PHHM » Topics » 2008 Compared to 2007

These excerpts taken from the PHHM 10-K filed Jun 9, 2009.

2008 Compared to 2007

Net Sales. Net sales decreased 16.1% to $555.1 million in fiscal 2008 from $661.2 million in fiscal 2007. This decrease is primarily the result of a $111.6 million decrease in factory-built housing net sales offset by a $5.4 million increase in financial services net revenues. The decline in factory-built housing net sales is primarily due to a 19.1% decrease in the total number of factory-built homes sold and decreases in the average retail and wholesale selling prices of new manufactured homes offset by an increase in the average retail selling price of a new modular home. The decrease in the total number of factory-built homes sold is largely due to a 38.3% decrease in the homes sold to independent dealers, builders and developers, the majority of which related to shipments to the states of Florida, California and Arizona, which prior to 2006 were typically some of our most profitable states (see Executive Overview section above for more details). These states have been especially impacted by decreased manufactured home sales to manufactured housing retirement communities. The decrease in the average retail and wholesale selling prices of new manufactured homes is the result of our new lower-priced products. The increase in the average selling prices of a new modular home is the result of customers purchasing larger modular homes. The increase in financial services net revenues primarily reflects an increase in interest income resulting from an increase in consumer loans receivable as of March 31, 2008 as compared March 31, 2007.

Gross Profit. In fiscal 2008, gross profit decreased to $133.7 million, or 24.1% of net sales, from $157.8 million, or 23.9% of net sales in fiscal 2007. Gross profit for the factory-built housing segment decreased to 19.7% of net sales in fiscal 2008 from 20.8% in fiscal 2007. Factory-built housing gross profit for fiscal 2008 includes $2.9 million in restructuring charges related to closing 18 under-performing sales centers and 3 less than efficient plants and for fiscal 2007 includes $2.4 million in restructuring charges related to closing 13 sales centers and 2 plants in fiscal 2007. Excluding these charges, gross profit for the factory-built housing segment would have been 20.3% in fiscal 2008 and 21.2% in fiscal 2007. This decrease was the result of a decline in the factory utilization rates coupled with continued pressure on our manufactured housing wholesale margins in Florida, California and Arizona and offset by an increase in the internalization rate from 58% in fiscal 2007 to 64% in fiscal 2008. Gross profit for the financial services segment increased $4.9 million in fiscal 2008 primarily due to increased interest income as explained above in the net sales section.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $150.6 million in fiscal 2008 as compared to $160.0 million in fiscal 2007. As a percentage of net sales, selling, general and administrative expenses increased to 27.1% for fiscal 2008 from 24.2% for fiscal 2007. Of this $9.5 million decrease, $12.4 million related to the factory-built housing segment and was offset by a $2.9 million increase in financial services (general corporate expenses were essentially flat with the prior year). Factory-built housing expenses include $5.4 million in charges related to closing 18 under-performing sales centers and 3 less than efficient plants in fiscal 2008 and $3.7 million in restructuring charges related to closing 13 sales centers and 2 plants in fiscal 2007. Excluding these charges, selling, general and administrative expenses for the factory-built housing segment decreased $14.0 million. This decrease is largely the result of the cost savings steps we put in place during fiscal 2007 plus a reduction in performance based compensation costs and operating fewer manufacturing facilities and sales centers. Selling, general and administrative expenses related to the financial services segment increased in fiscal 2008 due to a $1.5 million one-time performance-based compensation payment. The payment was based on CountryPlace profitability from inception (2002) through 2007.

Goodwill Impairment. Goodwill impairment was $78.5 million for fiscal 2008. Due to the difficult market environment, particularly the recent fallout in the sub-prime market, and our recent losses, we determined that an interim test to assess the recoverability of goodwill was necessary. With the assistance of an independent valuation firm, we performed an interim goodwill impairment analysis and concluded that the goodwill relating to our factory-built housing reporting unit was impaired. As a result, during the second quarter of fiscal 2008, we recorded a non-cash impairment charge of $78.5 million related to our factory-built housing segment goodwill balance.

 

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Interest Expense. Interest expense increased 18.9% to $18.7 million in fiscal 2008 as compared to $15.7 million in fiscal 2007. As a result of the completion of CountryPlace’s second securitization in March 2007, our interest expense on securitized financings increased $4.4 million and was offset by a $2.7 million decrease in interest expense on our warehouse revolving debt. Also, interest expense on floor plan payable increased $0.8 million. The interest rate on the warehouse revolving debt and the floor plan payable is variable.

Equity in Loss of Limited Partnership and Impairment Charges. Equity in loss of limited partnership and impairment charges was zero in fiscal 2008 as compared to a $4.7 million loss in fiscal 2007. The $4.7 million loss in fiscal 2007 includes the write off of our investment in BSM of $4.4 million effective September 29, 2006. On May 19, 2007, we executed an agreement to terminate our partnership with BSM effective June 7, 2007. Under the termination agreement, we have no further financial obligation to BSM.

Interest Income and Other. Interest income and other decreased 26.0% to $3.6 million in fiscal 2008 as compared to $4.9 million in fiscal 2007. The $1.3 million decrease was primarily the result of a $0.8 million decrease in interest and dividend income and a $0.4 million impairment charge on investment securities in fiscal 2008. The impairment on investment securities related to the write down of an other-than-temporary loss on an available-for-sale investment security. Interest income in 2008 was also impacted by reduced rates of return.

Income Tax Benefit (Expense). Income tax expense was $13.9 million in fiscal 2008 as compared to a benefit of $6.1 million in fiscal 2007. Due to the difficult market environment, particularly the recent fallout in the sub-prime market, and our recent losses, we reviewed the recoverability of our deferred tax assets and determined that realization of the deferred tax benefits were uncertain. In fiscal 2008, we recorded a $31.1 million valuation allowance against all of our net deferred tax assets resulting in income tax expense for fiscal 2008 of $13.9 million. In fiscal 2007, we recorded a $6.1 million benefit on our loss before income taxes of $17.7 million.

2008 Compared to 2007

FACE="Times New Roman" SIZE="2">Net Sales. Net sales decreased 16.1% to $555.1 million in fiscal 2008 from $661.2 million in fiscal 2007. This decrease is primarily the result of a $111.6 million decrease in factory-built housing net
sales offset by a $5.4 million increase in financial services net revenues. The decline in factory-built housing net sales is primarily due to a 19.1% decrease in the total number of factory-built homes sold and decreases in the average retail and
wholesale selling prices of new manufactured homes offset by an increase in the average retail selling price of a new modular home. The decrease in the total number of factory-built homes sold is largely due to a 38.3% decrease in the homes sold to
independent dealers, builders and developers, the majority of which related to shipments to the states of Florida, California and Arizona, which prior to 2006 were typically some of our most profitable states (see Executive Overview section above
for more details). These states have been especially impacted by decreased manufactured home sales to manufactured housing retirement communities. The decrease in the average retail and wholesale selling prices of new manufactured homes is the
result of our new lower-priced products. The increase in the average selling prices of a new modular home is the result of customers purchasing larger modular homes. The increase in financial services net revenues primarily reflects an increase in
interest income resulting from an increase in consumer loans receivable as of March 31, 2008 as compared March 31, 2007.

SIZE="2">Gross Profit. In fiscal 2008, gross profit decreased to $133.7 million, or 24.1% of net sales, from $157.8 million, or 23.9% of net sales in fiscal 2007. Gross profit for the factory-built housing segment decreased to 19.7% of
net sales in fiscal 2008 from 20.8% in fiscal 2007. Factory-built housing gross profit for fiscal 2008 includes $2.9 million in restructuring charges related to closing 18 under-performing sales centers and 3 less than efficient plants and for
fiscal 2007 includes $2.4 million in restructuring charges related to closing 13 sales centers and 2 plants in fiscal 2007. Excluding these charges, gross profit for the factory-built housing segment would have been 20.3% in fiscal 2008 and 21.2% in
fiscal 2007. This decrease was the result of a decline in the factory utilization rates coupled with continued pressure on our manufactured housing wholesale margins in Florida, California and Arizona and offset by an increase in the internalization
rate from 58% in fiscal 2007 to 64% in fiscal 2008. Gross profit for the financial services segment increased $4.9 million in fiscal 2008 primarily due to increased interest income as explained above in the net sales section.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $150.6 million in fiscal 2008 as
compared to $160.0 million in fiscal 2007. As a percentage of net sales, selling, general and administrative expenses increased to 27.1% for fiscal 2008 from 24.2% for fiscal 2007. Of this $9.5 million decrease, $12.4 million related to the
factory-built housing segment and was offset by a $2.9 million increase in financial services (general corporate expenses were essentially flat with the prior year). Factory-built housing expenses include $5.4 million in charges related to closing
18 under-performing sales centers and 3 less than efficient plants in fiscal 2008 and $3.7 million in restructuring charges related to closing 13 sales centers and 2 plants in fiscal 2007. Excluding these charges, selling, general and administrative
expenses for the factory-built housing segment decreased $14.0 million. This decrease is largely the result of the cost savings steps we put in place during fiscal 2007 plus a reduction in performance based compensation costs and operating fewer
manufacturing facilities and sales centers. Selling, general and administrative expenses related to the financial services segment increased in fiscal 2008 due to a $1.5 million one-time performance-based compensation payment. The payment was based
on CountryPlace profitability from inception (2002) through 2007.

Goodwill Impairment. Goodwill impairment was $78.5
million for fiscal 2008. Due to the difficult market environment, particularly the recent fallout in the sub-prime market, and our recent losses, we determined that an interim test to assess the recoverability of goodwill was necessary. With the
assistance of an independent valuation firm, we performed an interim goodwill impairment analysis and concluded that the goodwill relating to our factory-built housing reporting unit was impaired. As a result, during the second quarter of fiscal
2008, we recorded a non-cash impairment charge of $78.5 million related to our factory-built housing segment goodwill balance.

 


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Interest Expense. Interest expense increased 18.9% to $18.7 million in fiscal 2008 as
compared to $15.7 million in fiscal 2007. As a result of the completion of CountryPlace’s second securitization in March 2007, our interest expense on securitized financings increased $4.4 million and was offset by a $2.7 million decrease in
interest expense on our warehouse revolving debt. Also, interest expense on floor plan payable increased $0.8 million. The interest rate on the warehouse revolving debt and the floor plan payable is variable.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Equity in Loss of Limited Partnership and Impairment Charges. Equity in loss of limited partnership and impairment charges was zero in
fiscal 2008 as compared to a $4.7 million loss in fiscal 2007. The $4.7 million loss in fiscal 2007 includes the write off of our investment in BSM of $4.4 million effective September 29, 2006. On May 19, 2007, we executed an agreement to
terminate our partnership with BSM effective June 7, 2007. Under the termination agreement, we have no further financial obligation to BSM.

SIZE="2">Interest Income and Other. Interest income and other decreased 26.0% to $3.6 million in fiscal 2008 as compared to $4.9 million in fiscal 2007. The $1.3 million decrease was primarily the result of a $0.8 million decrease in
interest and dividend income and a $0.4 million impairment charge on investment securities in fiscal 2008. The impairment on investment securities related to the write down of an other-than-temporary loss on an available-for-sale investment
security. Interest income in 2008 was also impacted by reduced rates of return.

Income Tax Benefit (Expense). Income tax
expense was $13.9 million in fiscal 2008 as compared to a benefit of $6.1 million in fiscal 2007. Due to the difficult market environment, particularly the recent fallout in the sub-prime market, and our recent losses, we reviewed the recoverability
of our deferred tax assets and determined that realization of the deferred tax benefits were uncertain. In fiscal 2008, we recorded a $31.1 million valuation allowance against all of our net deferred tax assets resulting in income tax expense for
fiscal 2008 of $13.9 million. In fiscal 2007, we recorded a $6.1 million benefit on our loss before income taxes of $17.7 million.

These excerpts taken from the PHHM 10-Q filed Feb 3, 2009.

Three Months Ended December 26, 2008 Compared to Three Months Ended December 28, 2007

Net Sales. Net sales decreased 36.3% to $89.6 million in the third quarter of fiscal 2009 as compared to $140.6 million in the third quarter of fiscal 2008. This decrease is comprised of a $49.2 million decrease in factory-built housing net sales and a $1.8 million decrease in financial services net revenues. The decline in factory-built housing net sales is primarily due to a 36.3% decrease in the total number of factory-built homes sold coupled with decreases in the average wholesale selling prices of new manufactured and modular homes as well as decreases in the average retail selling price of a new modular home. The decrease in the total number of factory-built homes sold reflects the severe state of the factory-built housing industry, the prevailing economic uncertainties, credit crisis and general consumer paralysis that has kept potential homebuyers on the sidelines. Also, we were operating 20 fewer retail stores and four less factories than last year. Homes sold to independent dealers, builders and developers, the majority of which related to shipments to the states of Florida, California and Arizona, which prior to 2006 were typically some of our most profitable states, decreased 45.2%. These states have been especially impacted by decreased manufactured home sales to retirement age buyers. The decrease in the average selling prices is the result of our new lower-priced products. The decrease in financial services net revenues primarily reflects a decline in the average consumer loans balance from $257.2 million for the third quarter of fiscal 2008 to $197.7 million for the third quarter of fiscal 2009, resulting from the sale of approximately $51.3 million of loans in April 2008.

Gross Profit. In the third quarter of fiscal 2009, gross profit decreased to 21.2% of net sales, or $19.0 million, from 22.8% of net sales, or $32.1 million, in the third quarter of fiscal 2008. Gross profit for the factory-built housing segment decreased to 15.5% of net sales in the third quarter of fiscal 2009 from 18.2% in the third quarter of fiscal 2008. The decline in factory-built housing margin is primarily the result of weaker manufacturing margins due to low capacity utilization offset by an increase in the internalization rate from 65% in the third quarter of fiscal 2008 to 69% in the third quarter of fiscal 2009. Gross profit for the financial services segment decreased $1.9 million in the third quarter of fiscal 2009 due to decreased net revenues as explained above in the net sales section.

Selling, General and Administrative Expenses. As a percentage of net sales, selling, general and administrative expenses increased to 32.7% of net sales in the third quarter of fiscal 2009 from 26.7% of net sales in the third quarter of fiscal 2008. This increase resulted from the larger percentage decline in net sales. In dollars, selling, general and administrative expenses decreased $8.2 million to $29.3 million in the third quarter of fiscal 2009 from $37.5 million in the third quarter of 2008. Of this $8.2 million decrease, $6.0 million related to the factory-built housing segment, $1.7 million related to the financial services segment, and $0.5 million related to general corporate expenses. The majority of the reductions in selling, general and administrative expenses related to the factory-built housing segment and general corporate expenses resulted from the restructuring actions taken in the fourth quarter of fiscal 2008 to close 18 under-performing sales centers and three less than efficient plants plus a reduction in performance based compensation expense. The decrease in selling, general and administrative expenses for the financial services segment relates to a $1.5 million one-time performance-based compensation payment made in fiscal 2008. The payment was based on CountryPlace profitability from inception (2002) through 2007.

Interest Expense. Interest expense decreased 19.1% to $3.9 million in the third quarter of fiscal 2009 as compared to $4.8 million in the third quarter of fiscal 2008. Of this decrease, $0.7 million related to decreased interest expense on the average balance of the warehouse facility which was terminated April 30, 2008 and $0.3 million related to decreased interest expense on the average balance of securitized loans resulting from reduced securitization financing balances in the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008.

Gain on Repurchase of Convertible Senior Notes. During the third quarter of fiscal 2009, we repurchased $1.1 million of our convertible senior notes for $0.6 million resulting in a gain of $0.6 million.

 

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Other Income. Other income decreased 35.3% to $0.7 million in the third quarter of fiscal 2009 from $1.0 million in the third quarter of fiscal 2008 primarily due to a $0.5 million decrease in interest and dividend income resulting from reduced rates of return coupled with lower cash and cash equivalent balances.

Nine Months Ended December 26, 2008 Compared to Nine Months Ended December 28, 2007

Net Sales. Net sales decreased 22.9% to $330.4 million in the first nine months of fiscal 2009 as compared to $428.6 million in the first nine months of fiscal 2008. This decrease is primarily the result of a $95.7 million decrease in factory-built housing net sales and a $2.5 million decrease in financial services net revenues. The decline in factory-built housing net sales is primarily due to a 24.6% decrease in the total number of factory-built homes sold coupled with decreases in the average wholesale selling prices of new modular and manufactured homes as well as decreases in the average retail selling price of new modular homes. The decrease in the total number of factory-built homes sold reflects the severe state of the factory-built housing industry, the prevailing economic uncertainties, credit crisis and general consumer paralysis that has kept potential homebuyers on the sidelines. Also, we were operating 20 fewer retail stores and four less factories than last year. Homes sold to independent dealers, builders and developers, the majority of which related to shipments to the states of Florida, California and Arizona, which prior to 2006 were typically some of our most profitable states, decreased 39.5%. These states have been especially impacted by decreased manufactured home sales to retirement age buyers. The reduction in independent sales was bolstered by $10.7 million in commercial and military modular sales. The decrease in the average selling prices is the result of our new lower-priced products. The decrease in financial services net revenues reflects a decline in the average consumer loans balance from $246.0 million for the nine months ended December 28, 2007 to $231.6 million for the nine months ended December 26, 2008, resulting from the sale of approximately $51.3 million of loans in April 2008.

Gross Profit. In the first nine months of fiscal 2009, gross profit decreased to 23.5% of net sales, or $77.6 million, from 24.0% of net sales, or $103.0 million in the first nine months of fiscal 2008. Gross profit for the factory-built housing segment decreased to 18.9% of net sales in the first nine months of fiscal 2009 from 20.0% in the first nine months of fiscal 2008. The decline in factory-built housing margin is primarily the result of increased manufacturing costs driven by rapidly rising material costs offset by an increase in the internalization rate from 63% in the first nine months of fiscal 2008 to 69% in the first nine months of fiscal 2009 as well as the impact of the restructuring actions taken in the fourth quarter of fiscal 2008 to close 18 under-performing sales centers and three less than efficient plants. Gross profit for the financial services segment decreased $2.8 million in the first nine months of fiscal 2009 due to decreased net revenues as explained above in the net sales section.

Selling, General and Administrative Expenses. As a percentage of net sales, selling, general and administrative expenses increased to 27.7% of net sales in the first nine months of fiscal 2009 from 26.2% of net sales in the first nine months of fiscal 2008. This increase resulted from the larger percentage decline in net sales. In dollars, selling, general and administrative expenses decreased $20.5 million to $91.6 million in the first nine months of fiscal 2009 from $112.1 million in the first nine months of fiscal 2008. Of this $20.5 million decrease, $15.5 million related to the factory-built housing segment, $1.4 million related to the financial services segment and $3.7 million related to general corporate expenses. The majority of the reductions in selling, general and administrative expenses related to the factory-built housing segment and general corporate expenses resulted from the restructuring actions taken in the fourth quarter of fiscal 2008 to close 18 under-performing sales centers and three less than efficient plants plus a reduction in performance based compensation expense. The decrease in selling, general and administrative expenses for the financial services segment relates to a $1.5 million one-time performance-based compensation payment. The payment was based on CountryPlace profitability from inception (2002) through 2007.

 

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Goodwill Impairment. Goodwill impairment was $78.5 million in the first nine months of fiscal 2008. Due to the difficult market environment and the losses we recorded during fiscal 2007 and early 2008, we determined that an interim test to assess the recoverability of goodwill was necessary. With the assistance of an independent valuation firm, we performed an interim goodwill impairment analysis and concluded that the goodwill relating to our factory-built housing reporting unit was impaired. As a result, during the second quarter of fiscal 2008, we recorded a non-cash impairment charge of $78.5 million related to the write-off of our entire goodwill balance.

Interest Expense. Interest expense decreased 15.7% to $11.8 million in the first nine months of fiscal 2009 as compared to $14.0 million in the first nine months of fiscal 2008. Of this decrease, $1.1 million related to decreased interest expense on the average balance of the warehouse facility which was terminated April 30, 2008 and $1.1 million related to decreased interest expense on the average balance of the securitized loans resulting from reduced securitization financing balances in the first nine months of fiscal 2009 as compared to the first nine months of fiscal 2008.

Gain on Repurchase of Convertible Senior Notes. During the first nine months of fiscal 2009, we repurchased $15.6 million of our convertible senior notes for $9.1 million resulting in a gain of $6.4 million.

Other Income. Other income decreased 48.2% to $1.8 million in the first nine months of fiscal 2009 from $3.5 million in the first nine months of fiscal 2008 primarily due to a $1.7 million decrease in interest and dividend income resulting from reduced rates of return coupled with lower average cash and cash equivalent balances.

Income Tax Expense. Income tax expense was $0.2 million in the first nine months of fiscal 2009 as compared to $13.5 million in the first nine months of fiscal 2008. The $0.2 million of income tax expense for the first nine months of fiscal 2009 related to taxes payable in various states in which we do business. The $13.5 million of income tax expense for the first nine months of fiscal 2008 related to our recording a valuation allowance against all of our net deferred tax assets.

This excerpt taken from the PHHM 10-Q filed Nov 18, 2008.

Six Months Ended September 26, 2008 Compared to Six Months Ended September 28, 2007

Net Sales. Net sales decreased 16.4% to $240.7 million in the first six months of fiscal 2009 as compared to $287.9 million in the first six months of fiscal 2008. This decrease is primarily the result of a $46.5 million decrease in factory-built housing net sales and a $0.7 million decrease in financial services net revenues. The decline in factory-built housing net sales is primarily due to a 19.1% decrease in the total number of factory-built homes sold coupled with decreases in the average wholesale selling prices of new modular and manufactured homes as well as decreases in the average retail selling price of new modular homes. The decrease in the total number of factory-built homes sold is the result of operating 18 fewer retail stores and three less factories than last year, delayed deliveries of homes sold in the last week of the second quarter as Hurricane Ike hit the Gulf region and a “no name” storm hit the Atlantic coast, and a 37.2% decrease in the homes sold to independent dealers, builders and developers, the majority of which related to shipments to the states of Florida, California and Arizona, which prior to 2006 were typically some of our most profitable states. These states have been especially impacted by decreased manufactured home sales to retirement age buyers. The reduction in independent sales was bolstered by $9.8 million in commercial and military modular sales. The decrease in the average selling prices is the result of our new lower-priced products. The decrease in financial services net revenues reflects a decline in the average consumer loans balance from $239.5 million for the six months ended September 28, 2007 to $233.7 million for the six months ended September 26, 2008, resulting from the sale of approximately $51.3 million of loans in April 2008.

Gross Profit. In the first six months of fiscal 2009, gross profit decreased to 24.3% of net sales, or $58.6 million, from 24.6% of net sales, or $70.9 million in the first six months of fiscal 2008. Gross profit for the factory-built housing segment decreased to 20.1% of net sales in the first six months of fiscal 2009 from 20.9% in the first six months of fiscal 2008. The decline in factory-built housing margin is primarily the result of increased manufacturing costs driven by rapidly rising material costs offset by an increase in the internalization rate from 63% in the first six months of

 

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fiscal 2008 to 68% in the first six months of fiscal 2009 as well as the impact of the restructuring actions taken in the fourth quarter of fiscal 2008 to close 18 under-performing sales centers and three less than efficient plants. Gross profit for the financial services segment decreased $0.9 million in the first six months of fiscal 2009 due to decreased net revenues as explained above in the net sales section and a $0.8 million reserve recorded for uninsured losses estimated for Standard Casualty’s share of Hurricane Ike claims.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $12.3 million to $62.3 million, or 25.9% of net sales, in the first six months of fiscal 2009 from $74.6 million, or 25.9% of net sales, in the first six months of fiscal 2008. Of this $12.3 million decrease, $9.5 million related to the factory-built housing segment and $3.1 million related to general corporate expenses and was offset by a $0.3 million increase in financial services. The majority of the reductions in selling, general and administrative expenses related to factory-built housing and general corporate expenses resulted from the restructuring actions taken in the fourth quarter of fiscal 2008 to close 18 under-performing sales centers and three less than efficient plants.

Goodwill Impairment. Goodwill impairment was $78.5 million in the first six months of fiscal 2008. Due to the difficult market environment and the losses we recorded during fiscal 2007 and early 2008, we determined that an interim test to assess the recoverability of goodwill was necessary. With the assistance of an independent valuation firm, we performed an interim goodwill impairment analysis and concluded that the goodwill relating to our factory-built housing reporting unit was impaired. As a result, during the second quarter of fiscal 2008, we recorded a non-cash impairment charge of $78.5 million related to the write-off of our entire goodwill balance.

Interest Expense. Interest expense decreased 13.9% to $7.9 million in the first six months of fiscal 2009 as compared to $9.2 million in the first six months of fiscal 2008. Of this decrease, $0.5 million related to decreased interest expense on the average balance of the warehouse facility which was terminated April 30, 2008 and $0.7 million related to decreased interest expense on the average balance of the securitized loans resulting from reduced securitization financing balances in the first six months of fiscal 2009 as compared to the first six months of fiscal 2008.

Gain on Repurchase of Convertible Senior Notes. During the first six months of fiscal 2009, we repurchased $14.4 million of our convertible senior notes for $8.5 million resulting in a gain of $5.8 million.

Other Income. Other income decreased 53.3% to $1.2 million in the first six months of fiscal 2009 from $2.5 million in the first six months of fiscal 2008 primarily due to a $1.1 million decrease in interest and dividend income resulting from lower cash and cash equivalent balances coupled with reduced rates of return. The remaining $0.2 million decrease resulted from a decrease in the gains on sales of stock in the first six months of fiscal 2009 as compared to the first six months of fiscal 2008.

Income Tax Expense. Income tax expense was $0.2 million in the first six months of fiscal 2009 as compared to $13.5 million in the first six months of fiscal 2008. The $0.2 million of income tax expense for the first six months of fiscal 2009 related to taxes payable in various states we do business. The $13.5 million of income tax expense for the first six months of fiscal 2008 related to our recording a valuation allowance against all of our net deferred tax assets.

This excerpt taken from the PHHM 10-Q filed Nov 4, 2008.

Six Months Ended September 26, 2008 Compared to Six Months Ended September 28, 2007

Net Sales. Net sales decreased 16.4% to $240.7 million in the first six months of fiscal 2009 as compared to $287.9 million in the first six months of fiscal 2008. This decrease is primarily the result of a $46.5 million decrease in factory-built housing net sales and a $0.7 million decrease in financial services net revenues. The decline in factory-built housing net sales is primarily due to a 19.1% decrease in the total number of factory-built homes sold coupled with decreases in the average wholesale selling prices of new modular and manufactured homes as well as decreases in the average retail selling price of new modular homes. The decrease in the total number of factory-built homes sold is the result of operating 18 fewer retail stores and three less factories than last year, delayed deliveries of homes sold in the last week of the second quarter as Hurricane Ike hit the Gulf region and a “no name” storm hit the Atlantic coast, and a 37.2% decrease in the homes sold to independent dealers, builders and developers, the majority of which related to shipments to the states of Florida, California and Arizona, which prior to 2006 were typically some of our most profitable states. These states have been especially impacted by decreased manufactured home sales to retirement age buyers. The reduction in independent sales was bolstered by $9.8 million in commercial and military modular sales. The decrease in the average selling prices is the result of our new lower-priced products. The decrease in financial services net revenues reflects a decline in the average consumer loans balance from $239.5 million for the six months ended September 28, 2007 to $233.7 million for the six months ended September 26, 2008, resulting from the sale of approximately $51.3 million of loans in April 2008.

Gross Profit. In the first six months of fiscal 2009, gross profit decreased to 24.3% of net sales, or $58.6 million, from 24.6% of net sales, or $70.9 million in the first six months of fiscal 2008. Gross profit for the factory-built housing segment decreased to 20.1% of net sales in the first six months of fiscal 2009 from 20.9% in the first six months of fiscal 2008. The decline in factory-built housing margin is primarily the result of increased manufacturing costs driven by rapidly rising material costs offset by an increase in the internalization rate from 63% in the first six months of

 

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fiscal 2008 to 68% in the first six months of fiscal 2009 as well as the impact of the restructuring actions taken in the fourth quarter of fiscal 2008 to close 18 under-performing sales centers and three less than efficient plants. Gross profit for the financial services segment decreased $0.9 million in the first six months of fiscal 2009 due to decreased net revenues as explained above in the net sales section and a $0.8 million reserve recorded for uninsured losses estimated for Standard Casualty’s share of Hurricane Ike claims.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $12.3 million to $62.3 million, or 25.9% of net sales, in the first six months of fiscal 2009 from $74.6 million, or 25.9% of net sales, in the first six months of fiscal 2008. Of this $12.3 million decrease, $9.5 million related to the factory-built housing segment and $3.1 million related to general corporate expenses and was offset by a $0.3 million increase in financial services. The majority of the reductions in selling, general and administrative expenses related to factory-built housing and general corporate expenses resulted from the restructuring actions taken in the fourth quarter of fiscal 2008 to close 18 under-performing sales centers and three less than efficient plants.

Goodwill Impairment. Goodwill impairment was $78.5 million in the first six months of fiscal 2008. Due to the difficult market environment and the losses we recorded during fiscal 2007 and early 2008, we determined that an interim test to assess the recoverability of goodwill was necessary. With the assistance of an independent valuation firm, we performed an interim goodwill impairment analysis and concluded that the goodwill relating to our factory-built housing reporting unit was impaired. As a result, during the second quarter of fiscal 2008, we recorded a non-cash impairment charge of $78.5 million related to the write-off of our entire goodwill balance.

Interest Expense. Interest expense decreased 13.9% to $7.9 million in the first six months of fiscal 2009 as compared to $9.2 million in the first six months of fiscal 2008. Of this decrease, $0.5 million related to decreased interest expense on the average balance of the warehouse facility which was terminated April 30, 2008 and $0.7 million related to decreased interest expense on the average balance of the securitized loans resulting from reduced securitization financing balances in the first six months of fiscal 2009 as compared to the first six months of fiscal 2008.

Gain on Repurchase of Convertible Senior Notes. During the first six months of fiscal 2009, we repurchased $14.4 million of our convertible senior notes for $8.5 million resulting in a gain of $5.8 million.

Other Income. Other income decreased 53.3% to $1.2 million in the first six months of fiscal 2009 from $2.5 million in the first six months of fiscal 2008 primarily due to a $1.1 million decrease in interest and dividend income resulting from lower cash and cash equivalent balances coupled with reduced rates of return. The remaining $0.2 million decrease resulted from a decrease in the gains on sales of stock in the first six months of fiscal 2009 as compared to the first six months of fiscal 2008.

Income Tax Expense. Income tax expense was $0.2 million in the first six months of fiscal 2009 as compared to $13.5 million in the first six months of fiscal 2008. The $0.2 million of income tax expense for the first six months of fiscal 2009 related to taxes payable in various states we do business. The $13.5 million of income tax expense for the first six months of fiscal 2008 related to our recording a valuation allowance against all of our net deferred tax assets.

This excerpt taken from the PHHM 10-Q filed Aug 4, 2008.

Three Months Ended June 27, 2008 Compared to Three Months Ended June 29, 2007

Net Sales. Net sales decreased 9.3% to $130.0 million in the first quarter of fiscal 2009 from $143.3 million in the first quarter of fiscal 2008. This decrease is primarily the result of a $14.1 million decrease in factory-built housing net sales offset by a $0.9 million increase in financial services net revenues. The decline in factory-built housing net sales is primarily due to a 7.6% decrease in the total number of factory-built homes sold coupled with decreases in the average wholesale selling prices of new manufactured and modular homes as well as decreases in the average retail selling price of a new modular home. The decrease in the total number of factory-built homes sold is largely due to a 16.1% decrease in homes sold to independent dealers, builders and developers, the majority of which related to shipments to the states of Florida, California and

 

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Arizona, which prior to 2006 were typically some of our most profitable states. These states have been especially impacted by decreased manufactured home sales to retirement age buyers. The reduction in independent sales was bolstered by $9.2 million in commercial and military modular sales. The decrease in the average selling prices is the result of our new lower-priced products. The increase in financial services net revenues primarily reflects premiums from sales of conforming mortgages and amortization of deferred points.

Gross Profit. In the first quarter of fiscal 2009, gross profit increased to 24.6% of net sales, or $32.0 million, from 24.0% of net sales, or $34.4 million in the first quarter of fiscal 2008. Gross profit for the factory-built housing segment decreased to 19.9% of net sales in the first quarter of fiscal 2009 from 20.3% in the first quarter of fiscal 2008. The decline in factory-built housing margin is primarily the result of increased manufacturing costs driven by rapidly rising material costs and offset by an increase in the internalization rate from 63% in the first quarter of fiscal 2008 to 69% in the first quarter of fiscal 2009 as well as the impact of the restructuring actions taken in the fourth quarter of fiscal 2008 to close 18 under-performing sales centers and three less than efficient plants. Gross profit for the financial services segment increased $0.9 million in the first quarter of fiscal 2009 due to increased interest income as explained above in the net sales section.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $31.2 million, or 24.0% of net sales, in the first quarter of fiscal 2009 as compared to $37.0 million, or 25.8% of net sales, in the first quarter of fiscal 2008. Of this $5.8 million decrease, $3.6 million related to the factory-built housing segment and $2.6 million related to general corporate expenses and was offset by a $0.3 million increase in financial services. The majority of the reductions in selling, general and administrative expenses related to factory-built housing and general corporate expenses resulted from the restructuring actions taken in the fourth quarter of fiscal 2008 to close 18 under-performing sales centers and three less than efficient plants.

Interest Expense. Interest expense decreased 9.0% to $4.1 million in the first quarter of fiscal 2009 from $4.5 million in the first quarter of fiscal 2008. This is primarily related to decreased interest expense on the securitized financings resulting from reduced securitized financing balances in the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008.

Gain on Repurchase of Convertible Senior Notes. During the first quarter of fiscal 2009, we repurchased $10.8 million of our convertible senior notes for $6.3 million in cash resulting in a gain of $4.4 million.

Other Income. Other income decreased 44.1% to $0.6 million in the first quarter of fiscal 2009 from $1.0 million in the first quarter of fiscal 2008 primarily due to a $0.6 million decrease in interest and dividend income. This decrease is the result of lower cash and cash equivalent balances coupled with reduced rates of return.

Income Tax Benefit (Expense). Income tax expense was $58,000 in the first quarter of fiscal 2009 as compared to a $1.8 million benefit in the first quarter of fiscal 2008. In the first quarter of fiscal 2009, we recorded no federal income tax expense due to the availability of net operating loss carryforwards. Tax expense recorded in this period related to taxes payable in various states we do business. We expect to record no federal income tax expense for the remainder of fiscal 2009. In the first quarter of fiscal 2008, we recorded a deferred income tax benefit on losses recorded to date.

 

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This excerpt taken from the PHHM 10-K filed Jun 3, 2008.

2008 Compared to 2007

Net Sales. Net sales decreased 16.1% to $555.1 million in fiscal 2008 from $661.2 million in fiscal 2007. This decrease is primarily the result of a $111.6 million decrease in factory-built housing net sales offset by a $5.4 million increase in financial services net revenues. The decline in factory-built housing net sales is primarily due to a 19.1% decrease in the total number of factory-built homes sold and decreases in the average retail and

 

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wholesale selling prices of new manufactured homes offset by an increase in the average retail selling price of a new modular home. The decrease in the total number of factory-built homes sold is largely due to a 38.3% decrease in the homes sold to independent dealers, builders and developers, the majority of which related to shipments to the states of Florida, California and Arizona, which prior to 2006 were typically some of our most profitable states (see Executive Overview section above for more details). These states have been especially impacted by decreased manufactured home sales to manufactured housing retirement communities. The decrease in the average retail and wholesale selling prices of new manufactured homes is the result of our new lower-priced products. The increase in the average selling prices of a new modular home is the result of customers purchasing larger modular homes. The increase in financial services net revenues primarily reflects an increase in interest income resulting from an increase in consumer loans receivable as of March 31, 2008 as compared March 31, 2007.

Gross Profit. In fiscal 2008, gross profit decreased to $133.7 million, or 24.1% of net sales, from $157.8 million, or 23.9% of net sales in fiscal 2007. Gross profit for the factory-built housing segment decreased to 19.7% of net sales in fiscal 2008 from 20.8% in fiscal 2007. Factory-built housing gross profit for fiscal 2008 includes $2.9 million in restructuring charges related to closing 18 under-performing sales centers and 3 less than efficient plants and for fiscal 2007 includes $2.4 million in restructuring charges related to closing 13 sales centers and 2 plants in fiscal 2007. Excluding these charges, gross profit for the factory-built housing segment would have been 20.3% in fiscal 2008 and 21.2% in fiscal 2007. This decrease was the result of a decline in the factory utilization rates coupled with continued pressure on our manufactured housing wholesale margins in Florida, California and Arizona and offset by an increase in the internalization rate from 58% in fiscal 2007 to 64% in fiscal 2008. Gross profit for the financial services segment increased $4.9 million in fiscal 2008 primarily due to increased interest income as explained above in the net sales section.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $150.6 million in fiscal 2008 as compared to $160.0 million in fiscal 2007. As a percentage of net sales, selling, general and administrative expenses increased to 27.1% for fiscal 2008 from 24.2% for fiscal 2007. Of this $9.5 million decrease, $12.4 million related to the factory-built housing segment and was offset by a $2.9 million increase in financial services (general corporate expenses were essentially flat with the prior year). Factory-built housing expenses include $5.4 million in charges related to closing 18 under-performing sales centers and 3 less than efficient plants in fiscal 2008 and $3.7 million in restructuring charges related to closing 13 sales centers and 2 plants in fiscal 2007. Excluding these charges, selling, general and administrative expenses for the factory-built housing segment decreased $14.0 million. This decrease is largely the result of the cost savings steps we put in place during fiscal 2007 plus a reduction in performance based compensation costs and operating fewer manufacturing facilities and sales centers. Selling, general and administrative expenses related to the financial services segment increased due to a $1.5 million one-time performance-based compensation payment. The payment was based on CountryPlace profitability from inception (2002) through 2007.

Goodwill Impairment. Goodwill impairment was $78.5 million for fiscal 2008. Due to the difficult market environment, particularly the recent fallout in the sub-prime market, and our recent losses, we determined that an interim test to assess the recoverability of goodwill was necessary. With the assistance of an independent valuation firm, we performed an interim goodwill impairment analysis and concluded that the goodwill relating to our factory-built housing reporting unit was impaired. As a result, during the second quarter of fiscal 2008, we recorded a non-cash impairment charge of $78.5 million related to our factory-built housing segment goodwill balance.

Interest Expense. Interest expense increased 18.9% to $18.7 million in fiscal 2008 as compared to $15.7 million in fiscal 2007. As a result of the completion of CountryPlace’s second securitization in March 2007, our interest expense on securitized financings increased $4.4 million and was offset by a $2.7 million decrease in interest expense on our warehouse revolving debt. Also, interest expense on floor plan payable increased $0.8 million. The interest rate on the warehouse revolving debt and the floor plan payable is variable.

 

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Equity in Loss of Limited Partnership and Impairment Charges. Equity in loss of limited partnership and impairment charges was zero in fiscal 2008 as compared to a $4.7 million loss in fiscal 2007. The $4.7 million loss in fiscal 2007 includes the write off of our investment in BSM of $4.4 million effective September 29, 2006. On May 19, 2007, we executed an agreement to terminate our partnership with BSM effective June 7, 2007. Under the termination agreement, we have no further financial obligation to BSM.

Interest Income and Other. Interest income and other decreased 26.0% to $3.6 million in fiscal 2008 as compared to $4.9 million in fiscal 2007. The $1.3 million decrease was primarily the result of a $0.8 million decrease in interest and dividend income and a $0.4 million impairment charge on investment securities in fiscal 2008. The impairment on investment securities related to the write down of an other-than-temporary loss on an available-for-sale investment security. Interest income in 2008 was also impacted by reduced rates of return.

Income Tax Benefit (Expense). Income tax expense was $13.9 million in fiscal 2008 as compared to a benefit of $6.1 million in fiscal 2007. Due to the difficult market environment, particularly the recent fallout in the sub-prime market, and our recent losses, we reviewed the recoverability of our deferred tax assets. In fiscal 2008, we recorded a $31.1 million valuation allowance against all of our net deferred tax assets resulting in income tax expense for fiscal 2008 of $13.9 million. In fiscal 2007, we recorded a $6.1 million benefit on our loss before income taxes of $17.7 million.

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