1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 1, 1996
PALM HARBOR HOMES, INC.
(Exact name of Registrant as specified in its Charter)
FLORIDA 0-26188 59-1036634
(State or other jurisdiction of (Commission file number) (I.R.S. Employer
incorporation or organization) Identification Number)
15303 Dallas Parkway, Suite 800, Dallas, Texas 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 991-2422
Not applicable
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 1, 1996, Palm Harbor Homes, Inc., a Florida corporation
(the "Company"), merged with Newco Homes, Inc. ("Newco"), a Texas-based
retailer, of which the Company is a co-founder and originally a 41.62%
stockholder. Newco was merged with and into Palm Harbor pursuant to an
Agreement and Plan of Merger dated June 30, 1996 and amended August 1, 1996, by
and among the Company, Newco, and the four stockholders of Newco holding the
remaining 58.38% of Newco's common stock (the "Selling Stockholders"). The
Agreement and Plan of Merger and Amendment No. 1 thereto are attached hereto as
Exhibits 2.1. and 2.2.
In consideration of the merger and cancellation of the outstanding
shares of Newco common stock, the Selling Stockholders received an aggregate of
$52 million, consisting of 1,444,445 shares of the Company's common stock and
$17,333,333 in cash. The cash portion of the merger was financed from
available cash. Newco's assets consist primarily of 21 retail superstores and
related assets used in the sale of manufactured homes, which the Company
expects to continue to operate as they had been under Newco's ownership.
Prior to the execution of the Agreement and Plan of Merger, the
Company owned 41.62% of Newco's Common Stock. Lee Posey, Chairman of the Board
and Chief Executive Officer of the Company, was a director of Newco. Scott
Chaney, the former President of Newco, has been appointed to the Board of
Directors of the Company. Otherwise, there was no material relationship
between the Company and Newco or between any officers or directors of the
Company and the officers, directors or shareholders of Newco.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
Filed with this Report are the following audited financial
statements of Newco:
(1) Consolidated Balance Sheets as of March 31, 1996 and
1995; and
(2) Consolidated Statements of Income, Shareholders'
Equity and Cash Flows for the years ended March 31,
1996, 1995 and 1994.
(b) Pro Forma Financial Information
It is impractical to provide pro forma financial information
at this time. Pro forma financial information will be filed within
sixty (60) days.
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of June 30,
1996, by and among Palm Harbor Homes, Inc., Newco
Homes, Inc., Scott W. Chaney, Christopher M. Finke,
Thomas B. Kesterson and Joseph H. Kesterson,
omitting exhibits and schedules.
2.2 Amendment No. 1 to Agreement and Plan of Merger,
dated August 1, 1996.
23.1 Consent of Ernst & Young, LLP
99.1 Press Release issued August 1, 1996.
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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 hereunto duly authorized.
Date: August 1, 1996
PALM HARBOR HOMES, INC.
/s/ Lee Posey
--------------------------------------
Lee Posey, Chairman of the Board
and Chief Executive Officer
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Newco Homes, Inc. and Subsidiaries
Financial Statements
March 31, 1996
CONTENTS
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . 1
Audited Financial Statements
Consolidated Balance Sheets at March 31, 1995 and March 31, 1996. . . . . 2
Consolidated Statements of Income for the years ended
March 31, 1994, 1995, and 1996. . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1994, 1995, and 1996. . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the years ended
March 31, 1994, 1995, and 1996. . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . 7
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[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
Board of Directors and Shareholders
Newco Homes, Inc.
We have audited the accompanying consolidated balance sheets of Newco Homes,
Inc. and Subsidiaries as of March 31, 1995 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Newco
Homes, Inc. and Subsidiaries at March 31, 1995 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
April 30, 1996
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Newco Homes, Inc. and Subsidiaries
Consolidated Balance Sheets
MARCH 31
1995 1996
-----------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,887,199 $11,974,329
Trade accounts receivable, less allowance of
$343,826 and $375,499 at March 31, 1995
and 1996, respectively 4,677,807 6,665,818
Due from affiliate (Note 5) 1,818,016 2,497,879
Inventories 22,609,703 20,148,239
Prepaid expenses and other assets 322,046 735,747
----------------------------
Total current assets 36,314,771 42,022,012
Other assets 626,726 1,580,470
Property, plant, and equipment, at cost:
Building and equipment 1,339,110 1,762,543
Leasehold improvements 789,423 1,056,647
----------------------------
2,128,533 2,819,190
Accumulated depreciation 758,530 1,176,060
----------------------------
1,370,003 1,643,130
----------------------------
Total assets $38,311,500 $45,245,612
============================
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MARCH 31
1995 1996
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $15,404,835 $13,733,117
Notes payable to officers (Note 5) 1,174,719 1,521,750
Accounts payable 1,877,194 2,440,255
Accrued expenses 2,310,762 3,231,375
Payable to affiliate (Note 5) 1,713,681 722,632
----------------------------
Total current liabilities 22,481,191 21,649,129
Deferred taxes (Note 3) - 114,786
Shareholders' equity (Note 1):
Common stock, $.10 par value in 1995
and $.01 par value in 1996:
Authorized shares - 2,000,000 in 1995 and
190,000 in 1996
Issued shares - 164,822 in 1995 and 1996 16,482 1,648
Additional paid-in capital 223,518 238,352
Retained earnings 15,590,309 23,241,697
----------------------------
Total shareholders' equity 15,830,309 23,481,697
----------------------------
Total liabilities and shareholders' equity $38,311,500 $45,245,612
============================
See accompanying notes.
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Newco Homes, Inc. and Subsidiaries
Consolidated Statements of Income
YEAR ENDED MARCH 31
1994 1995 1996
----------------------------------------------------
Net sales $103,692,213 $141,852,400 $178,657,215
Other income 1,457,058 2,352,098 2,793,139
----------------------------------------------------
105,149,271 144,204,498 181,450,354
Costs and expenses:
Cost of product sales 84,508,036 115,364,814 144,958,151
Selling, general, and administrative 12,975,288 17,814,488 23,332,675
Interest 632,698 918,791 1,500,675
----------------------------------------------------
98,116,022 134,098,093 169,791,501
----------------------------------------------------
Income before income taxes 7,033,249 10,106,405 11,658,853
Income tax expense (benefit) (Note 3):
Current 2,455,107 3,546,327 3,895,790
Deferred (62,395) (15,811) 111,675
----------------------------------------------------
2,392,712 3,530,516 4,007,465
----------------------------------------------------
Net income $ 4,640,537 $ 6,575,889 $ 7,651,388
====================================================
See accompanying notes.
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Newco Homes, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------------------------------------------------------
Balance at March 31, 1993 $16,482 $223,518 $ 4,373,883 $ 4,613,883
Net income - - 4,640,537 4,640,537
----------------------------------------------------------
Balance at March 31, 1994 16,482 223,518 9,014,420 9,254,420
Net income - - 6,575,889 6,575,889
----------------------------------------------------------
Balance at March 31, 1995 16,482 223,518 15,590,309 15,830,309
Net income - - 7,651,388 7,651,388
----------------------------------------------------------
Balance at March 31, 1996 $16,482 $223,518 $23,241,697 $23,481,697
==========================================================
See accompanying notes.
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Newco Homes, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
YEAR ENDED MARCH 31
1994 1995 1996
----------------------------------------------
OPERATING ACTIVITIES
Net income $ 4,640,537 $ 6,575,889 $ 7,651,388
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 164,295 287,705 525,882
Deferred tax (benefit) expense (62,395) (15,811) 111,675
(Gain) loss on sale of equipment (7,480) 55,094 37,179
Changes in operating assets and liabilities:
Accounts receivable (843,057) 857,107 (1,213,166)
Due from affiliates (141,422) (1,517,227) (679,863)
Inventories (4,689,632) (10,072,396) 2,461,464
Prepaid expenses and other assets (18,773) (56,815) (2,139,179)
Accounts payable 452,213 332,836 563,061
Accrued expenses 1,079,715 (404,797) 920,613
----------------------------------------------
Net cash (used in) provided by operating
activities 574,001 (3,958,415) 8,239,054
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (466,773) (1,031,952) (865,718)
Proceeds from sale of equipment 9,407 34,354 29,530
Investment in affiliate, net 940 (122,543) -
----------------------------------------------
Net cash used in investing activities (456,426) (1,120,141) (836,188)
FINANCING ACTIVITIES
Net proceeds from (payments on) notes payable and
payable to affiliates 3,318,788 5,010,761 (2,315,736)
----------------------------------------------
Net cash provided by (used in) financing
activities 3,318,788 5,010,761 (2,315,736)
----------------------------------------------
Net increase (decrease) in cash and cash
equivalents 3,436,363 (67,795) 5,087,130
Cash and cash equivalents at beginning
of year 3,518,631 6,954,994 6,887,199
----------------------------------------------
Cash and cash equivalents at end of year $ 6,954,994 $ 6,887,199 $11,974,329
==============================================
See accompanying notes.
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Newco Homes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Newco Homes, Inc. sells manufactured homes to retail customers primarily in
Texas and surrounding states. The manufactured homes sold by Newco Homes, Inc.
are purchased from Palm Harbor Homes, Inc. (PHH), Fleetwood Homes, Inc.,
Patriot Homes, Inc., Liberty Homes, Inc., and Champion Homes, Inc. Further,
Newco provides insurance services for which fees are received.
Effective April 1, 1994, Newco Homes, Inc., a Texas C corporation, effectively
transferred all operations, assets, and liabilities to a Texas limited
partnership, Newco Homes, L.P., in a nontaxable transaction. Newco Homes, Inc.,
subsequent to such transfer, then transferred its ownership in Newco Homes,
L.P. to two other partners: the general partner, Newco Operating Corp., owning
1% of the partnership, and the limited partner, Newco Holdings, Inc., owning
99% of the partnership. These two corporations are wholly owned by Newco Homes,
Inc. (Newco), a newly formed Delaware corporation formed upon the dissolution
of Newco Homes, Inc., the Texas C corporation. Stock ownership in Newco
Delaware is the same as that of the original entity. PHH continues to own
approximately 42% of the Newco common stock. Substantially all operations are
transacted by Newco Homes, L.P., and are not affected by the transition of
ownership.
During fiscal year 1996, the authorized number of shares of common stock was
reduced from 2,000,000 to 190,000 shares of ($0.01 par value) common stock and
10,000 shares of undesignated ($0.01 par value) preferred stock.
The consolidated financial statements include the accounts of Newco Homes,
Inc., and its wholly owned entities. All significant intercompany transactions
and balances have been eliminated in consolidation.
Revenue is recognized when the home is delivered to the customer.
Cash and cash equivalents include cash on hand and highly liquid investments
with original maturities of three months or less. At March 31, 1996, cash
equivalents totaled approximately $9,936,000 and earn interest at rates ranging
from 3.2% to 5.7%.
Buildings and equipment are depreciated using the straight-line method over the
expected useful lives of individual assets. Leasehold improvements are
amortized over the terms of the leases.
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Newco Homes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories are valued at the lower of cost or market using the specific
identification method and consist primarily of both new and used manufactured
homes held for sale.
Deferred taxes are calculated in accordance with the liability method.
Certain reclassifications have been made to the prior year amounts to conform
to the current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
2. NOTES PAYABLE
Newco has various floor plan lines of credit with financing institutions. These
lines of credit are collateralized by inventories. The lines of credit provide
for total borrowings of $39,000,000 and have interest rates (approximately 10%
at March 31, 1996) ranging from prime (as determined by the financing
institution) plus .25% to prime plus 1%. Interest paid was $629,525, $919,149,
and $1,393,324 in fiscal years 1994, 1995, and 1996, respectively. As of March
31, 1996, Newco Homes, Inc. has paid off approximately $10,000,000 of its
flooring debt applicable to eleven sales centers.
3. INCOME TAXES
Components of deferred tax assets and liabilities at March 31 are as follows:
1995 1996
--------------------------
Inventory $149,156 $165,296
Property, plant, and equipment 10,079 -
Bad debt reserves 13,445 10,784
Accrued liabilities 14,632 12,821
Other 3,713 5,235
--------------------------
Total deferred income tax assets $191,025 $194,136
==========================
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Newco Homes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
1995 1996
--------------------------
Property, plant, and equipment $ - $114,786
--------------------------
Total deferred income tax liabilities $ - $114,786
==========================
Current $180,946 $194,136
Long-term 10,079 -
--------------------------
Total deferred income tax assets $191,025 $194,136
==========================
A valuation allowance has not been recorded for the deferred income tax assets
as Newco believes it will generate sufficient future taxable income to realize
all of the recorded assets.
Income tax payments in fiscal years 1994, 1995, and 1996 were $2,319,257,
$3,710,000, and $4,370,000, respectively.
4. ACCRUED EXPENSES
Accrued expenses at March 31, consist of the following:
1995 1996
------------------------
Sales incentives $1,438,396 $1,961,073
Other accrued expenses 872,366 1,270,302
------------------------
Total $2,310,762 $3,231,375
========================
5. RELATED PARTY TRANSACTIONS
Payable to and due from affiliate primarily represents amounts due to or from
PHH arising in the normal course of business. Notes payable to officers
represents a payable for homes that were personally floored by officers of
Newco at the greater of the prime rate, as defined, or 7.5%, plus 1.5%. Total
rentals paid to PHH were $129,210, $166,380, and $168,875 in fiscal years 1994,
1995, and 1996, respectively, relating to the leasing of
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Newco Homes, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
retail model centers. PHH provided certain administrative services (primarily
data processing services) to Newco at a cost of $25,200, $36,000, and $36,000
in fiscal years 1994, 1995, and 1996, respectively.
During fiscal years 1994, 1995, and 1996, Newco paid $158,100, $183,600, and
$327,600, respectively, in rent for retail model centers to joint ventures
composed of four officers of Newco and an officer of PHH.
During 1989, Newco and PHH formed a joint venture to purchase land for a retail
model center. Newco is accounting for its 50% interest in the joint venture
using the equity method of accounting.
6. COMMITMENTS AND CONTINGENCIES
Newco is a defendant in various legal actions which arose in the normal course
of business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the financial condition,
liquidity, or overall trends in the results of operations of Newco.
Certain retail lots are leased under noncancelable operating leases with terms
in excess of one year. Future minimum lease payments under such leases in
effect at March 31, 1996, are as follows:
1997 $752,347
1998 539,774
1999 274,900
2000 156,000
2001 3,000
Rent expense under operating leases for fiscal years 1994, 1995, and 1996 was
$562,773, $777,123, and $949,063, respectively.
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INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of June 30, 1996, by and among Palm Harbor
Homes, Inc., Newco Homes, Inc., Scott W. Chaney, Christopher M. Finke, Thomas B.
Kesterson and Joseph H. Kesterson, omitting exhibits and schedules.
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated August 1, 1996.
23.1 Consent of Ernst & Young, LLP
99.1 Press Release issued August 1, 1996.