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 30, 2001, Palm Harbor operated 15 manufacturing facilities that sell homes in 28 states through 145 Company-owned superstores and approximately 150 independent retail sales centers.
At March 30, 2001, the Company-owned superstores operated in Alabama, Arizona, Arkansas, Colorado, Florida, Georgia, Indiana, Kentucky, Louisiana, Nevada, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia and Washington. With a net increase of 12 superstores in fiscal 2001, Palm Harbor continued to advance towards its long-term plan of increasing sales through Company-owned superstores. This increase in Company-owned superstores resulted in a rise in the internalization rate - which is the percent of homes manufactured by Palm Harbor and sold through Company-owned retail superstores. For fiscal 2001, Palm Harbor's internalization rate was 83%, up from 76% in the preceding fiscal year.
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 has provided us with an advantage over certain of our competitors and has created 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 has been additive to earnings.
PRODUCTS
Palm Harbor manufactures single and multi-section homes under various brand names including Palm Harbor, Masterpiece, Keystone, CountryPlace, 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 $59,000 and approximately 86% of Palm Harbor's homes are multi-section.
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, computer rooms, skylights, vaulted ceilings and whirlpool baths. Palm Harbor has a unique package of energy saving construction features referred to as "EnerGmiser(TM)" 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. In fiscal 2000, Palm Harbor temporarily idled one facility and consolidated production into another facility due to declining overall industry conditions. A typical Palm Harbor manufacturing facility has approximately 100,000 square feet of floor space and employs approximately 190 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 73 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:
Palm Harbor's homes are constructed at our manufacturing facilities. The finished homes are transported by independent trucking companies 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 and provides Palm Harbor an advantage over many of our competitors.
Palm Harbor's backlog of orders as of May 14, 2001 was approximately $9.0 million, as compared to approximately $8.7 million as of May 15, 2000. 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 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. Three suppliers, which accounted for more than 5% of Palm Harbor's total purchases during the fiscal year ended March 30, 2001, represented approximately 8.8%, 6.6% and 6.0%, 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:
Palm Harbor first established wholly-owned superstores in 1992, and currently has 145 superstores in Alabama, Arizona, Arkansas, Colorado, Florida, Georgia, Indiana, Kentucky, Louisiana, Nevada, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, Texas, Virginia and Washington. Palm Harbor plans to add 15 to 20 retail superstores in fiscal 2002.
Palm Harbor's independent retailer network principally consists of local retailers, developers that market land/home packages and developers of retirement lifestyle communities. The decrease in Palm Harbor's independent retailer network is the result of an increase in the internalization rate from 63% for the fiscal year ended March 26, 1999 to 83% for the fiscal year ended March 30, 2001. No single independent retailer accounted for 5% or more of Palm Harbor's net sales during fiscal 2001. 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.
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 30, 2001, the percentage of Palm Harbor's revenues by region was as follows:
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 20 to 55 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 these relationships, we believe that our ability to provide financing to our customers on competitive terms only improve our responsiveness to the financing needs of prospective purchasers and provides 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 Company-owned superstore and are forwarded to CountryPlace for final credit approval. CountryPlace then sells the approved loan contracts to primarily one of three national consumer finance companies. CountryPlace and the national consumer finance companies share on a predetermined basis the interest income on all loans and in some cases, losses resulting from defaults or prepayments. 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.
RETAILER INVENTORY FINANCING
In accordance with manufactured housing industry practice, substantially all retailers finance 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 17% 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 2001; (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 $30.3 million as of March 30, 2001. During the fiscal years ended March 26, 1999, March 31, 2000 and March 30, 2001, net expenses incurred by Palm Harbor under these repurchase agreements totaled $29,000, $155,000 and $132,000, 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 manufacturing, distribution and marketing resources than Palm Harbor.
Beginning in 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
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 require 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 prohibit discrimination against any credit applicant based on certain specified grounds. The Real Estate Settlement Procedures Act and Regulation X promulgated thereunder require 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."
ASSOCIATES
As of March 30, 2001, Palm Harbor had approximately 4,180 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.
ITEM 2. PROPERTIES
Palm Harbor currently owns or leases 16 manufacturing facilities in eight states. 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:
(1) Idled in October 1999.
In addition to our production facilities, Palm Harbor owns certain properties upon which 38 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.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Except as described below, Palm Harbor is not currently 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 as the Indian Bend Wash Area 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.
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.
PART II.
ITEM 5.
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.
On May 14, 2001, the last reported sale price of Palm Harbor's Common Stock on the Nasdaq National Stock Market was $18.65. As of May 14, 2001, there were approximately 850 record holders of the Common Stock, and approximately 3,000 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.
ITEM 6.
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 fiscal years ended March 30, 2001. The information should be read in conjunction with Item 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fiscal 2001 continued 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 were down 28% 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, Palm Harbor maintained gross margins, profitably increased market share, decreased fixed expenses and reduced inventories, while continuing our controlled growth strategy of opening new retail superstores. During fiscal 2001, the number of Company-owned retail superstores increased by 12 to 145. 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 - to 83% from 76% 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 Company has cash and cash equivalents of $61.3 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 $746,000 per location, a decline of approximately $90,000, or 11%, compared to the year earlier period. Gross margin remained stable at 31.9%.
The following table sets forth certain items of Palm Harbor's Statement of Income as a percentage of net sales for the periods indicated.
The following table summarizes certain key sales statistics as of and for the period indicated.
(1) The internalization rate is the percentage of new homes that are manufactured by Palm Harbor and sold through Company-owned retail superstores.
Palm Harbor's fiscal year consists of 52 or 53 weeks, ending on the Friday nearest the last day of March each year. The 1999 and 2001 fiscal years consisted of 52 weeks and the 2000 fiscal year consisted of 53 weeks.
2001 COMPARED TO 2000
NET SALES. Net sales decreased 16.3% to $650.5 million in 2001 from $777.5 million in 2000. The decrease in net sales was primarily due to competitive conditions in the manufactured housing industry as indicated by a decrease of 18.7% in the volume of homes sold through Company-owned superstores while overall unit volume, which includes sales to independent retailers, declined 24.3% in fiscal 2001. 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, 86% of the homes sold by the Company are multi-section. The number of superstores increased from 133 at the end of fiscal 2000 to 145 at the end of fiscal 2001.
GROSS PROFIT. Gross profit margin as a percentage of net sales increased slightly to 31.9% compared to 31.8% in fiscal 2001. Gross profit decreased 16.1% to $207.3 million in 2001 compared to $247.1 million in 2000. Palm Harbor sold 83% of its homes through Company-owned retail superstores in fiscal 2001 versus 76% in fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased $14.3 million, or 8.0%, to $165.9 million in 2001 from $180.2 million in 2000, primarily due to Palm Harbor's continued focus on reducing fixed expenses company-wide. This decrease was partially offset by the continued commitment to building brand awareness via advertising and expenses associated with the net increase of 12 retail superstores. As a percentage of net sales, selling, general and administrative expenses increased, as planned, to 25.5% in 2001 from 23.2% in 2000. 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 24.9% to $12.8 million in 2001 from $10.2 million in 2000. This increase was primarily due to increases in both the average floor plan balance and interest rates from fiscal 2000 to fiscal 2001.
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.
INTEREST INCOME AND OTHER. Interest income and other 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $20.1 million in 1999, compared to $35.9 million in 2000 and $23.9 million in 2001. Cash provided by operating activities declined in fiscal 2001 primarily due to decreases in accounts payable and other accrued liabilities. The decrease in accounts payable and other accrued liabilities was the result of a planned decrease in production as well as decreases in fixed expenses. 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 2001.
Capital expenditures were $20.8 million, $15.9 million and $14.1 million in 1999, 2000 and 2001, respectively. 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. In 2001, capital expenditures included $8.2 million for expansion of retail superstores and approximately $5.9 million for improvements in mature manufacturing facilities. Palm Harbor expects capital expenditures to approximate $12.0 million during 2002 for the purpose of adding 15 to 20 retail superstores and to upgrade current manufacturing facilities.
Palm Harbor has floor plan credit facilities totaling $150.0 million, which include an overline of $10.0 million through April 30, 2001 and $5.0 million effective May 1, 2001 through May 30, 2001, to finance a major portion of our home inventory at Palm Harbor's retail superstores. The facility with Conseco Finance, a subsidiary of Conseco, Inc., 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 (8.0% at March 30, 2001). The agreement is effective until June 30, 2001; however, the agreement requires Conseco to provide written notification 12 months prior to cancellation. Palm Harbor also has a floor plan credit facility with Deutsche Financial Services for $75.0 million (with an overline of $10.0 million through April 30, 2001, and $5.0 million effective May 1, 2001 through May 30, 2001). The Deutsche agreement has substantially the same terms as the agreement with Conseco and is available through September 11, 2001; however, the agreement requires Deutsche to provide written notification six months prior to cancellation. Palm Harbor is in negotiations with Deutsche to expand our facility and has received an offer for an additional $25.0 million facility from another financial institution.
Palm Harbor's floor plan financing agreements permit Palm Harbor to earn interest on investments made with the financial institution, which can be withdrawn without any imposed restrictions. The agreement with Conseco allows Palm Harbor 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 agreement with Deutsche allows the Company to invest up to 25% of the outstanding amount owed to them. The interest rate on the outstanding borrowings is prime (8.0% at March 30, 2001).
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 (5.1% at March 30, 2001) plus 1.2% or the prime rate (8.0% at March 30, 2001) 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. At March 30, 2001, the additional floor plan credit facilities discussed above effectively reduced the amount available under the line of credit to $13.4 million.
Through CountryPlace Mortgage, Palm Harbor sells 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 30, 2001, Palm Harbor estimates that our potential obligations under such repurchase agreements were approximately $30.3 million. During fiscal years 1999, 2000 and 2001, the costs incurred relating to such repurchase agreements have not been significant.
In July 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. In July 2000, the Board of Directors authorized another $20.0 million for common stock repurchases. As of May 14, 2001, Palm Harbor had invested $20.5 million in the common stock buyback program.
Palm Harbor believes that cash flows from operations, together with floor plan financing and revolving lines 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.
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 adopted SAB 101 in the fourth quarter of fiscal 2001 retroactive to April 1, 2000 in accordance with the amendment issued in June 2000, requiring implementation of SAB 101 no later than the fourth quarter of fiscal years beginning after December 15, 1999. Fiscal year 2001 amounts reflect compliance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 101 on revenue recognition, including recognition of a $2,048,000 charge to net income for the cumulative effect of an accounting change as of April 1, 2000.
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.
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 30, 2001 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.
ITEM 8.
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 31, 2000 and March 30, 2001, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three fiscal years in the period ended March 30, 2001. 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 31, 2000 and March 30, 2001, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended March 30, 2001, in conformity with accounting principles generally accepted in the United States.
As discussed in Note 1 to the financial statements, in fiscal 2001 the Company changed its method of accounting for revenue recognition.
Ernst & Young LLP
Dallas, Texas May 4, 2001
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands of dollars)
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands of dollars)
See accompanying notes.
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (In thousands of dollars, except per share data)
See accompanying notes.
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands of dollars)
See accompanying notes.
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars)
See accompanying notes.
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 1999, 2000 and 2001 contained 52, 53 and 52 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
Effective April 1, 2000, in accordance with Staff Accounting Bulletin No. 101, the Company changed its method of accounting for revenue recognition for retail sales. Historically, the Company recognized revenues for its retail home sales when the home was delivered. Under its new accounting method, adopted in the fourth quarter of 2001 retroactive to April 1, 2000, the Company now recognizes revenue for retail sales when the home is delivered and permanently located at the customer's site. The second and third quarters of 2001 have not been restated for the change because the effect on such quarters is immaterial. Furthermore, the effect of the change on the fourth quarter was immaterial. The cumulative effect of the change on prior years resulted in a charge to net income of $2,048,000 (after income taxes of $1,366,000 which is included in results for fiscal 2001). The effect of the change on fiscal 2001 was to increase income before the cumulative effect of the accounting change by $101,000 and decrease net income by approximately $2.0 million ($0.09 per share). For the first quarter of 2001, the Company recognized $11,535,000 in revenues that are included in the cumulative effect adjustment as of April 1, 2000. Pro-forma amounts (assuming the change is applied retroactively) for periods prior to 2001 are not materially different from reported results and are not presented.
Retail sales are recognized when a down payment is received, the customer enters into a legally binding installment sales contract, title has transferred and the home is accepted by the customer, delivered and permanently located at the customer's site. Homes sold to independent retailers 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. The interest income is shared between CountryPlace and the national consumer finance companies on a predetermined basis for all loans and losses resulting from defaults or prepayments are shared in some cases.
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the fiscal years ended March 31, 2000 and March 30, 2001, the Company recognized approximately $6.7 million and $5.0 million in gains, of which in 2001 none were noncash. The Company had $1.1 million and $1.1 million in unrealized gains for the fiscal years ended March 31, 2000 and March 30, 2001, respectively. Additionally, as of March 31, 2000 and March 30, 2001, the Company had net receivables of approximately $8.0 million and $8.2 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.
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 - 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.
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EARNINGS PER SHARE
In computing both basic and diluted earnings per share, the number of weighted average shares outstanding during the periods presented were used.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current period presentation.
2. INVENTORIES
Inventories consist of the following:
3. INVESTMENTS
The Company's investments totaled $22,423,000 and $25,132,000 at March 31, 2000 and March 30, 2001, respectively. The fair value of the available-for-sale securities was $17,134,000 and $20,469,000, resulting in net unrealized gains (losses) recorded of $(1,517,000) and $961,000 at March 31, 2000 and March 30, 2001, 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.
4. GOODWILL
Goodwill was $67,584,000 at March 31, 2000 and $67,720,000 at March 30, 2001, with accumulated amortization of $10,811,000 and $14,780,000, respectively, as of those dates.
5. FLOOR PLAN PAYABLE
The Company has floor plan facilities totaling $150.0 million, which include an overline facility of $10.0 million through April 30, 2001 and $5.0 million effective May 1, 2001 through May 30, 2001. These facilities are obtained from financial institutions to finance a major portion of the Company's home inventory at its retail superstores and they are secured by a portion of the Company's home inventory and receivables from financial institutions. The interest rates on the facilities are prime (8.0% at March 30, 2001). One facility expires June 30, 2001 and requires notification 12 months prior to cancellation, while the other expires September 11, 2001 and requires notification six months prior to cancellation. The Company expects to negotiate similar facilities during fiscal 2002. The Company had $138,608,000 and $144,747,000 outstanding on these floor plan credit facilities at March 31, 2000 and March 30, 2001, respectively.
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 (8.0% at March 30, 2001) to prime minus 0.5%. The Company had $47,000,000 and $16,175,000 invested at March 31, 2000 and March 30, 2001, respectively, and has classified these amounts as Cash and Cash Equivalents in the accompanying Consolidated Balance Sheets.
6. 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 (5.1% at March 30, 2001) plus 1.2% or the prime rate (8.0% at March 30, 2001) 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 of credit is available through June 27, 2001. The Company had zero outstanding on this line of credit at March 31, 2000 and March 30, 2001. At March 30, 2001, the additional floor plan credit facilities discussed in Note 5 effectively reduced the amount available under the line of credit to $13.4 million.
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
8. LONG-TERM DEBT
Long-term debt consists of the following:
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 30, 2001 of $5,652,000.
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Scheduled maturities of long-term debt are as follows (in thousands):
The carrying value of the Company's long-term debt approximates its fair value.
9. INCOME TAXES
Income tax expense for fiscal years 1999, 2000 and 2001 is as follows:
Significant components of deferred tax assets and liabilities are as follows:
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.
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income tax expense for fiscal year 2001 does not include approximately $1,366,000 in income tax benefit provided for the cumulative effect of a change in accounting principle.
The effective income tax rate on pretax earnings differed from the U.S. federal statutory rate for the following reasons:
10. 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.
11. LONG-TERM INCENTIVE PLAN
Effective March 29, 1999, the Board of Directors approved the Fiscal Year 2000 Long-Term Incentive Plan (the "Plan") whereby certain key associates received awards of restricted common stock. The Company's Chairman, President and Executive Vice President do not participate in the plan. Shares awarded under the Plan are purchased by the Company in the open market. These restricted stock awards give 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 and April 2, 2001, the Board of Directors approved the Fiscal Year 2001 Long-Term Incentive Plan (the "2001 Plan") and the Fiscal Year 2002 Long-Term Incentive Plan (the "2002 Plan"), respectively. The 2001 Plan and the 2002 Plan have 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.
12. 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 immediately eligible to participate 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 $2,163,000, $1,916,000 and $2,021,000 in fiscal years 1999, 2000 and 2001, respectively.
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
Future minimum lease payments for all noncancelable operating leases having a remaining term in excess of one year at March 30, 2001, are as follows (in thousands):
Rent expense (net of sublease income) was $6,811,000, $9,047,000 and $8,991,000 for fiscal years 1999, 2000 and 2001, 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 30, 2001, the Company estimates that our potential obligations under such repurchase agreements were approximately $30.3 million. However, it is management's opinion that no material loss will occur from the repurchase agreements. During fiscal years 1999, 2000 and 2001, net expenses incurred by the Company under these repurchase agreements totaled $29,000, $155,000 and $132,000, 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.
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. 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):
PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial information for the fiscal years 2000 and 2001.
Quarterly data for the first quarter of fiscal year 2001 has been restated to comply with Staff Accounting Bulletin No. 101. The effect of the change on the first quarter of fiscal year 2001 was to increase income before the cumulative effect of the accounting change by approximately $2.0 million ($0.09 per share). The effect of the change on the second, third and fourth quarters was immaterial.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10.
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 6 of the Company's definitive Proxy Statement filed with the SEC on May 30, 2001 in connection with the Annual Meeting of Shareholders to be held June 27, 2001.
(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.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is incorporated by reference from pages 10 through 12 of The Company's definitive Proxy Statement filed with the SEC on May 30, 2001 in connection with the Annual Meeting of Shareholders to be held June 27, 2001.
ITEM 12.
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 7 and 8 of the Company's definitive Proxy Statement filed with the SEC on May 30, 2001 in connection with the Annual Meeting of Shareholders to be held June 27, 2001.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV.
ITEM 14.
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 30, 2001 are included on pages 17 through 30 of this report.
(2) Financial Statement Schedules
None
(3) Index to Exhibits
- ---------- * Filed herewith
(b) None.
(c) See Item 14(a)(3) above.
(d) None.
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 30, 2001.
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 30, 2001 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.
INDEX TO EXHIBITS
- ---------- * Filed herewith