplier
would have a material adverse effect on our business.
RETAIL OPERATIONS
Palm Harbor's homes are sold through a distribution network consisting
of (i) superstores owned by Palm Harbor; and (ii) independent retailers. The
following table sets forth the number of homes sold by Palm Harbor 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 27, March 26, March 31,
1998 1999 2000
--------- --------- ---------
<S> <C> <C> <C>
Homes sold by retailers:
Company-owned ........................ 7,696 10,776 11,078
Independent .......................... 6,448 4,852 3,223
--------- --------- ---------
Total ................................ 14,144 15,628 14,301
========= ========= =========
Number of sales centers:
Company-owned ....................... 94 120 133
Independent .......................... 300 300 200
--------- --------- ---------
Total ................................ 394 420 333
========= ========= =========
</TABLE>
Palm Harbor first established wholly-owned superstores in 1992, and
currently has 133 superstores in Alabama, Colorado, Florida, Georgia, Indiana,
Kentucky, Louisiana, Nevada, New Mexico, North Carolina, Ohio, Oregon, South
Carolina, Texas, Virginia and Washington. Palm Harbor plans to add 15 to 20
retail superstores in fiscal 2001.
Palm Harbor'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 Palm Harbor's net sales during fiscal 2000. Palm Harbor provides
comprehensive sales training to our 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 Palm Harbor's homes by increasing the skill
and knowledge of the retail sales consultants. In addition, Palm Harbor displays
our products in trade shows and supports our retailers through the distribution
of floor plan literature, brochures, decor boards, banners and videos.
3
<PAGE> 5
MARKETS SERVED
Management believes that Palm Harbor's broad geographic presence
lessens the impact of adverse economic trends specific to any one region, while
at the same time enabling Palm Harbor to capitalize on favorable regional
economic trends. During the fiscal year ended March 31, 2000, the percentage of
Palm Harbor'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,
Mississippi, Tennessee, Virginia 39%
Central Texas, Oklahoma, Louisiana 36
West New Mexico, Arizona, Colorado, Oregon, Washington, Idaho,
Montana, Nevada, Utah 20
Midwest Ohio, Michigan, Indiana, Kentucky, West Virginia, Illinois 5
---
100%
</TABLE>
Manufactured housing is a regional business and the primary geographic
market for a typical manufacturing facility is within a 250-mile radius. Each of
Palm Harbor's manufacturing facilities typically serves 23 to 77 retailers, and
the facility sales staff maintains personal contact with each retailer, whether
Company-owned or independent. Palm Harbor's decentralized operations allow us to
be more responsive to retailers' concerns with respect to leadership in product
innovation, local home design and customer satisfaction.
CONSUMER FINANCING
Historically, Palm Harbor has facilitated retail sales of our homes by
maintaining relationships with conventional lenders. While Palm Harbor intends
to maintain our relationships with conventional lenders, we believe that the
ability to provide financing to our customers on competitive terms will not only
improve our responsiveness to the financing needs of prospective purchasers, but
will also provide an additional source of earnings for Palm Harbor. Through
CountryPlace, Palm Harbor offers 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 our retail customers. Financing
services by CountryPlace are currently being offered only through Company-owned
superstores.
Loan applications originate at the superstore and are forwarded to
CountryPlace for final credit approval. CountryPlace then sells 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. During the fiscal year ended March 31, 2000,
several national consumer finance companies announced that they plan to
discontinue the manufactured housing segment of their business. See the
Liquidity and Capital Resources section of "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations" for further details.
Retail installment loans sold by CountryPlace are serviced and
administered by the national consumer finance companies. CountryPlace's share of
the interest income is 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.
4
<PAGE> 6
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 Palm Harbor to enter into a
separate repurchase agreement with the financial institution under which Palm
Harbor 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 Palm Harbor may be obligated to repurchase a home under these
agreements is based upon Palm Harbor's original invoice price plus certain
administrative and shipping expenses. Palm Harbor'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 24% of Palm Harbor's homes are sold to independent retailers;
(ii) a majority of the homes sold by Palm Harbor to independent retailers are
pre-sold to specific retail customers; (iii) Palm Harbor monitors each
retailer's inventory position on a regular basis; (iv) sales of Palm Harbor's
manufactured homes are spread over a large number of retailers, (v) none of Palm
Harbor's independent retailers accounted for more than 5% of Palm Harbor's net
sales in fiscal 2000; (vi) the price Palm Harbor is obligated to pay declines
over time and (vii) Palm Harbor is, in most cases, able to resell homes
repurchased from credit sources in the ordinary course of business without
incurring significant losses. Palm Harbor estimates that our potential
obligations under such repurchase agreements was approximately $43.1 million as
of March 31, 2000. During the fiscal years ended March 27, 1998, March 26, 1999
and March 31, 2000, net expenses (income) incurred by Palm Harbor under these
repurchase agreements totaled $(13,000), $29,000 and $155,000, 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. Palm
Harbor does not view any of our competitors as being dominant in the industry,
although some of Palm Harbor's competitors possess substantially greater
financial (including captive retail financing), manufacturing, distribution and
marketing resources than Palm Harbor.
During fiscal 2000, lenient credit standards, which had facilitated
increased industry-wide wholesale shipments in previous years, tightened,
resulting in declining wholesale shipments, declining margins and lower retail
sales levels for most industry participants. While this contraction in consumer
credit provides an advantage to those participants with substantial capital
resources, it is unclear the impact that these industry conditions will have on
Palm Harbor's future results.
GOVERNMENT REGULATION
Palm Harbor'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, the
Department of Housing and Urban Development ("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. Palm Harbor's
manufacturing facilities and the plans and specifications of our manufactured
homes have been approved by a HUD-certified inspection agency. Further, an
independent HUD-certified third-party inspector regularly reviews Palm Harbor's
manufactured homes for compliance with the HUD regulations during
5
<PAGE> 7
construction. Failure to comply with applicable HUD regulations could expose
Palm Harbor to a wide variety of sanctions, including mandated closings of Palm
Harbor manufacturing facilities. Palm Harbor believes our 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. Palm Harbor uses materials in our manufactured homes that meet HUD
standards for formaldehyde emissions and believes we comply 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.
Palm Harbor's manufactured homes are subject to local zoning and
housing regulations. In certain cities and counties in areas where Palm Harbor'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 Palm Harbor'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.
Certain Palm Harbor warranties may be subject to the Magnuson-Moss
Warranty Federal Trade Commission Improvement Act, which regulates the
descriptions of warranties on products. The description and substance of Palm
Harbor'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 the homes manufactured by
Palm Harbor. The Federal Consumer Credit Protection Act (Truth-in-Lending) and
Regulation Z promulgated thereunder requires 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 prohibits discrimination against any credit applicant
based on certain specified grounds. The Real Estate Settlement Procedures Act
and Regulation X promulgated thereunder requires 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 Palm Harbor is subject to various state insurance laws and
regulations which govern allowable charges and other insurance practices.
Palm Harbor'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, Palm Harbor is unable to predict the
ultimate cost of compliance with environmental laws and enforcement policies.
See "Item 3. Legal Proceedings."
6
<PAGE> 8
ASSOCIATES
As of March 31, 2000, Palm Harbor had approximately 4,700 associates.
All of Palm Harbor's associates are non-union. Palm Harbor has not experienced
any labor-related work stoppages and believes that our relationship with our
associates is good.
ITEM 2. PROPERTIES
Palm Harbor currently owns or leases 16 manufacturing facilities in 8
states. During fiscal 2000, Palm Harbor temporarily idled one facility in
Alabama and consolidated production into other facilities. Palm Harbor owns
substantially all of our machinery and equipment. Palm Harbor believes our
facilities are adequately maintained and suitable for the purposes for which
they are used. The following table sets forth certain information with respect
to Palm Harbor'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 our production facilities, Palm Harbor owns certain
properties upon which 35 of our retail superstores are located. Palm Harbor also
leases approximately 30,000 square feet of office space in Addison, Texas for
our corporate headquarters and CountryPlace's office. Palm Harbor's corporate
headquarters lease expires in 2003 and the CountryPlace office lease expires in
2002.
7
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS
Except as described below, Palm Harbor 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
Palm Harbor.
In late 1992, Palm Harbor removed an underground storage tank formerly
used to store gasoline from the site of our Tempe, Arizona manufacturing
facility. Palm Harbor 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. Palm Harbor 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, Palm Harbor
does not expect that the costs of any corrective action or assessments related
to the tank will have a material adverse effect on our results of operations or
financial condition.
Palm Harbor'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 Palm Harbor has been or
will be named as a PRP or that we are 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, Palm Harbor does not believe that
our ownership of property partially located within the Indian Bend Superfund
Site will have a material adverse effect on our results of operations or
financial condition.
In 1994, Palm Harbor removed two underground storage tanks used to
store petroleum substances from property we own in Georgia. Palm Harbor 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, Palm Harbor does not expect that the
costs of future assessment and corrective action related to the tanks will have
a material adverse effect on our 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.
8
<PAGE> 10
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Palm Harbor's Common Stock has been traded on the Nasdaq National Stock
Market under the symbol "PHHM" since July 31, 1995, the date on which Palm
Harbor completed our 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 2000 HIGH LOW
----------- ---- ----
<S> <C> <C>
First Quarter ............................................. $ 24.94 $ 19.00
Second Quarter ............................................ 25.38 15.00
Third Quarter ............................................. 20.00 13.75
Fourth Quarter ............................................ 19.00 12.00
-----------------------------------------------------------------------------------
FISCAL 1999 HIGH LOW
----------- ---- ----
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>
---------
(1) On June 30, 1998, the Board of Directors of Palm Harbor 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.
On May 15, 2000, the last reported sale price of Palm Harbor's Common
Stock on the Nasdaq National Stock Market was $15.4375. As of May 15, 2000,
there were approximately 900 record holders of the Common Stock, and
approximately 3,900 holders of the Common Stock overall based on an estimate of
the number of individual participants represented by security position listings.
Palm Harbor has never paid cash dividends on our Common Stock. The
Board of Directors intends to retain any future earnings generated by Palm
Harbor 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 Palm Harbor'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.
9
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding
Palm Harbor's financial position and operating results which has been extracted
from Palm Harbor's financial statements for the five years ended March 31, 2000.
The information should be read in conjunction with Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and accompanying Notes included elsewhere
in this report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------------
MARCH 29, MARCH 28, MARCH 27, MARCH 26, MARCH 31,
1996 1997 1998 1999 2000
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Net sales $ 417,214 $ 563,192 $ 637,268 $ 761,374 $ 777,471
Cost of sales 345,508 436,850 466,494 530,698 530,415
--------- --------- --------- --------- ---------
Gross profit 71,706 126,342 170,774 230,676 247,056
Selling, general and
administrative expenses 52,676 86,927 117,018 158,916 180,224
--------- --------- --------- --------- ---------
Income from operations 19,030 39,415 53,756 71,760 66,832
Interest expense (751) (3,085) (4,700) (9,728) (10,245)
Other income 1,276 2,250 2,718 4,933 7,034
--------- --------- --------- --------- ---------
Income before income from
affiliate and income taxes 19,555 38,580 51,774 66,965 63,621
Income from affiliate 2,995 1,049 -- -- --
--------- --------- --------- --------- ---------
Income before income taxes 22,550 39,629 51,774 66,965 63,621
Income tax expense 7,572 14,890 19,920 26,788 25,025
--------- --------- --------- --------- ---------
Net income $ 14,978 $ 24,739 $ 31,854 $ 40,177 $ 38,596
========= ========= ========= ========= =========
Net income per common share -
basic and diluted $ 0 .75 $ 1.07 $ 1.35 $ 1.69 $ 1.66
========= ========= ========= ========= =========
Weighted average common shares
Outstanding - basic 19,863 23,013 23,589 23,783 23,225
Weighted average common shares
outstanding - diluted 19,863 23,036 23,632 23,838 23,255
OPERATING DATA:
Number of homes sold 12,175 13,873 14,144 15,628 14,301
Multi-section homes sold as a
percentage of total homes sold 82% 81% 81% 78% 80%
Number of manufacturing facilities(1) 14 15 16 16 15
Number of company-owned superstores(1) 16 54 94 120 133
BALANCE SHEET DATA:
Working capital $ 22,727 $ 39,232 $ 22,290 $ 40,316 $ 59,452
Total assets 143,712 246,335 353,846 427,410 457,174
Long-term debt 3,784 3,583 3,382 3,149 2,906
Shareholders' equity 68,982 119,949 157,056 195,325 217,176
</TABLE>
(1) As of the end of the applicable period.
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Competitive market conditions affected the manufactured housing
industry during fiscal 2000. Lenient credit standards, which inflated
industry-wide wholesale sales and retail inventories in 1997, 1998 and early
1999, tightened in mid-1999, resulting in declining wholesale shipments,
declining margins and lower retail sales levels for most industry participants.
While this contraction in consumer credit provides an advantage to those
participants with substantial capital resources, it is unclear the impact that
these industry conditions will have on Palm Harbor's future results.
Palm Harbor has continued our strategic commitment to vertically
integrate our operations during fiscal 2000. During the year, the number of
Company-owned retail superstores increased by 13 to 133. This increase in
Company-owned retail superstores resulted in a rise in the internalization rate
- which is the percentage of homes manufactured by Palm Harbor and sold through
Company-owned retail superstores. For fiscal 2000, Palm Harbor's internalization
rate was 76% up from 63% in the preceding fiscal year. The financial services
segment, which consists of CountryPlace Mortgage, Palm Harbor's finance
subsidiary, and Standard Casualty Company, Palm Harbor's insurance subsidiary,
continued to be additive to consolidated sales and net income.
The following table sets forth certain items of Palm Harbor's statement of
income as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
MARCH 27, MARCH 26, MARCH 31,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 73.2 69.7 68.2
---------- ---------- ----------
Gross profit 26.8 30.3 31.8
Selling, general and administrative expenses 18.4 20.9 23.2
---------- ---------- ----------
Income from operations 8.4 9.4 8.6
Interest expense (0.7) (1.3) (1.3)
Other income 0.4 0.7 0.9
---------- ---------- ----------
Income before income taxes 8.1 8.8 8.2
Income tax expense 3.1 3.5 3.2
---------- ---------- ----------
Net income 5.0% 5.3% 5.0%
========== ========== ==========
</TABLE>
The following table summarizes certain key sales statistics as of and for the
period indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
MARCH 27, MARCH 26, MARCH 31,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Company homes sold through
company-owned retail superstores 7,461 9,871 10,906
Total new homes sold 14,144 15,628 14,301
Internalization rate(1) 53% 63% 76%
Average new home price - retail $ 55,000 $ 55,000 $ 58,000
Number of retail superstores at
end of period 94(2) 120 133
Homes sold to independent retailers 6,448 4,852 3,223
</TABLE>
(1) The internalization rate is the percentage of new homes that are
manufactured by Palm Harbor and sold through Company-owned retail
superstores.
(2) Includes the 18 retail superstores acquired at the close of business in
fiscal 1998.
11
<PAGE> 13
Palm Harbor's fiscal year consists of 52 or 53 weeks, ending on the Friday
nearest the last day of March each year. The 1998 and 1999 fiscal years were 52
weeks long and the 2000 fiscal year is 53 weeks long.
2000 COMPARED TO 1999
NET SALES. Net sales increased 2.1% to $777.5 million in 2000 from $761.4
million in 1999. This increase reflects a 10.5% increase in the volume of
company homes sold through Company-owned retail superstores offset by an overall
volume decline of 8.5%, which includes homes sold to independent retailers. The
number of superstores increased from 120 at the end of fiscal 1999 to 133 at the
end of fiscal 2000.
GROSS PROFIT. Gross profit increased 7.1% to $247.1 million in 2000 compared to
$230.7 million in 1999. During the same period, gross profit margin as a
percentage of net sales increased to 31.8% compared to 30.3%. This increase was
the result of selling 76% of Palm Harbor's homes through Company-owned retail
superstores in 2000 versus 63% in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 13.4% to $180.2 million in 2000 from $158.9
million in 1999, primarily due to Palm Harbor's continued commitment to brand
advertising, expenses associated with the 13 additional retail superstores and
performance-based compensation expense. As a percentage of net sales, selling,
general and administrative expenses increased, as planned, to 23.2% in 2000 from
20.9% in 1999. This increase is due to the growth in Palm Harbor's retail
operations which, generally, have higher selling, general and administrative
expenses as a percentage of net sales as compared to wholesale operations.
INTEREST EXPENSE. Interest expense increased 5.3% to $10.2 million in 2000 from
$9.7 million in 1999. This increase was primarily due to increased borrowings
under Palm Harbor's floor plan credit facilities.
OTHER INCOME. Other income increased 42.6% to $7.0 million in 2000 from $4.9
million in 1999. This increase was primarily the result of gains on the
disposition of certain properties and additional investment income during fiscal
2000, somewhat offset by gains on sales of investments which occurred in fiscal
1999.
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. Palm Harbor ended fiscal 1999 with 120 retail superstores compared
to 76 in 1998, excluding the 18 retail superstores acquired at the close
business in fiscal 1998. The increase in financial service revenues was
primarily due to an increase in the gain on the sale of loans in which
CountryPlace Mortgage 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
percentage of net sales increased to 30.3% compared to 26.8%. This increase was
the result of selling 63% of Palm Harbor'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 Palm Harbor's
retail operations which, generally, have higher selling, general and
administrative expenses as a percentage of net sales as compared to wholesale
operations.
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 Palm Harbor's floor plan credit facilities.
12
<PAGE> 14
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.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased to $35.9 million in
2000 compared to $20.1 million in 1999 and $16.3 million in 1998. Cash provided
by operations combined with additional floor plan financing were adequate to
support Palm Harbor's working capital needs, capital expenditures and share
repurchases during fiscal 2000.
Capital expenditures were $16.7 million, $20.8 million and $15.9
million in 1998, 1999 and 2000, respectively. 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 in mature manufacturing facilities. In 2000, capital expenditures
included $10.1 million for expansion of retail superstores and approximately
$5.8 million for improvements on mature manufacturing facilities. Palm Harbor
expects capital expenditures to approximate $12.0 million during 2001 for the
purpose of adding 15 to 20 retail superstores and to upgrade current
manufacturing facilities.
Palm Harbor has a floor plan credit facility totaling $175.0 million
with Conseco Finance, a subsidiary of Conseco, Inc., to finance a major portion
of our home inventory at Palm Harbor's retail superstores. This facility is
secured by a portion of Palm Harbor's home inventory and cash in transit from
financial institutions. The interest rate on the facility is prime (9.00% at
March 31, 2000). The agreement is effective until June 30, 2001. Palm Harbor's
floor plan financing agreement permits Palm Harbor to earn interest on
investments made with the financial institution, which can be withdrawn without
any imposed restrictions. Palm Harbor is eligible to invest up to fifty percent
of the floor plan balance provided that the net of the floor plan balance and
investment balance does not fall below $60.0 million. The interest rate on the
outstanding borrowings is prime (9.00% at March 31, 2000). In March 2000,
Conseco, Inc. announced that they would be selling Conseco Finance and that they
anticipated the disposition would be complete by the end of calendar year 2000.
It is unclear what impact this will have on Palm Harbor.
Palm Harbor 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 Palm Harbor (under certain conditions), at either the
LIBOR rate (6.13% at March 31, 2000) plus 1.20% or the prime rate (9.00% at
March 31, 2000) 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. The line is available through
June 27, 2000 and requires an annual commitment fee of up to $12,500. At March
31, 2000, the additional floor plan credit facilities discussed above
effectively reduced the amount available under the line of credit to zero.
Through CountryPlace Mortgage, Palm Harbor assigns approved loan
contracts to one of three national finance companies, primarily Associates
Housing Finance. In January 2000, the Associates announced that they would be
discontinuing retail and floor plan financing for the manufactured housing
industry. Palm Harbor does however have a contract through March 31, 2002 with
the Associates and they have committed to providing consumer financing to Palm
Harbor throughout the duration of the contract.
In accordance with customary business practice in the manufactured
housing industry, Palm Harbor has entered into repurchase agreements with
various financial institutions and other credit sources pursuant to which Palm
Harbor has agreed, under certain circumstances, to repurchase homes sold to
independent retailers in the event of a default by a retailer. Under such
agreements, Palm Harbor agrees to repurchase homes at declining prices over the
term of the agreement, generally 12 to 18 months. At March 31, 2000, Palm Harbor
estimates that our potential obligations under such repurchase agreements were
approximately $43.1 million. During fiscal years 1998, 1999 and 2000, the costs
incurred relating to such repurchase agreements have not been significant.
13
<PAGE> 15
In June 1999, Palm Harbor's Board of Directors authorized, subject to
certain business and market conditions, the use of up to $20.0 million to
repurchase Palm Harbor's common stock. As of May 15, 2000, Palm Harbor had
invested $15.8 million in the common stock buyback program.
Palm Harbor believes that cash flows from operations, together with
floor plan financing and the revolving line of credit, will be adequate to
support our working capital, currently planned capital expenditure needs and
future share repurchases in the foreseeable future. Palm Harbor may, from time
to time, obtain additional floor plan financing for our 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
Palm Harbor's control, no assurances can be given in this regard.
YEAR 2000 ISSUE
Palm Harbor incurred no problems related to our computer systems
beginning January 1, 2000. Costs incurred to replace and modify our software and
hardware related to the Year 2000 Issue were immaterial and charged to expense
as incurred in prior years.
RECENT PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued SAB No.
101, which summarizes the Staff's view in applying generally accepted accounting
principles to revenue recognition in financial statements. Palm Harbor must
comply with SAB 101 beginning with the quarter ended June 30, 2000. Based upon
management's evaluation, we do not believe SAB 101 will have a material impact
on future operating results.
FORWARD-LOOKING INFORMATION
Certain statements contained in this annual report are forward-looking
statements within the safe harbor provisions of the Securities Litigation Reform
Act. Management is unaware of any trends or conditions that could have a
material adverse effect on Palm Harbor's consolidated financial position, future
results of operations or liquidity. However, investors should be aware that all
forward-looking statements are subject to risks and uncertainties and, as a
result of certain factors, actual results could differ materially from these
expressed in or implied by such statements. These risks include political,
economic or other factors such as inflation rates, employment conditions,
interest rates, recessionary or expansive trends, taxes and regulations and laws
affecting the business in each of Palm Harbor's markets; competitive product,
advertising, promotional and pricing activity; inclement or catastrophic weather
conditions affecting revenues, inventory levels, and insurance reserves; trends
to consolidate the number of production facilities; and management's ability to
anticipate acceptance of new products in the marketplace and to forecast sales
and profits at certain times in certain markets.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Palm Harbor is exposed to market risks related to fluctuations in
interest rates on our variable rate debt, which consists primarily of our
liabilities under retail floor plan financing arrangements. Palm Harbor is not
involved in any other market risk sensitive contracts or investments such as
interest rate swaps, futures contracts, or other types of derivative financial
instruments.
For variable interest rate obligations, changes in interest rates
generally do not impact fair market value, but do affect future earnings and
cash flows. Assuming Palm Harbor's level of variable rate debt as of March 31,
2000 is held constant, each one percentage point increase in interest rates
occurring on the first day of the year would result in an increase in interest
expense for the coming year of approximately $1.4 million.
14
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 26, 1999 and March 31,
2000, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three fiscal years in the period ended March 31,
2000. 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 auditing standards generally accepted
in the United States. 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 26, 1999 and March 31, 2000, and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended March 31, 2000, in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
May 5, 2000
15
<PAGE> 17
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
MARCH 26, MARCH 31,
1999 2000
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ...................................... $ 39,413 $ 51,181
Investments .................................................... 17,167 20,380
Receivables .................................................... 79,219 91,494
Inventories .................................................... 122,662 122,645
Prepaid expenses and other assets .............................. 6,349 6,910
---------- ----------
Total current assets ................................................ 264,810 292,610
Goodwill, net ....................................................... 59,823 56,773
Other assets, net ................................................... 22,211 20,799
---------- ----------
82,034 77,572
Property, plant and equipment, at cost:
Land and improvements .......................................... 16,189 20,243
Buildings and improvements ..................................... 51,023 58,046
Machinery and equipment ........................................ 35,422 43,499
Construction in progress ....................................... 8,742 4,451
---------- ----------
111,376 126,239
Accumulated depreciation ....................................... 30,810 39,247
---------- ----------
80,566 86,992
---------- ----------
Total assets ........................................................ $ 427,410 $ 457,174
========== ==========
</TABLE>
16
<PAGE> 18
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
MARCH 26, MARCH 31,
1999 2000
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 41,847 $ 41,705
Floor plan payable 128,852 138,608
Accrued liabilities 53,562 52,602
Current portion of long-term debt 233 243
---------- ----------
Total current liabilities 224,494 233,158
Long-term debt, less current portion 3,149 2,906
Deferred income taxes 4,442 3,934
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 - 23,807,879 at March 26,
1999 and March 31, 2000 239 239
Additional paid-in capital 54,149 54,149
Retained earnings 142,486 181,082
Accumulated other comprehensive income 1,195 803
---------- ----------
198,069 236,273
Less treasury shares - 30,765 at March 26,
1999, and 787,039 at March 31, 2000 (442) (13,848)
Unearned compensation (2,302) (5,249)
---------- ----------
Total shareholders' equity 195,325 217,176
---------- ----------
Total liabilities and shareholders' equity $ 427,410 $ 457,174
========== ==========
</TABLE>
See accompanying notes.
17
<PAGE> 19
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
MARCH 27, MARCH 26, MARCH 31,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 637,268 $ 761,374 $ 777,471
Cost of sales 466,494 530,698 530,415
Selling, general and
administrative expenses 117,018 158,916 180,224
---------- ---------- ----------
Income from operations 53,756 71,760 66,832
Interest expense (4,700) (9,728) (10,245)
Other income 2,718 4,933 7,034
---------- ---------- ----------
Income before income taxes 51,774 66,965 63,621
Income tax expense 19,920 26,788 25,025
---------- ---------- ----------
Net income $ 31,854 $ 40,177 $ 38,596
========== ========== ==========
Net income per common share -
basic and diluted $ 1.35 $ 1.69 $ 1.66
========== ========== ==========
Weighted average common
shares outstanding - basic 23,589 23,783 23,225
========== ========== ==========
Weighted average common
shares outstanding - diluted 23,632 23,838 23,255
========== ========== ==========
</TABLE>
See accompanying notes.
18
<PAGE> 20
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of dollars)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at March 28, 1997 15,109,752 $ 151 $ 48,994 $ 70,442
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 -- -- -- 13
---------- -------- -------- --------
Balance at March 27, 1998 19,045,668 191 54,197 102,309
Net income -- -- -- 40,177
1.25 to 1 stock split 4,762,211 48 (48) --
Treasury shares purchased -- -- -- --
Unrealized gain -- -- -- --
Long-Term Incentive Plan
Shares purchased -- -- -- --
---------- -------- -------- --------
Balance at March 26, 1999 23,807,879 239 54,149 142,486
Net income -- -- -- 38,596
Treasury shares purchased, net -- -- -- --
Unrealized gain (loss), net -- -- -- --
Long-Term Incentive Plan
Shares purchased -- -- -- --
Terminations -- -- -- --
Provision -- -- -- --
---------- -------- -------- --------
Balance at March 31, 2000 23,807,879 $ 239 $ 54,149 $181,082
========== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
TREASURY SHARES COMPREHENSIVE UNEARNED
SHARES AMOUNT INCOME COMPENSATION TOTAL
-------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at March 28, 1997 (13,444) $ (194) $ 556 -- $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
-------- -------- -------- -------- --------
Balance at March 27, 1998 (16,611) (197) 556 -- 157,056
Net income -- -- -- -- 40,177
1.25 to 1 stock split (4,154) -- -- -- --
Treasury shares purchased (10,000) (245) -- -- (245)
Unrealized gain -- -- 639 -- 639
Long-Term Incentive Plan
Shares purchased -- -- -- (2,302) (2,302)
-------- -------- -------- -------- --------
Balance at March 26, 1999 (30,765) (442) 1,195 (2,302) 195,325
Net income -- -- -- -- 38,596
Treasury shares purchased, net (737,709) (12,986) -- -- (12,986)
Unrealized gain (loss), net -- -- (392) -- (392)
Long-Term Incentive Plan
Shares purchased -- -- -- (4,468) (4,468)
Terminations (18,565) (420) -- 420 --
Provision -- -- -- 1,101 1,101
-------- -------- -------- -------- --------
Balance at March 31, 2000 (787,039) $(13,848) $ 803 $ (5,249) $217,176
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
19
<PAGE> 21
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
MARCH 27, MARCH 26, MARCH 31,
1998 1999 2000
---------- ---------- ----------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 31,854 $ 40,177 $ 38,596
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 5,641 7,588 9,503
Amortization 1,870 3,982 4,053
Deferred income tax benefit (1,597) (1,807) (1,411)
Gain on sale of loans -- (11,438) (2,253)
Gain on disposition of assets (27) (45) (16)
Purchases of stock for Long-Term Incentive Plan -- (2,302) (4,468)
Provision for Long-Term Incentive Plan -- -- 1,101
Changes in operating assets and liabilities
Accounts receivable (14,838) 6,586 (7,077)
Inventories (19,684) (14,477) 17
Prepaid expenses and other current assets 804 48 342
Other assets (2,148) (10,213) 409
Accounts payable and accrued expenses 14,449 4,524 (1,102)
---------- ---------- ----------
Cash provided by operations 16,324 22,623 37,694
Loans originated -- (160,690) (154,457)
Sale of loans -- 158,133 152,637
---------- ---------- ----------
Net cash provided by operating activities 16,324 20,066 35,874
INVESTING ACTIVITIES
Purchases of property, plant and equipment (16,707) (20,846) (15,933)
Cash consideration for acquisitions (net of cash
acquired) (34,648) -- --
Purchases of investments (5,302) (23,900) (8,154)
Sales of investments 3,308 11,824 3,424
Proceeds from disposition of assets 69 97 20
---------- ---------- ----------
Net cash used in investing activities (53,280) (32,825) (20,643)
FINANCING ACTIVITIES
Net proceeds from floor plan payable 14,858 49,288 9,756
Borrowings (payments) on line of credit 17,000 (17,000) --
Principal payments on notes payable and
long-term debt (185) (944) (233)
Net purchases of treasury stock (3) (245) (12,986)
Notes receivable from shareholders, net 13 -- --
---------- ---------- ----------
Net cash provided by (used in) financing activities 31,683 31,099 (3,463)
Net (decrease) increase in cash and cash equivalents (5,273) 18,340 11,768
Cash and cash equivalents at beginning of year 26,346 21,073 39,413
---------- ---------- ----------
Cash and cash equivalents at end of year $ 21,073 $ 39,413 $ 51,181
========== ========== ==========
Supplemental disclosures of cash flow information: Cash paid
during the year for:
Interest $ 4,674 $ 9,024 $ 10,206
Income taxes $ 22,592 $ 28,625 $ 26,182
Supplemental schedule of non-cash investing activities:
Common stock issuance for acquisitions $ 5,243 -- --
Unrealized gain (loss), net -- $ 639 $ (392)
</TABLE>
See accompanying notes.
20
<PAGE> 22
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
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 our 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. Fiscal years 1998,
1999 and 2000 contained 52, 52 and 53 weeks, respectively. Headquartered in
Addison, Texas, the Company markets manufactured homes nationwide through
vertically integrated operations, encompassing manufacturing, marketing,
financing and insurance.
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from the estimates and
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 our receivables are subject to normal industry risk.
CountryPlace Mortgage, Ltd. ("CountryPlace"), 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 while unrealized gains
are included as a component of retained earnings.
During the fiscal years ended March 26, 1999 and March 31, 2000, the Company
recognized approximately $11.4 million and $6.7 million in gains, of which in
2000 approximately $2.3 million were noncash. The Company had $639,000 and $1.1
million in unrealized gains for the fiscal years ended March 26, 1999 and March
31, 2000, respectively. Additionally, as of March 26, 1999 and March 31, 2000,
the Company had net receivables of approximately $8.7 million and $8.0 million,
respectively, related to the retained residual interests of loan contracts
previously sold by CountryPlace.
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 debt and 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.
21
<PAGE> 23
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. Estimated useful
lives for significant classes of assets are as follows: Land Improvements 10-15
years, Buildings and Improvements 3-15 years, and Machinery and Equipment 2-10
years.
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
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 8, 1997 and July 14, 1998.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current
period presentation.
2. ACQUISITIONS
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. This acquisition was accounted for using the
purchase method of accounting.
22
<PAGE> 24
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 26, MARCH 31,
1999 2000
---------- ----------
(in thousands)
<S> <C> <C>
Raw materials $ 8,936 $ 7,376
Work in process 3,208 3,424
Finished goods - manufacturing 247 629
Finished goods - retail 110,271 111,216
---------- ----------
$ 122,662 $ 122,645
========== ==========
</TABLE>
4. INVESTMENTS
The Company's investments totaled $17,167,000 and $20,380,000 at March 26, 1999
and March 31, 2000, respectively. The fair value of the available-for-sale
securities was $14,784,000 and $17,134,000, resulting in net unrealized gains
(losses) recorded of $0 and $(1,517,000) at March 26, 1999 and March 31, 2000,
respectively. The majority of the available-for-sale securities consist of U.S.
government related obligations and other debt obligations with contractual
maturities of generally 2 to 11 years. The remaining of the Company's
investments are classified as trading securities.
5. GOODWILL
Goodwill was $66,696,000 at March 26, 1999 and $67,584,000 at March 31, 2000,
with accumulated amortization of $6,873,000 and $10,811,000, respectively, as of
those dates.
6. FLOOR PLAN PAYABLE
The Company has a floor plan credit facility totaling $150,000,000 and
$175,000,000 as of March 26, 1999 and March 31, 2000, respectively, from a
financial institution to finance a major portion of our 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. The
interest rate on the facility is prime (9.00% at March 31, 2000). The agreement
is effective until June 20, 2001. The Company had $128,852,000 and $138,608,000
outstanding on these floor plan credit facilities at March 26, 1999 and March
31, 2000, respectively.
The Company's floor plan financing agreement permits the Company to earn
interest on investments made with the institution, which can be withdrawn
without any imposed restrictions. The Company is eligible to invest up to fifty
percent of the floor plan balance provided that the net of the floor plan
balance and investment balance does not fall below $60.0 million. The interest
rate on the outstanding borrowings is prime (9.00% at March 31, 2000). The
Company had $36,000,000 and $47,000,000 invested at March 26, 1999 and March 31,
2000, respectively, and has classified these amounts as Cash and Cash
Equivalents in the accompanying Consolidated Balance Sheets.
7. 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 (6.13% at March 31, 2000) plus 1.20% or the prime rate (9.00% at
March 31, 2000) minus 1.00%. 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 up to $12,500 and is available through June
27, 2000. The Company had zero outstanding on this line of credit at March 26,
1999 and March 31, 2000. At March 31, 2000, the additional floor plan credit
facilities discussed in Note 6 effectively reduced the amount available under
the line of credit to zero.
23
<PAGE> 25
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The weighted average interest rate for borrowings under the Company's revolving
line of credit was 6.3%, 6.4%, and 7.0% during fiscal 1998, 1999, and 2000,
respectively.
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
MARCH 26, MARCH 31,
1999 2000
--------- ---------
(in thousands)
<S> <C> <C>
Salaries, wages and benefits $ 16,228 $ 15,997
Accrued closing costs on homes sold 15,042 12,616
Warranty 6,490 6,406
Customer deposits 5,806 5,697
Sales incentives 1,561 1,265
Other 8,435 10,621
--------- ---------
$ 53,562 $ 52,602
========= =========
</TABLE>
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 26, MARCH 31,
1999 2000
--------- ---------
(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 $ 3,382 $ 3,149
Less current portion (233) (243)
--------- ---------
Long-term debt, less current portion $ 3,149 $ 2,906
========= =========
</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 31, 2000 of $5,992,000.
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ---------
<S> <C>
2001 $ 243
2002 163
2003 176
2004 190
2005 and thereafter 2,377
---------
$ 3,149
</TABLE>
The carrying value of the Company's long-term debt approximates its fair value.
24
<PAGE> 26
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
Income tax expense for fiscal years 1998, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
MARCH 27, MARCH 26, MARCH 31,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
(in thousands)
Current
Federal $ 19,941 $ 25,144 $ 24,616
State 2,269 2,831 2,381
Deferred (2,290) (1,187) (1,972)
---------- ---------- ----------
Total income taxes $ 19,920 $ 26,788 $ 25,025
========== ========== ==========
</TABLE>
Significant components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 26, MARCH 31,
1999 2000
---------- ----------
(in thousands)
<S> <C> <C>
Current deferred tax assets
Warranty reserves $ 2,272 $ 2,242
Accrued liabilities 2,041 2,680
Inventory 465 457
Other 1,017 1,319
---------- ----------
5,795 6,698
---------- ----------
Non-current deferred tax assets
Unrecognized income 2,240 2,507
---------- ----------
Total deferred tax assets 8,035 9,205
---------- ----------
Deferred tax liabilities
Tax benefits purchased 2,921 2,624
Property and equipment (200) (767)
Other 1,721 2,077
---------- ----------
Total deferred tax liabilities 4,442 3,934
---------- ----------
Net deferred income tax assets (liabilities) $ 3,593 $ 5,271
========== ==========
</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. Current and non-current deferred tax assets
are classified in prepaid expenses and other assets and other assets, net,
respectively, in the Consolidated Balance Sheets.
25
<PAGE> 27
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effective income tax rate on pretax earnings differed from the U.S. federal
statutory rate for the following reasons:
<TABLE>
<CAPTION>
MARCH 27, MARCH 26, MARCH 31,
1998 1999 2000
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Tax at statutory rate $ 18,121 $ 23,437 $ 22,268
Increases (decreases)
State taxes - net of federal tax benefit 1,475 1,840 1,547
Goodwill amortization 612 1,023 1,011
Tax exempt interest (87) -- (166)
Other (201) 488 365
---------- ---------- ----------
Income tax expense $ 19,920 $ 26,788 $ 25,025
========== ========== ==========
Effective tax rate 38.5% 40.0% 39.3%
========== ========== ==========
</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.
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 received awards of
restricted common stock. These restricted stock awards gave 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. Effective April 3,
2000, the Company adopted the Fiscal Year 2001 Long-Term Incentive Plan (the
"2001 Plan"). The 2001 Plan has substantially the same terms as the Plan.
The unamortized cost of the common stock acquired by the Company for the
participants in the plans is reflected as "Unearned Compensation" in the
accompanying Consolidated Balance Sheets. The plans are 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 $1,891,000, $2,469,000 and $2,525,000 in fiscal years 1998, 1999 and
2000, respectively.
26
<PAGE> 28
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES
Future minimum lease payments for all noncancelable operating leases having a
remaining term in excess of one year at March 31, 2000, are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------
<S> <C>
2001 $ 6,844
2002 4,790
2003 3,136
2004 1,877
2005 and thereafter 9,300
--------
$ 25,947
========
</TABLE>
Rent expense (net of sublease income) was $5,191,000, $6,811,000 and $9,047,000
for fiscal years 1998, 1999 and 2000, 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 31, 2000, the Company estimates
that our potential obligations under such repurchase agreements were
approximately $43.1 million. However, it is management's opinion that no
material loss will occur from the repurchase agreements. During fiscal years
1998, 1999 and 2000, net expenses (income) incurred by the Company under these
repurchase agreements totaled $(13,000), $29,000 and $155,000, respectively.
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
$5,850,000 to former business owners of acquired locations. Rent expense related
to these lease commitments was $341,000 for fiscal year 2000.
27
<PAGE> 29
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. BUSINESS SEGMENT INFORMATION
The Company operates primarily in three business segments: retail, manufacturing
and financial services. The following table summarizes information with respect
to the Company's business segments for the periods indicated (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------
MARCH 27, MARCH 26, MARCH 31,
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Net sales
Retail $ 433,495 $ 612,730 $ 657,781
Manufacturing 480,215 509,869 480,867
Financial services 8,335 24,219 24,689
------------ ------------ ------------
922,045 1,146,818 1,163,337
Intersegment sales (284,777) (385,444) (385,866)
------------ ------------ ------------
$ 637,268 $ 761,374 $ 777,471
============ ============ ============
Income from operations
Retail $ 22,595 $ 27,088 $ 26,955
Manufacturing 43,121 51,042 45,078
Financial services 1,208 13,183 13,554
General corporate expenses (11,624) (16,434) (18,591)
------------ ------------ ------------
55,300 74,879 66,996
Intersegment profits (1,544) (3,119) (164)
------------ ------------ ------------
$ 53,756 $ 71,760 $ 66,832
============ ============ ============
Interest expense $ (4,700) $ (9,728) $ (10,245)
Other income 2,718 4,933 7,034
------------ ------------ ------------
Income before income taxes $ 51,774 $ 66,965 $ 63,621
============ ============ ============
Identifiable assets
Retail $ 149,771 $ 167,444 $ 198,535
Manufacturing 166,632 215,403 208,980
Financial services 27,350 34,888 40,213
Other 10,093 9,675 9,446
------------ ------------ ------------
$ 353,846 $ 427,410 $ 457,174
============ ============ ============
Depreciation and amortization
Retail $ 3,442 $ 6,595 $ 8,020
Manufacturing 3,596 4,508 4,989
Financial services 96 148 191
Other 377 319 356
------------ ------------ ------------
$ 7,511 $ 11,570 $ 13,556
============ ============ ============
Capital expenditures
Retail $ 8,035 $ 11,722 $ 10,069
Manufacturing 8,540 8,757 5,469
Financial services 132 88 88
Other -- 279 307
------------ ------------ ------------
$ 16,707 $ 20,846 $ 15,933
============ ============ ============
</TABLE>
28
<PAGE> 30
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial information
for the fiscal years 1999 and 2000.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- --------- -------- -------
(in thousands, except per share data)
FISCAL YEAR ENDED
MARCH 26, 1999
<S> <C> <C> <C> <C> <C>
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
FISCAL YEAR ENDED
MARCH 31, 2000
Net sales $ 218,575 $ 193,678 $ 187,617 $ 177,601 $ 777,471
Gross profit 67,510 63,510 60,576 55,460 247,056
Income from operations 20,399 17,001 17,320 12,112 66,832
Net income 11,615 10,507 9,474 7,000 38,596
Earnings per share .49 .45 .41 .31 1.66
</TABLE>
29
<PAGE> 31
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 3 through 8 of the
Company's definitive Proxy Statement filed with the SEC on June 9, 2000 in
connection with the Annual Meeting of Shareholders to be held June 28, 2000.
(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 our 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 8 through 12 of The Company's definitive Proxy Statement
filed with the SEC on June 9, 2000 in connection with the Annual Meeting of
Shareholders to be held June 28, 2000.
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 5 and 6 of the
Company's definitive Proxy Statement filed with the SEC on June 9, 2000 in
connection with the Annual Meeting of Shareholders to be held June 28, 2000.
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 Consolidated Financial Statements for the year
ended March 31, 2000 are included on pages 16 through 29 of this report.
(2) Financial Statement Schedules
None
(3) Index to Exhibits
30
<PAGE> 32
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
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 our 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).
*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.
31
<PAGE> 33
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
our behalf by the undersigned, thereunto duly authorized on May 31, 2000.
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 31, 2000
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 May 31, 2000
------------------------------------- (Principal Executive Officer)
Lee Posey
/s/ LARRY KEENER
------------------------------------- Chief Executive Officer, May 31, 2000
Larry Keener President and Director
/s/ SCOTT W. CHANEY
------------------------------------- Executive Vice President and Director May 31, 2000
Scott W. Chaney
/s/ KELLY TACKE
------------------------------------- Vice President-Finance, May 31, 2000
Kelly Tacke Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ WILLIAM R. THOMAS
------------------------------------- Director May 31, 2000
William R. Thomas
/s/ WALTER D. ROSENBERG, JR.
------------------------------------- Director May 31, 2000
Walter D. Rosenberg, Jr.
/s/ FREDERICK R. MEYER
------------------------------------- Director May 31, 2000
Frederick R. Meyer
/s/ JOHN H. WILSON
------------------------------------- Director May 31, 2000
John H. Wilson
/s/ A. GARY SHILLING
------------------------------------- Director May 31, 2000
A. Gary Shilling
</TABLE>
32
<PAGE> 34
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
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 our 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).
*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
33
