UNITED STATES SECURITIES AND EXCHANGE COMMISSION

For the quarterly period ended September 24, 2004

Commission file number 0-26188

PALM HARBOR HOMES, INC.

15303 Dallas Parkway, Suite 800, Addison, Texas 75001-4600

972-991-2422

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 by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). 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 October 29, 2004 – 22,831,790.

Table of Contents

PALM HARBOR HOMES, INC. AND SUBSIDIARIES

See accompanying notes.

PALM HARBOR HOMES, INC. AND SUBSIDIARIES

See accompanying notes.

2

PALM HARBOR HOMES, INC. AND SUBSIDIARIES

See accompanying notes.

3

PALM HARBOR HOMES, INC. AND SUBSIDIARIES

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 presentation in conformity with accounting principles generally accepted in the United States. 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 financial statements for the year ended March 26, 2004. Results of operations for any interim period are not necessarily indicative of results to be expected for a full year.
		The condensed consolidated balance sheet at March 26, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
		The condensed consolidated statement of cash flows for the six months ended September 26, 2003 has been restated to classify the origination and collection of long-term loans, which are held for investment purposes, in connection with customer purchases of products or services from the Company as operating activities rather than investing activities.
2.		Inventories
		Inventories consist of the following (in thousands):

4

PALM HARBOR HOMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3.		Investment in Limited Partnership
		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. The following table represents the condensed income statements for the three and six months ending September 24, 2004 and September 26, 2003 (in thousands):

4.		Loans Held For Investment, Net
		Loans held for investment, net, consist of the following (in thousands):

The allowance for loan losses and related additions and deductions to the allowance during the six months ended September 24, 2004 and September 26, 2003 are as follows (in thousands):

5.		Floor Plan Payable
		During the first quarter of fiscal 2005, the Company amended its agreement with a financial institution from an $80.0 million syndicated floor plan facility expiring March 19, 2006 to a $70.0 million facility expiring May 25, 2007. The advance rate for the $70.0 million facility is 90% of manufacturer’s invoice. This facility is used to finance a portion of the new home inventory at the Company’s retail superstores and is secured by new home inventory and a portion of receivables from financial institutions. The interest rate on the facility is prime (4.75% at September 24, 2004) or prime plus 1.0% to 3.0% for aged units, of which the Company had none as of September 24, 2004 under its floor plan arrangements. The

5

		floor plan facility contains certain provisions requiring the Company to maintain minimum amounts of liquidity, profitability, inventory turns and tangible net worth in order to borrow against the facility. As of September 24, 2004, the Company was not in compliance with one of these provisions and has since obtained a waiver of default from the lending institution. No assurances can be made as to whether the Company will be in compliance with these provisions in future periods. In the event the Company is not in compliance with any of its floor plan facility requirements in future periods, it would seek a waiver of any default from the lending institution and, if no such waiver was obtained, maturities of outstanding debt could be accelerated. The Company had $21.4 million and $84.1 million outstanding under floor plan credit facilities at September 24, 2004 and March 26, 2004, respectively.
6.		Warehouse Revolving Debt
		In March 2004, the Company, through its subsidiary CountryPlace, entered into an agreement with a financial institution for a $200.0 million warehouse borrowing facility to fund chattel loans originated by Company-owned retail superstores. The facility is collateralized by specific receivables pledged to the facility and bears interest at the rate of LIBOR (1.875% at September 24, 2004) plus 2.00%. The facility terminates on March 18, 2006; however, amounts outstanding under the facility are effectively settled and re-borrowed on a monthly basis. The facility provides for an advance of 80% against the outstanding principal balance of eligible receivables, as defined in the warehouse agreement. The facility provides for an advance rate adjustment on March 18, 2005 as determined by the financial institution. If the advance rate is lowered, CountryPlace may terminate the borrowing facility with no penalty. If CountryPlace does not terminate the facility, it is obligated to pay the financial institution a fee of $1.0 million on March 18, 2005. CountryPlace had outstanding borrowings under the warehouse facility of $93.4 million and $74.1 million as of September 24, 2004 and March 26, 2004, respectively. The facility contains certain requirements relating to the performance and composition of the receivables pledged to the facility and financial covenants regarding the maintenance of a certain loan delinquency ratio, minimum ratio of liabilities to stockholder’s equity for CountryPlace and a minimum capitalization for CountryPlace, which are customary in the industry. As of September 24, 2004, both Palm Harbor and CountryPlace were in compliance with these requirements. In connection with the warehouse borrowing facility, Palm Harbor agreed to fund in cash to CountryPlace, up to 25% of each loan loss incurred. During the quarter ended September 24, 2004, the Company funded $84,000 to CountryPlace under this loss funding arrangement. As CountryPlace continues to expand and draw down on its warehouse facility, the Company will fund 20% of any additional loan originations. Should CountryPlace increase its borrowings under the facility to the maximum $200.0 million, the Company will have to originate an additional $127.3 million of new loans, of which $25.5 million will have to be funded through the Company’s operations.
		During the quarters ended September 24, 2004 and September 26, 2003, CountryPlace originated, net of financed loan points, approximately $17.9 and $19.9 million of chattel loans, respectively. Of these amounts, in the quarter ended September 24, 2004, $3.7 million of loan originations was funded by the Company’s operations and $14.2 million was funded through warehouse borrowings, and in the quarter ended September 26, 2003, $6.5 million of loan originations was funded by the Company’s operations and $13.4 million was funded through warehouse borrowings. During the six months ended September 24, 2004 and September 26, 2003, CountryPlace originated, net of financed loan points, approximately $32.6 and $38.6 million of chattel loans, respectively. Of these amounts, in the six months ended September 24, 2004, $6.2 million of loan originations was funded by the Company’s operations and $26.4 million was funded through warehouse borrowings, and in the six months ended September 26, 2003, $12.3 million of loan originations was funded by the Company’s operations and $26.3 million was funded through warehouse borrowings.

6

7.		Other Comprehensive Income (Loss)
		The difference between net income (loss) and total comprehensive income (loss) for the three and six months ended September 24, 2004 and September 26, 2003 is as follows (in thousands):

8.		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 September 24, 2004, the Company estimates that its potential obligations under all repurchase agreements were approximately $11.3 million. It is management’s opinion that no material loss will occur from the repurchase agreements.
		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 or cash flows of the Company.
9.		Accrued Product Warranty Obligations
		The Company provides the retail homebuyer a one-year limited warranty covering defects in material or workmanship in home structure, plumbing and electrical systems. The amount of warranty reserves recorded are estimated future warranty costs relating to homes sold, based upon the Company’s assessment of historical experience factors, such as actual number of warranty calls and the average cost per warranty call.
		The accrued product warranty obligation is classified as accrued liabilities in the condensed consolidated balance sheets. The following table summarizes the changes in accrued product warranty obligations during the six months ended September 24, 2004 and September 26, 2003 (in thousands):

10.		Convertible Senior Notes
		On May 5, 2004, the Company issued $65.0 million aggregate principal amount of 3.25% Convertible Senior Notes due 2024 (the “Notes”) in a private, unregistered offering. Interest on the Notes is payable semi-annually in May and November. On September 15, 2004, for the benefit of the Note holders, the Company filed a shelf registration statement covering

7

		resales of the Notes and the shares of the Company’s common stock issuable upon the conversion of the Notes. The Notes are senior, unsecured obligations and rank equal in right of payment to all of the Company’s existing and future unsecured and senior indebtedness. Each $1,000 in principal amount of the Notes is convertible, at the option of the holder, at a conversion price of $25.92, or 38.5803 shares of the Company’s common stock upon the satisfaction of certain conditions and contingencies. On June 8, 2004, the initial purchaser of the Notes exercised its option to purchase an additional $10.0 million aggregate principal amount of the Notes.
		The Company has used $62.7 million of the proceeds from the offering to reduce its floor plan payable from $84.1 million at March 26, 2004 to $21.4 million at September 24, 2004. The remainder of the proceeds will be used for general corporate purposes and/or further reductions in floor plan payable.
		In September 2004, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) reached a final consensus affirming its tentative conclusion with respect to the accounting for contingently convertible debt instruments, which generally become convertible into common stock only if one or more specified events occurs such as the underlying common stock achieving a specified target. Under previous interpretations of FASB Statement No. 128, “Earnings Per Share”, issuers of contingently convertible debt instruments generally excluded the dilutive effects of potential common shares underlying such debt from earnings per share calculations until the market price or other contingency was met. In the final consensus, among other things, the EITF concluded that the effect of contingently convertible debt instruments should be included in earnings per share computations, if dilutive, regardless of whether the market price trigger has been met. The FASB is expected to issue an amendment to Statement No. 128 in the fourth quarter of calendar 2004, which would generally be effective for periods ending after December 15, 2004, and which effects must be applied by restating all periods during which the instrument was outstanding.

8

11.		Business Segment Information
		The Company operates principally in two segments: (1) factory-built housing, which includes manufactured housing, modular housing and retail operations and (2) financial services, which includes finance and insurance. The following table details net sales and income from operations by segment for the three and six months of fiscal 2005 and 2004 (in thousands):

PART I. Financial Information

Item 1. Financial Statements

     See pages 1 through 8.

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

Executive Overview

We are one of the nation’s leading manufacturers and marketers of factory-built homes. We market nationwide through vertically integrated operations, encompassing manufactured and modular housing, chattel and mortgage bank financing, as well as insurance. As of September 24, 2004, we operated 19 manufacturing facilities that sell homes through 136 company-owned retail superstores and builder locations and approximately 300 independent retail dealers, builders and developers. Through our subsidiary, CountryPlace, we offer chattel and non-conforming land/home mortgages to purchasers of manufactured homes sold by Company-owned retail superstores. Through our investment as the sole limited partner in BSM, we offer conforming and non-conforming mortgages for both modular and manufactured homes. We also provide property and casualty insurance for owners of manufactured and modular homes through our subsidiary, Standard Casualty.

Our retail sales for the second quarter of fiscal 2005 were not as strong as we expected. The recent hurricane activity on the east coast created a number of disruptions for Palm Harbor and others in our industry with the resultant delays in both wholesale and retail deliveries. Retail demand has

9

been slower to recover, especially in our key markets of Texas and the Carolinas, where we have a significant retail presence. Our overall profitability was also affected by higher raw materials and energy costs. However, we are encouraged by the consistent strength of our wholesale business and the trends in our backlog are positive indicators for the balance of fiscal 2005.

In order to improve our operating efficiencies, during the third fiscal quarter, we intend to temporarily idle a plant in Texas and shift production to another plant. In addition, we will be liquidating 12 of our least productive sales centers in order to further reduce our overhead. Expenses associated with these actions are expected to approximate $2.5 million and primarily will be incurred in the third fiscal quarter. Resulting cost reductions should approximate $4.0 million annually and begin in the fourth fiscal quarter.

During the first quarter, we completed a successful private offering of $75.0 million aggregate principal amount of convertible senior notes that will be convertible into shares of Palm Harbor’s common stock, subject to certain conditions and contingencies. We have used approximately $62.7 million of the proceeds to reduce our floor plan payable to $21.4 million from $84.1 million at year-end. The remainder of the proceeds will be used for general corporate purposes and/or further reductions in floor plan payable. See “Liquidity and Capital Resources” below for additional information.

We also continued executing our strategy of expanding our consumer financing capabilities through our finance subsidiary, CountryPlace, and our 50% limited partnership in BSM. CountryPlace is now servicing 2,087 consumer chattel loans, totaling approximately $118.8 million and during the second quarter of fiscal 2005, BSM originated 2,684 loans aggregating $350 million, $34 million of which were for Palm Harbor customers. For the quarter, 48% of our retail customers were financed by either CountryPlace or BSM.

We continue to position ourselves strategically for the recovery of the industry by focusing on increasing sales of our modular homes. Sales of our modular homes were up 20% in the second quarter of fiscal 2005 as compared to the second quarter of fiscal 2004 and our Discovery series of modular homes is getting a lot of attention in the marketplace. We believe that modular housing is a key driver of our future growth and profitability.

The following table sets forth certain items of the Company’s condensed consolidated statements of operations as a percentage of net sales for the periods indicated.

10

The following table summarizes certain key sales statistics as of and for the three and six months ended September 24, 2004 and September 26, 2003.