10-Q 1 e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 Commission file number 0-26188 PALM HARBOR HOMES, INC. ------------------------------------------------------------ (Exact name of registrant as specified in its charter) Florida 59-1036634 ------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 15303 Dallas Parkway, Suite 800, Addison, Texas 75001-4600 ---------------------------------------------------------- (Address of principal executive offices) (Zip code) 972-991-2422 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) Yes X No and (2) has been subject to such --- --- filing requirements for the past 90 days. Yes X No . --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares of common stock $.01 par value, outstanding on July 28, 2000 - 22,727,475. 2 PALM HARBOR HOMES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)

JUNE 30, MARCH 31, 2000 2000 --------- --------- ASSETS (Unaudited) Cash and cash equivalents $ 64,197 $ 49,138 Investments 23,317 22,423 Receivables 92,834 91,494 Inventories 119,174 122,645 Other current assets 5,840 6,910 --------- --------- Total current assets 305,362 292,610 Other assets 76,255 77,572 Property, plant and equipment, net 87,947 86,992 --------- --------- TOTAL ASSETS $ 469,564 $ 457,174 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 42,269 $ 41,705 Floor plan payable 136,648 138,608 Accrued liabilities 58,884 52,602 Current portion of long-term debt 221 243 --------- --------- Total current liabilities 238,022 233,158 Long-term debt, less current portion 2,848 2,906 Deferred income taxes 3,614 3,934 Shareholders' equity: Common stock, $.01 par value 239 239 Additional paid-in capital 54,149 54,149 Retained earnings 188,635 181,082 Accumulated other comprehensive income 1,022 803 --------- --------- 244,045 236,273 Less treasury shares (14,479) (13,848) Unearned compensation (4,486) (5,249) --------- --------- Total shareholders' equity 225,080 217,176 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 469,564 $ 457,174 ========= =========

See accompanying notes. 1 3 PALM HARBOR HOMES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (Unaudited)

THREE MONTHS ENDED JUNE 30, JUNE 25, 2000 1999 --------- --------- Net sales $ 190,071 $ 218,575 Cost of sales 130,883 151,065 Selling, general and administrative expenses 44,991 47,111 --------- --------- Income from operations 14,197 20,399 Interest expense (2,994) (2,382) Other income 1,383 1,337 --------- --------- Income before income taxes 12,586 19,354 Income tax expense 5,034 7,739 --------- --------- Net income $ 7,552 $ 11,615 ========= ========= Net income per common share - basic and diluted $ 0.33 $ 0.49 ========= ========= Weighted average common shares outstanding - basic 23,010 23,763 ========= ========= Weighted average common shares outstanding - diluted 23,027 23,806 ========= =========

See accompanying notes. 2 4 PALM HARBOR HOMES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)

THREE MONTHS ENDED JUNE 30, JUNE 25, 2000 1999 -------- -------- OPERATING ACTIVITIES Net income $ 7,552 $ 11,615 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,613 2,180 Amortization 1,023 1,010 Deferred income tax benefit (320) (193) Gain on sale of loans -- (3,388) Purchases of stock for long-term incentive plan -- (986) Provision for long-term incentive plan 541 275 Changes in operating assets and liabilities: Trade accounts receivable (92) (7,727) Inventories 3,471 (4,079) Other current assets 1,070 (508) Other assets 294 (683) Accounts payable and accrued liabilities 6,846 15,848 -------- -------- Cash provided by operations 22,998 13,364 Loans originated (39,006) (45,625) Sales of loans 38,177 44,817 -------- -------- Net cash provided by operating activities 22,169 12,556 INVESTING ACTIVITIES Purchases of property, plant and equipment (3,568) (4,407) Purchases of investments (1,188) (3,001) Sales of investments 95 958 -------- -------- Net cash used in investing activities (4,661) (6,450) FINANCING ACTIVITIES Net proceeds from floor plan payable (1,960) 7,013 Principal payments on notes payable and long-term debt (80) (56) Net purchases of treasury stock (409) (315) -------- -------- Net cash (used in) provided by financing activities (2,449) 6,642 -------- -------- Net increase in cash and cash equivalents 15,059 12,748 Cash and cash equivalents at beginning of period 49,138 39,413 -------- -------- Cash and cash equivalents at end of period $ 64,197 $ 52,161 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 2,862 $ 2,580 Income taxes 1,550 985

See accompanying notes. 3 5 PALM HARBOR HOMES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, which are, in the opinion of management, necessary for a fair and accurate presentation. Certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended March 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):

JUNE 30, MARCH 31, 2000 2000 -------- --------- Raw materials $ 7,108 $ 7,376 Work in process 3,386 3,424 Finished goods - manufacturing 383 629 - retail 108,297 111,216 -------- -------- $119,174 $122,645 ======== ========

3. Other Assets Other assets include goodwill of $67.7 million at June 30, 2000 and $67.6 million at March 31, 2000, with accumulated amortization of $11.8 million and $10.8 million, respectively. 4. Floor Plan Payable The Company has a floor plan credit facility totaling $175.0 million from a financial institution 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 cash in transit from financial institutions. The interest rate on the facility is prime (9.50% at June 30, 2000). The agreement is effective until June 30, 2001. The Company had $136.6 million and $138.6 million outstanding on this floor plan credit facility at June 30, 2000 and March 31, 2000, respectively. The Company's floor plan financing agreement permits the Company to earn interest on investments made with the financial 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 (9.50% at June 30, 2000). The Company had $47.0 million invested at March 31, 2000 (none at June 30, 2000), and has classified this amount as Cash and Cash Equivalents in the accompanying Condensed Consolidated Balance Sheets. 4 6 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 (6.64% at June 30, 2000) plus 1.20% or the prime rate (9.50% at June 30, 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 June 30, 2000 and March 31, 2000. 6. Reclassification Certain prior period amounts have been reclassified to conform to the current period presentation. 7. 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 ending June 30, 2000 and June 25, 1999 (in thousands):

JUNE 30, JUNE 25, 2000 1999 --------- --------- Net sales Retail $ 162,735 $ 178,037 Manufacturing 110,353 140,309 Financial services 6,172 6,571 --------- --------- 279,260 324,917 Intersegment sales (89,189) (106,342) --------- --------- $ 190,071 $ 218,575 --------- --------- Income from operations Retail $ 5,325 $ 8,402 Manufacturing 10,586 14,342 Financial services 2,788 3,705 General corporate expenses (4,023) (5,297) --------- --------- 14,676 21,152 Intersegment profits (479) (753) --------- --------- $ 14,197 $ 20,399 --------- --------- Interest expense $ (2,994) $ (2,382) Other income 1,383 1,337 --------- --------- Income before taxes $ 12,586 $ 19,354 ========= =========

5 7 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 Company continues to be affected by competitive market conditions in the manufactured housing industry. The tightening of credit standards in mid-1999 along with increased interest rates has resulted in reduced retail sales levels, declining wholesale shipments and declining margins for most industry participants. The Company, however, has cash and cash equivalents of $64.2 million after investing over $19 million in the Company's common 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 $811,000 per location in the first quarter of fiscal 2001 compared to an average of $906,000 per location in the first quarter of fiscal 2000. It is unclear what impact these competitive industry conditions will have on the Company's future results. The following table sets forth certain items of the Company's statements of income as a percentage of net sales for the period indicated.

THREE MONTHS ENDED JUNE 30, JUNE 25, 2000 1999 -------- -------- Net sales 100.0% 100.0% Cost of sales 68.9 69.1 -------- -------- Gross profit 31.1 30.9 Selling, general and administrative expenses 23.7 21.6 -------- -------- Income from operations 7.4 9.3 Interest expense (1.5) (1.1) Other income 0.7 0.6 -------- -------- Income before income taxes 6.6 8.8 Income tax expense 2.6 3.5 -------- -------- Net income 4.0% 5.3% ======== ========

6 8 The following table summarizes certain key sales statistics as of and for the three months ended June 30, 2000 and June 25, 1999.

THREE MONTHS ENDED JUNE 30, JUNE 25, 2000 1999 -------- -------- Company homes sold through Company-owned retail superstores 2,662 2,993 Total new homes sold 3,226 4,204 Internalization rate (1) 82% 71% Average new home price - retail $59,000 $56,000 Number of retail superstores at end of period 136 126 Homes sold to independent retailers 550 1,117

(1) The internalization rate is the percentage of new homes that are manufactured by the Company and sold through Company-owned retail superstores. THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 25, 1999 NET SALES. Net sales decreased 13.0% to $190.1 million in the first quarter of fiscal 2001 from $218.6 million in the first quarter of fiscal 2000. The decrease in net sales was primarily due to competitive conditions in the manufactured housing industry as indicated by a decrease of 13% in the volume of homes sold through company-owned superstores while overall unit volume, which includes sales to independent retailers, declined 23% in the current quarter. The number of superstores increased from 126 at the end of the first quarter of fiscal 2000 to 136 at the end of the first quarter of fiscal 2001. GROSS PROFIT. Gross profit decreased 12.3% to $59.2 million which is consistent with the 13.0% decrease in net sales caused by competitive conditions in the manufactured housing industry. In the quarter ended June 30, 2000, gross profit margin as a percentage of net sales increased to 31.1% compared to 30.9% in the quarter ended June 25, 1999. This increase was the result of production efficiencies at our manufacturing facilities and selling 82% of the Company's homes through Company-owned retail superstores in the first quarter of fiscal 2001 versus 71% in the first quarter of fiscal 2000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased 4.5% from $47.1 million in the quarter ended June 25, 1999 to $45.0 million in the quarter ended June 30, 2000, primarily due to the Company's continued focus on reducing fixed expenses company-wide somewhat offset by a commitment to building brand awareness via advertising and expenses associated with the 10 additional retail superstores. As a percentage of net sales, selling, general and administrative expenses increased, as planned, to 23.7% in the first quarter of fiscal 2001 from 21.6% in the first 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. INTEREST EXPENSE. Interest expense increased 25.7% to $3.0 million for the first quarter of fiscal 2001 from $2.4 million in the first quarter of fiscal 2000 primarily due to an increase in the prime interest rate from 7.75% in the first quarter of fiscal 2000 to 9.50% in the first quarter of fiscal 2001. 7 9 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 cash in transit from financial institutions. The interest rate on the facility is prime (9.50% at June 30, 2000). The agreement is effective until June 30, 2001. The Company's floor plan financing agreement permits the Company to earn interest on investments made with the financial 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. 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 the Company. 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 (6.64% at June 30, 2000) plus 1.20% or the prime rate (9.50% at June 30, 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 $0 outstanding on the line of credit at June 30, 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, 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. 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. It is unclear what impact this will have on the Company. 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 $19.8 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 potential future share repurchases in the foreseeable future. The Company may, from time to time, obtain additional floor plan financing for its retail inventories. Such practice is customary in the industry. However, because future cash flows and the availability of financing will depend on a number of factors, including prevailing economic and financial conditions, business and other factors beyond the Company's control, no assurances can be given in this regard. FORWARD-LOOKING INFORMATION. Certain statements contained in this quarterly report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Management is unaware of any trends or conditions that could have a material adverse effect on the Company's consolidated financial position, future results of operations or liquidity. However, investors should 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 those 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 the Company'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. 8 10 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 on Matters to a Vote by Security Holders a) The Annual Meeting of Shareholders of Palm Harbor Homes, Inc. was held on June 28, 2000. b) The following nominees were elected Directors until the next Annual Meeting of Shareholders and until their respective successors shall have been elected and qualified. Lee Posey Larry H. Keener William R. Thomas Walter D. Rosenberg, Jr. Frederick R. Meyer John H. Wilson A. Gary Shilling Scott W. Chaney Jerry Mallonee c) The tabulation of votes for each Director nominee was as follows:

Election of Directors: For Withheld Lee Posey 20,074,454 12,282 Larry H. Keener 20,074,454 12,282 William R. Thomas 20,074,296 12,240 Walter D. Rosenberg, Jr. 20,074,296 12,240 Frederick R. Meyer 20,074,296 12,240 John H. Wilson 20,074,454 12,282 A. Gary Shilling 20,074,454 12,282 Scott W. Chaney 20,074,762 11,974 Jerry Mallonee 20,074,454 12,282

d) To appoint Ernst & Young LLP as independent auditors for the year ending March 30, 2001.

For Withheld Abstaining 20,080,645 2,761 2,263

Item 5. Other Information - Not applicable Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 27 - Financial Data Schedule (EDGAR filing only). (b) Reports on Form 8-K - Not applicable 9 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. Date: August 3, 2000 Palm Harbor Homes, Inc. ------------------------------- (Registrant) By: /s/ Kelly Tacke ------------------------------- Kelly Tacke Chief Financial and Accounting Officer By: /s/ Lee Posey ------------------------------- Lee Posey Chairman of the Board 10 12 EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION ------- ----------- 27 Financial Data Schedule