Palm Harbor Homes, Inc. F4Q08 (Qtr End 3/28/08) Earnings Call Transcript

Pal Harbor Homes, Inc. (PHHM)

F4Q08 Earnings Call

May 21, 2008 10:00 am ET

Executives

Larry Keener – Chairman, President, Chief Executive Officer

Kelly Tacke – Executive Vice President, Chief Financial Officer, Secretary

Greg Aplin – CountryPlace Mortgage

Lyle Zeller – Executive Vice President, CountryPlace Mortgage

Analysts

Kathryn Thompson – Avondale Partners LLC

John Diffendal – BB&T Capital Markets

Michael Corelli - Barry Vogel & Assoc.

James McCanless – FTN Midwest Securities Corp.

Brian Freckmann - Crown Capital

Presentation

Operator

Good day everyone and welcome to the Palm Harbor Homes, Inc. fourth quarter fiscal 2008 conference call. Today’s call is being recorded.

At this time for opening remarks and introductions I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Larry Keener.

Larry Keener

Thank you. Good morning everyone. I have with me here this morning Kelly Tacke our Executive Vice President and CFO, Greg Aplin, President of CountryPlace Mortgage and Lyle Zeller, Executive Vice President of CountryPlace Mortgage.

Before we begin our discussion today our lawyers have reminded me to remind you that all comments made today are made within the context of the Safe Harbor rules, that past performance is no guarantee of future results and that any comments made about a bright future may not materialize.

The results for the fourth quarter and for the year were essentially as we expected and as indicated to you during our last call in January. In our January call we announced we would be closing three factories and 18 retail stores in the fourth quarter. We expected to take between $8-10 million one-time charge of which approximately $1 million would be in cash. We stated that we expected approximately a $20 million annual savings going forward which would largely be reflected in reduced SG&A expense. We are pleased to report today that the planned restructuring was completed on budget and ahead of schedule.

We are now in the process of consolidating the planned improvements from fourth quarter’s restructuring and believe we are on schedule to be operating at a break-even level of $130 million in quarterly revenues by the start of our second quarter.

Now on to the specifics of the quarter and the year.

Revenues for the fourth quarter were $126.5 million, down 7% from last year driven by a 5% drop in unit sales and a 2% drop in our average sales price during the quarter. For the year, revenues declined from $661.2 million to $555.1 million, a decrease of 16% driven by a 19% decline in unit sales which was partially offset by a 4% increase in average sales price for the year.

Gross margin for the quarter was 24.3% compared to 22% the prior year. This year’s gross margin included $2.9 million or 229 basis points for restructuring charges versus the prior year of $1.2 million or 90 basis points. Also included in the fourth quarter this year was a $2.1 million gain resulting from the final insurance settlement from the Burleson, Texas factory destroyed by fire in December 2006.

Gross margins for the year were 24.1% versus 23.9% the prior year. When the two year’s gross margins are netted for both restructuring charges and gains the result is a slight improvement for this year’s margin.

SG&A expense for the quarter was $1.3 million higher than prior year. However, SG&A expense this year includes $5.4 million of restructuring charges. Prior year included $1.3 million in restructuring charges. Netting this year and last year’s quarter of restructuring charges results in an SG&A of $33.1 million this year compared to $35.8 million last year, a decrease of $2.7 million or 7.6%.

For the year, SG&A declined $9.5 million. When our two years are netted of restructuring charges SG&A was $145.2 million in fiscal year 2008 versus $155.8 million for the prior year, a decrease of $10.6 million or 6.8%.

Net loss for the quarter was $12.7 million or $0.55 per share of which $8.3 million or $0.36 per share was for restructuring charges. Without restructuring costs the net loss was $0.19 per share. This compares to a net loss of $0.32 prior year which included restructuring charges of $4.1 million or $0.18 per share.

For the year the net loss was $5.44 per share compared to $0.51 per share prior year. The extraordinary items in this year’s net loss were; goodwill impairment of $78.5 million, deferred tax asset impairment of $17.1 million, restructuring charges $8.3 million for a total of $103.9 million or $4.55 per share. When this year’s and last year’s results are netted of restructuring and one-time charges the results are an $0.89 per share loss this year compared to a $0.32 per share loss last year.

Perhaps the best way to clarify and summarize all this information just reported is to look at revenues, gross margins and SG&A expense netted of all non-operational charges and gains for this year’s fourth quarter versus this year’s third quarter and the fourth quarter of the prior year.

As previously mentioned the year-over-year revenue decline was $9.4 million. The sequential revenue decline was $14.1 million or 10%. The principal cause of the revenue decline is the number of homes sold to independent distribution especially to Lifestyle communities in the states of Arizona, Florida and California. The decline of shipments to communities in these states also reduced our average sales price since Lifestyle community sales have historically been our higher price wholesale manufactured housing business.

Gross margins improved from 24.6 to 25.1 year-over-year up 50 basis points. Sequentially margins improved from 22.8 to 24.9, an increase of 210 basis points. As stated earlier, SG&A expense improved $10.6 million year-over-year. More significantly SG&A declined $6.5 million sequentially, a decline of 17.2%.

We expect further improvements in margin and SG&A expense as our restructuring charges are consolidated into our remaining operations.

The other significant event for the quarter was the decision of CountryPlace Mortgage warehouse lender to exit the factory built housing lending business. CountryPlace originally obtained an extension of their warehouse line that would mature on March 14 until April 30^th. During the extension period, CountryPlace was able to complete a successful loan sale transaction of sufficient size to pay off the warehouse lender on April 25^th. The loans were sold at book value. None of the loans had ever been written down or discounted.

Kelly will have more details on this transaction in her remarks and I will now turn the call over to her.

Kelly?

Kelly Tacke

Thanks Larry. The results were as expected and did not shake the company’s fundamental financial condition. For example, for fiscal 2008 cash flow from operating activities were more than $10 million and that is before we invested $42.7 million in CountryPlace.

As a result, we ended the year with cash and cash equivalents of approximately $28.2 million. At the end of the year our pipeline of homes sold that were under construction but not yet completed was approximately $12.8 million a decline of 15% since the beginning of the fiscal year.

Accounts receivable and new home inventory from company-owned retail and builder locations approximated $1.3 million per location. Consumer loan receivables totaled $263.8 million at the end of the year. As Larry mentioned, CPM sold $51.3 million or 615 loans in April. So at the end of April CountryPlace was servicing approximately $211 million of consumer loans, about 3,300 loans.

These are high quality loans with an average FICO of 713, average down payment of over 16% and an average balance of $65,000.

Accounts payable and accrued liabilities totaled $96.7 million at the end of the year, a decrease of $11.2 million since the beginning of the fiscal year due principally to decrease in customer deposit, sales incentive and deferred revenue.

The floor plan payable is the vehicle we use to finance our finished goods inventories. The facility totaled $70 million, has an advance rate of 90% and expires on March 30, 2009. We are in the process of amending and extending this facility through March 2011.

The convertible senior notes are due May 2024, bear interest at 3.25% and may be repurchased at the option of the holders on certain dates the earliest of which is May 15, 2011. Securitized financing represents the balance outstanding on CountryPlace’s AAA rated insured certificates.

The warehouse used by CountryPlace to finance originated loans prior to the completing of securitization totaled $42.2 million at the end of the year. As the result of a very difficult credit market condition created by the sub-prime mortgage practice CPM’s warehouse lender decided to exit the factory-built lending business in February.

CPM obtained an extension of its warehouse line from March 14^th until April 30^th. CountryPlace has a solid track record as a chattel and mortgage lender, originating high quality, fixed rate, fully documented and verified chattel loans and mortgages with credit scores of over 700. Because of the loan quality several financing sources expressed strong interest in purchasing CPM’s loans.

In April we sold $51.3 million of chattel and mortgage loans without taking a loss. We view this as a real and significant accomplishment of the CPM team and a reflection of the loan quality. Approximately $41.5 million of the proceeds were used to repay in full the warehouse facility and the remaining $9.8 million will be used for general corporate purposes.

Now I’ll turn the call back over to Larry.

Larry Keener

Thank you Kelly. We will now cover some operational information for you for both the quarter and the year. We closed the year with 87 stores open, down from 107 the prior year. During the year we closed 22 stores and opened two. We also ended the year with 12 operating factories. We closed 3 and opened 1 during the year. Total home sales for the quarter sold through company-owned stores improved 2% despite having 20 fewer stores than prior year.

The average company store sold two more homes in this quarter than prior year. Same store sales also improved 4%. The improved performance of company stores results from the closure of under-performing locations and from the strong performance of our Texas, Oklahoma and Louisiana locations especially in the sales of single-wides which were up 42%.

The 5% decline in unit sales for the quarter was driven by an 18% decline in sales to independent retailers, builders and developers. For the year, independent sales were down 38%. Nearly all of the independent homes decline resulted from reduced shipments to Florida, California and Arizona, especially to Lifestyle community developments in these states.

Backlog for the quarter ended at $47 million compared to $69 million prior year. Mitigating the reported backlog decline are two factors; one, the planned sell-down of retail inventories of $9 million since January 1 of this year. Two, approximately $16 million of commercial, multi-family and military modular business under contract but not reported in our backlogs at quarter end.

Capacity utilization during the quarter was 57% versus 52% in the prior year. During the quarter we produced 56 commercial modular sections worth $3.1 million. Since February 1 the company has made a concerted effort to expand our commercial, multi-family and military modular distribution channel. To date we have built, have under construction or have under contract $19 million in this business.

We sold 85 homes to the Gulf region for the quarter compared to 128 prior year, a decline of 34%. Approximately half of the sales were modulars and the other half were HUD homes. Modular sales declined 9% for the quarter and accounted for 34% of total revenues. Modular sales were impacted by the general mortgage and housing decline, partially offset by the improvement in commercial channel sales.

Standard Casualty, our property and casualty insurance company wrote 2,688 new policies for the quarter and 11,308 for the year. This represents a 4% improvement for the quarter and a 5% improvement for the year. Standard had their best year in history and closed the year with 11,072 in force, up 5%.

CountryPlace Mortgage originated 204 loans this year compared to 211 prior year, same quarter. CountryPlace continued to fund out their pack line of loans with funds provided by Palm Harbor once their warehouse lender decided to exit the business. CountryPlace currently owns $20 million of high quality, chattel, and non-conforming and conforming mortgage loans. We have several options for the chattel and non-conforming mortgage loans. However, our preference is to hold them for our own investment.

The conforming loans will be sold into the secondary market. CountryPlace has ceased originations for its own portfolio but continues to originate conforming and FHA mortgage loans under their Fannie Mae seller servicing agreement.

Moving forward our efforts are focused on returning the company to profitability so that any marginal business improvement whenever it occurs will be leveraged as pre-tax profit but at our much higher gross margin percentage rate. We stated on our January call we believe we would be operating at least at break-even level by the beginning of our second quarter. We are on track to meet that schedule.

Our April results confirm that the SG&A savings we forecasted are being realized and that the consolidation of revenue into our remaining operations is improving gross margins. Our restructuring and consolidation plan is working and our efforts are dedicated to continuing this trend.

We will now open the call up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Your first question comes from the line of Kathryn Thompson – Avondale Partners LLC.

Kathryn Thompson – Avondale Partners LLC

My first question is commodities pricing pressure has been a hot point for the industry particularly steel and also I’m hearing that wood prices have also gone up fairly sharply recently. Could you comment on that for the quarter just ended and also for the current quarter?

Larry Keener

It seems like the vendors to the industry have a whole lot more pricing power than the manufacturers in the industry do. Yes, we are seeing and feeling the same pressure in lumber, gypsum, steel as well as anything that has to do with oil as you would expect. We are in the process of taking price increases this quarter. We did not take price increases in the quarter that just ended on a wholesale level but we are taking price increases this quarter. I doubt we will be able to do any more than get a significant portion of what we see passed through but there really isn’t any leverage at the wholesale level to get any more than that.

Kathryn Thompson – Avondale Partners LLC

So in the dollar space you think you would be able to get it but perhaps on a percentage not?

Larry Keener

I think that is exactly the answer.

Kathryn Thompson – Avondale Partners LLC

Also you gave your backlog. I just want to triple check that. I think I wrote it down incorrectly. Your backlog at quarter end and also of that backlog what is the mix between modular versus manufactured housing?

Larry Keener

It’s about 60% modular and 40% manufactured housing.

Kathryn Thompson – Avondale Partners LLC

What was the number? The final backlog number?

Larry Keener

$47 million.

Kathryn Thompson – Avondale Partners LLC

Just to clarify on the break-even point, you said you would be at $130 million run rate at the start of Q2 but in the release you said you wanted to be at $100 million by the fiscal year end. I assume this is a number that is going to be improving in the year. Could you maybe clarify that for me a little bit?

Larry Keener

Sure. Two different numbers. The $130 million in revenue is the break-even point on a quarterly basis. The $100 million in revenue is the amount that we have reduced revenues on an annual basis for break-even.

Kathryn Thompson – Avondale Partners LLC

The only final parting question is broadly speaking trends in the industry over the past 3-4 weeks. What are you seeing has gotten tougher particularly in light of the somewhat disappointing March shipment numbers?

Larry Keener

The business is tougher. There is no question of that. Traffic in the Southwest is still good but it has slowed in some other parts of the country. Florida seems to have perhaps hit bottom. I’m not sure yet but perhaps it has. Arizona remains difficult as well as California. So it is a mixed bag across the country but we are seeing kind of a change in mood of customers. There are fewer of them visiting stores. We have to work harder to get them there through multiple channels of marketing and it is a little harder sales process than it has been in the past. But if you look at the results of the company stores you’ll see that they are doing very well in that environment.

Operator

The next question comes from the line of John Diffendal – BB&T Capital Markets.

John Diffendal – BB&T Capital Markets

Larry I think you mentioned you received the Burleson insurance proceeds so there was a gain in the quarter as well? Is that correct?

Larry Keener

That is correct, John. $2.1 million that was reflected in margin.

John Diffendal – BB&T Capital Markets

In gross margin?

Larry Keener

That’s correct.

John Diffendal – BB&T Capital Markets

When you say you gave the net restructuring charge did that net out that $2.1 million or is that net on top of that?

Larry Keener

It netted it out.

John Diffendal – BB&T Capital Markets

So basically the entire amount is a net sort of non-recurring.

Larry Keener

Right. If you are comparing Q4 this year to Q4 last year and adding all of the charges out and gains it is $24.9 this year versus $22.9 last year.

John Diffendal – BB&T Capital Markets

Can we get a sort of break-down this quarter of what was in those amounts you just gave us what was in gross margin and what was in SG&A?

Larry Keener

There were $2.9 million in restructuring charges in margin. There was the $2.1 million gain and then the rest of the $8.3 million in restructuring charges was in SG&A.

John Diffendal – BB&T Capital Markets

Can you remind us, you mentioned renewing your floor plan? Can you remind us who you have that with?

Kelly Tacke

With Textron.

John Diffendal – BB&T Capital Markets

Same store sales you gave I think an overall number. Can you give us a break down to one decimal place units and sales?

Kelly Tacke

Units is 4.23% positive. That is the 4% Larry was referring to. Then dollars is basically flat. It is 0.2% positive.

John Diffendal – BB&T Capital Markets

0.2 you say?

Kelly Tacke

Yes.

John Diffendal – BB&T Capital Markets

Lastly, in the sale and clearing the warehouse out, who was that with? Who did you sell it to?

Lyle Zeller

We have an agreement with the purchaser that prohibits us from disclosing the terms or the identity of the buyer.

John Diffendal – BB&T Capital Markets

I assume it was someone who continues to be in this business? It is one of the normal servicers?

Kelly Tacke

We can say it was a financial institution and not a competitor.

Operator

The next question comes from the line of Michael Corelli of Barry Vogel & Assoc.

Michael Corelli - Barry Vogel & Assoc.

A couple of cash related questions. You sold the $51.3 million. So from what Kelly said you have $9.8 million that basically went into your cash balance after paying off the warehouse?

Kelly Tacke

That’s correct.

Michael Corelli - Barry Vogel & Assoc.

Larry I was a little unclear. You said you have $20 million of loans in addition to the ones you sold. What is the plan for those?

Larry Keener

Let me just answer that question and then maybe the guys from CountryPlace can jump in. Our strong preference is to hold them for our own investment because they are valuable. We made them because they are good loans and they have a great return on them but we do have other options.

Lyle Zeller

Of the $20 million that Larry mentioned about $6 million of that is conforming mortgage product we will sell as we normally do with our conforming mortgage product. The remaining $14 million of it is land-home and chattel loans that we intend to hold for our own investment.

Michael Corelli - Barry Vogel & Assoc.

Could you give us some idea…I know you have an over-collateralization from the two securitizations you did and then you have this $14 million of other loans here. Can you give us any kind of idea what kind of cash flow that might generate in the current fiscal year?

Kelly Tacke

As we just said, Michael, our intent right now is to hold those loans and they are at about 9.2% on the $14 million. Then the OCPs was about $39 million but most of that goes to the trust and the cash flows out of that is running about $200,000 a year.

Michael Corelli - Barry Vogel & Assoc.

So how does that work?

Kelly Tacke

For the OCP’s we generate about $200,000 a month in cash. For the $14 million in loans that we are holding right now for investment they generate about 9% a year.

Michael Corelli - Barry Vogel & Assoc.

When you say most goes to the trust how does that work?

Lyle Zeller

Most of the interest income that comes off of the loans that are securitized go to the securitization trust. We own the residual cash flows off of that trust and that is what Kelly mentioned is about $200,000 per month that is coming out of the trust back to us as the residual holder. That is in addition to the servicing fee that we earn from the trust for servicing the securitized loans.

Michael Corelli - Barry Vogel & Assoc.

So the $200,000 goes to the Company?

Lyle Zeller

Yes. Comes back to the company.

Michael Corelli - Barry Vogel & Assoc.

How about capital expenditures and D&A for the coming year?

Kelly Tacke

Capital expenditures were only run at a couple million this year and I don’t think they will be much more than that, if that much, next year.

Michael Corelli - Barry Vogel & Assoc.

How about D&A?

Kelly Tacke

It was $8 million and I would assume that on a go-forward basis. Maybe a little bit less.

Michael Corelli - Barry Vogel & Assoc.

As far as interest expense I know it had been running higher because you were building the loan portfolio. What should we be looking at as kind of a quarterly run rate now that you won’t be doing that any more?

Kelly Tacke

We’re not going to give any look-ahead advice. We try not to do that. As Larry said our first preference is to hold those loans. And to do that we may have to obtain some financing which means our interest expense would not decline in any meaningful manner.

Michael Corelli - Barry Vogel & Assoc.

Lastly, you closed a couple of plants here. What is the plan to do with those plants? Are you going to be marketing them for sale?

Larry Keener

I think if you look at the balance sheet there is a new item on there when you get to 10K that shows $7.5 million of assets held for sale that that represents what we think the book value of those three factories.

Kelly Tacke

They are listed.

Operator

The next question comes from the line of James McCanless – FTN Midwest Securities Corp.

James McCanless – FTN Midwest Securities Corp.

I did want to ask on the floor plan table, I jumped on late so I apologize if you have already addressed this. The jump from last year to this year, what is going on there?

Kelly Tacke

We just drew down the floor plan. There is nothing going on. We have a long-term relationship with our lender and we are maintaining that relationship.

James McCanless – FTN Midwest Securities Corp.

So you are at 87 stores now. Are you all still evaluating the store count or do you feel comfortable with 87 for the rest of the year? What is the plan for that?

Larry Keener

I don’t see it going lower Jay. We’re looking at some alternatives for some different types of retail locations so there could be a small change upward but I don’t see it going lower.

James McCanless – FTN Midwest Securities Corp.

Since you are still able to originate FHA and still able to originate conforming, what are the plans to grow CountryPlace going forward?

Larry Keener

Well that’s a real good question. We really like the lending business. Unfortunately our warehouse lender decided to get out of the business just when we were beginning to make some real progress in the business. It is also unfortunate from the standpoint that everyone in the process, the banks, the bond holders and our shareholders made money with what CountryPlace was doing in the chattel and non-conforming lending business. From 2002 we have made about $400 million worth of loans. That $400 million has resulted in only a little less than 2% cumulative losses. So we really like the business and we want to stay in the business. The real question is long-term access to stable capital.

We’re going to be working on that obviously going forward. We think we have a unique story. CountryPlace did not make the mistakes or the excesses made by the chattel lenders of the 90’s and didn’t fall into the traps of the sub-prime lenders of this decade. So we think we have a very good story. As the credit markets normalize we want to be in place and we want to have a story that interests investors and we think we do.

That’s a rather long-winded answer but we want to stay in the business and we’re looking at every alternative to stay in the business.

James McCanless – FTN Midwest Securities Corp.

Just to follow-up we are starting to see mortgage securitizations occurring again. The British had their first one in 8 months today. We’re starting to see the U.S. market doing some jumbo conforming securitizations. Knowing that your warehouse lender has pulled out and knowing that other warehouse lenders have pulled lines have you had a pick up in interest and activity of potentially doing a new warehouse line or is that still kind of flat right now?

Lyle Zeller

I wouldn’t say there is a pick up in interest, but we are having conversations with a lender to put together a bridge financing facility to get us through what we believe is a temporary although extended period of liquidity crunch in the capital market. So we are having conversations about putting together a bridge facility.

Greg Aplin

Concurrent with the APS markets coming back I think you will see a pick up of lenders out there with warehouse lines. But they won’t do that until there is an end game for the loans.

Operator

(Operator Instructions)

The next question comes from the line of Brian Freckmann of Crown Capital.

Brian Freckmann - Crown Capital

It appears on your most recent I guess sort of replacement of CountryPlace about 70% of the loans about 14-20 were chattel or non-conforming. I was curious how much more dry powder do you have assuming you don’t get a warehouse line partner? How much further can you loan currently as 70% of these loans are non-conforming?

Larry Keener

We’re not making any non-conforming loans right now. The only loans we are making are conforming and loans that have ready secondary market. We’re not loaning for our own portfolio any longer because of liquidity.

Brian Freckmann - Crown Capital

Can you restate that? I thought you said that your $20 million in loans you just did $6 million were conforming and $14 million were non-conforming. I think that is what you just said previously. So what did I miss there?

Lyle Zeller

You didn’t miss anything. What happens is when we discovered there was an ABS market for our loans we quit taking applications. I think that was some time around the end of February. But we did have a pipeline that we are still, in fact, funding for our retailers.

Brian Freckmann - Crown Capital

So going forward there will be no more loans of this nature but you sort of cleaned up the pipeline? Is that what you are saying?

Lyle Zeller

Yes.

Brian Freckmann - Crown Capital

What percent of total…I don’t think it is in the K, as a historical basis. Let’s say we go back into last quarter and into last year. What percent of loans total were conforming and what percent were non-conforming?

Larry Keener

We don’t disclose the percentages of conforming or non-conforming. CountryPlace is historically has been about 20% of our company sales have been financed by CountryPlace. The majority of the homes we sell and the majority of the homes our independent retailers sell are financed with conforming loans and then the other half is split between cash and some type of non-conforming or chattel loan.

Brian Freckmann - Crown Capital

Before the K comes out, the split what was the revenue from factory built housing and what was financial services revenue?

Kelly Tacke

Factory built housing was 511,577 and financial services was 43,519.

Brian Freckmann - Crown Capital

I guess I will follow-up offline as I am just a little more interested in what the future financial services will be given that a large portion, 40-50% are nonconforming and stuff. So I guess I’ll have to figure that offline.

Operator

We have a follow-up question from the line of John Diffendal – BB&T Capital Markets.

John Diffendal – BB&T Capital Markets

Let me take a shot at the same sort of question a little bit differently. When you disclose or reported your Q’s you broke out financial services and housing. The prior first three quarters of the year you had between $4.5 and $5.5 million in operating income from financial services. Taking out the origination platform or at least the chattel platform what sort of impact going forward might we expect from that? If you call it $5 million a quarter what do we lose by the changes you have had to make at CountryPlace going forward?

Larry Keener

In the short run it is not going to change significantly because the bulk of the income first of all is from the insurance company. CountryPlace’s income they derive from prior securitizations plus the unsecuritized loans is going to remain pretty stable for several months probably more than a year going forward. At the same time we won’t have origination costs on the chattel and non-conforming loans we don’t make and we don’t have to increase our origination costs on conforming loans because we already have those assets in place. We don’t think it is going to materially change certainly in this fiscal year.

John Diffendal – BB&T Capital Markets

Will it go up?

Kelly Tacke

No, it will not go up.

Operator

The next question comes from the line of Michael Corelli - Barry Vogel & Assoc.

Michael Corelli - Barry Vogel & Assoc.

You had talked in the press release about cumulative losses from the two securitizations that were 2.1% on the ’05 and 4.1% on the ’07 as of the end of 2007. Do you know what those are as of the end of the quarter? Have they changed much?

Lyle Zeller

No. There has been no significant change in those.

Michael Corelli - Barry Vogel & Assoc.

As far as the securitized financings outstanding. They had been declining. Earlier in the year they had declined $9 million in the first quarter and $7 million in the second and third quarters and then about $6 million in the fourth. I know there has been some refinancing and prepayments and things like that. Obviously the credit environment has changed a little bit. Would you expect the securitized financing runoff to slow from the rate we saw in the last fiscal year?

Greg Aplin

It is a little tough to predict the future but because of the markets tightening up that limits the options for the customers as far as prepayment. As it had this last quarter.

Michael Corelli - Barry Vogel & Assoc.

Lastly, what percent of the revenues do you get out of Texas?

Kelly Tacke

40%?

Larry Keener

It is probably between 37-42%. The average sales price in Texas is a little lower than the rest of the country because of the number of single-wides we sell here but the number of units sold in Texas is obviously just a little over 40%.

Michael Corelli - Barry Vogel & Assoc.

Of the whole company?

Larry Keener

That is correct.

Michael Corelli - Barry Vogel & Assoc.

So Texas is obviously by far the most important state.

Kelly Tacke

Michael let me answer that a little bit different way. I’m looking at our draft of our 10K. We consider Texas, Oklahoma, Arkansas and Louisiana all of Texas. That was 40% this year.

Michael Corelli - Barry Vogel & Assoc.

Texas, Oklahoma, Louisiana and Arkansas?

Kelly Tacke

That’s correct.

Michael Corelli - Barry Vogel & Assoc.

And Texas is the biggest part of that by far right?

Kelly Tacke

By far, yes.

Operator

We have a follow-up question from the line of Brian Freckmann - Crown Capital.

Brian Freckmann - Crown Capital

Kelly you mentioned just giving the number from the break out I think financial services revenue was 43,519 is that correct?

Kelly Tacke

That is correct.

Brian Freckmann - Crown Capital

That is for the full year, right? So if I sort of back into that was the $2.1 million in insurance included in that number that you guys recognized in the quarter?

Kelly Tacke

Are you talking about the Burleson insurance?

Brian Freckmann - Crown Capital

Yes, the Burleson.

Kelly Tacke

No, that would be in manufacturing.

Brian Freckmann - Crown Capital

What percent of sales were to military channels?

Larry Keener

In the fourth quarter we had none. All of that would show up in the first quarter of this year. We did ship 56 units worth about $3.1 million in apartment buildings in the fourth quarter and the remainder of our commercial military business will start showing up in the first quarter of this year.

Brian Freckmann - Crown Capital

Is that sort of one-time in nature or are you guys starting to see that channel pick up?

Larry Keener

We’re starting to see that pick up.

Operator

We have a follow-up from Michael Corelli - Barry Vogel & Assoc.

Michael Corelli - Barry Vogel & Assoc.

Did you say the back log which was $47 million did not include $16 million?

Larry Keener

That is correct, of commercial business. It did not include that.

Michael Corelli - Barry Vogel & Assoc.

How come you don’t have it in the backlog?

Larry Keener

It is under contract, Michael, but that means that the final bonding of the contractor and the final financing terms from the contractor to fund the projects have not been completed. It normally happens but we don’t book it until we know it is firm.

Operator

Ladies and gentlemen we have no further questions at this time. Mr. Keener I’ll turn the call back over to you for any additional or closing remarks.

Larry Keener

Thank you very much. Everyone that concludes our fourth quarter fiscal 2008 conference call. I’d like to thank you all for your time and interest in our company today and hope you all have a very good day.

Operator

That does conclude today’s conference call. You may now disconnect.

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