Palm Harbor Homes, Inc. Reports Third Quarter Fiscal 2008 Results

Palm Harbor Homes, Inc. (NASDAQ: PHHM) today reported financial results for the third quarter and nine months of fiscal 2008 ended December 28, 2007. Net sales for the third quarter totaled $140.6 million compared with $151.4 million in the year-earlier period. Net loss for the third quarter totaled $9.3 million, or ($0.41) per diluted share, compared with net loss of $2.6 million, or ($0.11) per diluted share, a year ago. Net sales for the nine months ended December 28, 2007, were $428.6 million compared with $525.3 million in the year-earlier period. Net loss for the year-to-date period in fiscal 2008 totaled $111.6 million, or ($4.88) per diluted share, compared with net loss of $4.3 million, or ($0.19) per diluted share, in the prior-year period. These results include non-recurring, non-cash charges of $95.7 million, or $4.19 per share, taken in the second quarter of fiscal 2008 related to the impairment of all of the Company's previously recorded goodwill and the establishment of a valuation allowance against all of the Company's net deferred tax assets. Excluding these non-recurring, non-cash charges, net loss for the nine months ended December 28, 2007, was ($0.69) per share. Commenting on the results, Larry Keener, chairman and chief executive officer of Palm Harbor Homes, Inc., said, "Palm Harbor’s results for the third quarter of fiscal 2008 reflect the significant issues and challenges facing the overall housing market. National HUD-code shipments are down 19 percent through November. The key states of Florida, Arizona and California are down 43 percent and comprise 48 percent of the total national decline in shipments. Texas, Florida, Arizona and California are the top four destination states for Palm Harbor’s HUD- code shipments. However, despite the weakness in three of the four largest markets for our HUD-code products, our same store unit sales increased 20 percent for the quarter driven primarily by increased Texas retail deliveries. "National modular shipments are off 18 percent through September,” added Keener. Modular sales accounted for 36 percent of the Company revenues in the quarter. While average selling prices were higher in the third quarter, unit sales were down due to weaker housing demand trends. The severe downturn of the overall housing market created by a return to more prudent lending practices has produced excess site-built inventory directly competitive with modular housing.” "We continue to focus on effectively managing our business in tandem with market conditions,” Keener added. "During the fourth quarter of fiscal 2008, we will take the necessary steps to reduce our manufacturing capacity and distribution channels to effectively align with current and expected regional demand. As a result, we expect to incur approximately $8.0 to $10.0 million in restructuring charges in the fourth quarter of fiscal 2008. "Going forward, we intend to execute in three key areas. First, we must continue to drive revenues in this market environment through an expanded product offering, including the less expensive manufactured and modular products introduced during the first quarter of fiscal 2008, enhanced marketing and advertising efforts, and expanded distribution channels. Along with this, we will continue to identify ways to reduce our fixed costs and improve our operating efficiencies. Finally, we are focused on cash generation and conservation throughout our operations. While we do not see any near-term signs of recovery for the factory-built housing industry, we believe these actions will more effectively position Palm Harbor to be profitable in this environment. Additionally, our unique structure as the only publicly traded vertically-integrated company in our industry provides us with the ability to operate a very profitable finance and insurance business.” Kelly Tacke, executive vice president and chief financial officer of Palm Harbor Homes, Inc., commented, "The restructuring actions we will take in the fourth quarter of fiscal 2008 are expected to result in annual savings of approximately $20 million. We are committed to taking the necessary steps to return Palm Harbor to profitability.” A conference call regarding this release is scheduled for tomorrow, January 23, 2008, 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 Operations   (Dollars in thousands, except earnings per share) For the third quarter and nine months ended December 28, 2007 and December 29, 2006     Third Quarter Ended   Nine Months Ended   Dec. 28,   Dec. 29,   Dec. 28,   Dec. 29,     2007   2006   2007   2006   (Unaudited) (Unaudited) Net sales $ 140,626 $ 151,402 $ 428,559 $ 525,341 Cost of sales 108,524 115,568 325,568 397,394 Selling, general and administrative expenses 37,552 36,577 112,106 122,857 Goodwill impairment     0       0       78,506       0     Income (loss) from operations (5,450 ) (743 ) (87,621 ) 5,090   Interest expense (4,814 ) (4,174 ) (13,986 ) (11,298 ) Equity in loss of limited partnership and impairment charges 0 0 0 (4,709 ) Interest income and other     1,013       1,249       3,509       3,545     Loss before income taxes (9,251 ) (3,668 ) (98,098 ) (7,372 ) Income tax benefit (expense)     0       1,052       (13,501 )     3,033     Net loss   $ (9,251 )   $ (2,616 )   $ (111,599 )   $ (4,339 ) Net loss per common share - basic and diluted   $ (0.41 )   $ (0.11 )   $ (4.88 )   $ (0.19 ) Weighted average common shares outstanding - basic and diluted     22,852       22,852       22,852       22,852     Condensed Balance Sheets   (Dollars in thousands) December 28, 2007 and March 30, 2007 Dec. 28, March 30,             2007   2007 (Unaudited) Total Assets: Cash and cash equivalents $ 29,816 $ 44,292 Trade accounts receivables 32,676 33,978 Consumer loans receivable, net 263,770 228,289 Inventories 132,245 138,690 Property, plant and equipment, net 56,967 59,996 Other assets             59,392       169,877   Total assets           $ 574,866     $ 675,122     Total Liabilities and Shareholders' Equity: Accounts payable and accrued liabilities $ 90,757 $ 99,939 Floor plan payable 48,296 43,603 Convertible debt 75,000 75,000 Warehouse revolving debt 50,642 12,045 Securitized financings 171,392 194,405 Shareholders' equity             138,779       250,130   Total liabilities and shareholders' equity           $ 574,866     $ 675,122       PALM HARBOR HOMES, INC. Quick Facts         Third Quarter Ended   Nine Months Ended Dec. 28, Dec. 29, Dec. 28, Dec. 29,     2007   2006   2007   2006     FACTORY-BUILT HOUSING: Company-owned superstores and builder locations: Beginning 108 111 107 116 Added 1 1 2 6 Closed     (3 )     (1 )     (3 )     (11 )   Ending     106       111       106       111     Factory-built homes sold through: Company-owned superstores and builder locations 971 869 2,906 3,161 Independent dealers, builders & developers     389       620       1,338       2,308     Total factory-built homes sold     1,360       1,489       4,244       5,469     Factory-built homes sold as: Single-section 170 91 506 327 Multi-section 790 922 2,465 3,684 Modular     400       476       1,273       1,458     Total factory-built homes sold     1,360       1,489       4,244       5,469     Average sales prices: Manufactured housing - retail $ 77,000 $ 78,000 $ 76,000 $ 78,000 Manufactured housing - wholesale $ 63,000 $ 68,000 $ 63,000 $ 66,000 Modular housing - retail $ 176,000 $ 171,000 $ 180,000 $ 165,000 Modular housing - wholesale   $ 81,000     $ 77,000     $ 80,000     $ 79,000     Homes produced 1,250 1,282 4,007 5,080 Internalization rate (manufactured and modular)     65 %     57 %     63 %     57 %   FINANCIAL SERVICES Loan originations: CPM 291 228 735 802 BSM - 162 - 530   Insurance penetration: Warranty 94 % 93 % 91 % 92 % Physical damage     64 %     62 %     61 %     61 %