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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 26, 1997
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, Dallas, Texas 75248
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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
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filing requirements for the past 90 days. Yes X No .
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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 January 28, 1998 -
18,871,082.
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PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
DECEMBER 26, MARCH 28,
1997 1997
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Unaudited
ASSETS
Cash and cash equivalents $ 23,541 $ 26,346
Investments 4,091 5,752
Receivables 66,102 53,424
Inventories 75,250 66,275
Other current assets 4,731 5,738
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Total current assets 173,715 157,535
Other assets 42,576 35,333
Property, plant and equipment, net 62,836 53,467
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TOTAL ASSETS $ 279,127 $ 246,335
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 35,950 $ 37,276
Floor plan payable 51,011 45,255
Accrued liabilities 41,135 35,572
Current portion of long-term debt 212 200
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Total current liabilities 128,308 118,303
Long-term debt, less current portion 3,437 3,583
Deferred income taxes 4,070 4,500
Shareholders' equity:
Common stock, $.01 par value 151 151
Additional paid-in capital 48,994 48,994
Retained earnings 94,364 71,011
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143,509 120,156
Less treasury shares (197) (194)
Notes receivable from shareholders (13)
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Total shareholders' equity 143,312 119,949
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 279,127 $ 246,335
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See accompanying notes.
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PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1997 1996 1997 1996
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Unaudited Unaudited
Net sales $ 161,969 $ 150,796 $ 474,172 $ 424,248
Cost of sales 118,854 117,415 350,296 333,756
Selling, general and
administrative expenses 30,094 23,276 84,743 62,938
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Income from operations 13,021 10,105 39,133 27,554
Interest expense (1,120) (881) (3,298) (2,099)
Other income 737 719 1,894 1,527
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Income before income from
affiliate and income taxes 12,638 9,943 37,729 26,982
Income from affiliate 1,049
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Income before income taxes 12,638 9,943 37,729 28,031
Income tax expense 4,846 3,924 14,376 10,247
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Net income $ 7,792 $ 6,019 $ 23,353 $ 17,784
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Income per common share -
basic and diluted $ 0.41 $ 0.32 $ 1.24 $ 0.97
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Weighted average common shares
outstanding 18,871 18,870 18,871 18,268
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Weighted average common shares
outstanding - assuming dilution 18,880 18,879 18,873 18,272
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See accompanying notes.
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PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE NINE MONTHS ENDED
DECEMBER 26, DECEMBER 27,
1997 1996
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Unaudited
OPERATING ACTIVITIES
Net income $ 23,353 $ 17,784
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,351 3,439
Deferred income tax benefit (624) (120)
Income from affiliate (1,049)
Gain on disposition of assets (4) (21)
Changes in operating assets and liabilities:
Trade accounts receivable (12,678) 4,608
Due from affiliate 3,848
Inventories (8,975) (12,704)
Other current assets 1,201 26
Other assets (708) 7,060
Accounts payable and accrued expenses 4,237 (12,717)
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Net cash provided by operating activities 11,153 10,154
INVESTING ACTIVITIES
Purchases of property, plant and equipment (13,511) (14,120)
Purchase of Energy Efficient Housing, Inc.,
Standard Casualty Company and Newco
Homes, Inc. (net of cash acquired and
stock issued) (3,284)
Purchases of investments (9,802) (10,370)
Sales of investments 3,708 11,655
Proceeds from disposition of assets 15 21
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Net cash used in investing activities (19,590) (16,098)
FINANCING ACTIVITIES
Net proceeds from floor plan payable 5,756 12,052
Principal payments on long-term debt (134) (139)
Net (purchases) sales of treasury stock (3) 37
Notes receivable from shareholders, net 13 168
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Net cash provided by financing activities 5,632 12,118
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Net (decrease) increase in cash and cash equivalents (2,805) 6,174
Cash and cash equivalents at beginning of period 26,346 23,441
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Cash and cash equivalents at end of period $ 23,541 $ 29,615
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,309 $ 2,082
Income taxes 17,747 10,880
Supplemental schedule of non-cash investing activities:
Common Stock issuance for acquisition of Energy
Efficient Housing, Inc. and Newco Homes, Inc. -- 25,998
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 included 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 financial
statements should be read in conjunction with the audited financial
statements for the year ended March 28, 1997. Results of operations for
any interim period are not necessarily indicative of results to be
expected for a full year.
2. Acquisitions
On August 1, 1996, the Company acquired an additional 58.4% of Newco
Homes, Inc. ("Newco"), a Texas-based retailer of manufactured homes.
The Company had previously owned 41.6% of Newco's outstanding shares.
The Company's purchase price for the remaining 58.4% of Newco's
outstanding shares consisted of $17.3 million cash and 1,805,556 shares
of the Company's common stock. Prior to the acquisition of the
remaining 58.4% of Newco, the Company recorded its 41.6% equity
interest in the net earnings of Newco as income from affiliate.
On December 15, 1997, the Company acquired Sun City Homes, a
privately-owned, Las Vegas-based operator of four retail manufactured
home centers.
3. Stock Dividend
On June 24, 1997, the Board of Directors of the Company declared a
5-for-4 stock split effected in the form of a 25% stock dividend to
shareholders of record on July 8, 1997. The stock dividend was paid on
July 21, 1997. Historical common share and per share data for all
periods presented have been adjusted to reflect the stock split.
4. Inventories
Inventories consist of the following (in thousands):
DECEMBER 26, MARCH 28,
1997 1997
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Unaudited
Raw materials $ 8,577 $ 7,966
Work in process 2,965 2,600
Finished goods - manufacturing 734 463
- retail 62,974 55,246
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$ 75,250 $ 66,275
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5. Other Assets
Other assets include goodwill of $29.3 million at December 26, 1997 and
$28.7 at March 28, 1997, with accumulated amortization of $2.4 million
and $1.3 million, respectively.
6. Floor Plan Payable
The Company has floor plan credit facilities totaling $75.0 million
from financial institutions to finance a major portion of its home
inventory at the Company's retail superstores. These facilities are
secured by a portion of the Company's home inventory and cash in
transit from financial institutions. Interest rates range from prime
(8.5% at December 26, 1997) to prime plus one-quarter percent. The
Company had $51.0 million and $45.3 million outstanding on these credit
facilities at December 26, 1997 and March 28, 1997, respectively.
7. Line of Credit
On July 11, 1997, the Company obtained a $25.0 million unsecured
revolving line of credit from a financial institution for general
corporate purposes. The line of credit bears interest, at the option of
the Company (under certain conditions), at either the LIBOR rate plus
.625% or the prime rate minus 1%. The line of credit contains
provisions regarding minimum net worth requirements and certain
indebtedness limitations which would limit the amount available for
future borrowings. The line of credit also requires an annual
commitment fee of $20,000 and is available through July 10, 1999. There
was no amount outstanding on this line of credit at December 26, 1997.
8. Reclassification
Certain prior period amounts have been reclassified to conform to the
current period presentation.
9. Earnings Per Share
During fiscal year 1998, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128) "Earnings per Share." SFAS 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully
diluted earnings per share. The adoption of SFAS 128 did not result in
a change to the reported earnings per share of the Company.
In computing both basic and diluted earnings per share, the same net
income and number of weighted average shares were used. There was no
dilutive effect assuming conversion of the Company's outstanding stock
warrants as the effect on the Company's number of weighted shares
outstanding was not significant. Accordingly, both basic and dilutive
earnings per share are identical and are reported as the Company's
earnings per common share.
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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
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 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1997 1996 1997 1996
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Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.4 77.9 73.9 78.7
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Gross profit 26.6 22.1 26.1 21.3
Selling, general and
administrative expenses 18.6 15.4 17.9 14.8
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Income from operations 8.0 6.7 8.2 6.5
Interest expense (0.7) (0.6) (0.7) (0.5)
Other income 0.5 0.5 0.4 0.4
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Income before income from
affiliate and income taxes 7.8 6.6 7.9 6.4
Income from affiliate -- -- -- 0.2
Income tax expense 3.0 2.6 3.0 2.4
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Net income 4.8% 4.0% 4.9% 4.2%
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The following table summarizes certain key sales statistics as of and for the
three and nine months ended December 26, 1997 and December 27, 1996.
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1997 1996 1997 1996
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Company homes sold through
Company-owned retail superstores 1,841 1,038 5,548 3,078 (2)
Total new homes sold 3,705 3,585 10,630 10,647
Internalization rate(1) 50% 33% 52% 29%
Average new home price - retail $ 56,000 $ 54,000 $ 55,000 $ 53,000 (2)
Number of retail superstores at
end of period 72 52 72 52
Homes sold to independent retailers 1,820 2,064 4,933 5,878
(1) The internalization rate is the percentage of new homes that are
manufactured by the Company and sold through Company-owned retail
superstores.
(2) Includes homes sold by Newco in the first quarter of fiscal 1997.
THREE MONTHS ENDED DECEMBER 26, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 27,
1996
NET SALES. Net sales increased 7.4% to $162.0 million in the third
quarter of fiscal 1998 from $150.8 million in the third quarter of fiscal 1997.
Although retail sales increased 27% and wholesale sales increased 7%,
consolidated net sales increased only 7.4% due primarily to two factors. First,
a rise in the internalization rate, from 33% in the quarter ended December 27,
1996 to 50% in the quarter ended December 26, 1997, limited sales growth as more
of the homes manufactured by the Company were sold through Company-owned retail
superstores. Second, net sales were impacted by the increase in retail stock
inventory as the number of Company-owned retail superstores increased from 52 in
the third quarter of fiscal 1997 to 72 in the third quarter of fiscal 1998.
GROSS PROFIT. Gross profit increased 29.2% to $43.1 million in the
quarter ended December 26, 1997 compared to $33.4 million in the quarter ended
December 27, 1996. During the same period, gross profit margin as a percentage
of net sales increased to 26.6% compared to 22.1%. This increase was the result
of selling 50% of the Company's homes through Company-owned retail superstores
in the third quarter of fiscal 1998 versus 33% in the third quarter of fiscal
1997 and production efficiencies at manufacturing facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 29.3% to $30.1 million in the quarter ended
December 26, 1997 from $23.3 million in the quarter ended December 27, 1996,
primarily due to increased promotion and advertising expenditures, expenses
associated with the 20 additional retail superstores, and performance based
compensation expense. As a percentage of net sales, selling, general and
administrative expenses increased, as planned, to 18.6% in the third quarter of
fiscal 1998 from 15.4% in the
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third quarter of fiscal 1997. This planned increase is due to the growth in the
Company's retail operations which, generally, have higher selling, general and
administrative expenses as a percentage of net sales as compared to wholesale
operations.
INCOME FROM OPERATIONS. As a result of the foregoing factors, income from
operations increased 28.9% to $13.0 million in the quarter ended December 26,
1997 compared to $10.1 million in the quarter ended December 27, 1996.
INTEREST EXPENSE. Interest expense increased 27.1% to $1.12 million for
the third quarter of fiscal 1998 from $0.88 million in the third quarter of
fiscal 1997. This increase was primarily due to an increase in the floor plan
credit facilities.
OTHER INCOME. Other income increased 2.5% to $0.74 million in the third
quarter of fiscal 1998 from $0.72 million in the third quarter of fiscal 1997.
This increase was primarily the result of additional interest earned due to an
increase in the loan portfolio originated by CountryPlace Mortgage, Ltd., the
Company's finance subsidiary, offset by a decrease in the amount of cash used
for interest-earning investments.
NINE MONTHS ENDED DECEMBER 26, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER 27,
1996
NET SALES. Net sales increased 11.8% to 474.2 million in the nine months
ended December 26, 1997 from $424.2 million in the nine months ended December
27, 1996. Although retail sales increased 57% and wholesale sales increased 4%,
consolidated net sales increased only 11.8% due primarily to two factors. First,
a rise in the internalization rate, from 29% in the nine months ended December
27, 1996 to 52% in the nine months ended December 26, 1997, limited sales growth
as more of the homes manufactured by the Company were sold through Company-owned
retail superstores. Second, net sales were impacted by the increase in retail
stock inventory as the number of Company-owned retail superstores increased from
52 in the nine months ended December 27, 1996 to 72 in the nine months ended
December 26, 1997.
GROSS PROFIT. Gross profit increased 36.9% to $123.9 million in the nine
months ended December 26, 1997 compared to $90.5 million in the nine months
ended December 27, 1996. During the same period, gross profit margin as a
percentage of net sales increased to 26.1% compared to 21.3%. This increase was
primarily the result of selling 52% of the Company's homes through Company-owned
retail superstores in the nine months ended December 26, 1997 versus 29% in the
nine months ended December 27, 1996 and production efficiencies at manufacturing
facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 34.7% to $84.7 million in the nine months
ended December 26, 1997 from $62.9 million in the nine months ended December 27,
1996, primarily due to increased promotion and advertising expenditures,
expenses associated with the 20 additional retail superstores, and performance
based compensation expense. As a percentage of net sales, selling, general and
administrative expenses increased, as planned, to 17.9% in the nine months ended
December 26, 1997 from 14.8% in the nine months ended December 27, 1996. This
planned increase is
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due to the growth in the Company's retail operations which, generally, have
higher selling, general and administrative expenses as a percentage of net sales
as compared to wholesale operations.
INCOME FROM OPERATIONS. As a result of the foregoing factors, income from
operations increased 42.0% to $39.1 million in the nine months ended December
26, 1997 compared to $27.6 million in the nine months ended December 27, 1996.
INTEREST EXPENSE. Interest expense increased 57.1% to $3.3 million for
the nine months ended December 26, 1997 from $2.1 million in the nine months
ended December 27, 1996. This increase was primarily due to an increase in the
floor plan credit facilities.
OTHER INCOME. Other income increased 24.0% to $1.9 million in the nine
months ended December 26, 1997 from $1.5 million in the nine months ended
December 27, 1996. This increase was primarily the result of additional interest
earned due to an increase in the loan portfolio originated by CountryPlace
Mortgage, Ltd., the Company's finance subsidiary.
INCOME FROM AFFILIATE. Income from affiliate was $1.05 million in the
nine months ended December 27, 1996 compared to zero in the nine months ended
December 26, 1997. The decrease was due to consolidating Newco's operating
results with the Company's operations beginning in the second quarter of fiscal
1997. See "Acquisitions" in Notes to Condensed Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES. On July 11, 1997, the Company obtained a
$25.0 million unsecured revolving line of credit from a financial institution
for general corporate purposes. The line of credit bears interest, at the option
of the Company (under certain conditions), at either the LIBOR rate plus .625%
or the prime rate minus 1%. The line of credit contains provisions regarding
minimum net worth requirements and certain indebtedness limitations which would
limit the amount available for future borrowings. The line of credit also
requires an annual commitment fee of $20,000 and is available through July 10,
1999. There was no amount outstanding on this line of credit at December 26,
1997. The Company has floor plan credit facilities totaling $75.0 million from
financial institutions to finance a major portion of its home inventory at the
Company's retail superstores. These facilities are secured by a portion of the
Company's home inventory and cash in transit from financial institutions.
Interest rates range from prime (8.5% at December 26, 1997) to prime plus
one-quarter percent. The Company had $51.0 million and $45.3 million outstanding
on these credit facilities at December 26, 1997 and March 28, 1997,
respectively.
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 and planned capital expenditure needs in the foreseeable future.
The Company may, from time to time, obtain additional floor plan financing for
its retail inventories. Such practice is customary in the industry. However,
because future cash flows and the availability of financing will depend on a
number of factors, including prevailing economic and financial conditions,
business and other factors beyond the Company's control, no assurances can be
given in this regard.
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FORWARD-LOOKING INFORMATION. Certain statements contained in this report
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Management is unaware of any trends or conditions that could have a material
adverse effect on the Company's consolidated financial position, future results
of operations or liquidity. However, investors should also be aware of factors
which could have a negative impact on prospects and the consistency of progress.
These include political, economic or other factors such as inflation rates,
recessionary or expansive trends, taxes and regulations and laws affecting the
business in each of the Company's markets; competitive product, advertising,
promotional and pricing activity; dependence on the rate of development and
degree of acceptance of new product introductions in the marketplace; and the
difficulty of forecasting sales at certain times in certain markets.
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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) Exhibit 27 - Financial Date Schedule (EDGAR filing only).
(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: January 28, 1998
Palm Harbor Homes, Inc.
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(Registrant)
By: /s/ KELLY TACKE
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Kelly Tacke
Chief Financial and Accounting
Officer
By: /s/ LEE POSEY
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Lee Posey
Chairman of the Board
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule