PALM HARBOR HOMES INC /FL/ - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended December 27, 2002

Commission file number 0-26188

PALM HARBOR HOMES, INC.
(Exact name of registrant as specified in its charter)

Florida 59-1036634
(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
- --------------------------------------------- ---------------------------------------
or organization)

15303 Dallas Parkway, Suite 800, Addison, Texas 75001-4600
(Address of principal executive offices) (Zip code)
- --------------------------------------------------------------------------------

972-991-2422

(Registrant's telephone number, including area code)
----------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) Yes X No ___ and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___ .

Indicate the number of shares outstanding of each of the issuer' s classes of
common stock, as of the latest practicable date.

Shares of common stock $.01 par value, outstanding on January 29, 2003 -
22,893,333.

PALM HARBOR HOMES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

See accompanying notes.

1

PALM HARBOR HOMES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)

See accompanying notes.

2

PALM HARBOR HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

See accompanying notes.

3

PALM HARBOR HOMES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

The condensed consolidated financial statements reflect all
adjustments, which include only normal recurring adjustments, which
are, in the opinion of management, necessary for a fair and accurate
presentation. Certain footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States have been omitted. The
condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the
year ended March 29, 2002. Results of operations for any interim period
are not necessarily indicative of results to be expected for a full
year.

2. Acquisitions/Investments

On June 7, 2002, the Company acquired Nationwide Custom Homes
("Nationwide"), a manufacturer and marketer of modular homes, for $32.5
million in cash. The acquisition was accounted for using the purchase
method of accounting. The preliminary purchase price allocation as of
December 27, 2002 resulted in approximately $26 million of goodwill
related to the acquisition.

In June 2002, the Company invested $3.0 million to become the sole
limited partner and 50% owner of an existing mortgage banking firm, BSM
Financial L. P. ("BSM") which is being accounted for using the equity
method of accounting. Since the acquisition, the Company's equity in
the net income of BSM was $2.0 million. The following table represents
the condensed income statements for the three and seven month (from
date of acquisition) periods ending December 27, 2002 (in thousands):

3. Inventories

Inventories consist of the following (in thousands):

4

4. Floor Plan Payable

The Company currently has three floor plan credit facilities with
financial institutions totaling $140.0 million to finance a major
portion of the Company's home inventory at its retail superstores.
These facilities are secured by a portion of the Company's home
inventory and receivables from financial institutions. The interest
rates on the facilities range from prime (4.25% at December 27, 2002)
to prime plus 2.0%. These facilities require notification from the
financial institution six months prior to cancellation. See Note 5
below for further details on the notification from Deutsche on their
exit from the floor plan financing business.

The Company's three floor plan facilities contain certain provisions
regarding minimum financial requirements which the Company must
maintain in order to borrow against the facilities. As of December 27,
2002, the Company was in compliance with two of these floor plan
facility agreements, as amended during the quarter, and had obtained a
waiver to be in compliance with the third agreement. While the Company
believes it will be successful in obtaining the waiver to the third
agreement, there can be no assurances in this regard.

Two of the Company's floor plan financing agreements permit the Company
to earn interest on investments made with the financial institutions,
which can be withdrawn without any imposed restrictions. These
investments have certain limitations depending upon the amount of floor
plan balance outstanding. The interest rate earned on the amounts
invested is prime (4.25% at December 27, 2002) minus 0.5%. The Company
had $11.2 million and $14.3 million invested at December 27, 2002 and
March 29, 2002, respectively, and has classified these amounts as Cash
and cash equivalents in the accompanying Condensed Consolidated Balance
Sheets.

5. Commitments and Contingencies

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
December 27, 2002, the Company estimates that its potential obligations
under all repurchase agreements were approximately $11.5 million. It is
management's opinion that no material loss will occur from the
repurchase agreements.

The largest lender in the industry, Conseco Finance Servicing Corp.
("Conseco"), previously announced that they were exiting both the floor
plan financing and chattel lending businesses and would focus on
land/home loans. On December 18, 2002, Conseco filed voluntary
petitions for reorganization under Chapter 11 of the U. S. Bankruptcy
Code. As of January 3, 2003, the Company had floor plan borrowings of
$0.8 million with Conseco and receivables due from Conseco of
approximately $1.6 million. The Company believes amounts due from
Conseco will be collected in the normal course of business and the
Company will not incur significant losses as the result of doing
business with Conseco.

In September 2002, Deutsche Financial Services Corporation ("Deutsche")
announced that they were exiting the floor plan financing business as
well. The Company has a $105 million facility with Deutsche, of which
$85.3 million is outstanding, and has until March 15, 2003 to pay all
outstanding amounts to Deutsche or replace the facility. The Company is
currently working with a financial institution on a syndicated facility
to replace the Deutsche facility.

5

With the exit of several major industry retail lenders over recent
months, the Company is expanding its finance subsidiary, CountryPlace
Mortgage, Ltd. ("CountryPlace"), from being only an originator of loans
into a securitizer and servicer of loans as well. As of December 27,
2002, CountryPlace had approximately $10.5 million in outstanding
loans. These loans are classified as Other assets in the accompanying
Condensed Consolidated Balance Sheets. CountryPlace has received a
commitment letter from a financial institution for a $125 million
warehouse facility to fund chattel loans originated by company-owned
retail superstores. While management believes it will be successful in
finalizing the warehouse facility agreement, there can be no assurances
in this regard.

With respect to certain installment contracts sold prior to April 1,
1999, the Company is contingently liable, as guarantor, for up to 50%
of any losses. At December 27, 2002, the outstanding principal balance
of these contracts sold with partial recourse was $30.4 million. With
respect to installment contracts sold after April 1, 1999, the
Company's contingent liability is limited to a loss of up to $5,000 per
contract. At December 27, 2002, the number of these outstanding
contracts sold with partial recourse was 2,741. Management has
consistently provided for its estimated recourse obligation exposure
and has recorded a reserve of $1.5 million at December 27, 2002. The
Company is currently in negotiations with the original purchaser of all
of these installment contracts to purchase the Company's remaining
interest in those contracts.

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.

6

6. Business Segment Information

The Company operates primarily in two business segments - a "housing"
segment which combines the retail and factory-built operations and a
"financial services" segment which combines the finance and insurance
operations. The following table summarizes information with respect to
the Company's business segments for the three and nine month periods
ending December 27, 2002 and December 28, 2001 (in thousands):

7

PART I. Financial Information

Item 1. Financial Statements

See pages 1 through 7.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The industry continues to be negatively impacted by limited retail and wholesale
financing, increasing repossessions, excessive retail inventory levels and
manufacturing capacity. The tightening of credit standards, which began in
mid-1999, has resulted in reduced retail sales levels, declining wholesale
shipments and declining margins for most industry participants.

The largest lender in the industry, Conseco Finance Servicing Corp. ("Conseco"),
previously announced that they were exiting both the floor plan financing and
chattel lending businesses and would focus on land/home loans. On December 18,
2002, Conseco filed voluntary petitions for reorganization under Chapter 11 of
the U. S. Bankruptcy Code. As of January 3, 2003, the Company had floor plan
borrowings of $0.8 million with Conseco and receivables due from Conseco of
approximately $1.6 million. The Company believes amounts due from Conseco will
be collected in the normal course of business and the Company will not incur
significant losses as the result of doing business with Conseco.

In September 2002, Deutsche Financial Services Corporation ("Deutsche")
announced that they were exiting the floor plan financing business as well. The
Company has a $105 million facility with Deutsche, of which $85.3 million is
outstanding, and has until March 15, 2003 to pay all outstanding amounts to
Deutsche or replace the facility. The Company is currently working with a
financial institution on a syndicated facility to replace the Deutsche facility.

With the exit of several major industry retail lenders in recent months, the
Company is expanding its finance subsidiary, CountryPlace Mortgage, Ltd.
("CountryPlace"), from being only an originator of loans into a securitizer and
servicer of loans as well. As of December 27, 2002, CountryPlace had
approximately $10.5 million in outstanding loans. These loans are classified as
Other assets in the accompanying Condensed Consolidated Balance Sheets.

Texas House Bill 1869, which was enacted in January 2002, requires all
manufactured houses in Texas which are not placed on leased land to be financed
with conforming mortgages. Conforming mortgages currently are subject to higher
credit standards and are more complex than chattel loans and therefore this new
regulation is causing certain consumers who would have otherwise qualified for
financing under a chattel loan to not qualify under a conforming loan.

During the first quarter of fiscal 2003, the Company entered into an agreement
to become the sole limited partner and 50% owner in BSM Financial L.P. ("BSM"),
a major Dallas mortgage banking firm that has experience and capability in
generating conforming and government insured loans in the site built, modular
and manufactured housing markets.

In addition, the Company purchased Nationwide Custom Homes ("Nationwide"), a
leading manufacturer and marketer of modular homes. This acquisition should
enable the Company to appeal to home buyers not reached by the Company's
manufactured housing distribution.

8

The Company ended the third quarter with cash and cash equivalents of $34.3
million, after investing $35.5 million at the end of the first quarter on
Nationwide and BSM, and virtually no long-term debt. The Company's practice of
manufacturing only to retail customer order coupled with closely monitored
retail receivables and stocking levels has enabled the Company to tightly manage
retail receivables and inventory levels. New manufactured home inventory per
retail superstore declined 12% since the beginning of the fiscal year.

The following table sets forth certain items of the Company's statements of
income as a percentage of net sales for the period indicated.

The following table summarizes certain key sales statistics as of and for the
three and nine months ended December 27, 2002 and December 28, 2001.

(1) The internalization rate is the percentage of new manufactured homes that
are manufactured by the Company and sold through Company-owned retail
superstores.

9

THREE MONTHS ENDED DECEMBER 27, 2002 COMPARED TO THREE MONTHS ENDED DECEMBER 28,
2001

NET SALES. Net sales decreased 6.2% to $149.0 million in the third
quarter of fiscal 2003 from $158.8 million in the third quarter of fiscal 2002.
The decrease in net sales was primarily due to the reduction of retail financing
in the manufactured housing industry partially offset by the addition of modular
sales which totalled $16.3 million in the third quarter of fiscal 2003. The
volume of manufactured homes sold through Company-owned retail superstores
declined 19.9% while overall manufactured housing unit volume, which includes
sales to independent retailers, declined 17.3% in the current quarter. This
decline in volume is partially offset by an increase in the average selling
price of a new manufactured home to $64,000 in the third quarter of fiscal 2003
versus $62,000 in the third quarter of fiscal 2002. This increase in average
selling price resulted from a slight shift in product mix towards multi-section
manufactured homes. Multi-section manufactured homes represented 92% of the
Company's manufactured homes sold in the third quarter of fiscal 2003. The
number of superstores increased from 146 at the end of the third quarter of
fiscal 2002 to 153 at the end of the third quarter of fiscal 2003.

GROSS PROFIT. In the quarter ended December 27, 2002, gross profit as a
percentage of net sales declined to 28.8% from 31.4% in the quarter ended
December 28, 2001. Gross profit decreased 13.8% to $42.9 million in the third
quarter of fiscal 2003 from $49.8 million in the third quarter of fiscal 2002.
This decrease, both as a percentage of sales and in absolute dollars, is caused
by the reduction of retail financing in the manufactured housing industry. The
percentage of manufactured homes sold through Company-owned retail superstores
decreased from 83% in the third quarter of fiscal 2002 to 80% in the third
quarter of fiscal 2003. The percentage of modular homes sold through the
Company's consumer stores was 13% in the third quarter of fiscal 2003.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of net
sales, selling, general and administrative expenses decreased to 25.6% in the
third quarter of fiscal 2003 from 26.2% in the third quarter of fiscal 2002.
Selling, general and administrative expenses decreased from $41.6 million in the
quarter ended December 28, 2001 to $38.2 million in the quarter ended December
27, 2002. This reduction reflects the Company's focus on reducing fixed costs
somewhat offset by its continued commitment to building brand awareness via
advertising and expenses associated with the expansion of CountryPlace and the
rollout of the Company's new mortgage lending operations.

INTEREST EXPENSE. Interest expense decreased 10.4% to $1.7 million for
the third quarter of fiscal 2003 from $1.9 million in the third quarter of
fiscal 2002. This decrease was primarily due to a decrease in the prime interest
rate from 6.0% in the third quarter of fiscal 2002 to 4.25% in the third quarter
of fiscal 2003 coupled with a decrease in the floor plan liability.

INTEREST INCOME AND OTHER. Interest income and other decreased 32.2% to
$1.3 million in the third quarter of fiscal 2003 from $1.9 million in the third
quarter of fiscal 2002. This decrease was the result of gains on the disposition
of certain properties in fiscal 2002 as well as decreased interest income in
fiscal 2003 partially offset by the Company's equity interest in the earnings of
its limited partnership, BSM, which was $1.1 million in the quarter ended
December 27, 2002 and zero in the quarter ended December 28, 2001.

10

NINE MONTHS ENDED DECEMBER 27, 2002 COMPARED TO NINE MONTHS ENDED DECEMBER 28,
2001

NET SALES. Net sales decreased 13.4% to $437.0 million in the first
nine months of fiscal 2003 from $504.7 million in the first nine months of
fiscal 2002. The decrease in net sales was primarily due to the reduction of
retail financing in the manufactured housing industry partially offset by the
addition of modular sales which totalled $37.5 million in the nine months ended
December 27, 2002. The volume of manufactured homes sold through Company-owned
retail superstores declined 25.4% while overall manufactured housing unit
volume, which includes sales to independent retailers, declined 23.7% in the
nine months ended December 27, 2002. This decline in volume is partially offset
by an increase in the average selling price of a new manufactured home to
$63,000 in the first nine months of fiscal 2003 versus $60,000 in the first nine
months of fiscal 2002. This increase in average selling price resulted from a
slight shift in product mix towards multi-section manufactured homes.
Multi-section manufactured homes represented 91% of the Company's manufactured
homes sold in the first nine months of fiscal 2003. The number of superstores
increased from 152 at December 28, 2001 to 153 at December 27, 2002.

GROSS PROFIT. For the nine months ended December 27, 2002, gross profit
as a percentage of net sales declined to 29.0% from 31.6% in the nine months
ended December 28, 2001. Gross profit decreased 19.4% to $126.8 million in the
first nine months of fiscal 2003 from $157.3 million in the first nine months of
fiscal 2002. This decrease is the result of a decline in unit volume caused by
the reduction of retail financing in the manufactured housing industry. The
percentage of manufactured homes sold through Company-owned retail superstores
decreased from 84% in the first nine months of fiscal 2002 to 82% in the first
nine months of fiscal 2003. The percentage of modular homes sold through the
Company's consumer stores was 14% in the first nine months of fiscal 2003.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of net
sales, selling, general and administrative expenses increased to 27.4% in the
first nine months of fiscal 2003 from 25.1% in the first nine months of fiscal
2002. Selling, general and administrative expenses decreased slightly from
$126.5 million in the nine months ended December 28, 2001 to $119.7 million in
the nine months ended December 27, 2002. The Company continues to incur expenses
in conjunction with building brand awareness via advertising as well as expenses
associated with the expansion of CountryPlace and the rollout of the Company's
new mortgage lending operations.

INTEREST EXPENSE. Interest expense decreased 21.9% to $5.2 million for
the nine months ended December 27, 2002 from $6.6 million for the nine months
ended December 28, 2001. This decrease was primarily due to a decrease in the
prime interest rate from a range of 6.0% to 6.75% in the first nine months of
fiscal 2002 to a range of 4.25% to 4.75% in the first nine months of fiscal 2003
coupled with a decrease in the floor plan liability.

INTEREST INCOME AND OTHER. Interest income and other decreased 29.3% to
$2.9 million in the nine months ended December 27, 2002 from $4.2 million in the
nine months ended December 28, 2001. This decrease was the result of gains on
the disposition of certain properties in fiscal 2002 as well as decreased
interest income in fiscal 2003 partially offset by the Company's equity interest
in the earnings of its limited partnership, BSM, which was $2.0 million in the
nine months ended December 27, 2002 and zero in the nine months ended December
28, 2001.

LIQUIDITY AND CAPITAL RESOURCES. The Company currently has three floor
plan credit facilities with financial institutions totaling $140.0 million to
finance a major portion of the Company's home inventory at its retail
superstores. These facilities are secured by a portion of the Company's home
inventory and receivables from financial institutions. The interest rates on the
facilities range from prime (4.25% at December 27, 2002) to prime plus 2.0%.
These facilities require notification from the financial institution six months
prior to cancellation.

11

In September 2002, the Company received notification that Deutsche
Financial Services Corporation is exiting the floor plan financing business. The
Company has a $105 million facility with Deutsche, of which $85.3 million is
outstanding, and has until March 15, 2003 to pay all outstanding amounts to
Deutsche or replace the facility. The Company is currently working with a
financial institution on a syndicated facility to replace the Deutsche facility.

The Company's three floor plan facilities contain certain provisions
regarding minimum financial requirements which the Company must maintain in
order to borrow against the facilities. As of December 27, 2002, the Company was
in compliance with two of these floor plan facility agreements, as amended
during the quarter, and had was in the process of obtaining a waiver to be in
compliance with the third agreement. While the Company believes it will be
successful in obtaining the waiver to the third agreement, there can be no
assurances in this regard.

Two of the Company's floor plan financing agreements permit the Company
to earn interest on investments made with the financial institutions, which can
be withdrawn without any imposed restrictions. These investments have certain
limitations depending upon the amount of floor plan balance outstanding. The
interest rate earned on the amounts invested is prime (4.25% at December 27,
2002) minus 0.5%. The Company had $11.2 million and $14.3 million invested at
December 27, 2002 and March 29, 2002, respectively, and has classified these
amounts as Cash and cash equivalents in the accompanying Condensed Consolidated
Balance Sheets.

With the exit of several major industry retail lenders over recent
months, the Company is expanding CountryPlace from being only an originator of
loans into a securitizer and servicer of loans as well. As of December 27, 2002,
CountryPlace had approximately $10.5 million in outstanding loans. These loans
are classified as Other assets in the accompanying Condensed Consolidated
Balance Sheets. CountryPlace has received a commitment letter from a financial
institution for a $125 million warehouse facility to fund chattel loans
originated by company-owned retail superstores. While management believes it
will be successful in finalizing the warehouse facility agreement, there can be
no assurances in this regard.

In July 1999, the Company's Board of Directors authorized, subject to
certain business and market conditions, the use of up to $20.0 million to
repurchase the Company's common stock. In July 2000, the Board of Directors
authorized another $20.0 million for common stock repurchases. As of October 25,
2002, the Company had invested $20.5 million in the common stock buyback
program.

Management believes that cash flow from operations, together with floor
plan financing and other available borrowings associated with the warehouse
facility, will be adequate to support the Company's working capital, currently
planned capital expenditure needs and expansion of CountryPlace to a securitizer
and servicer of loans in the next twelve months. However, because future cash
flows and the availability of financing will depend on a number of factors,
including prevailing economic and financial conditions, business, the market for
asset backed securitizations, and other factors beyond management's control, no
assurances can be given in this regard.

12

FORWARD-LOOKING INFORMATION/RISK FACTORS

Certain statements contained in this annual report are forward-looking
statements within the safe harbor provisions of the Securities Litigation Reform
Act. Forward-looking statements give our current expectations or forecasts of
future events and can be identified by the fact that they do not relate strictly
to historical or current facts. 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 such
assumptions, risks, uncertainties and factors associated with the following:

o AVAILABILITY OF RETAIL FINANCING. Since mid-1999, loans to purchase
manufactured houses have been subjected to elevated credit standards,
resulting in reduced lending volumes and consequently reduced sales in
the manufactured housing industry. A further tightening of credit
standards may cause the Company to experience significant sales
declines.

o AVAILABILITY OF WHOLESALE FINANCING. Two of the Company's floor plan
lenders have chosen to exit the manufactured housing business, thereby
reducing the amount of credit available to industry retailers. Further
reductions in the availability of floor plan lending may affect the
Company's inventory levels of new homes.

o MANAGEMENT'S ABILITY TO ATTRACT AND RETAIN EXECUTIVE OFFICERS AND
OTHER KEY PERSONNEL. The Company is dependent on the services and
performance of its executive officers, including its Chairman of the
Board, Lee Posey and its President and Chief Executive Officer, Larry
Keener. The loss of the services of one or more of its executive
officers could have a material adverse effect upon the Company's
business, financial condition and results of operations.

o CONTROL BY EXISTING SHAREHOLDERS. Approximately 55% of the outstanding
Common Stock of the Company is beneficially owned or controlled by Mr.
Posey, Capital Southwest Corporation and its wholly-owned subsidiary,
Capital Southwest Venture Corporation, and William R. Thomas,
President of Capital Southwest Corporation. As a result, these
shareholders, acting together, will be able to determine the outcome
of elections of the Company's directors and thereby control the
management of the Company's business.

o IMPACT OF INFLATION. The past several years have shown a relatively
moderate rate of inflation which the Company has been able to offset
through increased selling prices. A material increase in inflation in
the future could adversely affect the Company's operating results.

o COMPETITIVE PRODUCT ADVERTISING, PROMOTIONAL AND PRICING ACTIVITY.
There are numerous manufactured housing companies in the industry and
many have their own retail distribution systems and consumer finance
operations. In addition to competition within the manufactured housing
industry, the Company's products also compete with other forms of
lower to moderate-cost housing, including site-built homes,
apartments, townhouses and condominiums. If the Company is unable to
address this competition, growth in each segment of its business could
be limited.

13

o CYCLICALITY OF THE MANUFACTURED HOUSING INDUSTRY. The cyclical and
seasonal nature of the industry causes the Company's revenues and
operating results to fluctuate and makes it hard for management to
forecast sales and profits in uncertain times. As a result of seasonal
and cyclical downturns, the Company may experience fluctuations in its
operating results that make difficult period-to-period comparisons.

o VOLATILITY IN THE COMPANY'S STOCK PRICE. The Company's stock is traded
on the Nasdaq National Stock Market and is therefore subject to market
fluctuations.

o TERRORIST ATTACKS/WAR. Market disruptions and other effects resulting
from the terrorist attacks on September 11, 2001 and actions,
including armed conflict by the United States and other governments in
reaction thereto.

Item 3. Quantitive and Qualitative Disclosure About Market Risk

The Company is exposed to market risks related to fluctuations in interest rates
on its variable rate debt, which consists primarily of its liabilities under
retail floor plan financing arrangements. In the future, the Company anticipates
participating in securitizations and will be exposed to market risks related to
variable interest rates on asset-backed securities. The Company 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. There have been no material changes from the information provided
in the Company's Form 10-K for the year ended March 29, 2002.

Item 4. Controls and Procedures

Based on their most recent evaluation, which was completed within 90 days of the
filing of this Form 10-Q, the Company's Chief Executive Officer and Chief
Financial Officer believe the Company's disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) are effective to ensure that
information required to be disclosed by the Company in this report is
accumulated and communicated to the Company's management, including its
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure. There were no significant
changes in the Company's internal controls or other factors that could
significantly affect these controls subsequent to the date of their evaluation
and there were no corrective actions with regard to significant deficiencies and
material weaknesses.

14

PART II. OTHER INFORMATION

Item 1. Legal Proceedings - Not applicable

Item 2. Changes in Securities - Not applicable

Item 3. Defaults upon Senior Securities - Not applicable

Item 4. Submission of Matters to a Vote by Security Holders - Not
applicable

Item 5. Other Information - Not applicable

Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - 99.1 and 99.2
(b) Reports on Form 8-K - Not applicable

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.

Date: January 29, 2003

Palm Harbor Homes, Inc.
-----------------------
(Registrant)

By: /s/ Kelly Tacke
---------------------------------------
Kelly Tacke
Chief Financial and Accounting Officer

By: /s/ Lee Posey
---------------------------------------
Lee Posey
Chairman of the Board

15

CERTIFICATIONS

I, Larry H. Keener, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Palm Harbor
Homes, Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d -14) for the registrant
and have:

a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c. presented in the quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and

b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

16

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: January 29, 2003

By: /s/ Larry H. Keener
------------------------------
Larry H. Keener
Chief Executive Officer

17

CERTIFICATIONS

I, Kelly Tacke, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Palm Harbor
Homes, Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:

a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c. presented in the quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and

b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

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6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: January 29, 2003

By: /s/ Kelly Tacke
------------------------------
Kelly Tacke
Chief Financial and Accounting
Officer

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