PHHM Palm Harbor Homes (MM)

Palm Harbor Homes, Inc. (NASDAQ: PHHM) today reported financial results for the second quarter and first six months of fiscal 2011 ended September 24, 2010.

Overview

Net sales for the second quarter of fiscal 2011 totaled $66.3 million compared with $74.8 million in the year-earlier period. Palm Harbor reported an operating loss of $7.3 million for the second quarter of fiscal 2011 compared with an operating loss of $6.6 million for the second quarter of fiscal 2010. Net loss for the second quarter of fiscal 2011 totaled $10.9 million, or ($0.48) per share, compared with a net loss of $10.4 million, or ($0.45) per share, a year ago.

Net sales for the first six months of fiscal 2011 were $150.6 million compared with $157.2 million in the year-earlier period. Net loss for the first half of fiscal 2011 totaled $16.7 million, or ($0.73) per share, compared with a net loss of $20.4 million, or ($0.89) per share, in the first half of fiscal 2010.

Operating Results

“Our results for the second quarter of fiscal 2011 reflect the economic environment and the extremely challenging market conditions for the housing industry," said Larry Keener, chairman and chief executive officer of Palm Harbor Homes Inc. “While the total number of factory-built homes sold increased through the first six months of fiscal 2011, retail demand declined following the expiration of the homebuyer tax credit, affecting our overall sales for the second quarter. In addition, we lost approximately $4.0 million in retail sales in September due to severe tropical storms delaying a significant number of Texas deliveries.

“Average selling prices have also dropped through this environment as a result of lower appraisal values and consumer demand for less expensive homes,” added Keener. “However, even with the decline in selling prices, we maintained solid margins as a result of our restructuring actions over the past 18 months to reduce our operational overhead. We had 54 operating retail locations at the end of the second quarter compared with 78 locations a year ago. Through the first half of fiscal 2011, we have reduced our selling, general and administrative (SG&A) costs by 11 percent from the same period a year ago. We achieved this while incurring an additional $1.9 million in SG&A in the second quarter related to the write-down of assets associated with closed facilities. We have remained diligent in our efforts to carefully manage our costs and maintain solid margins.

“Our financial services operations have continued to support our business through this volatile environment. Standard Casualty, our insurance subsidiary, has remained a consistent performer with steady growth in policies and outstanding renewal rates. CountryPlace Mortgage, our mortgage lending subsidiary, has continued to expand its ability to profitably originate conforming mortgages, with loan originations up 32 percent through the first half of fiscal 2011. CountryPlace is an approved Fannie Mae and Ginnie Mae seller servicer, and has also expanded its platform to include loans for small commercial banks, realtors and independent site-builders,” said Keener.

Business Outlook

“While we have continued to address the dynamics of a difficult market, we are facing significant challenges. The Company is experiencing severe liquidity constraints and has amortization and other debt service requirements. As such, we are currently in discussions with potential lenders, as well as other strategic parties. The Company is also reviewing and preparing for other available alternatives, including debtor-in-possession financing, a possible sale of assets, and a proceeding under Chapter 11 of the U.S. Bankruptcy Code to facilitate such a transaction,” stated Keener.

Financing Status

The Company has been in default under its floor plan financing facility with Textron Financial Corporation (Textron) due to the following reasons: The Company failed to reduce its outstanding borrowings under the facility to $32 million, it has exceeded the maximum permissible loan-to-collateral coverage ratio at September 24, 2010, of 62 percent by having a ratio of approximately 70 percent, and the Company has sold approximately $6.76 million of homes, which funds should have been paid to Textron, but were not paid. Effective November 3, 2010, through November 19, 2010, Textron granted a waiver of default to the Company with respect to these matters. The waiver automatically extends through November 26, 2010, if the waiver has not earlier terminated, if certain minimum finished goods inventory levels and maximum sold, but unpaid, homes levels are achieved.

The Company has a $0.9 million interest payment due today, November 15, 2010, on its 3.25 percent Convertible Senior Notes due 2024. Because of the Company’s severe liquidity constraints, the Company is unable to make the payment. The Notes have a 30-day cure period.

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 24, 2010 and September 25, 2009

 

Second Quarter Ended

 

Six Months Ended

Sept. 24,

 

Sept. 25,

Sept. 24,

 

Sept. 25,

2010

2009

2010

2009

(Unaudited)

(Unaudited) Net sales $ 66,299 $ 74,797 $ 150,644 $ 157,218 Cost of sales 50,587 56,784 116,339 119,881 Gross profit 15,712 18,013 34,305 37,337 Selling, general and administrative expenses 23,059 24,657 43,606 49,035 Loss from operations (7,347) (6,644) (9,301) (11,698)   Interest expense (4,573) (4,054) (8,777) (9,018) Other income 1,060 211 1,594 439 Loss before income taxes (10,860) (10,487) (16,484) (20,277) Income tax benefit (expense) (80) 91 (182) (97)   Net loss $ (10,940) $ (10,396) $ (16,666) $ (20,374)   Loss per common share: Basic and diluted $ (0.48) $ (0.45) $ (0.73) $ (0.89)   Weighted average common shares outstanding: Basic and diluted 22,975 22,875 22,975 22,875

 

     

Condensed Balance Sheets

(Dollars in thousands)

September 24, 2010 and March 26, 2010

Sept. 24,

March 26,

2010

2010

Assets

(Unaudited)

Cash and cash equivalents $ 9,547 $ 26,705 Trade accounts receivables 17,679 18,533 Consumer loans receivable, net 168,887 176,143 Total Inventories 57,579 60,303 Property, plant and equipment, net 24,608 27,251 Other assets 45,871 48,818 Total Assets $ 324,171 $ 357,753   Liabilities and Shareholders' Equity Accounts payable and accrued liabilities $ 57,822 $ 60,700 Floor plan payable 34,006 42,249 Construction lending lines 4,926 3,890 Securitized financings 114,201 122,494 Virgo debt, net 18,195 18,518 Convertible debt, net 51,918 50,486 Total shareholders' equity 43,103 59,416 Total Liabilities and Shareholders' Equity $ 324,171 $ 357,753

PALM HARBOR HOMES, INC.

Quick Facts

     

Second Quarter Ended

 

Six Months Ended

Sept. 24,

 

Sept. 25,

Sept. 24,

 

Sept. 25,

2010

2009

2010

2009

FACTORY-BUILT HOUSING:

Company-owned superstores and builder locations: Beginning 56 81 55 86 Added - - 1 - Closed (2) (3) (2) (8)   Ending 54 78 54 78   Factory-built homes sold through: Company-owned superstores and builder locations 495 596 1,217 1,176 Independent dealers, builders and developers 223 170 418 319   Total factory-built homes sold 718 766 1,635 1,495   Factory-built homes sold as: Single-section 194 171 450 305 Multi-section 366 431 834 853 Modular 158 164 351 337   Total factory-built homes sold 718 766 1,635 1,495   Commercial buildings sold: Number of commercial buildings sold 33 11 44 40 Net sales from commercial buildings sold (in 000’s) $ 3,819 $ 1,735 $ 4,545 $ 9,644   Average sales prices: Manufactured housing – retail $ 63,000 $ 67,000 $ 66,000 $ 68,000 Manufactured housing – wholesale $ 43,000 $ 51,000 $ 46,000 $ 53,000 Modular housing – consumer $ 162,000 $ 168,000 $ 159,000 $ 168,000 Modular housing – builder and developer $ 73,000 $ 73,000 $ 72,000 $ 74,000     Homes produced 790 716 1,621 1,372 Internalization rate (residential manufactured and modular) 68% 75% 73% 74%    

FINANCIAL SERVICES

Loan originations CPM 95 81 189 143   Insurance penetration: Warranty 80% 85% 81% 88% Physical damage 69% 68% 70% 68%