Palm Harbor Homes, Inc. Reports Second Quarter Fiscal 2010 Results

October 27, 2009 5:00 PM EDT

DALLAS--(BUSINESS WIRE)-- Palm Harbor Homes, Inc. (NASDAQ: PHHM) today reported financial results for the second quarter and first six months of fiscal 2010 ended September 25, 2009.

Overview

Net sales for the second quarter of fiscal 2010 totaled $74.8 million compared with $110.7 million in the year-earlier period. Palm Harbor reported an operating loss of $6.6 million for the second quarter of fiscal 2010 compared with an operating loss of $4.4 million for the second quarter of fiscal 2009. Net loss for the second quarter of fiscal 2010 totaled $10.4 million, or ($0.45) per share, compared with a net loss of $7.8 million, or ($0.34) per share, a year ago. For the second quarter of fiscal 2009, losses associated with Hurricane Ike incurred by the Company's insurance company, Standard Casualty, and from weather-related transportation and delivery delays in Texas and the east coast, reduced profitability by approximately $0.10 per share. Excluding these non-recurring items, net loss for the second quarter of fiscal 2009 was ($0.24) per share.

Net sales for the first six months of fiscal 2010 were $157.2 million compared with $240.7 million in the year-earlier period. Net loss for the first half of fiscal 2010 totaled $20.4 million, or ($0.89) per share, compared with a net loss of $8.3 million, or ($0.37) per share, in the first half of fiscal 2009. The results for the first half of fiscal 2009 included a pre-tax gain of $3.8 million, or $0.17 per share, on the repurchase of convertible senior notes. Excluding this gain and the non-recurring items noted above, net loss for the first half of fiscal 2009 was ($0.44) per share.

Improved Operating Efficiencies

Commenting on the results, Larry Keener, chairman and chief executive officer of Palm Harbor Homes, Inc., said, "Our results for the second quarter reflect the ongoing challenges facing the overall housing industry. Revenues have clearly been affected by constrained demand for factory-built housing products resulting from more restrictive financing environment and an over-supply of discounted site-built homes. While our year-over-year revenues declined 32 percent, this trend still compares favorably with the year-to-date overall industry decline of 43.2 percent for HUD-code manufactured housing and a 50.4 percent decline in modular sales.

"With the expected reduction in revenues, we have continued to streamline our operating costs. As a result of our improved manufacturing efficiencies, gross margin for the second fiscal quarter was a solid 24.1 percent, unchanged from the prior year. We have effectively lowered our quarterly selling, general and administrative costs by 21 percent, or an annualized reduction of $26 million, from the same period a year ago. We are now better positioned to sustain a continued downturn and, at the same time, benefit from any market improvement when it occurs. We are encouraged by some modest improvement in store traffic and sales as we begin our third fiscal quarter. However, we believe the primary catalyst for a meaningful improvement in demand for factory-built housing products will depend on a significant change in credit availability. We remain hopeful that congressional mandated expansion of government sponsored lending for factory-built housing will have a further positive impact on business in 2010.

"In light of the current sales environment, we are carefully managing our costs and are pleased, but not satisfied, with the progress we have made in improving our operating efficiencies," added Keener. "At the same time, we are pursuing innovative ways to both expand our product offering and reach new distribution channels to further drive revenues. We believe the commercial and military markets for modular products represent a new growth opportunity at higher price points than the residential market. We will start production on a $13.5 million military project that will be completed in calendar year 2010 and we will continue to aggressively bid on additional future projects.

Profitable Insurance and Finance Businesses

"Our financial services operations have continued to support our business through this challenging environment. Standard Casualty, our insurance subsidiary, has remained a very consistent performer for the Company with steady growth in policies written and a profitable second quarter. Country Place Mortgage, Palm Harbor's mortgage lending subsidiary, also remains profitable and its loan portfolio continues to perform significantly better than the national residential delinquency rates reported in the most recent Mortgage Bankers Association National Delinquency Survey. Country Place is focused on building its conforming mortgage business and is well positioned to meet current specialized loan demand as an approved Fannie Mae seller servicer and FHA lender," added Keener.

Cash Flow Improvement

Kelly Tacke, executive vice president and chief financial officer of Palm Harbor Homes, Inc., commented, "Our top priority for fiscal 2010 is to manage our liquidity with a tight focus on cash generation and cash preservation in every area of our operations. For the first six months of fiscal 2010, we had positive cash flows from operating activities of approximately $13 million. Our balance sheet reflected $17.3 million in cash and cash equivalents at the end of the second fiscal quarter, compared with $12.4 million at the end of fiscal 2009. We remain committed to maintaining a strong balance sheet in light of today's challenging economic conditions."

A conference call regarding this release is scheduled for Wednesday, October 28, 2009, at 10:00 a.m. (Eastern Time). Interested parties can access a live simulcast on the Internet at www.PalmHarbor.com or www.earnings.com. A 30-day replay will be available on both websites.

Palm Harbor Homes is one of the nation's leading manufacturers and marketers of multi-section manufactured homes. The Company markets nationwide through vertically integrated operations, encompassing manufacturing, marketing, financing and insurance. For more information on the Company, please visit www.palmharbor.com.

This press release contains projections and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These projections and statements reflect the Company's current views with respect to future events and financial performance. No assurance can be given, however, that these events will occur or that these projections will be achieved and actual results could differ materially from those projected as a result of certain factors. A discussion of these factors is included in the Company's periodic reports filed with the Securities and Exchange Commission.

PALM HARBOR HOMES, INC.

Statements of Operation

(Dollars in thousands, except per share data)

For the second quarter and six months ended September 25, 2009 and September 26,
2008

                              Second Quarter Ended      Six Months Ended

                              Sept. 25,    Sept. 26,    Sept. 25,    Sept. 26,

                              2009         2008(1)      2009         2008(1)

                              (Unaudited)               (Unaudited)

Net sales                     $ 74,797     $ 110,716    $ 157,218    $ 240,737

Cost of sales                   56,784       84,081       119,881      182,145

Gross profit                    18,013       26,635       37,337       58,592

Selling, general and            24,657       31,084       49,035       62,263
administrative expenses

Loss from operations            (6,644  )    (4,449  )    (11,698 )    (3,671  )

Interest expense                (4,054  )    (4,493  )    (9,018  )    (9,372  )

Gain on repurchase of         -              738        -              3,775
convertible senior notes

Other income                    211          583          439          1,164

Loss before income taxes        (10,487 )    (7,621  )    (20,277 )    (8,104  )

Income tax benefit (expense)    91           (184    )    (97     )    (242    )

Net loss                      $ (10,396 )  $ (7,805  )  $ (20,374 )  $ (8,346  )

Loss per common share:

Basic and diluted             $ (0.45   )  $ (0.34   )  $ (0.89   )  $ (0.37   )

Weighted average common
shares outstanding:

Basic and diluted               22,875       22,869       22,875       22,860

Condensed Balance Sheets

(Dollars in thousands)

September 25, 2009 and March 27, 2009

                                            September 25,  March 27,

                                            2009           2009(1)

Assets                                      (Unaudited)

Cash and cash equivalents                   $ 17,324       $ 12,374

Trade accounts receivables                    20,543         23,458

Consumer loans receivable, net                184,227        191,597

Inventories                                   85,948         97,144

Property, plant and equipment, net            33,088         35,937

Other assets                                  44,403         51,172

Total Assets                                $ 385,533      $ 411,682

Liabilities and Shareholders' Equity

Accounts payable and accrued liabilities    $ 69,116       $ 64,836

Floor plan payable                            44,550         49,401

Convertible debt                              49,117         47,939

Warehouse revolving debt                      4,471          3,589

Securitized financings                        130,969        140,283

Shareholders' equity                          87,310         105,634

Total Liabilities and Shareholders' Equity  $ 385,533      $ 411,682

(1) Included in the Company's second quarter results for fiscal 2010 and
2009 is the impact of approximately $589,000 and $676,000, respectively,
of non-cash interest expense related to the retrospective adoption of the
new accounting rules related to convertible debt instruments that may be
settled in cash upon conversion. For the year-to-date period for fiscal
2010 and 2009, the impact is approximately $1,178,000 and $1,476,000,
respectively. This additional non-cash interest expense represents the
amortization of a debt discount recorded against the Company's
convertible debt as required under the new accounting rules, applied
retrospectively.

PALM HARBOR HOMES, INC.

Quick Facts

                              Second Quarter Ended      Six Months Ended

                              Sept. 25,    Sept. 26,    Sept. 25,    Sept. 26,

                              2009         2008         2009         2008

FACTORY-BUILT HOUSING:

Company-owned superstores
and builder locations:

Beginning                       81           87           86           87

Added                           -            -            -            -

Closed                          (3      )    -            (8      )    -

Ending                          78           87           78           87

Factory-built homes sold
through:

Company-owned superstores       596          828          1,176        1,737
and builder locations

Independent dealers,            170          312          319          596
builders and developers

Total factory-built homes       766          1,140        1,495        2,333
sold

Factory-built homes sold as:

Single-section                  171          189          305          386

Multi-section                   431          673          853          1,388

Modular                         164          278          337          559

Total factory-built homes       766          1,140        1,495        2,333
sold

Commercial buildings sold:

Number of commercial            11           5            40           31
buildings sold

Net sales from commercial     $ 1,735      $ 592        $ 9,644      $ 9,807
buildings sold (in 000's)

Average sales prices:

Manufactured housing -        $ 67,000     $ 74,000     $ 68,000     $ 75,000
retail

Manufactured housing -        $ 51,000     $ 53,000     $ 53,000     $ 52,000
wholesale

Modular housing - consumer    $ 168,000    $ 171,000    $ 168,000    $ 172,000

Modular housing - builder     $ 73,000     $ 67,000     $ 74,000     $ 73,000
and developer

Homes produced                  716          1,052        1,372        2,072

Internalization rate
(residential manufactured       75      %    67      %    74      %    68      %
and modular)

FINANCIAL SERVICES

Loan originations

CPM                             81           54           143          171

Insurance penetration:

Warranty                        85      %    93      %    88      %    93      %

Physical damage                 68      %    69      %    68      %    69      %

    Source: Palm Harbor Homes, Inc.

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