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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 29, 2000
Commission file number 0-26188
PALM HARBOR HOMES, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-1036634
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
15303 Dallas Parkway, Suite 800, Addison, Texas 75001-4600
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(Address of principal executive offices) (Zip code)
972-991-2422
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) Yes X No and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of common stock $.01 par value, outstanding on February 1, 2001 -
22,657,226.
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PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
DECEMBER 29, MARCH 31,
2000 2000
------------ ---------
(Unaudited)
ASSETS
Cash and cash equivalents $ 60,362 $ 49,138
Investments 27,214 22,423
Receivables 88,115 91,494
Inventories 114,097 122,645
Other current assets 6,783 6,910
------------ ---------
Total current assets 296,571 292,610
Other assets 70,820 77,572
Property, plant and equipment, net 90,213 86,992
------------ ---------
TOTAL ASSETS $ 457,604 $ 457,174
============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 30,075 $ 41,705
Floor plan payable 138,324 138,608
Accrued liabilities 48,795 52,602
Current portion of long-term debt 177 243
------------ ---------
Total current liabilities 217,371 233,158
Long-term debt, less current portion 2,787 2,906
Deferred income taxes 2,993 3,934
Shareholders' equity:
Common stock, $.01 par value 239 239
Additional paid-in capital 54,149 54,149
Retained earnings 199,468 181,082
Accumulated other comprehensive income 3,276 803
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257,132 236,273
Less treasury shares (19,274) (13,848)
Unearned compensation (3,405) (5,249)
------------ ---------
Total shareholders' equity 234,453 217,176
------------ ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 457,604 $ 457,174
============ =========
See accompanying notes.
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PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 29, DECEMBER 31, DECEMBER 29, DECEMBER 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales $ 145,934 $ 187,617 $ 511,818 $ 599,870
Cost of sales 100,403 127,041 350,047 408,274
Selling, general and
administrative expenses 38,251 43,256 127,279 136,876
------------ ------------ ------------ ------------
Income from operations 7,280 17,320 34,492 54,720
Interest expense (3,332) (2,700) (9,531) (7,518)
Other income 1,323 1,179 5,624 5,257
------------ ------------ ------------ ------------
Income before income taxes 5,271 15,799 30,585 52,459
Income tax expense 2,104 6,325 12,199 20,863
------------ ------------ ------------ ------------
Net income $ 3,167 $ 9,474 $ 18,386 $ 31,596
============ ============ ============ ============
Net income per common share -
basic and diluted $ 0.14 $ 0.41 $ 0.81 $ 1.35
============ ============ ============ ============
Weighted average common
shares outstanding - basic 22,662 22,888 22,799 23,348
============ ============ ============ ============
Weighted average common
shares outstanding - diluted 22,671 22,913 22,810 23,380
============ ============ ============ ============
See accompanying notes.
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PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
NINE MONTHS ENDED
DECEMBER 29, DECEMBER 31,
2000 1999
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OPERATING ACTIVITIES
Net income $ 18,386 $ 31,596
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 7,984 6,967
Amortization 3,053 3,033
Deferred income tax benefit (941) (838)
Gain on sale of loans -- (2,253)
Purchases of stock for long-term incentive plan -- (986)
Provision for long-term incentive plan 1,342 826
Changes in operating assets and liabilities:
Trade accounts receivable 6,296 8,934
Inventories 8,548 710
Other current assets 125 251
Other assets 3,699 180
Accounts payable and accrued liabilities (15,450) (7,500)
------------ ------------
Cash provided by operations 33,042 40,920
Loans originated (110,028) (118,920)
Sales of loans 108,941 117,456
------------ ------------
Net cash provided by operating activities 31,955 39,456
INVESTING ACTIVITIES
Purchases of property, plant and equipment (11,202) (12,852)
Purchases of investments (5,427) (5,562)
Sales of investments 1,278 2,924
------------ ------------
Net cash used in investing activities (15,351) (15,490)
FINANCING ACTIVITIES
Net proceeds from (payments on) floor plan payable (284) 1,443
Principal payments on notes payable and long-term debt (185) (173)
Net purchases of treasury stock (4,911) (15,535)
------------ ------------
Net cash used in financing activities (5,380) (14,265)
Net increase in cash and cash equivalents 11,224 9,701
Cash and cash equivalents at beginning of period 49,138 39,413
------------ ------------
Cash and cash equivalents at end of period $ 60,362 $ 49,114
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 9,011 $ 7,752
Income taxes 12,536 20,882
See accompanying notes.
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PALM HARBOR HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements reflect all
adjustments, which include only normal recurring adjustments, which
are, in the opinion of management, necessary for a fair and accurate
presentation. Certain footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The condensed consolidated
financial statements should be read in conjunction with the audited
financial statements for the year ended March 31, 2000. Results of
operations for any interim period are not necessarily indicative of
results to be expected for a full year.
2. Inventories
Inventories consist of the following (in thousands):
DECEMBER 29, MARCH 31,
2000 2000
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Raw materials $ 7,495 $ 7,376
Work in process 2,971 3,424
Finished goods - manufacturing 369 629
- retail 103,262 111,216
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$ 114,097 $ 122,645
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3. Other Assets
Other assets include goodwill of $67.7 million at December 29, 2000,
and $67.6 million at March 31, 2000, with accumulated amortization of
$13.8 million and $10.8 million, respectively.
4. Floor Plan Payable
The Company has floor plan facilities totaling $250.0 million plus a
temporary overline facility of $15.0 million available through April 2,
2001 from financial institutions to finance a major portion of its home
inventory at the Company's retail superstores. These facilities are
secured by a portion of the Company's home inventory and receivables
from financial institutions. The interest rates on the facilities are
prime (9.5% at December 29, 2000). The Company had $138.3 million and
$138.6 million outstanding on these floor plan credit facilities at
December 29, 2000 and March 31, 2000, respectively.
The Company's floor plan financing agreements permit the Company to
earn interest on investments made with the financial institution, which
can be withdrawn without any imposed restrictions. One agreement allows
the Company 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 other agreement allows the
Company to invest up to 25% of the outstanding amount owed to the
financial institution. Interest rates on the amounts invested range
from prime (9.5% at December 29, 2000) to prime minus 0.5%. The Company
had $16.6 million and $47.0 million invested at December 29, 2000 and
March 31, 2000, respectively, and has classified these amounts as Cash
and Cash Equivalents in the accompanying Condensed Consolidated Balance
Sheets.
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5. 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 (6.4% at December 29, 2000) plus
1.2% or the prime rate (9.5% at December 29, 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,
2001, and requires an annual commitment fee of up to $12,500. The
Company had no amounts outstanding on the line of credit at December
29, 2000 and March 31, 2000.
6. Business Segment Information
The Company operates primarily in three business segments, retail
sales, manufacturing and financial services. The following table
summarizes information with respect to the Company's business segments
for the indicated periods ending December 29, 2000 and December 31,
1999 (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 29, DECEMBER 31, DECEMBER 29, DECEMBER 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales
Retail $ 124,035 $ 164,398 $ 438,808 $ 510,717
Manufacturing 82,746 112,323 294,527 374,493
Financial services 5,489 5,926 17,679 18,717
------------ ------------ ------------ ------------
212,270 282,647 751,014 903,927
Intersegment sales (66,336) (95,030) (239,196) (304,057)
------------ ------------ ------------ ------------
$ 145,934 $ 187,617 $ 511,818 $ 599,870
------------ ------------ ------------ ------------
Income from operations
Retail $ 1,785 $ 8,354 $ 11,268 $ 24,027
Manufacturing 7,373 9,002 29,004 32,968
Financial services 2,757 3,271 8,588 10,320
General corporate expenses (4,644) (3,971) (13,622) (12,147)
------------ ------------ ------------ ------------
7,271 16,656 35,238 55,168
Intersegment profits 9 664 (746) (448)
------------ ------------ ------------ ------------
$ 7,280 $ 17,320 $ 34,492 $ 54,720
------------ ------------ ------------ ------------
Interest expense $ (3,332) $ (2,700) $ (9,531) $ (7,518)
Other income 1,323 1,179 5,624 5,257
------------ ------------ ------------ ------------
Income before taxes $ 5,271 $ 15,799 $ 30,585 $ 52,459
============ ============ ============ ============
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 1 through 5.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This continues to be a challenging period for the manufactured housing industry.
Elevated credit standards resulted in reduced retail sales levels and declining
margins for most industry participants. Additionally, business conditions have
resulted in a considerable contraction of industry-wide manufacturing capacity.
Calendar 2000 industry shipments through November were down 27% from a year ago
and it seems likely that the present industry lending environment will continue
to dampen industry sales and shipments for the next several months. Despite the
difficult conditions, the Company maintained gross margins, profitably increased
market share, decreased fixed expenses, and reduced inventories, while
continuing its controlled growth strategy of opening new retail superstores.
The Company has cash and cash equivalents of $60.4 million after investing over
$20 million in the Company's stock buyback program and virtually no long-term
debt. In addition, the Company continues to control inventory levels with the
average new home inventory per retail superstore averaging $740,000 per
location, a decline of approximately $90,000, or 11%, compared to the year
earlier period. Gross margin remained stable at 31.2%.
The following table sets forth certain items of the Company's statement of
income as a percentage of net sales for the period indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 29, DECEMBER 31, DECEMBER 29, DECEMBER 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 68.8 67.7 68.4 68.1
------------ ------------ ------------ ------------
Gross profit 31.2 32.3 31.6 31.9
Selling, general and
administrative expenses 26.2 23.1 24.9 22.8
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Income from operations 5.0 9.2 6.7 9.1
Interest expense (2.3) (1.4) (1.8) (1.3)
Other income 0.9 0.6 1.1 0.9
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Income before income taxes 3.6 8.4 6.0 8.7
Income tax expense 1.4 3.4 2.4 3.5
------------ ------------ ------------ ------------
Net income 2.2% 5.0% 3.6% 5.2%
============ ============ ============ ============
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The following table summarizes certain key sales statistics as of and for the
three and nine months ended December 29, 2000 and December 31, 1999.
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 29, DECEMBER 31, DECEMBER 29, DECEMBER 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Company homes sold through
Company-owned retail superstores 1,982 2,694 7,078 8,485
Total new homes sold 2,410 3,421 8,517 11,229
Internalization rate (1) 82% 79% 83% 76%
Average new home price - retail $60,000 $ 59,000 $ 59,000 $ 57,000
Number of retail superstores at
end of period 138 132 138 132
Homes sold to independent retailers 418 713 1,395 2,581
(1) The internalization rate is the percentage of new homes that are
manufactured by the Company and sold through Company-owned retail
superstores.
THREE MONTHS ENDED DECEMBER 29, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1999
NET SALES. Net sales decreased 22.2% to $145.9 million in the three
months ended December 29, 2000 from $187.6 million in the three months ended
December 31, 1999. The decrease in net sales was primarily due to competitive
conditions in the manufactured housing industry as indicated by a decrease of
26% in the volume of homes sold through Company-owned superstores while overall
unit volume, which includes sales to independent retailers, declined 30% in the
current quarter. This decline in volume is partially offset by an increase in
the average selling price of a new home, which resulted from a continued shift
in product mix towards multi-section homes. Currently, 81% of the homes
manufactured by the Company are multi-section. The number of superstores
increased from 132 at the end of the third quarter of fiscal 2000 to 138 at the
end of the third quarter of fiscal 2001.
GROSS PROFIT. Gross profit decreased 24.8% to $45.6 million in the
quarter ended December 29, 2000 compared to $60.6 million in the quarter ended
December 31, 1999. During the same period, gross profit margin as a percentage
of net sales decreased slightly to 31.2% compared to 32.3%. The Company sold 82%
of its homes through Company-owned retail superstores in the third quarter of
fiscal 2001 versus 79% in the third quarter of fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 11.6% to $38.3 million in the quarter ended
December 29, 2000 from $43.3 million in the quarter ended December 31, 1999,
primarily due to the Company's continued focus on reducing fixed expenses
company-wide partially offset by a commitment to building brand awareness via
advertising and expenses associated with the opening of six additional retail
superstores. As a percentage of net sales, selling, general and administrative
expenses increased, as planned, to 26.2% in the third quarter of fiscal 2001
from 23.1% in the third quarter of fiscal 2000. This increase is due to the
growth in the Company's retail operations which, generally, have higher selling,
general and administrative expenses as a percentage of net sales as compared to
wholesale operations.
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INTEREST EXPENSE. Interest expense increased 23.4% to $3.3 million in the
third quarter of fiscal 2001 from $2.7 million in the third quarter of fiscal
2000 due to increases in both the average floor plan balance and the prime
interest rate from the third quarter of fiscal 2000 to the third quarter of
fiscal 2001.
NINE MONTHS ENDED DECEMBER 29, 2000 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1999
NET SALES. Net sales decreased 14.7% to $511.8 million in the nine months
ended December 29, 2000 from $599.9 million in the nine months ended December
31,1999. The decrease in net sales was primarily due to competitive conditions
in the manufactured housing industry as indicated by a decrease of 18% in the
volume of homes sold through Company-owned superstores while overall unit
volume, which includes sales to independent retailers, declined 24% in the first
three quarters of fiscal 2001 compared to the first three quarters of fiscal
2000. This decline in volume is partially offset by an increase in the average
selling price of a new home, which resulted from a continued shift in product
mix towards multi-section homes. Currently, 81% of the homes manufactured by the
Company are multi-section. The number of Company-owned retail superstores
increased from 132 at the end of the third quarter of fiscal 2000 to 138 at the
end of the third quarter of fiscal 2001.
GROSS PROFIT. Gross profit decreased 15.6% to $161.8 million in the nine
months ended December 29, 2000 compared to $191.6 million in the nine months
ended December 31, 1999. During the same period, gross profit margin as a
percentage of net sales remained stable at 31.6% compared to 31.9%. The Company
sold 83% of the its homes through Company-owned retail superstores in the nine
months ended December 29, 2000 versus 76% in the nine months ended December 31,
1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 7.0% to $127.3 million in the nine months
ended December 29, 2000 from $136.9 million in the nine months ended December
31, 1999, primarily due to the Company's continued focus on reducing fixed
expenses company-wide partially offset by a commitment to building brand
awareness via advertising and expenses associated with the six additional retail
superstores. As a percentage of net sales, selling, general and administrative
expenses increased, as planned, to 24.9% in the nine months ended December 29,
2000 from 22.8% in the nine months ended December 31, 1999. This increase is due
to the growth in the Company's retail operations which, generally, have higher
selling, general and administrative expenses as a percentage of net sales as
compared to wholesale operations.
INTEREST EXPENSE. Interest expense increased 26.8% to $9.5 million in the
nine months ended December 29, 2000 from $7.5 million in the nine months ended
December 31, 1999 due to increases in both the average floor plan balance and
the prime interest rate from the nine months ended December 31, 1999 to the nine
months ended December 29, 2000.
LIQUIDITY AND CAPITAL RESOURCES. The Company has a floor plan credit
facility totaling $175.0 million with Conseco Finance, a subsidiary of Conseco,
Inc., to finance a major portion of its home inventory at the Company's retail
superstores. This facility is secured by a portion of the Company's home
inventory and receivables from financial institutions. The interest rate on the
facility is prime (9.5% at December 29, 2000). The agreement is effective until
June 30, 2001. The Company also has a floor plan credit facility with Deutsche
Financial Services for $75.0 million (with an overline of $15.0 million through
April 2, 2001). This agreement has substantially the same terms as the agreement
with Conseco and is effective until September 11, 2001. The Company's floor plan
financing agreements permit the Company to earn interest on investments made
with the financial institutions, which can be withdrawn without any imposed
restrictions. The agreement with Conseco allows the Company to invest up to
fifty percent of the floor plan balance provided that the net of the floor plan
balance and investment
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balance does not fall below $60.0 million. The agreement with Deutsche allows
the Company to invest up to 25% of the outstanding amount owed to them.
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 (6.4% at December 29, 2000) plus 1.2% or the prime rate (9.5% at
December 29, 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, 2001 and requires an annual commitment fee of up to $12,500. The
Company had no amounts outstanding on the line of credit at December 29, 2000
and March 31, 2000.
Through CountryPlace Mortgage, the Company's finance subsidiary, the
Company assigns approved loan contracts to one of three national finance
companies. In January 2000, one of these companies, Associates Housing Finance,
announced that they would be discontinuing retail and floor plan financing for
the manufactured housing industry. The Company does, however, have a contract
through March 31, 2002 with the Associates and they have committed to providing
consumer financing to the Company throughout the duration of the contract.
In July 1999, the Company's Board of Directors authorized, subject to
certain business and market conditions, the use of up to $20.0 million to
repurchase the Company's common stock. In July 2000, the Board of Directors
authorized another $20.0 million for common stock repurchases. As of the date of
this filing, the Company had invested $20.5 million in the common stock buyback
program.
The Company believes that cash flow from operations, together with floor
plan financing and the revolving line of credit, will be adequate to support its
working capital, currently planned capital expenditure needs and future share
repurchases in the foreseeable future. The Company may, from time to time,
obtain additional floor plan financing for its retail inventories. Such practice
is customary in the industry. However, because future cash flows and the
availability of financing will depend on a number of factors, including
prevailing economic and financial conditions, business and other factors beyond
the Company's control, no assurances can be given in this regard.
FORWARD-LOOKING INFORMATION. Certain statements contained in this report
are forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934. Investors should be aware of factors, which
could have a negative impact on prospects and the consistency of progress. These
include political, economic or other factors such as inflation rates,
recessionary or expansive trends, taxes and regulations and laws affecting the
business in each of the Company's markets; competitive product, advertising,
promotional and pricing activity; dependence on the rate of development and
degree of acceptance of new product introductions in the marketplace; and the
difficulty of forecasting sales at certain times in certain markets.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Not applicable
Item 2. Changes in Securities - Not applicable
Item 3. Defaults upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote by Security Holders - Not
applicable
Item 5. Other Information - Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Date: February 1, 2001 Palm Harbor Homes, Inc.
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(Registrant)
By: /s/ Kelly Tacke
--------------------------------
Kelly Tacke
Chief Financial and Accounting
Officer
By: /s/ Lee Posey
--------------------------------
Lee Posey
Chairman of the Board
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