0000950123-11-075187.txt : 20110809
0000950123-11-075187.hdr.sgml : 20110809
20110809171654
ACCESSION NUMBER: 0000950123-11-075187
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20110630
FILED AS OF DATE: 20110809
DATE AS OF CHANGE: 20110809
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CAVCO INDUSTRIES INC
CENTRAL INDEX KEY: 0000278166
STANDARD INDUSTRIAL CLASSIFICATION: MOBILE HOMES [2451]
IRS NUMBER: 860214910
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0331
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-08822
FILM NUMBER: 111021869
BUSINESS ADDRESS:
STREET 1: 1001 N. CENTRAL AVE
STREET 2: SUITE 800
CITY: PHOENIX
STATE: AZ
ZIP: 85004
BUSINESS PHONE: 602-256-6263
MAIL ADDRESS:
STREET 1: 1001 N. CENTRAL AVE
STREET 2: SUITE 800
CITY: PHOENIX
STATE: AZ
ZIP: 85004
10-Q
1
c21097e10vq.htm
FORM 10-Q
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission
File Number 000-08822
Cavco Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware
56-2405642
(State or other jurisdiction of incorporation)
(IRS Employer Identification No.)
1001 North Central Avenue, Suite 800, Phoenix, Arizona
85004
(Address of principal executive offices)
(Zip Code)
(602) 256-6263
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last year)
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), and (2) has been
subject to such filing requirements for the past 90 days. Yes o No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a small reporting company. See the definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one).
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act): Yes o No þ
As of August 5, 2011, there were 6,890,013 shares of the registrants common stock, $.01 par value,
issued and outstanding.
(Dollars in thousands, except per share data)
(Unaudited)
1. Basis of Presentation
The accompanying Consolidated Financial Statements of Cavco Industries, Inc., and its
subsidiaries (collectively, the Company or Cavco), have been prepared without audit pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC) for Quarterly Reports
on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance with generally
accepted accounting principles (GAAP) in the United States of America have been condensed or
omitted pursuant to such rules and regulations.
In the opinion of management, these statements include all of the normal recurring adjustments
necessary to fairly state the Companys Consolidated Financial Statements. The Consolidated
Statements of Operations and Consolidated Statements of Cash Flows for the interim periods are not
necessarily indicative of the results or cash flows for the full year. Certain prior period amounts
have been reclassified to conform to current period classification. The Company has evaluated
subsequent events after the balance sheet date of June 30, 2011 through the date of the filing of
this report with the SEC and there were no disclosable subsequent events. The Company suggests
that these Consolidated Financial Statements be read in conjunction with the audited Consolidated
Financial Statements and the Notes to Consolidated Financial Statements included in the Companys
Annual Report on Form 10-K filed with the SEC on June 3, 2011 (the Form 10-K).
During fiscal year 2010, the Company and an investment partner, Third Avenue Value Fund
(Third Avenue), formed Fleetwood Homes, Inc. (Fleetwood Homes), with a contribution of $35.0
million each for equal fifty-percent ownership interests. On August 17, 2009, Fleetwood Homes
acquired seven operating manufactured housing plants, two idle factories, all related equipment,
accounts receivable, inventory, certain trademarks and trade names, intellectual property, and
specified contracts and leases; and assumed express warranty liabilities pertaining to certain of
the previous operations of a predecessor company.
The results of the Fleetwood Homes operations have been included in the Consolidated Financial
Statements and the related Notes in accordance with the provisions of Financial Accounting
Standards Board Accounting Standards Codification (FASB ASC) 810, Consolidation (ASC 810).
Management has determined that, under GAAP, although Fleetwood Homes is only fifty-percent owned by
the Company, Cavco has a controlling interest and is required to fully consolidate the results of
Fleetwood Homes. The primary factors that contributed to this determination were Cavcos board and
management control of Fleetwood Homes. To that end, members of Cavcos management hold all of the
seats on the board of directors of Fleetwood Homes. In addition, as part of a management services
agreement among Cavco, Fleetwood Homes and Third Avenue, Cavco provides all executive-level
management services to Fleetwood Homes including, among other things, general management oversight,
marketing and customer relations, accounting and cash management. Third Avenues financial
interest in Fleetwood Homes is considered a redeemable noncontrolling interest, and is designated
as such in the Consolidated Financial Statements (see Note 20).
During fiscal year 2011, Fleetwood Homes, through its wholly-owned subsidiary, Palm Harbor
Homes, Inc., a Delaware corporation (Palm Harbor or Palm Harbor Delaware), entered into an
agreement (the Purchase Agreement) with Palm Harbor Homes, Inc., a Florida corporation, and
certain of its subsidiaries (collectively Palm Harbor Florida) to purchase substantially all of
the assets and assume specified liabilities of Palm Harbor Florida, pursuant to an auction process
under Section 363 of the U.S. Bankruptcy Code. The effective date of the transaction was April 23,
2011 (the Acquisition Date), except for the stock of Standard Casualty Co. The aggregate gross
purchase price was $83.9 million and is exclusive of transaction costs, specified liabilities
assumed and post-closing adjustments. Approximately $45.3 million of the purchase price was used to
retire the Debtor-In-Possession (DIP) loan previously made by Fleetwood Homes to Palm Harbor
Florida. The purchase price was funded by Fleetwood Homes cash on hand, along with equal
contributions of $36.0 million each from the Company and Third Avenue. On June 7, 2011, regulatory
approval of the acquisition of Standard Casualty Co. was received from the Texas Department of
Insurance and on June 10, 2011 (the SCC Acquisition Date), Palm Harbor Delaware completed the
purchase of the insurance subsidiary.
Palm Harbor Delaware acquired five operating manufactured housing production facilities, idled
factories in nine locations, 49 operating retail locations, one office building, real estate, all
related equipment, accounts receivable, customer deposits, inventory, certain trademarks and trade
names, intellectual property, and specified contracts and leases. In addition, as of the
Acquisition Date, Palm Harbor Delaware purchased all of the outstanding shares of CountryPlace
Acceptance Corp., CountryPlace Mortgage, Ltd. and their wholly-owned finance subsidiaries
(collectively, CountryPlace). Palm Harbor Delaware also acquired all of the outstanding shares of
Standard Casualty Co., Standard Insurance Agency, Inc. and its subsidiary (collectively,
Standard). Further, Palm Harbor Delaware assumed certain liabilities of Palm Harbor Florida,
including primarily debt facilities of the finance subsidiaries (see Note 19). The results of the
Palm Harbor operations since the Acquisition Date have been included in the Consolidated Financial
Statements and the related Notes in accordance with the provisions of ASC 810.
Revenue Recognition. Revenue from homes sold to independent retailers is generally recognized
when the home is shipped, at which time title passes to the independent retailer, and
collectability is reasonably assured. Homes sold to independent retailers are generally either
paid for prior to shipment or floorplan financed by the independent retailer through standard
industry arrangements, which include repurchase agreements. Manufacturing sales financed under
repurchase agreements are reduced by a provision for estimated repurchase obligations (see Note
12). The recognition of revenue from homes sold under inventory finance programs involving funds
provided by the Company is deferred until such time that payment for the related inventory finance
note receivable is received by the Company (see Note 6). Retail sales by Company-owned retail
locations are recognized when funding is reasonably assured, the customer has entered into a
legally binding sales contract, title has transferred and the home is accepted by the customer,
delivered and permanently located at the customers site.
At the Acquisition Date, management evaluated consumer loans receivable held for investment to
determine whether there was evidence of deterioration of credit quality prior to acquisition and if
it was probable that the Company would be unable to collect all amounts due according to the loans
contractual terms. The Company also considered expected prepayments and estimated the amount and
timing of undiscounted expected principal, interest and other cash flows. The Company determined
the excess of the pools scheduled contractual principal and contractual interest payments over the undiscounted
cash flows expected as of the acquisition date as an amount that should not be accreted (the
non-accretable difference). The remaining difference is accreted into interest income over the
remaining life of the loans (referred to as accretable yield). Interest income on consumer loans
receivable is recognized as net sales.
Interest income on consumer loans receivable originated after the Acquisition Date is
recognized in net sales on an accrual basis. When a loan held for investment is determined to be
partially or fully uncollectible, the estimated loss is charged against the allowance for loan
losses. Recoveries on losses previously charged to the allowance are credited to the allowance at
the time the recovery is collected. For loans held for investment originated after the acquisition,
loan origination fees are deferred and amortized into net sales over the contractual life of the
loan using the interest method. For loans held for sale, loan origination fees and gains or losses
on sales are recognized upon sale of the loans.
Premium income from insurance policies is recognized on an as earned basis. Premium amounts
collected are amortized into net sales over the life of the policy. Policy acquisition costs are
also amortized as cost of sales over the life of the policy.
Management regularly makes an assessment to determine whether a decline in value of an
individual security is other-than-temporary. The Company considers the following factors when
making its assessment: (1) the Companys ability and intent to hold the investment to maturity, or
a period of time sufficient to allow for a recovery in market value; (2) whether it is probable
that the Company will be able to collect the amounts contractually due; and (3) whether any
decision has been made to dispose of the investment prior to the balance sheet date. Investments
on which there is an unrealized loss that is deemed to be other-than-temporary are written down to
fair value with the loss recorded in earnings.
Consumer Loans Receivable. Consumer loans receivable consists of manufactured
housing loans originated by CountryPlace (securitized, held for investment, or held for sale) and
construction advances on non-conforming mortgages. CountryPlace was acquired on April 23, 2011 in
conjunction with the Palm Harbor transaction. The fair value of consumer loans receivable was
calculated as of the Acquisition Date, as determined by the present value of expected future cash
flows, with no allowance for loan loss recorded. The difference between the undiscounted cash flows
expected and the investment in the loan is recognized as interest income on a level-yield method
over the life of the loan. Increases in expected cash flows subsequent to the acquisition are
recognized prospectively through adjustment of the yield on the loans over the remaining life.
Decreases in expected cash flows subsequent to the acquisition are recognized as an allowance for
loan loss. Interest income on consumer loans receivable is recognized in net sales.
Loans held for investment consist of loan contracts collateralized by the borrowers homes
and, in some instances, related land. Construction loans in progress are stated at the aggregate
amount of cumulative funded advances. Loans held for sale consist of loan contracts collateralized
by single-family residential mortgages. Loans held for sale are stated at the lower of cost or
market on an aggregate basis. Loans held for sale are loans that, at the time of origination, are
originated with the intent to resell in the mortgage market to investors, such as the Federal
National Mortgage Association (FNMA or Fannie Mae), with which the Company has pre-existing
purchase agreements, or to sell as part of a Government National Mortgage Association (GNMA or
Ginnie Mae)-insured pool of loans.
Prior to being acquired by the Company, on July 12, 2005 and March 22, 2007, CountryPlace
completed two securitizations of factory-built housing loan receivables. These two securitizations
were accounted for as financings, which use the portfolio method of accounting in accordance with
ASC 310, Receivables Nonrefundable Fees and Other (ASC 310).
The securitizations included
provisions for removal of accounts by CountryPlace and other factors that preclude sale accounting
of the securitizations under ASC 860, Transfers and Servicing. Both securitizations were accounted
for as securitized borrowings.
The Company acquired the consumer loans receivable and related
securitized financings during the first quarter of fiscal 2012 as a part of the Palm Harbor
transaction. Since the Acquisition Date, the acquired securitized financings are accounted for in
a manner similar to ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality
(ASC 310-30).
Certain direct loan origination costs for loans held for investment originated after the acquisition are deferred and amortized
over the estimated life of the portfolio and amortized using the effective interest method.
Certain direct loan origination costs for loans held for sale are expensed as incurred.
Allowance for Loan Losses. The allowance for loan losses reflects CountryPlaces judgment of
the probable loss exposure on their loans originated since the Date of Acquisition in the held for
investment portfolio as of the end of the reporting period. CountryPlaces loan portfolio is
comprised of loans related primarily to factory-built Palm Harbor homes. The allowance for loan
losses is developed at a portfolio level, as pools of homogeneous loans, and not allocated to
specific individual loans or to impaired loans. A range of probable losses is calculated after
giving consideration to, among other things, the composition of the loan portfolio, including
historical loss experience by static pool, expected probable losses based on industry experience
for a given range of borrower credit scores, the composition of the portfolio by credit score and
seasoning, loan type characteristics, and recent loss experience. CountryPlace then makes a
determination of the best estimate within the range of loan losses.
CountryPlace accounts for the loans that were acquired in the Palm Harbor transaction in a
manner similar to ASC 310-30. At the date of acquisition, management evaluated such loans to
determine whether there was evidence of deterioration of credit quality since acquisition and if it
was probable that CountryPlace would be unable to collect all amounts due according to the loans
contractual terms.
Over the life of the loans, the Company continues to estimate cash flows expected to be
collected. The Company evaluates at the balance sheet date whether the present value of its loans
determined using the effective interest rate, has decreased and if so, recognizes an allowance for
loan loss subsequent to the acquisition date. The present value of any subsequent increase in the
loan pools actual cash flows expected to
be collected is used first to reverse any existing allowance for loan loss. Any remaining
increase in cash flows expected to be collected adjusts the amount of accretable yield recognized
on a prospective basis over the loan pools remaining life. See Note 5.
Loans are placed on nonaccrual status when either principal or interest is past due and
remains unpaid for 120 days or more or when there is a clear indication that the borrower has the
inability or unwillingness to meet payments as they become due. Payments received on nonaccrual
loans are accounted for on a cash basis, first to interest and then to principal. Upon determining
that a nonaccrual loan is impaired, interest accrued and the uncollected receivable prior to
identification of nonaccrual status is charged to the allowance for loan losses.
The Company has modified payment amounts and/or interest rates for borrowers that, in
managements judgment, exhibited the willingness and ability to continue to pay and met certain
other conditions. These modified loans were considered to be troubled debt restructurings. The
Company no longer considers modified loans to be troubled debt restructurings once the modified
loan is seasoned for six months, is not delinquent and is at a market rate of interest.
Investment Securities. Management determines the appropriate classification of its investment
securities at the time of purchase. The Companys investments include marketable debt and equity
securities that are held as available-for-sale. All investments classified as available-for-sale
are recorded at fair value with any unrealized gains and losses reported in accumulated other
comprehensive income (loss), net of tax if applicable. Realized gains and losses from the sale of
securities are determined using the specific identification method.
Other Income. Other income totals $360,000 and $180,000 in the three months ended June 30,
2011 and 2010, respectively. In fiscal 2012, other income consists of interest related to
Debtor-in-Possession note receivable and inventory finance receivable balances, and of interest
income earned primarily on cash balances.
Accumulated other comprehensive income (loss). Accumulated other comprehensive income (loss)
is comprised of unrealized gains and losses on available-for-sale investments.
Recent Accounting Pronouncements. In July 2010, the FASB issued Accounting Standards Update
(ASU) 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses, which requires entities to provide new disclosures
in their financial statements about their financing receivables, including credit risk exposures
and the allowance for credit losses on a disaggregated basis. The ASU is effective for public
entities for reporting periods ending on or after December 15, 2010 for disclosures of financing
receivables as of the end of a reporting period. The disclosures related to activity that occurs
during a reporting period are required to be adopted for periods beginning on or after December 15,
2010. In April 2011, the FASB issued ASU 2011-02, A Creditors Determination of Whether a
Restructuring Is a Troubled Debt Restructuring. ASU 2011-02 clarifies when creditors should
classify loan modifications as troubled debt restructurings. In addition, ASU 2011-02 deferred the
effective date of the disclosures about troubled debt restructurings in ASU 2010-20 to periods
beginning after June 15, 2011. The Company adopted the provisions of ASU 2010-20 relating to
period-end disclosures as of December 31, 2010, and the remaining provisions during the quarter
ended March 31, 2011, except for the disclosures related to troubled debt restructurings, which
will be effective for the Companys quarter ending September 30, 2011. The Company is currently
evaluating the effect ASU 2011-02 will have on the Companys disclosures in the Notes to the
Consolidated Financial Statements.
In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805): Disclosure
of Supplementary Pro Forma Information for Business Combinations. The amendments in this update are
effective prospectively for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2010. The
amendments affected the Companys disclosures of pro forma information surrounding the Palm Harbor
acquisition, see Note 19.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. The amendments to this update are effective for public companies for fiscal
years, and interim periods within those years, beginning after December 15, 2011. In this update,
an entity has the option to present the total of comprehensive income, the components of net
income, and the components of other comprehensive income either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. In both choices, an entity is
required to present each component of net income along with total net income, each component of
other comprehensive income along with a total for other comprehensive income, and a total amount
for comprehensive income. This update eliminates the option to present the components of other
comprehensive income as part of the statement of changes in stockholders equity. The Company is
currently evaluating the effect ASU 2011-05 will have on the Companys disclosures in the Notes to
Consolidated Financial Statements.
For a description of other significant accounting policies used by the Company in the
preparation of its Consolidated Financial Statements, please refer to Note 1 of the Notes to
Consolidated Financial Statements in the Form 10-K.
Restricted cash consists of the following (in thousands):
June 30,
March 31,
2011
2011
Cash pledged as collateral for outstanding insurance
programs and surety bonds
$
3,263
$
Cash related to CountryPlace customers principal and
interest payments on the loans that are securitized
2,276
Cash related to customer deposits held in trust
1,455
436
$
6,994
$
436
3. Investments
Available-for-sale securities were acquired during the first quarter of fiscal 2012 as a part
of the Palm Harbor acquisition. In accordance with ASC 805, Business Combinations (ASC 805) the
individual securities were valued at fair value as of the Acquisition Date and therefore, no
individual security has been in a continuous unrealized loss position at June 30, 2011. The
following table summarizes the Companys available-for-sale investment securities, gross unrealized
gains and losses and fair value, aggregated by investment category as of June 30, 2011 (in
thousands):
June 30, 2011
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
U.S. Treasury and Government
Agencies
$
1,148
$
$
(1
)
$
1,147
Mortgage-backed securities
5,063
24
(45
)
5,042
States and political subdivisions
1,205
1
1,206
Corporate debt securities
4,411
(26
)
4,385
Marketable equity securities
3,802
33
(82
)
3,753
Total
$
15,629
$
58
$
(154
)
$
15,533
Consistent with improvements seen in the overall stock market in recent quarters, and based on
the Companys ability and intent to hold the investments for a reasonable period of time sufficient
for a forecasted recovery of fair value, the Company does not consider the investments to be
other-than-temporarily impaired at June 30, 2011.
The Companys investments in marketable equity securities consist of investments in common
stock of bank trust, insurance, and public utility companies ($1.5 million of the total fair value
and $11,000 of the total unrealized losses) and industrial companies ($2.3 million of the total
fair value and $71,000 of the total unrealized losses).
The amortized cost and fair value of the Companys investment securities at June 30, 2011, by
contractual maturity, are shown in the table below (in thousands). Expected maturities will differ
from contractual maturities because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
June 30,
2011
Due in less than one year
$
974
Due after one year through five years
6,716
Due after
five years through ten years
262
Due after ten years
3,828
Marketable equity securities
3,753
Total investment securities available-for-sale
$
15,533
Realized gains and losses from the sale of securities are determined using the specific
identification method. Gross gains realized on the sales of investment securities for the first
quarter of fiscal 2012 were approximately $17,000. Gross losses were approximately $4,000 for the
first quarter of fiscal 2012.
4. Inventories
Inventories consist of the following (in thousands):
June 30,
March 31,
2011
2011
Raw materials
$
17,088
$
10,208
Work in process
8,354
2,499
Finished goods and other
33,588
3,329
$
59,030
$
16,036
5. Consumer Loans Receivable
The Company acquired consumer loans receivable during the first quarter of fiscal 2012 as a
part of the Palm Harbor transaction. Acquired consumer loans receivable held for investment were
acquired at fair value and subsequently are accounted for in a manner similar to ASC 310-30.
Consumer loans receivable held for sale is carried at the lower of cost or market value. The
following table summarizes consumer loans receivable (in thousands):
At the Acquisition Date, management evaluated consumer loans receivable held for investment to
determine whether there was evidence of deterioration of credit quality prior to acquisition and if
it was probable that the Company would be unable to collect all amounts due according to the loans
contractual terms. The Company also considered expected prepayments and estimated the amount and
timing of undiscounted expected principal, interest and other cash flows. The Company determined
the excess of the pools scheduled contractual principal and contractual interest payments over all
cash flows expected as of the acquisition date as an amount that should not be accreted (the
non-accretable difference). The remaining difference is accreted into interest income over the
remaining life of the loans (referred to as accretable yield). Interest income on consumer loans
receivable is recognized as net sales.
June 30,
April 23,
2011
2011
Consumer loans receivable held for investment
contractual amount
$
330,781
$
339,166
Purchase Discount
Accretable
(115,471
)
(118,335
)
Non-accretable
(96,472
)
(100,151
)
Allowance for loan losses
Less consumer loans receivable reclassified as
other assets
(461
)
Total consumer loans receivable held for
investment, net
$
118,377
$
120,680
Over the life of the loans, the Company continues to estimate cash flows expected to be
collected. The Company evaluates at the balance sheet date whether the present value of its loans
determined using the effective interest rate, has decreased and if so, recognizes an allowance for
loan loss subsequent to the acquisition date. The present value of any subsequent increase in the
loan pools actual cash flows expected to be collected is used first to reverse any existing
allowance for loan loss. Any remaining increase in cash flows expected to be collected adjusts the
amount of accretable yield recognized on a prospective basis over the loan pools remaining life.
The changes in accretable yield on acquired consumer loans receivable held for investment were
as follows:
June 30,
2011
Balance at the beginning of the period
$
Additions
118,335
Accretion
(2,864
)
Reclassifications from (to) nonaccretable
discount
Disposals
Balance at the end of the period
$
115,471
The Companys consumer loans receivable consists of fixed-rate, fixed-term, fully-amortizing
single-family home loans. These loans are either secured by a manufactured home, excluding the
land upon which the home is located (chattel property loans and retail installment sale contracts),
or by a combination of the home and the land upon which the home is located (real property mortgage
loans). The real property mortgage loans are primarily for manufactured homes. Combined land and
home loans are further disaggregated by the type of loan documentation: those conforming to the
requirements of Government-Sponsored Enterprises (GSEs), and those that are non-conforming. In
most instances, the Companys loans are secured by a first-lien position and are provided for the
purchase of a home. In rare instances the Company may provide other types of loans in second-lien
or unsecured positions. Accordingly, the Company classifies its loans receivable assets as
follows: chattel loans, conforming mortgages, non-conforming mortgages, and other loans.
The following tables disaggregate consumer loans receivable for each class by portfolio
segment as of June 30, 2011 (in thousands):
Consumer Loans Held for Investment
Consumer
Securitized
Securitized
Construction
Loans Held
Asset Class
2005
2007
Unsecuritized
Advances
For Sale
Total
Chattel loans
$
49,808
$
33,763
$
3,055
$
$
$
86,626
Conforming mortgages
1,571
3,205
4,931
9,707
Non-conforming mortgages
4,864
15,187
10,081
30,132
Other loans
49
49
$
54,672
$
48,950
$
14,756
$
3,205
$
4,931
$
126,514
In measuring credit quality within each segment and class, the Company uses commercially
available credit scores (FICO). At the time of each loans origination, the Company obtained
credit scores from each of the three primary credit bureaus, if available. To evaluate credit
quality of individual loans, the Company uses the mid-point of the available credit scores, or if
only two scores are available, the Company uses the lower of the two. Except in the case of
troubled debt restructurings or other loan modifications, the Company does not update credit bureau
scores after the time of origination.
The following table disaggregates the Companys consumer loans receivable by class and credit
quality indicator as of June 30, 2011 (in thousands):
Consumer Loans Held for Investment
Consumer
Asset Class
Securitized
Securitized
Construction
Loans Held
Credit Quality Indicator
2005
2007
Unsecuritized
Advances
For Sale
Total
Chattel loans
0-619
$
1,553
$
995
$
954
$
$
$
3,502
620-719
22,241
15,160
1,307
38,708
720+
26,014
17,608
793
44,415
Conforming mortgages
0-619
420
54
537
1,011
620-719
1,040
2,286
2,754
6,080
720+
111
865
1,640
2,616
Non-conforming mortgages
0-619
97
933
2,951
3,981
620-719
2,405
9,070
5,580
17,055
720+
2,362
5,184
1,551
9,097
Other loans
Total other
49
49
$
54,672
$
48,950
$
14,756
$
3,205
$
4,931
$
126,514
6. Inventory Finance Receivables and Allowance for Loan Loss
The Companys inventory finance receivables balance consists of two classes: (i) amounts
loaned by the Company under participation inventory financing programs; and (ii) direct inventory
financing arrangements for the home product inventory needs of our independent distribution base.
Under the terms of the participation programs, the Company provides loans to independent
financial institutions representing a significant portion of the funds that such financiers then
lend to retailers to finance
their inventory purchases of our products. The participation inventory finance receivables
are unsecured general obligations of the independent floorplan lenders.
Under the terms of the direct inventory finance arrangements, the Company provides all of the
inventory finance funds. These notes are secured by the inventory collateral and other security
depending on borrower circumstances. The other terms of direct inventory finance arrangements vary
depending on the needs of the borrower and the opportunity for the Company, but generally follow
the same tenets as the participation programs.
Inventory finance receivables, net, consist of the following by class of financing receivable
(in thousands):
June 30,
March 31,
2011
2011
Direct inventory finance receivables
$
12,060
$
12,157
Participation inventory finance receivables
6,357
5,771
Allowance for loan loss
(173
)
(169
)
$
18,244
$
17,759
The Company evaluates the potential for loss from its participation inventory finance
programs based on the independent lenders overall financial stability and has determined that an
applicable allowance for loan loss was not needed at June 30, 2011s and March 31, 2011,
respectively.
With respect to the direct inventory finance notes receivable, the risk of loss is spread over
numerous borrowers. Borrower inventory levels and activity are monitored in conjunction with
third-party service providers, where applicable, to estimate the potential for loss on the related
notes receivable, considering potential exposures including repossession costs, remarketing
expenses, impairment of value and the risk of collateral loss. The Company has historically been
able to resell repossessed unused homes, thereby mitigating loss experience. If a default occurs
and collateral is lost, the Company is exposed to loss of the full value of the home loan. If the
Company determines that it is probable that a borrower will default, a specific reserve is
determined and recorded within the estimated allowance for loan loss. The Company recorded an
allowance for loan loss of $173,000 and $169,000 at June 30, 2011 and March 31, 2011, respectively.
The following table represents changes in the estimated allowance for loan losses, including
related additions and deductions to the allowance for loan loss applicable to the direct inventory
finance receivables (in thousands):
The following table disaggregates inventory finance notes receivable and the estimated
allowance for loan loss for each class of financing receivable by evaluation methodology (in
thousands):
Direct Inventory Finance
Participation Inventory Finance
June 30,
March 31,
June 30,
March 31,
2011
2011
2011
2011
Inventory finance notes
receivable:
Collectively evaluated
for impairment
$
11,484
$
11,116
$
$
Individually evaluated
for impairment
576
1,041
6,357
5,771
Total
$
12,060
$
12,157
$
6,357
$
5,771
Allowance for loan loss:
Collectively evaluated
for impairment
$
(173
)
$
(169
)
$
$
Individually evaluated
for impairment
Total
$
(173
)
$
(169
)
$
$
Loans are subject to regular review and are given managements attention whenever a problem
situation appears to be developing. Loans with indicators of potential performance problems are
placed on watch list status and are subject to additional monitoring and scrutiny. Nonperforming
status includes loans accounted for on a non-accrual basis and accruing loans with principal
payments past due 90 days or more. The Companys policy is to place loans on nonaccrual status
when interest is past due and remains unpaid 90 days or more or when there is a clear indication
that the borrower has the inability or unwillingness to meet payments as they become due. Payments
received on nonaccrual loans are recorded on a cash basis, first to interest and then to principal.
Charge-offs occur when it becomes probable that outstanding amounts will not be recovered. At
June 30, 2011, the Company did not have any loans on nonaccrual status and was not aware of any
potential problem loans that would have a material effect on the inventory finance receivables
balance. The following table disaggregates the Companys inventory finance receivables by class
and credit quality indicator (in thousands):
Direct Inventory Finance
Participation Inventory Finance
June, 30
March 31,
June, 30
March 31,
2011
2011
2011
2011
Risk profile based on payment activity:
Performing
$
11,966
$
11,995
$
6,357
$
5,771
Watch list
94
162
Nonperforming
Total
$
12,060
$
12,157
$
6,357
$
5,771
The Company has concentrations of inventory finance notes receivable related to factory-built
homes located in the following states, measured as a percentage of inventory finance receivables
principal balance outstanding as of June 30, 2011 and March 31, 2011:
June 30,
March 31,
2011
2011
Arizona
19.6
%
21.9
%
Texas
14.6
%
18.0
%
California
12.0
%
9.0
%
The States of California, Arizona, and to a lesser degree Texas, have experienced economic
weakness. The risks created by these concentrations have been considered in the determination of
the adequacy of the allowance for loan losses. The Company did not have concentrations in excess
of 10% of the principal balance of the inventory finance receivables in any other states as of June
30, 2011 or March 31, 2011, respectively.
Property, plant and equipment are carried at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of each asset. Estimated useful lives for
significant classes of assets are as follows: buildings and improvements 10 to 39 years, and
machinery and equipment 3 to 25 years. Repairs and maintenance charges are expensed as incurred.
Property, plant and equipment consist of the following (in thousands):
June 30,
March 31,
2011
2011
Property, plant and equipment, at cost:
Land
$
20,036
$
16,046
Buildings and improvements
27,408
19,672
Machinery and equipment
14,545
11,453
61,989
47,171
Accumulated depreciation
(11,645
)
(11,178
)
Property, plant and equipment, net
$
50,344
$
35,993
8. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Homes are generally warranted against manufacturing defects for a period of one year
commencing at the time of sale to the retail customer. Estimated costs relating to home warranties
are provided at the date of sale. The Company has recorded a liability for estimated future
warranty costs relating to homes sold based upon managements assessment of historical experience
factors, an estimate of the amount of homes in the distribution channel and current industry
trends. Activity in the liability for estimated warranties was as follows (in thousands):
Three Months Ended
June 30,
2011
2010
Balance at beginning of period
$
9,371
$
13,891
Liability assumed with
Palm Harbor
1,932
Charged to costs and expenses
3,006
1,213
Payments and deductions
(2,826
)
(2,113
)
Balance at end of period
$
11,483
$
12,991
10. Debt Obligations
The Company acquired securitized financings during the first quarter of fiscal 2012 as a part
of the Palm Harbor acquisition. Acquired securitized financings were acquired at fair value, which
resulted in a discount, and subsequently are accounted for a manner similar to ASC 310-30 to
accrete the discount.
The Company considers expected prepayments and estimates the amount and timing of undiscounted
expected principal, interest and other cash flows for consumer loans receivable held for investment
to determine the expected cash flows on securitized financings and the contractual payments. The
amount of contractual principal and contractual interest payments due on the securitized financings
in excess of all cash
flows expected as of the acquisition date should not be accreted (the non-accretable
difference). The remaining amount is accreted into interest expense over the remaining life of the
obligation (referred to as accretable yield).
June 30,
April 23,
2011
2011
Securitized financings contractual amount
$
130,851
$
134,205
Purchase Discount
Accretable
(31,346
)
(32,072
)
Non-accretable (1)
Total
securitized financings, net
$
99,505
$
102,133
(1)
Because the contractual payments on securitized financing are determined by
actual cash flows, the Company expects that there will not be a non-accretable difference.
Over the life of the loans, the Company continues to estimate cash flows expected to be paid
on securitized financings. The Company evaluates at the balance sheet date whether the present
value of its securitized financings determined using the effective interest rate, has increased.
The present value
of any subsequent decrease in cash flows
expected to be paid adjusts the amount of accretable yield recognized on a prospective basis over
the securitized financings remaining life.
The changes in accretable yield on securitized financings were as follows:
June 30,
2011
Balance at the beginning of the period
$
Additions
32,072
Accretion
(726
)
Reclassifications from (to) nonaccretable
discount
Disposals
Balance at the end of the period
$
31,346
On July 12, 2005, prior to the acquisition of Palm Harbor and CountryPlace, CountryPlace
completed its initial securitization (2005-1) for approximately $141.0 million of loans, which was
funded by issuing bonds totaling approximately $118.4 million. The bonds were issued in four
different classes: Class A-1 totaling $36.3 million with a coupon rate of 4.23%; Class A-2
totaling $27.4 million with a coupon rate of 4.42%; Class A-3 totaling $27.3 million with a coupon
rate of 4.80%; and Class A-4 totaling $27.4 million with a coupon rate of 5.20%. Maturity of the
bonds is at varying dates beginning in 2006 through 2015 and were issued with an expected weighted
average maturity of 4.66 years. For accounting purposes, this transaction was structured as a
securitized borrowing.
On March 22, 2007, CountryPlace, completed its second securitization (2007-1) for
approximately $116.5 million of loans, which was funded by issuing bonds totaling approximately
$101.9 million. The bonds were issued in four classes: Class A-1 totaling $28.9 million with a
coupon rate of 5.484%; Class A-2 totaling $23.4 million with a coupon rate of 5.232%; Class A-3
totaling $24.5 million with a coupon rate of 5.593%; and Class A-4 totaling $25.1 million with a
coupon rate of 5.846%. The bonds mature at varying dates beginning in 2008 through 2017 and were
issued with an expected weighted average maturity of 4.86 years. For accounting purposes, this
transaction was also structured as a securitized borrowing.
11. Income Taxes
The Companys deferred tax assets primarily result from financial statement accruals not
currently deductible for tax purposes, and its deferred tax liabilities primarily result from tax
amortization of goodwill. The Company complies with the provisions of FASB ASC 740, Income Taxes
(ASC 740), which clarifies the accounting for income taxes by prescribing a minimum recognition
threshold a tax position is required to meet before being recognized in the financial statements.
ASC 740 also provides guidance on derecognizing, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The Company has recorded an
insignificant amount of unrecognized tax benefits and there would be an insignificant effect on the
effective tax rate if all unrecognized tax benefits were recognized. The Company classifies
interest and penalties related to unrecognized tax benefits in tax expense.
Income tax returns are filed in the U.S. federal jurisdiction and in several state
jurisdictions. In July 2011, the Internal Revenue Service (IRS) completed its examination of the
Companys federal income tax return for the fiscal year ended March 31, 2009. The examination
resulted in an insignificant tax balance due. The Company is no longer subject to examination by
the IRS for years before fiscal year 2007. The Company believes that its income tax filing
positions and deductions will be sustained on audit and does not anticipate any adjustments that
will result in a material change to the Companys financial position. The total amount of
unrecognized tax benefit related to any particular tax position is not anticipated to change
significantly within
the next 12 months. The provision for income taxes generally represents income taxes paid or
payable for the current year plus the change in deferred taxes during the year.
Repurchase Contingencies The Company is contingently liable under terms of repurchase
agreements with financial institutions providing inventory financing for retailers of its products.
These arrangements, which are customary in the industry, provide for the repurchase of products
sold to retailers in the event of default by the retailer. The risk of loss under these agreements
is spread over numerous retailers. The price the Company is obligated to pay generally declines
over the period of the agreement (generally 18 to 36 months) and the risk of loss is further
reduced by the resale value of the homes. The maximum amount for which the Company was contingently
liable under such agreements approximated $11.6 million at June 30, 2011, without reduction for the
resale value of the homes. The Company applies FASB ASC 460, Guarantees (ASC 460), and FASB ASC
450-20, Loss Contingencies (ASC 450-20), to account for its liability for repurchase commitments.
Under the provisions of ASC 460, the Company records the greater of the estimated value of the
non-contingent obligation or a contingent liability for each repurchase arrangement under the
provisions of ASC 450-20. The Company recorded an estimated liability of $690,000 and $597,000 at
June 30, 2011 and March 31, 2011, respectively, related to these commitments.
Letter of Credit The Company maintains a $250,000 outstanding letter of credit with
J.P. Morgan Chase Bank N.A. issued to satisfy the remaining requirements of the self-funded
workers compensation program which concluded on September 30, 2006. There have been no draws
against the letter of credit.
Legal Matters The Company is party to certain legal proceedings that arise in the ordinary
course and are incidental to its business. Certain of the claims pending against the Company in
these proceedings allege, among other things, breach of contract and warranty, product liability
and personal injury. Although litigation is inherently uncertain, based on past experience and the
information currently available, management does not believe that the currently pending and
threatened litigation or claims will have a material adverse effect on the Companys consolidated
financial position, liquidity or results of operations. However, future events or circumstances
currently unknown to management will determine whether the resolution of pending or threatened
litigation or claims will ultimately have a material effect on the Companys consolidated financial
position, liquidity or results of operations in any future reporting periods.
13. Stockholders Equity
The following tables represent changes in equity, including stockholders equity attributable
to Cavcos stockholders and non-controlling interest for the three months ended June 30, 2011
(dollars in thousands):
Equity Attributable to Cavco Stockholders
Redeemable
Additional
Accumulated
Noncontrolling
Common Stock
Paid-in
Retained
Other
Interest
Shares
Amount
Capital
Earnings
Loss
Total
Balance, March 31, 2011
$
35,819
6,817,606
$
68
$
129,211
$
21,390
$
$
150,669
Stock option exercises and
associated tax benefits
The difference between net income and total comprehensive income for the three months ended
June 30, 2011 and June 30, 2010 is as follows (in thousands):
Three Months Ended
June 30,
2011
2010
Net income
$
17,459
$
850
Unrealized gain on available-for-sale
investments, net of tax
(63
)
Comprehensive income
$
17,396
$
850
15. Stock-Based Compensation
The Company maintains stock incentive plans whereby stock option grants or awards of
restricted stock may be made to certain officers, directors and key employees. The plans, which
are shareholder approved, permit the award of up to 1,350,000 shares of the Companys common stock,
of which 278,026 shares were still available for grant at June 30, 2011. When options are
exercised, new shares of the Companys common stock are issued. Stock options may not be granted
below 100% of the fair market value of the Companys common stock at the date of grant and
generally expire seven years from the date of grant. Stock options and awards of restricted stock
vest over a period determined by the plan administrator, typically a one to five year period. The
stock incentive plans provide for accelerated vesting of stock options and removal of restrictions
on restricted stock awards upon a change in control (as defined in the plans).
Stock-based compensation cost charged against income for the three months ended June 30, 2011,
was approximately $185,000. The Company recorded stock-based compensation expense of $138,000 for
the three months ended June 30, 2010.
As of June 30, 2011, total unrecognized compensation cost related to stock options was
approximately $2,579,000 and the related weighted-average period over which it is expected to be
recognized is approximately 2.7 years.
The following table summarizes the option activity within the Companys stock-based
compensation plans for the three months ended June 30, 2011:
Number
of Shares
Outstanding at March 31, 2011
401,500
Granted
71,100
Exercised
(71,750
)
Outstanding at June 30, 2011
400,850
Exercisable at June 30, 2011
152,625
A summary of restricted stock activity within the Companys share-based compensation
plans and changes for the three months ended June 30, 2011 is as follows:
Basic earnings per common share is computed based on the weighted-average number of common
shares outstanding during the reporting period. Diluted earnings per common share is computed based
on the combination of dilutive common share equivalents, comprised of shares issuable under the
Companys share-based compensation plans and the weighted-average number of common shares
outstanding during the reporting period. Dilutive common share equivalents include the dilutive
effect of in-the-money options to purchase shares, which is calculated based on the average share
price for each period using the treasury stock method. However, when a net loss exists, no
potential common stock equivalents are included in the computation of the diluted per-share amount
because the computation would result in an anti-dilutive per-share amount. The following table sets
forth the computation of basic and diluted earnings per share:
Three Months Ended
June 30,
2011
2010
Net income attributable to Cavco
common stockholders
$
8,608
$
518
Weighted average shares outstanding:
Basic
6,838,324
6,541,739
Common stock equivalents
treasury stock method
56,056
211,526
Add: Effect of dilutive stock options
Diluted
6,894,380
6,753,265
Net income per share attributable to Cavco
common stockholders:
Basic
$
1.26
$
0.08
Diluted
$
1.25
$
0.08
Anti-dilutive common stock equivalents excluded from the computation of diluted earnings
per share for the three months ended June 30, 2011 and 2010 were 4,820 and 547, respectively.
17. Fair Value Measurements
The book value and estimated fair value of the Companys financial instruments are as follows
(in thousands):
June 30, 2011
March 31, 2011
Book
Estimated
Book
Estimated
Value
Fair Value
Value
Fair Value
Cash and cash equivalents (1)
$
33,537
$
33,537
$
76,513
$
76,513
Restricted cash (1)
6,994
6,994
436
436
Investments (2)
15,533
15,533
Consumer loans receivable (3)
126,151
125,713
Inventory finance receivable (4)
18,244
18,244
17,759
17,759
Construction lending line (1)
4,782
4,782
Securitized financings (5)
99,505
99,371
(1)
The fair value approximates book value due to the instruments short term
maturity.
(2)
The fair value is based on market prices.
(3)
Includes consumer loans receivable held for investment, held for sale and
construction advances. The fair value of the loans held for investment is based on the
discounted value of the remaining principal and interest cash flows. The fair value of the
loans held for sale approximates book value since the sales price of these loans is known
as of June 30, 2011.
(4)
The fair value approximates book value based on current market rates and the revolving nature of the loan portfolio.
(5)
The fair value is estimated using recent transactions of factory-built housing asset-backed securities.
In accordance with ASC 820, Fair Value Measurements and Disclosures (ASC 820), fair value is
defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. ASC 820 also establishes
a fair value hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 2
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level 3
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. The Company had no level 3
securities at the end of the first quarter ended June 30, 2011.
The Company utilizes the market approach to measure fair value for its financial assets and
liabilities. The market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities.
Assets measured at fair value on a recurring basis are summarized below (in thousands):
As of June 30, 2011
Total
Level 1
Level 2
Level 3
Securities issued by the U.S Treasury and Government (1)
$
1,147
$
$
1,147
$
Mortgage-backed securities (1)
5,042
5,042
Securities issued by states and political subdivisions (1)
1,207
1,207
Corporate debt securities (1)
4,385
4,385
Marketable equity securities (1)
3,752
3,752
(1)
Unrealized gains or losses on investments are recorded in accumulated other
comprehensive loss at each measurement date.
No significant transfers between Level 1 and Level 2 occurred during the three months ended
June 30, 2011. The Companys policy regarding the recording of transfers between levels is to
record any such transfers at the end of the reporting period.
Assets and liabilities measured at fair value on a non-recurring basis are summarized below (in thousands):
As of June 30, 2011
Total
Level 1
Level 2
Level 3
Loans held for investment
$
119,179
$
$
$
119,179
Loans held for sale
4,931
4,931
Construction advances
1,603
1,603
Inventory finance receivable
18,244
18,244
Construction lending
facility
4,781
4,781
Securitized financings
99,371
99,371
The Company records impairment losses on long-lived assets held for sale when the fair value
of such long-lived assets is below their carrying values. The Company records impairment charges
on long-lived assets used in operations when events and circumstances indicate that long-lived
assets might be impaired and the undiscounted cash flows estimated to be generated by those assets
are less than their carrying amounts. During the three months ended June 30, 2011, the Company
recorded no impairment charges on assets held for sale or used in operations.
Assets measured on a nonrecurring basis also include impaired loans (nonaccrual loans)
disclosed in Note 5 and loans held for sale. No recent sales have been executed in an orderly
market of manufactured home loan portfolios with comparable product features, credit
characteristics, or performance. Impaired loans are measured using Level 3 inputs that are
calculated using discounted future cash flows. Loans held for sale are measured at the lower of
cost or fair value using Level 1 inputs that consist of commitments on hand from investors. These
loans are held for relatively short periods, typically no more than 45 days. As a result, changes
in loan-specific credit risk are not a significant component of the change in fair value. The cost
of loans held for sale is currently lower than the fair value.
ASC 825, Financial Instruments (ASC 825), requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate fair value. Fair value estimates are made as of a specific point in time
based on the characteristics of the financial instruments and the relevant market information.
Where available, quoted market prices are used. In other cases, fair values are based on estimates
using other valuation techniques. These techniques involve uncertainties and are significantly
affected by the assumptions used and the judgments made regarding risk characteristics of various
financial instruments, discount rates, estimates of future cash flows, future expected loss
experience, and other factors. Changes in assumptions could significantly affect these estimates
and the resulting fair values. Derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in an immediate sale of the
instrument. Also, because of differences in methodologies and assumptions used to estimate fair
values, the Companys fair values should not be compared to those of other companies.
Under ASC 825, fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Accordingly, the aggregate fair value
amounts presented do not represent the underlying market value of the Company.
18. Debtor-In-Possession Note Receivable
On November 29, 2010, Fleetwood Homes, Inc. entered into a DIP Revolving Credit Agreement (the
DIP Agreement) and a Security Agreement (the DIP Security Agreement) with Palm Harbor Florida
and certain of its subsidiaries. Palm Harbor Florida was a manufacturer and marketer of
factory-built housing and a provider of related financing and insurance. Also on November 29, 2010,
Fleetwood Homes newly-formed subsidiary, Palm Harbor Delaware, entered into an Asset Purchase
Agreement (the Purchase Agreement) with Palm Harbor Florida.
Palm Harbor Florida and those of its subsidiaries that were parties to the DIP Agreement and
the Purchase Agreement filed for chapter 11 bankruptcy protection on November 29, 2010. Pursuant to
the terms and conditions of the DIP Agreement, Fleetwood Homes agreed to provide up to $55.0
million for a debtor-in-possession credit facility to finance Palm Harbors reorganization under
chapter 11 of the U.S. Bankruptcy Code. The DIP loan facility bore interest at 7% per annum. Palm
Harbor Floridas obligations under the DIP Agreement were secured by a first position lien on
substantially all of Palm Harbor Floridas assets. The credit facility was partially used by Palm
Harbor Florida to extinguish its Textron Financial Corporation debt facility and to fund
post-petition operations, commitments to customers, and employee obligations.
On April 23, 2011, the DIP credit facility was retired in conjunction with the closing of the
acquisition of Palm Harbor Florida, discussed further below.
19. Acquisition of Palm Harbor Homes, Inc.
Description of the Acquisition Fleetwood Homes, through its wholly-owned subsidiary, Palm
Harbor Delaware, entered into the Purchase Agreement with Palm Harbor Florida to purchase
substantially all of the assets, and assume specified liabilities, of Palm Harbor Florida, pursuant
to an auction process under Section 363 of the U.S. Bankruptcy Code. On March 1, 2011, Palm Harbor
Delaware was selected as the successful bidder in the court auction. The transaction was approved
and a sale order entered by the U.S. Bankruptcy Court on March 4, 2011.
During the first quarter of fiscal year 2012, Palm Harbor Delaware completed the purchase of
the Palm Harbor Florida assets and the assumption of specified liabilities pursuant to the Amended
and Restated Asset Purchase Agreement dated March 1, 2011. The effective date of the transaction
was April 23, 2011 (the Acquisition Date), except for the stock of Standard Casualty Co. The aggregate gross purchase price was $83.9 million and is exclusive of transaction costs, specified
liabilities assumed and post-closing adjustments. Of the purchase price, (i) approximately $45.3
million was used to retire the debtor-in-possession loan previously made by Fleetwood Homes to Palm
Harbor Florida; and (ii) $13.4 million was deposited in escrow pending regulatory approval to
transfer the stock of Standard Casualty Co. to Acquisition Co., at which time the escrowed funds
will be released to the Palm Harbor estate. The purchase price was funded by Fleetwood Homes cash
on hand, along with contributions of $36.0 million each from the Company and Third Avenue (see Note
21).
Palm Harbor Delaware acquired five operating manufactured housing production facilities, idled
factories in nine locations, 49 operating retail locations, one office building, real estate, all
related equipment, accounts receivable, customer deposits, inventory, certain trademarks and trade
names, intellectual property, and specified contracts and leases. In addition, as of the
Acquisition Date, Palm Harbor Delaware purchased all of the outstanding shares of CountryPlace
Acceptance Corp., CountryPlace Mortgage, Ltd. and their wholly-owned finance subsidiaries. Palm
Harbor Delaware also acquired all of the outstanding shares of Standard Insurance Agency, Inc. and
its wholly-owned insurance agency subsidiary., On June 7, 2011, regulatory approval of the
acquisition of Standard Casualty Co. was received from the Texas Department of Insurance and on
June 10, 2011 (the SCC Acquisition Date), Palm Harbor Delaware completed the purchase of Standard
Casualty Co. Further, Acquisition Co. assumed certain liabilities of Palm Harbor Florida,
including primarily debt facilities of the finance subsidiaries.
The foregoing descriptions of the DIP Agreement, DIP Security Agreement, and Purchase
Agreement do not purport to be complete and are qualified in their entirety by reference to the DIP
Agreement, the DIP Security Agreement, and the Purchase Agreement which were filed as Exhibits
10.1, 10.2, and 10.3, respectively, to the Companys Current Report on Form 8-K filed with the SEC
on November 29, 2010.
The purchase of the Palm Harbor Florida assets provides further operating capacity, increased
home distribution, and entry into financial and insurance businesses specific to the Companys
industry. The transaction further expanded the Companys geographic reach at a national level by
adding factories and retail locations serving the Northwest, South Central, Southeast and
Mid-Atlantic regions. The Company believes it will have the opportunity to achieve certain
synergies and cost reductions by eliminating redundant processes and overhead.
Acquisition Date Fair Value of Consideration Transferred The following table details the
acquisition-date fair value of the consideration transferred to acquire Palm Harbor (in thousands),
of which $74.0 million was in cash:
Acquisition Date
Fair Value
Cash advanced to Palm Harbor under DIP financing, credited to
purchase
$
44,117
Paid-in-kind interest on DIP financing, credited to purchase price
1,184
Additional cash consideration
29,917
Amounts credited for customer deposits acquired at closing
8,682
Total consideration transferred
$
83,900
Recording of Assets Acquired and Liabilities Assumed The acquisition has been
accounted for using the acquisition method of accounting which requires, among other things, that
assets acquired and liabilities assumed be recognized at their fair values as of the acquisition
date. The following table summarizes the provisional amounts recognized for assets acquired and
liabilities assumed as of the Acquisition Date. Certain estimated values are not yet finalized
(see below) and are subject to change, which could be significant. The allocation of the purchase
price is still preliminary due to the short duration since the Acquisition Date and will be
finalized upon completion of the analysis of the fair values of Palm Harbors assets and specified
liabilities. The Company will finalize the amounts recognized as we obtain the information
necessary to complete the analysis. We expect to finalize these amounts as soon as possible but no
later than one year from the acquisition date.
The following table summarizes the provisional estimated fair values of the assets acquired
and liabilities assumed at the acquisition dates (in thousands):
Acquisition Date
Fair Value
Cash and cash equivalents
$
15,077
Restricted cash
5,924
Investments
16,636
Accounts receivable (1)
3,219
Inventories
42,034
Prepaid expenses and other assets
2,781
Property, plant and equipment
13,782
Assets held for sale
9,278
Consumer loans receivable
126,030
Deferred income tax assets
14,532
Intangible assets (2)
15,294
Total identifiable assets acquired
$
264,587
Accounts payable of the finance subsidiaries
$
(1,917
)
Accrued liabilities
(27,503
)
Construction lending line
(3,974
)
Securitized financings
(101,786
)
Debt of the finance subsidiaries
(19,456
)
Deferred income tax liabilities
(7,271
)
Total liabilities assumed
(161,907
)
Net identifiable assets acquired
102,680
Bargain purchase recognized
(18,780
)
Net assets acquired
$
83,900
(1)
The fair value of accounts receivables acquired is $3,219, with the gross
contractual amount being $3,601. The Company determined that $382 would be uncollectible.
(2)
Of the $15,294 of acquired intangible assets, $5,450 was assigned to trademarks
and trade names and $1,100 was assigned to state insurance licenses, which are considered
indefinite lived intangible assets and are not subject to amortization and $8,744 was
assigned to customer-related intangibles, technology and insurance business in force,
policies and renewal rights, subject to a weighted-average useful life of approximately 5
years.
In connection with the acquisition of Palm Harbor, approximately $30 million was transferred
at closing of the Palm Harbor transaction on April 23, 2011 and $19.5 million was used to retire a
certain debt obligation of the Companys new subsidiary, CountryPlace Acceptance Corp., on May 10,
2011 (including payoff of the loan, prepayment penalty and related legal fees).
During the fiscal quarter ended June 30, 2011, the Company recognized $744,000 of acquisition
related costs that were expensed as incurred. During the year ended March 31, 2011, the Company
recognized $272,000 of acquisition related costs. These costs were recognized in selling, general
and administrative expenses on the Consolidated Statement of Operations. We anticipate additional
acquisition-related costs in fiscal year ended March 31, 2012 related to the purchase of the Palm Harbor assets.
Because the Company purchased Palm Harbor out of bankruptcy, the fair value of identifiable
assets acquired and specified liabilities assumed exceeded the fair value of the consideration
transferred. In accordance with ASC 805, Business Combinations, the Company consequently
reassessed the recognition and measurement of identifiable assets acquired and specified
liabilities assumed and concluded that the valuation procedures and resulting measures were
appropriate. As a result, the Company recognized a gain on bargain purchase of $18.8 million in
its consolidated statements of operations for the quarter ended June 30, 2011.
The recorded amounts are provisional and subject to change primarily as follows:
Amounts for inventory and property and equipment are pending completion of certain
confirmation of physical existence and condition.
Amounts for intangibles, property held for sale, consumer loans receivable, securitized
financing obligation, deferred income taxes and accrued liabilities are pending finalization
of valuation efforts.
A single estimate of fair value results from a complex series of judgments about future events
and uncertainties and relies heavily on estimates and assumptions. Judgments used to determine the
estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as
asset lives, can materially impact results of operations.
Pro Forma Impact of Acquisition (unaudited) The following table presents supplemental pro
forma information as if the acquisition of Palm Harbor had occurred on April 1, 2010 (in
thousands):
Unaudited Pro Forma
Consolidated Results
Three Months Ended June 30,
2011
2010
Revenues
$
113,034
$
123,681
Income (loss) attributable to Cavco stockholders
(968
)
9,270
Diluted earnings per common share attributable to Cavco stockholders
The unaudited pro forma consolidated results were prepared using the acquisition method of
accounting and are based on the historical financial information of Cavco and Palm Harbor,
reflecting both Cavco and Palm Harbor results of operations for the three months ended June 30,
2011 and 2010, respectively. The historical financial information has been adjusted to give effect
to the pro forma events that are: (1) directly attributable to the acquisition; (2) factually
supportable; and (3) expected to have a continuing impact on the combined results. The unaudited
pro forma consolidated results are not necessarily indicative of what our consolidated results of
operations actually would have been had we completed the acquisition on April 1, 2010. In
addition, the unaudited pro forma consolidated results do not purport to project the future results
of operations of the combined company nor do they reflect the expected realization of any cost
savings associated with the acquisition, including the elimination of overhead costs. The results
reflect primarily the following pro forma pre-tax adjustments:
Reclassification of amounts to conform to Cavcos accounting policies resulting in no
impact to net income/(loss) (grossed up both net sales and cost of sales by $0.8 million and
$4.4 million for the three months ended June 30, 2011 and 2010, respectively, and decreased
SG&A and increased cost of sales by $0.7 million and $1.5 million, respectively).
Reclassification of amounts to conform to Cavcos accounting policies for revenue
recognition in the retail sales process, resulting in the reclassification of net sales and
cost of sales among periods. These revenue recognition adjustments resulted in a decrease
in net sales and cost of sales for the three months ended June 30, 2011 of $$203,000 and
$166,000, respectively, net of adjustment for amounts deferred under Cavcos revenue
recognition policy. For fiscal year 2010, the revenue recognition pro forma adjustment
resulted in a net decrease in net sales of $565,000 and an increase in cost of sales of
$12,000, respectively.
Elimination of Palm Harbors historical interest expense related to Senior Convertible
Notes discharged in bankruptcy, a note payable settled prior to the bankruptcy and a credit
agreement that has been terminated and will not be a part of the Companys capitalization
going forward ($239 and $2,249 in the three months ended June 30, 2011 and 2010,
respectively).
Elimination of $1.9 million of costs incurred and $187,000 of interest income in the
three months ended June 30, 2011, which are directly attributable to the bankruptcy and
subsequent acquisition, and which do not have a continuing impact on the combined companys
operating results. Included in these costs are advisory, legal and regulatory costs incurred
by both legacy Cavco and legacy Palm Harbor and income and costs related to the
debtor-in-possession financing that has been terminated.
Additional amortization expense (approximately $111,000 and $849,000 for the three months
ended June 30, 2011 and 2010, respectively) related to the fair value of identifiable
intangible assets acquired.
Reduction in depreciation expense (approximately $128,000 in the three months ended June
30, 2011 and $572,000 in fiscal year 2010, respectively) related to the fair value
adjustment to property, plant and equipment acquired.
Elimination of operating activities related to closed manufacturing facilities and retail
locations that (i) were not purchased in the transaction or (ii) are held for sale as of the
Date of Acquisition. The amounts eliminated included sales of $645,000, cost of sales of
$1.3 million, and SG&A of $558,000 for the three months ended June 30, 2011. For the three
months ended June 30, 2010, the amounts eliminated were sales of $12.0 million, cost of
sales of $10.7 million, and SG&A of $2.9 million.
In addition, all of the above adjustments were adjusted for the applicable tax impact.
20. Redeemable Noncontrolling Interest
Redeemable Noncontrolling Interest During fiscal year 2010, the Company and an investment
partner, Third Avenue formed Fleetwood Homes, Inc., with an initial contribution of $35.0 million
each for equal fifty-percent ownership interests. On July 21, 2009, Fleetwood Homes entered into an
asset purchase agreement with Fleetwood Enterprises, Inc. and certain of its subsidiaries to
purchase certain assets and liabilities of its manufactured housing business. On the acquisition
date, Fleetwood Homes acquired seven operating manufactured housing plants and two idle factories.
Fleetwood Homes also purchased all related equipment, accounts receivable, inventory, certain
trademarks and trade names, intellectual property, and specified contracts and leases; and assumed
express warranty liabilities pertaining to certain of the previous operations. The purchase price
of the transaction was $25.8 million and was paid in cash by Fleetwood Homes.
The Company and Third Avenue subsequently contributed $36.0 million each in anticipation of
the purchase of Palm Harbor, which was completed during the first quarter of fiscal year 2012. See
Notes 19 and 21 for further information.
The results of the Fleetwood Homes and Palm Harbor operations have been included in the
Consolidated Financial Statements and the related Notes since the respective acquisition dates in
accordance with the provisions of ASC 810. Management has determined that, under GAAP, although
Fleetwood Homes is only fifty-percent owned by the Company, Cavco has a controlling interest and is
required to fully consolidate the results of Fleetwood Homes. The primary factors that contributed
to this determination were Cavcos board and management control of Fleetwood Homes. To that end,
members of Cavcos management hold all of the seats on the board of directors of Fleetwood Homes.
In addition, as part of a management services agreement among Cavco, Fleetwood Homes and Third
Avenue, Cavco provides all executive-level management services to Fleetwood Homes including, among
other things, general management oversight, marketing and customer relations, accounting and cash
management. Third Avenues financial interest in Fleetwood Homes is considered a redeemable
noncontrolling interest, and is designated as such in the Consolidated Financial Statements.
Temporary Equity Classification ASC 480 Distinguishing Liabilities from Equity includes
guidance regarding the classification and measurement of redeemable securities, including a
requirement that equity instruments that are not required to be classified as liabilities be
classified as temporary equity and outside of permanent equity if they are redeemable (1) at a
fixed or determinable price on a fixed or determinable date, (2) at the option of the holder, or
(3) upon the occurrence of an event that is not solely within the control of the issuer.
In accordance with the Shareholder Agreement entered into among Fleetwood Homes and its
shareholders (Cavco and Third Avenue), as amended on November 30, 2010 (the Shareholder
Agreement), after the fifth anniversary of the Fleetwood Acquisition Date, (i.e. after August 17,
2014), or at any time after Fleetwood Homes has earned net income of at least $10.0 million in each
of its two most recently completed consecutive fiscal years, Third Avenue has the right (Put
Right) to require Cavco to purchase all of Third Avenues shares of Fleetwood Homes common stock
for an amount based upon a calculation that is designed to approximate fair value. Likewise, Cavco has the right (Call Right) to require Third Avenue
to sell all of its shares of Fleetwood Homes common stock based on the same timing and calculation
as described above for the Put Right. The conditions for the Put Right or Call Right to become
exercisable have not been met as of June 30, 2011.
The purchase price to be payable by Cavco for the purchase of Third Avenues shares pursuant
to the exercise of the Put Right or the Call Right may be settled in cash or shares of common stock
of Cavco. However, the circumstances under which net share settlement would be allowed are not
solely within the control of Cavco. The availability of net share settlement is dependent upon a
number of factors. For example, at the time of such purchase, Cavcos common stock must be listed
on either the NASDAQ or the New York Stock Exchange. In the case of Third Avenues exercise of its
Put Right, Cavco may elect to pay all or a portion of such purchase price in the form of shares of
common stock of Cavco. In the case of Cavcos exercise of its Call Right, Third Avenue may elect to
receive all or a portion of such purchase price in the form of shares of common stock of Cavco. In
addition, net share settlement would not be available if it were to lead to a change of control of
Cavco. If either Cavco or Third Avenue makes such election, the shares of Cavco common stock to be
issued to Third Avenue would be valued based on the average closing price of Cavcos common stock
for the sixty most recent trading days. There is no explicit cap on the maximum number of common
shares that could be potentially issuable upon redemption; therefore, GAAP requires that Third
Avenues noncontrolling interest in Fleetwood Homes be classified as a temporary equity mezzanine
item between liabilities and stockholders equity.
The carrying amount is subject to adjustment, after attribution of net income or loss of
Fleetwood Homes, if there are changes in the redemption value at the end of the reporting period.
For the period since the Fleetwood Acquisition Date through June 30, 2011, the Company determined
that the potential redemption value of the redeemable noncontrolling interest did not exceed its
carrying value and no adjustment was needed.
On December 1, 2010, the Company and Third Avenue entered into separate convertible note
payable agreements with their subsidiary, Fleetwood Homes, for $14.0 million each, convertible to
200 shares of Fleetwood Homes, Inc. common stock at the successful close of the contemplated Palm
Harbor transaction. The convertible notes were subsequently increased by $22.0 million each,
convertible to an additional 314.28 shares, for a total of $36.0 million per note in the fourth
quarter of 2011, convertible to 514.28 shares. The convertible notes bore interest of 2.5% per
annum. Concurrent with the successful completion of the acquisition of Palm Harbor Florida, all
outstanding convertible notes were converted to shares of Fleetwood Homes, Inc. on April 23, 2011
and redeemable noncontrolling interest increased by $36.0 million. Any right to interest income was
forfeited by the note holders upon conversion in accordance with the terms of the agreements.
22. Related Party Transactions
At June 30, 2011, Third Avenue Management LLC beneficially owned approximately 12.1% of our
outstanding common shares and thus meets the definition of a principal owner under FASB ASC 850,
Related Party Disclosures (ASC 850). Third Avenue Management LLC and Third Avenue are either
directly or indirectly under common control. Third Avenues participation in ownership of Fleetwood
Homes, the Fleetwood Homes transaction, convertible note payable, and the subsequent Palm Harbor
acquisition are therefore considered related party transactions in accordance with ASC 850.
23. 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 (loss) income from
operations by segment for the three months ended June 30, 2011 and 2010 (in thousands):
Managements Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following should be read in conjunction with the Companys Consolidated Financial
Statements and the related Notes that appear in Item 1 of this Report. References to Note or
Notes refer to the Notes to the Companys Consolidated Financial Statements.
Overview
Headquartered in Phoenix, Arizona, the Company designs and produces factory-built housing
products primarily distributed through a network of independent and company-owned retailers. We
are the second largest producer of HUD code manufactured homes in the United States, based on
reported wholesale shipments, and marketed under a variety of brand names including Cavco Homes,
Fleetwood Homes, Palm Harbor Homes and Nationwide Homes. The Company is also a leading producer of
park model homes, vacation cabins, modular homes, and systems-built commercial living structures.
Our mortgage subsidiary, CountryPlace, is an approved Fannie Mae and Ginnie Mae seller/servicer and
offers conforming mortgages to purchasers of factory-built and site-built homes. Our insurance
subsidiary, Standard, provides property and casualty insurance for owners of manufactured homes.
Company Growth
On June 30, 2003, Cavco became a stand-alone publicly held company after previously operating
as a wholly-owned subsidiary of Centex Corporation. Cavcos manufactured home factory and retail
operations were historically located in and primarily served the Southwest and South Central United
States housing markets.
On August 17, 2009, the Company and an investment partner, Third Avenue Value Fund (Third
Avenue), acquired certain manufactured housing assets and liabilities of Fleetwood Enterprises,
Inc. through their jointly owned corporation, Fleetwood Homes, Inc. (Fleetwood Homes), pursuant
to an auction process under Section 363 of the U.S. Bankruptcy Code. The Company and Third Avenue
each own 50% of Fleetwood Homes. Third Avenue Management is an investment advisor to Third Avenue
Value Fund and is a principal stockholder of the Company, as described further in Notes 20 and 22.
On November 29, 2010, Fleetwood Homes, through its wholly-owned subsidiary, Palm Harbor Homes,
Inc., a Delaware corporation (Palm Harbor Delaware), entered into an agreement (the Purchase
Agreement) with Palm Harbor Homes, Inc., a Florida corporation and certain of its subsidiaries
(Seller) to purchase substantially all of the assets and assume specified liabilities of Seller,
pursuant to an auction process under Section 363 of the U.S. Bankruptcy Code. On April 23, 2011
(the Acquisition Date), Palm Harbor completed the purchase of Sellers assets and the assumption
of specified liabilities, except for the stock of Standard Casualty Co. (Standard), pursuant to
the Amended and Restated Asset Purchase Agreement dated March 1, 2011. The aggregate gross
purchase price was $83.9 million and is exclusive of transaction costs, specified liabilities
assumed and post-closing adjustments. Of the purchase price, (i) approximately $45.3 million was
used to retire a debtor-in-possession loan previously made by Fleetwood Homes to Seller; and (ii)
$13.4 million was deposited in escrow pending regulatory approval to transfer the stock of Standard
Insurance to Palm Harbor. The purchase price was funded by Fleetwood Homes cash on hand along with
equal contributions from the Company and Third Avenue. On June 7, 2011, regulatory approval of the
acquisition of Standard was received from the Texas Department of Insurance and on June 10, 2011,
Palm Harbor completed the purchase of Standard. See Notes 18 and 19 for further information.
Financial information for Fleetwood Homes is included in the Companys Consolidated Financial
Statements and related Notes. The Company and Third Avenue has each contributed $71.0 million in
exchange for equal ownership interests in Fleetwood Homes. Although the Company holds a
fifty-percent financial interest in Fleetwood Homes, its results of operations are required to be
fully consolidated. Third Avenues financial interest in Fleetwood Homes is considered a
redeemable noncontrolling interest, as determined by GAAP, and is designated as such in the
Consolidated Financial Statements. See Note 1.
The Palm Harbor transaction included five operating manufactured housing production
facilities, idled factories in nine locations, 49 operating retail locations, one office building,
real estate, all related equipment, accounts receivable, customer deposits, inventory, certain
trademarks and trade names, intellectual property, and specified contracts and leases. Further,
Palm Harbor assumed certain liabilities including primarily debt facilities of CountryPlace (see
Note 19). In addition, Palm Harbor purchased all of the outstanding shares of CountryPlace
Acceptance Corp. with its wholly-owned finance subsidiaries (collectively, CountryPlace) and all
of the outstanding shares of Standard. Neither Palm Harbor nor the Company retained any debt from
the transaction other than financings pertaining to the continuing CountryPlace securitization
portfolio and a construction line of credit maintained in connection with ongoing mortgage loan
origination business activity.
Palm Harbors brand recognition is accompanied by its reputation for producing high quality
products with exceptional service after the sale. Strategically, the Palm Harbor transaction
strengthens the Companys position in Texas and surrounding states, which has traditionally been
among the strongest regions with demand for manufactured housing. We also gained a direct presence
in Florida, another historically large market for our industry, which we had not been able to serve
previously. Nationwide Homes, a Palm Harbor production facility based in Virginia adds an
innovative and creative line of larger modular homes, including multi-story units, built
specifically to state and local codes, often sold to local developers and development projects as
well as individuals. Palm Harbor also possesses unique marketing capabilities including internet
and other electronic techniques that may be expanded throughout other areas of the Company. The
purchase of the Palm Harbor assets also provides entry into financial and insurance businesses
specific to our industry.
We are in the process of expanding our product offerings throughout the combined organization
via the sharing of product designs, production methods and marketing strategies. The supportive
response by our customer base to the Palm Harbor and Fleetwood Homes acquisitions has been
encouraging. We expect to realize some operating efficiency improvements as a result of our larger
size and buying power although for a period of time, transaction costs and transition related
expenses will mask a portion of such savings. We plan to place a consistent focus on developing
synergies among all operations. Overall, we believe that these expansions will be positive
long-term strategic moves for the Company.
In addition to the five factories listed above, during the quarter ended June 30, 2011, the
Company operated homebuilding facilities located in Phoenix, Arizona; Goodyear, Arizona; Nampa,
Idaho; Woodburn, Oregon; Riverside, California; Waco, Texas; Seguin, Texas; Lafayette, Tennessee;
Douglas, Georgia; and Rocky Mount, Virginia, and owned two idle factories located in Woodland,
California and Phoenix, Arizona.
Cash and cash equivalents of the Company totaled approximately $33.5 million on June 30, 2011.
We believe this level of capitalization should provide resources to the operations of the Company
sufficient to endure depressed current market conditions and to establish a solid base for
continued growth as conditions improve.
Industry and Company Outlook
The manufactured housing industry and the Company continue to operate at low production and
shipment levels. According to data provided by the Manufactured Housing Institute (MHI), during
calendar year 2010 and 2009, our industry shipped approximately 50,000 HUD code manufactured homes
annually, the lowest levels since shipment statistics began to be recorded in 1959. This followed
approximately 82,000 homes shipped in calendar year 2008, which was the previous low. Yearly home
shipments from 2003 to 2009 were less than the annual home shipments for each of the 40 years from
1963 to 2002. For the past 10- and 20-year periods, annual home shipments averaged 137,000 and
214,000, respectively.
General economic challenges including low consumer confidence levels, unemployment and
underemployment, overall housing sector weakness, and restricted mortgage loan markets need to
diminish in order to spur annual industry and Company shipment levels. Low consumer confidence in
the U.S. economy is not conducive for potential customers to commit to a home purchase. In
addition, sales of our homes have been negatively affected by high unemployment rates and
underemployment. Consumer financing for the retail purchase of manufactured homes needs to become
more available before marked emergence from current
lows can occur. Restrictive underwriting guidelines, irregular appraisal processes, higher
interest rates compared to site-built homes, regulatory burdens, reductions in the number of
institutions lending to manufactured home buyers and limited secondary market availability for
manufactured home loans are significant restraints to industry growth. We are working directly and
through industry trade associations to encourage favorable legislative and government-sponsored
enterprise action to address the mortgage financing needs of potential buyers of affordable homes.
Although only limited progress has been made in this area, a meaningful positive impact in the form
of increased home orders at our factories has yet to be realized.
Competition from excess site-built home inventory is an issue that is also of concern.
Surplus homes creating the oversupply have various sources. Lender inventories of repossessed
site-built homes are significant and liquidation selling prices are often lower than the current
cost to build a similar home. Many on-site home builders with high inventory levels are offering
sizable incentives to homebuyers in order to be competitive with lender foreclosure pricing in
their sales areas. The resultant price points are low enough in many cases to truly compete with
manufactured housing. In turn, competing manufactured home providers are aggressively pricing
their products in efforts to obtain a portion of the constricted overall housing market. Lower
home prices and slow sales activity have also had an adverse impact on the contingency contract
process, wherein potential manufactured home buyers must sell their existing home in order to
facilitate the purchase of a new factory built home.
The Company has operated with low backlogs during the first quarter of fiscal year 2012. The
backlog of sales orders at June 30, 2011 varied among our fifteen factories, but in total was $20.0
million, or approximately three weeks of current production levels.
Inventory financing for the industrys retail distribution chain continues to be in short
supply. Faced with illiquid capital markets in late calendar year 2008, each of the manufactured
housing sectors remaining inventory finance lenders initiated significant changes, including one
companys announcement to cease lending activities in this industry entirely. The involvement of
others is subject to more restrictive terms that continue to evolve. As most retailers require
financing to maintain inventories of homes, the Company partnered with several lenders to help
provide this type of inventory financing. In connection with certain of these participation
inventory finance programs, the Company provides a significant amount of the funds that independent
financiers lend to distributors to finance retail inventories of our products. In addition, the
Company has entered into direct inventory finance arrangements with distributors of our products
wherein the Company provides all of the inventory finance funds (see
Note 6). The Companys
participation in inventory finance has increased the availability of manufactured home inventory
financing to distributors of our products. We believe that our expanding involvement in the
wholesale financing of inventory is quite helpful to distributors and allows our homes continued
exposure to potential homebuyers in the face of intense competitive forces from other manufactured
homebuilders. These initiatives support the Companys ongoing efforts to expand our distribution
base in all of our markets with existing and new customers.
The two largest manufactured housing consumer demographics, young adults and those who are 55+
years old, are both growing. Household formation is estimated to increase as the young adult
population rises with the growth in the 25 to 34-year-old age bracket, known as the echo boom
generation. This generation is attracted by the affordability, diversity of style choices and
flexibility as to the location of their home. The age 55 and older category is reported to be the
fastest growing segment of the U.S. population. This group is similarly interested in the value
proposition; however, they are also motivated by the low maintenance requirements of factory built
homes, and by the lifestyle offered by planned communities that are specifically designed for
manufactured homes owners in this age group.
The national rental vacancy rate has been recently reported to be declining. Rental housing
competes directly with many of our product offerings, and reductions in rental availability and
increases in the cost of renting may have the effect of shifting interested buyers to other housing
alternatives including manufactured homes.
With manufacturing centers strategically positioned across the nation, we utilize local market
research to design homes to meet the demands of our customers. We have the ability to react and
modify floor plans and designs to consumers specific needs. By offering a full range of homes from
entry level models to large
custom homes and with the ability to engineer designs in-house, we can accommodate virtually
any customer request. In addition to homes built to the Federal HUD code, we maintain the
capability to build modular homes to state and local codes, park models and cabins, and light
commercial buildings at many of our manufacturing facilities.
Company-wide, we have intensified our efforts to identify niche market opportunities where our
diverse product lines and custom building capabilities provide our company with a competitive
advantage. Green construction processes and environmentally-friendly building materials have long
been a part of our home-building process and their popularity is expected to grow. We have a wide
array of building materials that, combined with our building process, we believe give us a green
advantage over other home builders. Many of the homes we build meet Energy Star standards. Building
green also significantly reduces greenhouse gas emissions without sacrificing features, style or
comfort. From bamboo flooring and tankless water heaters to solar-powered homes, our products are
diverse and tailored to a wide range of consumer interests. Innovation in housing design is a
forte of the Company and we continue to introduce new models at competitive price points with
expressive interiors and exteriors that complement home styles in the areas in which they are
located.
Prospects are good for the systems-built housing industry as it provides enhanced quality
homes with a more efficient use of labor and better controlled material usage resulting in lower
cost to the consumer, compared to on-site construction methods. Our Company has a demonstrated
ability to operate effectively and efficiently at low levels of capacity utilization characteristic
of the industry recently. In addition, the Company has worked diligently to maintain a solid
financial position. Our balance sheet strength should help us to avoid the liquidity problems
faced by many other companies and enable us to act effectively as market opportunities present
themselves.
We were recently named the 2011 Manufacturer of the Year by MHI, the factory-built home
industrys national trade organization, for the second consecutive year. In addition, both Cavco
and Palm Harbor received several design awards from MHI. These honors are a reflection of our
valued employees, customers and vendors and we appreciate the recognition.
In January 2008, we announced a stock repurchase program. A total of $10 million may be used
to repurchase our outstanding common stock. The repurchases may be made in the open market or in
privately negotiated transactions in compliance with applicable state and federal securities laws
and other legal requirements. The level of repurchase activity is subject to market conditions and
other investment opportunities. The plan does not obligate us to acquire any particular amount of
common stock and may be suspended or discontinued at any time. The repurchase program will be
funded using our available cash. No repurchases have been made under this program to date.
Regulatory Developments
The American Housing Rescue and Foreclosure Prevention Act was enacted in 2008 to provide
assistance by way of legislation for the housing industry, including the manufactured housing
industry. Among other things, the act provides for increased loan limits for chattel (home-only
Title I) loans to $69,678, up 43% from the previous limit of $48,600 set in 1992. New Federal
Housing Administration (FHA) Title I program guidelines became effective on June 1, 2010. On June
10, 2010, the Government National Mortgage Association (Ginnie Mae) began accepting applications by
lenders for participation as issuers of mortgage backed securities backed by Title I loans
originated under the new program. Ginnie Mae released related pooling guidelines in November 2010.
The issuance of these guidelines provides Ginnie Mae the ability to securitize manufactured home
FHA Title I loans. This will allow lenders to obtain new capital, which can then be used to fund
new loans for our customers. Chattel loans have languished in recent years and these changes are
meant to broaden opportunities for prospective homeowners. However, a meaningful positive impact
in the form of increased home orders at our factories has yet to be realized.
Results of Operations (Dollars in thousands, except average sales price amounts)
Three months ended June 30, 2011 compared to 2010
Net Sales. Total net sales increased 108.4% to $98,981 for the three months ended June 30,
2011 compared to $47,505 for the comparable quarter last year. The fiscal year 2012 results
include the Palm Harbor operations, which were acquired on April 23, 2011, and from that date
forward are included in the results of fiscal year 2012.
Gross Profit. Gross profit as a percent of sales increased to 16.3% for the three months
ended June 30, 2011 from 13.6% for the same period last year. Including the Palm Harbor
operations, the Companys combined manufacturing operations sold 1,851 homes during the three
months ended June 30, 2011, compared to 1,316 homes during the comparable period last year. While
the average sales price per home improved, the improvement in gross profit was mainly the result of
the added Palm Harbor finance and insurance subsidiaries, which are generally higher-margin
businesses.
Selling, General and Administrative Expenses. Selling, general and administrative expenses
increased 224.5% or $11,754 to $16,990, or 17.2% of net sales, for the three months ended June 30,
2011 versus $5,236 or 11.0% of net sales, for the same period last year. The increase is primarily
a result of the addition of the Palm Harbor businesses. The current period amount included $744 of
costs related to the acquisition of Palm Harbor that were expensed as incurred.
Interest Expense. Interest expense of $1,461 consists of debt service on securitization
financings connected to the CountryPlace Mortgage securitized manufactured home loan portfolios.
Other Income. Other income represents interest income earned on inventory finance notes
receivable and debtor-in-possession note receivable. Other income increased 100% to $360 for the
three months ended June 30, 2011 as compared to $180 during the prior year period.
Income Taxes. For the three-month periods ended June 30, 2011 and 2010, the effective income
tax rate was approximately 32% and 39%, respectively.
Net Income. Net income attributable to Cavco stockholders for the three months ended June 30,
2011 was $8,608 compared to $518 for the comparable quarter last year.
See Note 19 for further discussion of the Palm Harbor transaction.
Liquidity and Capital Resources (Dollars in thousands)
We believe that cash and cash equivalents at June 30, 2011, together with cash flow from
operations, will be sufficient to fund our operations and provide for growth for the next twelve
months and into the foreseeable future. Because of the Companys sufficient cash position, the
Company has not sought, nor does it have access to, external sources of liquidity, such as a credit
facility; however, depending on our operating results and strategic opportunities, we may need to
seek additional or alternative sources of financing. There can be no assurance that such financing
would be available on satisfactory terms, if at all. If this financing were not available, it could
be necessary for us to reevaluate our long-term operating plans to make more efficient use of our
existing capital resources. The exact nature of any changes to our plans that would be considered
depends on various factors, such as conditions in the factory-built housing industry and general
economic conditions outside of our control.
Projected cash to be provided by or used in operations in the coming year is largely dependent
on sales volume. Operating activities provided $5,202 of cash during the three months ended June
30, 2011 as compared to $884 during the same period last year. Cash provided by operating
activities during the current period was primarily the result of cash generated by the new finance
subsidiaries including proceeds from sales of consumer loans and collecting principal payments on
consumer loans originated. These increases were supplemented by increases of accounts payable and
accrued liabilities, offset in part by the volume of consumer loans
originated and
increases in prepaid assets and accounts receivable. Cash provided by operating
activities during the three months ended June 30, 2010 was primarily the result of operating income
before non-cash charges and increases in accrued liabilities, primarily accrued salaries, wages and
benefits, offset in part by additional net funding of inventory finance initiatives.
Investing
activities required the use of $28,551 of cash during the three months ended June
30, 2011 compared to the use of $237 of cash during the same period last year. Cash used by
investing activities in the current period was primarily for funds to complete the acquisition of
the assets and assumption of specified liabilities of Palm Harbor Homes, Inc. under the asset
purchase agreement and debtor-in-possession credit facility, as discussed in Notes 18 and 19, and
capital expenditures in all of our operations. Cash used by investing activities in the prior year
period was comprised primarily of normal recurring capital expenditures in all of our factories.
Financing activities required the use of $19,627 in cash during the three months ended June
30, 2011 consisting of $19,456 used to retire a certain debt obligation of the Companys new
subsidiary, CountryPlace Acceptance Corp., on May 10, 2011 (see Note 19), offset in part by $1,436
from the issuance of common stock under our stock incentive plans. No financing activities
occurred during the three months ended June 30, 2010.
Critical Accounting Policies
In Part II, Item 7 of our Form 10-K, under the heading Critical Accounting Policies, we have
provided a discussion of the critical accounting policies that management believes affect its more
significant judgments and estimates used in the preparation of our Consolidated Financial
Statements.
Recent Accounting Pronouncements
In July 2010, the FASB issued ASU 2010-20, Receivables (Topic 310): Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit Losses, which requires
entities to provide new disclosures in their financial statements about their financing
receivables, including credit risk exposures and the allowance for credit losses on a disaggregated
basis. The ASU is effective for public entities for reporting periods ending on or after December
15, 2010 for disclosures of financing receivables as of the end of a reporting period. The
disclosures related to activity that occurs during a reporting period are required to be adopted
for periods beginning on or after December 15, 2010. In April 2011, the FASB issued ASU 2011-02, A
Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. ASU 2011-02
clarifies when creditors should classify loan modifications as troubled debt restructurings. In
addition, ASU 2011-02 deferred the effective date of the disclosures about troubled debt
restructurings in ASU 2010-20 to periods beginning after June 15, 2011. The Company adopted the
provisions of ASU 2010-20 relating to period-end disclosures as of December 31, 2010, and the
remaining provisions during the quarter ended March 31, 2011, except for the disclosures related to
troubled debt restructurings, which will be effective for the Companys quarter ending September
30, 2011. The Company is currently evaluating the effect ASU 2011-02 will have on the Companys
disclosures in the Notes to the Consolidated Financial Statements.
In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805): Disclosure
of Supplementary Pro Forma Information for Business Combinations. The amendments in this update are
effective prospectively for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2010. The
amendments affected the Companys disclosures of pro forma information surrounding the Palm Harbor
acquisition, see Note 19.
In June 2011, the FASB issued Accounting Standards Update (ASU) 2011-05, Comprehensive
Income (Topic 220): Presentation of Comprehensive Income. The amendments to this update are
effective for public companies for fiscal years, and interim periods within those years, beginning
after December 15, 2011. In this update, an entity has the option to present the total of
comprehensive income, the components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. In both choices, an entity is required to present each component of net
income along with total net income, each component of other comprehensive income along with a total
for other comprehensive income, and a total amount for comprehensive income. This update
eliminates the option to present the components of other comprehensive income as part of the
statement of changes in stockholders equity. The Company is currently evaluating the effect ASU
2011-05 will have on the Companys disclosures in the Notes to Consolidated Financial Statements.
From time to time, new accounting pronouncements are issued by the FASB or the SEC that are
adopted by the Company as of the specified effective dates. Unless otherwise discussed, management
believes that the impact of recently issued standards, which are not yet effective, will not have a
material impact on the Companys Consolidated Financial Statements upon adoption.
Forward-looking Statements
Forward-looking statements involve risks, uncertainties and other factors, which may cause our
actual results, performance or achievements to be materially different from those expressed or
implied by such forward-looking statements. In addition to the Risk Factors described in Part I,
Item 1A. Risk Factors in our Form 10-K, factors that could affect our results and cause them to
materially differ from those contained in the forward-looking statements include, but are not
limited to:
We operate in an industry that is currently experiencing a
prolonged and significant downturn;
Tightened credit standards and curtailed lending activity by
home-only lenders have contributed to a constrained consumer financing
market, which may continue or could intensify;
The availability of wholesale financing for industry retailers
is limited due to a reduced number of floor plan lenders and reduced
lending limits;
Our operating results could be affected by market forces and
declining housing demand;
We have incurred net losses in certain prior periods and there
can be no assurance that we will generate income in the future;
A write-off of all or part of our goodwill could adversely
affect our operating results and net worth;
The cyclical and seasonal nature of the manufactured housing
industry causes our revenues and operating results to fluctuate, and
we expect this cyclicality and seasonality to continue in the future;
Our liquidity and ability to raise capital may be limited;
We have contingent repurchase obligations related to wholesale
financing provided to industry retailers;
The manufactured housing industry is highly competitive, and
competition may increase the adverse effects of industry conditions;
If we are unable to establish or maintain relationships with
independent retailers who sell our homes, our sales could decline;
Our results of operations can be adversely affected by labor
shortages and the pricing and availability of raw materials;
If the manufactured housing industry is not able to secure
favorable local zoning ordinances, our sales could decline and our
business could be adversely affected;
The loss of any of our executive officers could reduce our
ability to execute our business strategy and could have a material
adverse effect on our business and results of operations;
Certain provisions of our organizational documents could delay
or make more difficult a change in control of our Company;
Deterioration in economic conditions in general and continued
turmoil in the credit markets could reduce our earnings and financial
condition;
We may not be able to successfully integrate Fleetwood Homes,
Palm Harbor, and any future acquisition or attain the anticipated
benefits of such acquisition and the acquisition of Fleetwood Homes,
Palm Harbor and any future acquisition may adversely impact the
Companys liquidity;
Our increasing participation in certain wholesale financing
programs for the purchase of our products by industry retailers
exposes us to additional risk of credit loss, which could adversely
impact the Companys liquidity and results of operations; and
Our expansion of retail and manufacturing businesses and entry
into new lines of business, namely manufactured housing consumer
finance and insurance, through the Palm Harbor transaction could
expose the Company to additional risks.
We may make additional written or oral forward-looking statements from time to time in filings
with the SEC or in public news releases or statements. Such additional statements may include, but
are not limited to, projections of revenues, income or loss, capital expenditures, acquisitions,
plans for future operations, financing needs or plans, the impact of inflation and plans relating
to our products or services, as well as assumptions relating to the foregoing.
Statements in this Report on Form 10-Q, including those set forth in this section, may be
considered forward looking statements within the meaning of Section 21E of the Securities Act of
1934. These forward-looking statements are often identified by words such as estimate,
predict, hope, may, believe, anticipate, plan, expect, require, intend, assume,
and similar words.
Forward-looking statements contained in this Report on Form 10-Q speak only as of the date of
this report or, in the case of any document incorporated by reference, the date of that document.
We do not intend to publicly update or revise any forward-looking statement contained in this
Report on Form 10-Q or in any document incorporated herein by reference to reflect changed
assumptions, the occurrence of unanticipated events or changes to future operating results over
time.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market prices and interest
rates. We may from time to time be exposed to interest rate risk inherent in our financial
instruments, but are not currently subject to foreign currency or commodity price risk. We manage
our exposure to these market risks through our regular operating and financing activities.
Our operations are interest rate sensitive. As overall manufactured housing demand can be
adversely affected by increases in interest rates, a significant increase in wholesale or mortgage
interest rates may negatively affect the ability of retailers and home buyers to secure financing.
Higher interest rates could unfavorably impact our revenues, gross margins and net earnings. Our
business is also sensitive to the effects of inflation, particularly with respect to raw material
and transportation costs. We may not be able to offset inflation through increased selling prices.
CountryPlace is exposed to market risk related to the accessibility and terms of long-term
financing of its loans. In the past, CountryPlace accessed the asset-backed securities market to
provide term financing of its chattel and non-conforming mortgage originations. At present,
asset-backed and mortgage-backed securitization markets are effectively closed to CountryPlace and
other manufactured housing lenders. Accordingly, it is unlikely that CountryPlace can continue to
securitize its loan originations as a means to obtain long-term funding. This inability to
continue to securitize its loans caused CountryPlace to discontinue origination of chattel loans
and non-conforming mortgages until other sources of funding are available.
We are also exposed to market risks related to our fixed rate consumer loans receivable
balances. For fixed rate loans receivable, changes in interest rates do not change future earnings
and cash flows from the receivables. However, changes in interest rates could affect the fair
market value of the loan portfolio. Assuming CountryPlaces level of loans held for investment as
of June 30, 2011 is held constant, a 10% increase in average
interest rates would decrease the fair
value of CountryPlaces portfolio by approximately $4 million.
Certain
of our inventory finance notes receivable and securitized financings have fixed interest rates as well. For
fixed rate instruments, changes in interest rates do not change future earnings and cash flows from
the receivables. However, changes in interest rates could affect the fair market value of the loan
portfolio.
We carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934
(Exchange Act) Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of the period covered in this
report, our disclosure controls and procedures were effective.
(b) Changes In Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended June 30,
2011, which have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Information regarding reportable legal proceedings is contained in Part I, Item 3, Legal
Proceedings, in our Form 10-K. The following describes legal proceedings, if any, that became
reportable during the quarter ended June 30, 2011, and, if applicable, amends and restates
descriptions of previously reported legal proceedings in which there have been material
developments during such quarter.
We are party to certain legal proceedings that arise in the ordinary course and are incidental
to our business. Certain of the claims pending against us in these proceedings allege, among other
things, breach of contract and warranty, product liability, construction defect and personal
injury. Although litigation is inherently uncertain, based on past experience and the information
currently available, management does not believe that the currently pending and threatened
litigation or claims will have a material adverse effect on the Companys consolidated financial
position, liquidity or results of operations. However, future events or circumstances currently
unknown to management will determine whether the resolution of pending or threatened litigation or
claims will ultimately have a material effect on our consolidated financial position, liquidity or
results of operations in any future reporting periods.
Item 1A.
Risk Factors
In addition to the other information set forth in this Report, you should carefully consider
the factors discussed in Part I, Item 1A, Risk Factors, in our Form 10-K, which could materially
affect our business, financial condition or future results. The risks described in this Report and
in our Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition and/or operating results.
Item 6.
Exhibits
See Exhibit Index.
All other items required under Part II are omitted because they are not applicable.
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 thereunto duly authorized.
Certificate of Amendment of Restated Certificate of Incorporation
3.3
(3)
Amended and Restated Bylaws
10.1
(4)
Amendment to the Cavco Industries, Inc. Stock Incentive Plan
10.2
(5)
First Amendment to the Cavco Industries, Inc. 2005 Stock Incentive Plan
10.3
(6)
Vice President and Chief Financial Officer Incentive Plan for Fiscal Year 2011
10.4
(6)
Chief Executive Officer Incentive Plan for Fiscal Year 2011
10.5
(7)
Debtor-In-Possession Revolving Credit Agreement dated November 29, 2010
10.6
(8)
Security Agreement dated November 29, 2010
10.7
(9)
Asset Purchase Agreement dated November 29, 2010
10.8
(10)
Amendment to Employment Agreement, dated December 29, 2010, between Joseph H.
Stegmayer and Cavco
10.9
(11)
Amended and Restated Employment Agreement dated June 30, 2011, by and between
Cavco Industries, Inc. and Joseph H. Stegmayer
31.1
*
Certification of the Principal Executive Officer Pursuant to Rule 13-14(a)
under the Securities Exchange Act of 1934
31.2
*
Certification of the Principal Financial Officer pursuant to Rule 13-14(a)
under the Securities Exchange Act of 1934
32
**
Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(1)
Incorporated by reference to Exhibit 3.1 of the Annual Report on Form 10-K for the fiscal
year ended March 31, 2004
(2)
Incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2006
(3)
Incorporated by reference to Exhibit 3.2 of the Annual Report on Form 10-K for the fiscal
year ended March 31, 2004
(4)
Incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010
(5)
Incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q for the
quarter ended June 30, 2010
(6)
Incorporated by reference to the Periodic Report on Form 8-K filed on May 27, 2010
(7)
Incorporated by reference to Exhibit 10.1 of the Periodic Report on Form 8-K filed on
November 29, 2010
(8)
Incorporated by reference to Exhibit 10.2 of the Periodic Report on Form 8-K filed on
November 29, 2010
(9)
Incorporated by reference to Exhibit 10.3 of the Periodic Report on Form 8-K filed on
November 29, 2010
(10)
Incorporated by reference to Exhibit 10.8 of the Quarterly Report on Form 10-Q filed on
February 9, 2011
(11)
Incorporated by reference to Exhibit 10.1 of the Periodic Report on Form 8-K filed on July 5,
2011
Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Joseph H. Stegmayer, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Cavco Industries, Inc.;
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this 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 report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b.
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d.
Disclosed in this report any change in the registrants internal control
over financial reporting that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of registrants board of directors (or persons performing
the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrants ability to record, process, summarize and
report financial information; and
b.
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting.
Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Daniel L. Urness, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Cavco Industries, Inc.;
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this 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 report;
4.
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b.
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c.
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d.
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and
5.
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of registrants board of directors (or persons performing
the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and report
financial information; and
b.
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting.
Dated: August 9, 2011
By:
/s/ Daniel L. Urness
Daniel L. Urness
Vice President, Treasurer and
Chief Financial Officer
EX-32
4
c21097exv32.htm
EXHIBIT 32
Exhibit 32
Exhibit 32
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Cavco Industries, Inc. (the Registrant) on Form
10-Q for the period ending June 30, 2011, as filed with the Securities and Exchange Commission on
the date hereof (the Report), we, Joseph H. Stegmayer and Daniel L. Urness, Chief Executive
Officer and Chief Financial Officer, respectively, of the Registrant, certify, pursuant to 18
U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Registrant.
August 9, 2011
/s/ Joseph H. Stegmayer
Joseph H. Stegmayer
Chairman, President and
Chief Executive Officer
/s/ Daniel L. Urness
Daniel L. Urness
Vice President, Treasurer and
Chief Financial Officer
EX-101.INS
5
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<div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b>
</div>
<div align="center" style="font-size: 10pt"><b></b></div>
<div align="center" style="font-size: 10pt"><b></b></div>
<div align="center" style="font-size: 10pt">
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>1. Basis of Presentation</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The accompanying Consolidated Financial Statements of Cavco Industries, Inc., and its
subsidiaries (collectively, the “Company” or “Cavco”), have been prepared without audit pursuant to
the rules and regulations of the Securities and Exchange Commission (“SEC”) for Quarterly Reports
on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance with generally
accepted accounting principles (“GAAP”) in the United States of America have been condensed or
omitted pursuant to such rules and regulations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In the opinion of management, these statements include all of the normal recurring adjustments
necessary to fairly state the Company’s Consolidated Financial Statements. The Consolidated
Statements of Operations and Consolidated Statements of Cash Flows for the interim periods are not
necessarily indicative of the results or cash flows for the full year. Certain prior period amounts
have been reclassified to conform to current period classification. The Company has evaluated
subsequent events after the balance sheet date of June 30, 2011 through the date of the filing of
this report with the SEC and there were no disclosable subsequent events. The Company suggests
that these Consolidated Financial Statements be read in conjunction with the audited Consolidated
Financial Statements and the Notes to Consolidated Financial Statements included in the Company’s
Annual Report on Form 10-K filed with the SEC on June 3, 2011 (the “Form 10-K”).
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During fiscal year 2010, the Company and an investment partner, Third Avenue Value Fund
(“Third Avenue”), formed Fleetwood Homes, Inc. (“Fleetwood Homes”), with a contribution of $35.0
million each for equal fifty-percent ownership interests. On August 17, 2009, Fleetwood Homes
acquired seven operating manufactured housing plants, two idle factories, all related equipment,
accounts receivable, inventory, certain trademarks and trade names, intellectual property, and
specified contracts and leases; and assumed express warranty liabilities pertaining to certain of
the previous operations of a predecessor company.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The results of the Fleetwood Homes operations have been included in the Consolidated Financial
Statements and the related Notes in accordance with the provisions of Financial Accounting
Standards Board Accounting Standards Codification (“FASB ASC”) 810, <i>Consolidation </i>(“ASC 810”).
Management has determined that, under GAAP, although Fleetwood Homes is only fifty-percent owned by
the Company, Cavco has a controlling interest and is required to fully consolidate the results of
Fleetwood Homes. The primary factors that contributed to this determination were Cavco’s board and
management control of Fleetwood Homes. To that end, members of Cavco’s management hold all of the
seats on the board of directors of Fleetwood Homes. In addition, as part of a management services
agreement among Cavco, Fleetwood Homes and Third Avenue, Cavco provides all executive-level
management services to Fleetwood Homes including, among other things, general management oversight,
marketing and customer relations, accounting and cash management. Third Avenue’s financial
interest in Fleetwood Homes is considered a “redeemable noncontrolling interest,” and is designated
as such in the Consolidated Financial Statements (see Note 20).
</div>
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<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During fiscal year 2011, Fleetwood Homes, through its wholly-owned subsidiary, Palm Harbor
Homes, Inc., a Delaware corporation (“Palm Harbor” or “Palm Harbor Delaware”), entered into an
agreement (the “Purchase Agreement”) with Palm Harbor Homes, Inc., a Florida corporation, and
certain of its subsidiaries (collectively “Palm Harbor Florida”) to purchase substantially all of
the assets and assume specified liabilities of Palm Harbor Florida, pursuant to an auction process
under Section 363 of the U.S. Bankruptcy Code. The effective date of the transaction was April 23,
2011 (the “Acquisition Date”), except for the stock of Standard Casualty Co. The aggregate gross
purchase price was $83.9 million and is exclusive of transaction costs, specified liabilities
assumed and post-closing adjustments. Approximately $45.3 million of the purchase price was used to
retire the Debtor-In-Possession (“DIP”) loan previously made by Fleetwood Homes to Palm Harbor
Florida. The purchase price was funded by Fleetwood Homes’ cash on hand, along with equal
contributions of $36.0 million each from the Company and Third Avenue. On June 7, 2011, regulatory
approval of the acquisition of Standard Casualty Co. was received from the Texas Department of
Insurance and on June 10, 2011 (the “SCC Acquisition Date”), Palm Harbor Delaware completed the
purchase of the insurance subsidiary.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Palm Harbor Delaware acquired five operating manufactured housing production facilities, idled
factories in nine locations, 49 operating retail locations, one office building, real estate, all
related equipment, accounts receivable, customer deposits, inventory, certain trademarks and trade
names, intellectual property, and specified contracts and leases. In addition, as of the
Acquisition Date, Palm Harbor Delaware purchased all of the outstanding shares of CountryPlace
Acceptance Corp., CountryPlace Mortgage, Ltd. and their wholly-owned finance subsidiaries
(collectively, “CountryPlace”). Palm Harbor Delaware also acquired all of the outstanding shares of
Standard Casualty Co., Standard Insurance Agency, Inc. and its subsidiary (collectively,
“Standard”). Further, Palm Harbor Delaware assumed certain liabilities of Palm Harbor Florida,
including primarily debt facilities of the finance subsidiaries (see Note 19). The results of the
Palm Harbor operations since the Acquisition Date have been included in the Consolidated Financial
Statements and the related Notes in accordance with the provisions of ASC 810.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Revenue Recognition. </i>Revenue from homes sold to independent retailers is generally recognized
when the home is shipped, at which time title passes to the independent retailer, and
collectability is reasonably assured. Homes sold to independent retailers are generally either
paid for prior to shipment or floorplan financed by the independent retailer through standard
industry arrangements, which include repurchase agreements. Manufacturing sales financed under
repurchase agreements are reduced by a provision for estimated repurchase obligations (see Note
12). The recognition of revenue from homes sold under inventory finance programs involving funds
provided by the Company is deferred until such time that payment for the related inventory finance
note receivable is received by the Company (see Note 6). Retail sales by Company-owned retail
locations are recognized when funding is reasonably assured, the customer has entered into a
legally binding sales contract, title has transferred and the home is accepted by the customer,
delivered and permanently located at the customer’s site.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At the Acquisition Date, management evaluated consumer loans receivable held for investment to
determine whether there was evidence of deterioration of credit quality prior to acquisition and if
it was probable that the Company would be unable to collect all amounts due according to the loan’s
contractual terms. The Company also considered expected prepayments and estimated the amount and
timing of undiscounted expected principal, interest and other cash flows. The Company determined
the excess of the pool’s scheduled contractual principal and contractual interest payments over the undiscounted
cash flows expected as of the acquisition date as an amount that should not be accreted (the
non-accretable difference). The remaining difference is accreted into interest income over the
remaining life of the loans (referred to as accretable yield). Interest income on consumer loans
receivable is recognized as net sales.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Interest income on consumer loans receivable originated after the Acquisition Date is
recognized in net sales on an accrual basis. When a loan held for investment is determined to be
partially or fully uncollectible, the estimated loss is charged against the allowance for loan
losses. Recoveries on losses previously charged to the allowance are credited to the allowance at
the time the recovery is collected. For loans held for investment originated after the acquisition,
loan origination fees are deferred and amortized into net sales over the contractual life of the
loan using the interest method. For loans held for sale, loan origination fees and gains or losses
on sales are recognized upon sale of the loans.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Premium income from insurance policies is recognized on an as earned basis. Premium amounts
collected are amortized into net sales over the life of the policy. Policy acquisition costs are
also amortized as cost of sales over the life of the policy.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Management regularly makes an assessment to determine whether a decline in value of an
individual security is other-than-temporary. The Company considers the following factors when
making its assessment: (1) the Company’s ability and intent to hold the investment to maturity, or
a period of time sufficient to allow for a recovery in market value; (2) whether it is probable
that the Company will be able to collect the amounts contractually due; and (3) whether any
decision has been made to dispose of the investment prior to the balance sheet date. Investments
on which there is an unrealized loss that is deemed to be other-than-temporary are written down to
fair value with the loss recorded in earnings.
</div>
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<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Consumer Loans Receivable. </i>Consumer loans receivable consists of manufactured
housing loans originated by CountryPlace (securitized, held for investment, or held for sale) and
construction advances on non-conforming mortgages. CountryPlace was acquired on April 23, 2011 in
conjunction with the Palm Harbor transaction. The fair value of consumer loans receivable was
calculated as of the Acquisition Date, as determined by the present value of expected future cash
flows, with no allowance for loan loss recorded. The difference between the undiscounted cash flows
expected and the investment in the loan is recognized as interest income on a level-yield method
over the life of the loan. Increases in expected cash flows subsequent to the acquisition are
recognized prospectively through adjustment of the yield on the loans over the remaining life.
Decreases in expected cash flows subsequent to the acquisition are recognized as an allowance for
loan loss. Interest income on consumer loans receivable is recognized in net sales.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Loans held for investment consist of loan contracts collateralized by the borrowers’ homes
and, in some instances, related land. Construction loans in progress are stated at the aggregate
amount of cumulative funded advances. Loans held for sale consist of loan contracts collateralized
by single-family residential mortgages. Loans held for sale are stated at the lower of cost or
market on an aggregate basis. Loans held for sale are loans that, at the time of origination, are
originated with the intent to resell in the mortgage market to investors, such as the Federal
National Mortgage Association (FNMA or Fannie Mae), with which the Company has pre-existing
purchase agreements, or to sell as part of a Government National Mortgage Association (GNMA or
Ginnie Mae)-insured pool of loans.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Prior to being acquired by the Company, on July 12, 2005 and March 22, 2007, CountryPlace
completed two securitizations of factory-built housing loan receivables. These two securitizations
were accounted for as financings, which use the portfolio method of accounting in accordance with
ASC 310, <i>Receivables — Nonrefundable Fees and Other </i>(“ASC 310”).
The securitizations included
provisions for removal of accounts by CountryPlace and other factors that preclude sale accounting
of the securitizations under ASC 860, <i>Transfers and Servicing</i>. Both securitizations were accounted
for as securitized borrowings.
The Company acquired the consumer loans receivable and related
securitized financings during the first quarter of fiscal 2012 as a part of the Palm Harbor
transaction. Since the Acquisition Date, the acquired securitized financings are accounted for in
a manner similar to ASC 310-30, <i>Loans and Debt Securities Acquired with Deteriorated Credit Quality</i>
(“ASC 310-30”).
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Certain direct loan origination costs for loans held for investment originated after the acquisition are deferred and amortized
over the estimated life of the portfolio and amortized using the effective interest method.
Certain direct loan origination costs for loans held for sale are expensed as incurred.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Allowance for Loan Losses. </i>The allowance for loan losses reflects CountryPlace’s judgment of
the probable loss exposure on their loans originated since the Date of Acquisition in the held for
investment portfolio as of the end of the reporting period. CountryPlace’s loan portfolio is
comprised of loans related primarily to factory-built Palm Harbor homes. The allowance for loan
losses is developed at a portfolio level, as pools of homogeneous loans, and not allocated to
specific individual loans or to impaired loans. A range of probable losses is calculated after
giving consideration to, among other things, the composition of the loan portfolio, including
historical loss experience by static pool, expected probable losses based on industry experience
for a given range of borrower credit scores, the composition of the portfolio by credit score and
seasoning, loan type characteristics, and recent loss experience. CountryPlace then makes a
determination of the best estimate within the range of loan losses.
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<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">CountryPlace accounts for the loans that were acquired in the Palm Harbor transaction in a
manner similar to ASC 310-30. At the date of acquisition, management evaluated such loans to
determine whether there was evidence of deterioration of credit quality since acquisition and if it
was probable that CountryPlace would be unable to collect all amounts due according to the loans’
contractual terms.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Over the life of the loans, the Company continues to estimate cash flows expected to be
collected. The Company evaluates at the balance sheet date whether the present value of its loans
determined using the effective interest rate, has decreased and if so, recognizes an allowance for
loan loss subsequent to the acquisition date. The present value of any subsequent increase in the
loan pool’s actual cash flows expected to
be collected is used first to reverse any existing allowance for loan loss. Any remaining
increase in cash flows expected to be collected adjusts the amount of accretable yield recognized
on a prospective basis over the loan pool’s remaining life. See Note 5.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Loans are placed on nonaccrual status when either principal or interest is past due and
remains unpaid for 120 days or more or when there is a clear indication that the borrower has the
inability or unwillingness to meet payments as they become due. Payments received on nonaccrual
loans are accounted for on a cash basis, first to interest and then to principal. Upon determining
that a nonaccrual loan is impaired, interest accrued and the uncollected receivable prior to
identification of nonaccrual status is charged to the allowance for loan losses.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company has modified payment amounts and/or interest rates for borrowers that, in
management’s judgment, exhibited the willingness and ability to continue to pay and met certain
other conditions. These modified loans were considered to be troubled debt restructurings. The
Company no longer considers modified loans to be troubled debt restructurings once the modified
loan is seasoned for six months, is not delinquent and is at a market rate of interest.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Investment Securities. </i>Management determines the appropriate classification of its investment
securities at the time of purchase. The Company’s investments include marketable debt and equity
securities that are held as available-for-sale. All investments classified as available-for-sale
are recorded at fair value with any unrealized gains and losses reported in accumulated other
comprehensive income (loss), net of tax if applicable. Realized gains and losses from the sale of
securities are determined using the specific identification method.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Other Income. </i>Other income totals $360,000 and $180,000 in the three months ended June 30,
2011 and 2010, respectively. In fiscal 2012, other income consists of interest related to
Debtor-in-Possession note receivable and inventory finance receivable balances, and of interest
income earned primarily on cash balances.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Accumulated other comprehensive income (loss). </i>Accumulated other comprehensive income (loss)
is comprised of unrealized gains and losses on available-for-sale investments.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Recent Accounting Pronouncements. </i>In July 2010, the FASB issued Accounting Standards Update
(“ASU”) 2010-20, <i>Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses</i>, which requires entities to provide new disclosures
in their financial statements about their financing receivables, including credit risk exposures
and the allowance for credit losses on a disaggregated basis. The ASU is effective for public
entities for reporting periods ending on or after December 15, 2010 for disclosures of financing
receivables as of the end of a reporting period. The disclosures related to activity that occurs
during a reporting period are required to be adopted for periods beginning on or after December 15,
2010. In April 2011, the FASB issued ASU 2011-02, <i>A Creditor’s Determination of Whether a
Restructuring Is a Troubled Debt Restructuring</i>. ASU 2011-02 clarifies when creditors should
classify loan modifications as troubled debt restructurings. In addition, ASU 2011-02 deferred the
effective date of the disclosures about troubled debt restructurings in ASU 2010-20 to periods
beginning after June 15, 2011. The Company adopted the provisions of ASU 2010-20 relating to
period-end disclosures as of December 31, 2010, and the remaining provisions during the quarter
ended March 31, 2011, except for the disclosures related to troubled debt restructurings, which
will be effective for the Company’s quarter ending September 30, 2011. The Company is currently
evaluating the effect ASU 2011-02 will have on the Company’s disclosures in the Notes to the
Consolidated Financial Statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In December 2010, the FASB issued ASU 2010-29, <i>Business Combinations (Topic 805): Disclosure
of Supplementary Pro Forma Information for Business Combinations</i>. The amendments in this update are
effective prospectively for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2010. The
amendments affected the Company’s disclosures of pro forma information surrounding the Palm Harbor
acquisition, see Note 19.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. The amendments to this update are effective for public companies for fiscal
years, and interim periods within those years, beginning after December 15, 2011. In this update,
an entity has the option to present the total of comprehensive income, the components of net
income, and the components of other comprehensive income either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. In both choices, an entity is
required to present each component of net income along with total net income, each component of
other comprehensive income along with a total for other comprehensive income, and a total amount
for comprehensive income. This update eliminates the option to present the components of other
comprehensive income as part of the statement of changes in stockholders’ equity. The Company is
currently evaluating the effect ASU 2011-05 will have on the Company’s disclosures in the Notes to
Consolidated Financial Statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">For a description of other significant accounting policies used by the Company in the
preparation of its Consolidated Financial Statements, please refer to Note 1 of the Notes to
Consolidated Financial Statements in the Form 10-K.
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>2. Restricted Cash</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Restricted cash consists of the following (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash pledged as collateral for outstanding insurance
programs and surety bonds
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,263</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash related to CountryPlace customers’ principal and
interest payments on the loans that are securitized
</div></td>
<td> </td>
<td> </td>
<td align="right">2,276</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash related to customer deposits held in trust
</div></td>
<td> </td>
<td> </td>
<td align="right">1,455</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">436</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">6,994</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">436</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
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</table>
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>3. Investments</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Available-for-sale securities were acquired during the first quarter of fiscal 2012 as a part
of the Palm Harbor acquisition. In accordance with ASC 805, <i>Business Combinations </i>(“ASC 805”) the
individual securities were valued at fair value as of the Acquisition Date and therefore, no
individual security has been in a continuous unrealized loss position at June 30, 2011. The
following table summarizes the Company’s available-for-sale investment securities, gross unrealized
gains and losses and fair value, aggregated by investment category as of June 30, 2011 (in
thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000">June 30, 2011</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gross</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gross</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Amortized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Unrealized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Unrealized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Fair</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Cost</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Gains</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Losses</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Value</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">U.S. Treasury and Government
Agencies
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,148</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(1</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">1,147</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Mortgage-backed securities
</div></td>
<td> </td>
<td> </td>
<td align="right">5,063</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(45</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">5,042</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">States and political subdivisions
</div></td>
<td> </td>
<td> </td>
<td align="right">1,205</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,206</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities
</div></td>
<td> </td>
<td> </td>
<td align="right">4,411</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(26</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">4,385</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Marketable equity securities
</div></td>
<td> </td>
<td> </td>
<td align="right">3,802</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">33</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(82</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">3,753</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">15,629</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">58</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(154</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">15,533</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Consistent with improvements seen in the overall stock market in recent quarters, and based on
the Company’s ability and intent to hold the investments for a reasonable period of time sufficient
for a forecasted recovery of fair value, the Company does not consider the investments to be
other-than-temporarily impaired at June 30, 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company’s investments in marketable equity securities consist of investments in common
stock of bank trust, insurance, and public utility companies ($1.5 million of the total fair value
and $11,000 of the total unrealized losses) and industrial companies ($2.3 million of the total
fair value and $71,000 of the total unrealized losses).
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The amortized cost and fair value of the Company’s investment securities at June 30, 2011, by
contractual maturity, are shown in the table below (in thousands). Expected maturities will differ
from contractual maturities because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Due in less than one year
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">974</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Due after one year through five years
</div></td>
<td> </td>
<td> </td>
<td align="right">6,716</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Due after
five years through ten years
</div></td>
<td> </td>
<td> </td>
<td align="right">262</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Due after ten years
</div></td>
<td> </td>
<td> </td>
<td align="right">3,828</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Marketable equity securities
</div></td>
<td> </td>
<td> </td>
<td align="right">3,753</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total investment securities available-for-sale
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">15,533</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Realized gains and losses from the sale of securities are determined using the specific
identification method. Gross gains realized on the sales of investment securities for the first
quarter of fiscal 2012 were approximately $17,000. Gross losses were approximately $4,000 for the
first quarter of fiscal 2012.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 4 - us-gaap:InventoryDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>4. Inventories</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Inventories consist of the following (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Raw materials
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">17,088</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">10,208</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Work in process
</div></td>
<td> </td>
<td> </td>
<td align="right">8,354</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,499</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Finished goods and other
</div></td>
<td> </td>
<td> </td>
<td align="right">33,588</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,329</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">59,030</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">16,036</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:FinancingReceivablesTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>5. Consumer Loans Receivable</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company acquired consumer loans receivable during the first quarter of fiscal 2012 as a
part of the Palm Harbor transaction. Acquired consumer loans receivable held for investment were
acquired at fair value and subsequently are accounted for in a manner similar to ASC 310-30.
Consumer loans receivable held for sale is carried at the lower of cost or market value. The
following table summarizes consumer loans receivable (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Consumer loans receivable held for investment
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">118,377</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Consumer loans receivable held for sale
</div></td>
<td> </td>
<td> </td>
<td align="right">4,931</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Construction advances on non-conforming mortgages
</div></td>
<td> </td>
<td> </td>
<td align="right">3,206</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Consumer loans receivable
</div></td>
<td> </td>
<td> </td>
<td align="right">126,514</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred financing cost, net
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(363</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Consumer loans receivable, net
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">126,151</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At the Acquisition Date, management evaluated consumer loans receivable held for investment to
determine whether there was evidence of deterioration of credit quality prior to acquisition and if
it was probable that the Company would be unable to collect all amounts due according to the loan’s
contractual terms. The Company also considered expected prepayments and estimated the amount and
timing of undiscounted expected principal, interest and other cash flows. The Company determined
the excess of the pool’s scheduled contractual principal and contractual interest payments over all
cash flows expected as of the acquisition date as an amount that should not be accreted (the
non-accretable difference). The remaining difference is accreted into interest income over the
remaining life of the loans (referred to as accretable yield). Interest income on consumer loans
receivable is recognized as net sales.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">April 23,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Consumer loans receivable held for investment
— contractual amount
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">330,781</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">339,166</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Purchase Discount
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Accretable
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(115,471</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(118,335</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Non-accretable
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(96,472</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(100,151</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Allowance for loan losses
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Less consumer loans receivable reclassified as
other assets
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(461</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total consumer loans receivable held for
investment, net
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">118,377</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">120,680</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Over the life of the loans, the Company continues to estimate cash flows expected to be
collected. The Company evaluates at the balance sheet date whether the present value of its loans
determined using the effective interest rate, has decreased and if so, recognizes an allowance for
loan loss subsequent to the acquisition date. The present value of any subsequent increase in the
loan pool’s actual cash flows expected to be collected is used first to reverse any existing
allowance for loan loss. Any remaining increase in cash flows expected to be collected adjusts the
amount of accretable yield recognized on a prospective basis over the loan pool’s remaining life.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The changes in accretable yield on acquired consumer loans receivable held for investment were
as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at the beginning of the period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Additions
</div></td>
<td> </td>
<td> </td>
<td align="right">118,335</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accretion
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,864</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Reclassifications from (to) nonaccretable
discount
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Disposals
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at the end of the period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">115,471</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company’s consumer loans receivable consists of fixed-rate, fixed-term, fully-amortizing
single-family home loans. These loans are either secured by a manufactured home, excluding the
land upon which the home is located (chattel property loans and retail installment sale contracts),
or by a combination of the home and the land upon which the home is located (real property mortgage
loans). The real property mortgage loans are primarily for manufactured homes. Combined land and
home loans are further disaggregated by the type of loan documentation: those conforming to the
requirements of Government-Sponsored Enterprises (GSEs), and those that are non-conforming. In
most instances, the Company’s loans are secured by a first-lien position and are provided for the
purchase of a home. In rare instances the Company may provide other types of loans in second-lien
or unsecured positions. Accordingly, the Company classifies its loans receivable assets as
follows: chattel loans, conforming mortgages, non-conforming mortgages, and other loans.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following tables disaggregate consumer loans receivable for each class by portfolio
segment as of June 30, 2011 (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000">Consumer Loans Held for Investment</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Consumer</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Securitized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Securitized</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Construction</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Loans Held</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">Asset Class</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Unsecuritized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Advances</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">For Sale</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Chattel loans
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">49,808</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">33,763</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,055</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">86,626</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Conforming mortgages
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,571</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,205</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,931</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,707</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Non-conforming mortgages
</div></td>
<td> </td>
<td> </td>
<td align="right">4,864</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">15,187</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">10,081</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">30,132</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other loans
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">49</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">49</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">54,672</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">48,950</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">14,756</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,205</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,931</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">126,514</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In measuring credit quality within each segment and class, the Company uses commercially
available credit scores (“FICO”). At the time of each loan’s origination, the Company obtained
credit scores from each of the three primary credit bureaus, if available. To evaluate credit
quality of individual loans, the Company uses the mid-point of the available credit scores, or if
only two scores are available, the Company uses the lower of the two. Except in the case of
troubled debt restructurings or other loan modifications, the Company does not update credit bureau
scores after the time of origination.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table disaggregates the Company’s consumer loans receivable by class and credit
quality indicator as of June 30, 2011 (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="7%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 1px solid #000000">Consumer Loans Held for Investment</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Consumer</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left">Asset Class</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Securitized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Securitized</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Construction</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Loans Held</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">Credit Quality Indicator</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Unsecuritized</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Advances</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">For Sale</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Chattel loans
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">0-619
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,553</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">995</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">954</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,502</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">620-719
</div></td>
<td> </td>
<td> </td>
<td align="right">22,241</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">15,160</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,307</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">38,708</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">720+
</div></td>
<td> </td>
<td> </td>
<td align="right">26,014</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17,608</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">793</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">44,415</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Conforming mortgages
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">0-619
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">420</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">54</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">537</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,011</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">620-719
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,040</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,286</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,754</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,080</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">720+
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">111</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">865</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,640</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,616</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Non-conforming mortgages
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">0-619
</div></td>
<td> </td>
<td> </td>
<td align="right">97</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">933</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,951</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,981</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">620-719
</div></td>
<td> </td>
<td> </td>
<td align="right">2,405</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,070</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,580</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17,055</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">720+
</div></td>
<td> </td>
<td> </td>
<td align="right">2,362</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,184</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,551</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,097</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Other loans
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Total other
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">49</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">49</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">54,672</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">48,950</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">14,756</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,205</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,931</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">126,514</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 6 - cvco:InventoryFinanceReceivablesAndAllowanceForLoanLossTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>6. Inventory Finance Receivables and Allowance for Loan Loss</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company’s inventory finance receivables balance consists of two classes: (i) amounts
loaned by the Company under participation inventory financing programs; and (ii) direct inventory
financing arrangements for the home product inventory needs of our independent distribution base.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Under the terms of the participation programs, the Company provides loans to independent
financial institutions representing a significant portion of the funds that such financiers then
lend to retailers to finance
their inventory purchases of our products. The participation inventory finance receivables
are unsecured general obligations of the independent floorplan lenders.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Under the terms of the direct inventory finance arrangements, the Company provides all of the
inventory finance funds. These notes are secured by the inventory collateral and other security
depending on borrower circumstances. The other terms of direct inventory finance arrangements vary
depending on the needs of the borrower and the opportunity for the Company, but generally follow
the same tenets as the participation programs.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Inventory finance receivables, net, consist of the following by class of financing receivable
(in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Direct inventory finance receivables
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">12,060</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">12,157</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Participation inventory finance receivables
</div></td>
<td> </td>
<td> </td>
<td align="right">6,357</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,771</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Allowance for loan loss
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(173</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(169</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">18,244</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">17,759</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company evaluates the potential for loss from its participation inventory finance
programs based on the independent lender’s overall financial stability and has determined that an
applicable allowance for loan loss was not needed at June 30, 2011s and March 31, 2011,
respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">With respect to the direct inventory finance notes receivable, the risk of loss is spread over
numerous borrowers. Borrower inventory levels and activity are monitored in conjunction with
third-party service providers, where applicable, to estimate the potential for loss on the related
notes receivable, considering potential exposures including repossession costs, remarketing
expenses, impairment of value and the risk of collateral loss. The Company has historically been
able to resell repossessed unused homes, thereby mitigating loss experience. If a default occurs
and collateral is lost, the Company is exposed to loss of the full value of the home loan. If the
Company determines that it is probable that a borrower will default, a specific reserve is
determined and recorded within the estimated allowance for loan loss. The Company recorded an
allowance for loan loss of $173,000 and $169,000 at June 30, 2011 and March 31, 2011, respectively.
The following table represents changes in the estimated allowance for loan losses, including
related additions and deductions to the allowance for loan loss applicable to the direct inventory
finance receivables (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Three Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at beginning of period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">169</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">40</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Provision for credit losses
</div></td>
<td> </td>
<td> </td>
<td align="right">4</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">105</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Loans charged off, net of recoveries
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at end of period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">173</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">149</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table disaggregates inventory finance notes receivable and the estimated
allowance for loan loss for each class of financing receivable by evaluation methodology (in
thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Direct Inventory Finance</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Participation Inventory Finance</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Inventory finance notes
receivable:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Collectively evaluated
for impairment
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">11,484</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,116</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Individually evaluated
for impairment
</div></td>
<td> </td>
<td> </td>
<td align="right">576</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,041</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,357</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,771</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">12,060</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">12,157</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,357</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,771</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Allowance for loan loss:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Collectively evaluated
for impairment
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(173</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(169</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Individually evaluated
for impairment
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Total
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(173</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(169</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Loans are subject to regular review and are given management’s attention whenever a problem
situation appears to be developing. Loans with indicators of potential performance problems are
placed on watch list status and are subject to additional monitoring and scrutiny. Nonperforming
status includes loans accounted for on a non-accrual basis and accruing loans with principal
payments past due 90 days or more. The Company’s policy is to place loans on nonaccrual status
when interest is past due and remains unpaid 90 days or more or when there is a clear indication
that the borrower has the inability or unwillingness to meet payments as they become due. Payments
received on nonaccrual loans are recorded on a cash basis, first to interest and then to principal.
Charge-offs occur when it becomes probable that outstanding amounts will not be recovered. At
June 30, 2011, the Company did not have any loans on nonaccrual status and was not aware of any
potential problem loans that would have a material effect on the inventory finance receivables
balance. The following table disaggregates the Company’s inventory finance receivables by class
and credit quality indicator (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Direct Inventory Finance</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Participation Inventory Finance</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June, 30</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June, 30</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Risk profile based on payment activity:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Performing
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">11,966</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">11,995</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,357</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,771</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Watch list
</div></td>
<td> </td>
<td> </td>
<td align="right">94</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">162</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Nonperforming
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">12,060</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">12,157</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,357</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,771</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company has concentrations of inventory finance notes receivable related to factory-built
homes located in the following states, measured as a percentage of inventory finance receivables
principal balance outstanding as of June 30, 2011 and March 31, 2011:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Arizona
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">19.6</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">21.9</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Texas
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">14.6</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">18.0</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">California
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">12.0</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">9.0</td>
<td nowrap="nowrap">%</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The States of California, Arizona, and to a lesser degree Texas, have experienced economic
weakness. The risks created by these concentrations have been considered in the determination of
the adequacy of the allowance for loan losses. The Company did not have concentrations in excess
of 10% of the principal balance of the inventory finance receivables in any other states as of June
30, 2011 or March 31, 2011, respectively.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 7 - us-gaap:PropertyPlantAndEquipmentDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>7. Property, Plant and Equipment</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Property, plant and equipment are carried at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of each asset. Estimated useful lives for
significant classes of assets are as follows: buildings and improvements 10 to 39 years, and
machinery and equipment 3 to 25 years. Repairs and maintenance charges are expensed as incurred.
Property, plant and equipment consist of the following (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Property, plant and equipment, at cost:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Land
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">20,036</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">16,046</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Buildings and improvements
</div></td>
<td> </td>
<td> </td>
<td align="right">27,408</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">19,672</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Machinery and equipment
</div></td>
<td> </td>
<td> </td>
<td align="right">14,545</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">11,453</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td align="right">61,989</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">47,171</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accumulated depreciation
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(11,645</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(11,178</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">50,344</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">35,993</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 8 - us-gaap:AccountsPayableAndAccruedLiabilitiesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>8. Accrued Liabilities</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Accrued liabilities consist of the following (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Customer deposits
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">14,067</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,857</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Estimated warranties
</div></td>
<td> </td>
<td> </td>
<td align="right">11,483</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,371</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Salaries, wages and benefits
</div></td>
<td> </td>
<td> </td>
<td align="right">8,657</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,342</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Unearned premiums
</div></td>
<td> </td>
<td> </td>
<td align="right">5,706</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred margin
</div></td>
<td> </td>
<td> </td>
<td align="right">4,382</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,305</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accrued insurance
</div></td>
<td> </td>
<td> </td>
<td align="right">2,762</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,731</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accrued volume rebates
</div></td>
<td> </td>
<td> </td>
<td align="right">1,136</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">885</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accrued taxes
</div></td>
<td> </td>
<td> </td>
<td align="right">1,001</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">707</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Reserve for repurchase commitments
</div></td>
<td> </td>
<td> </td>
<td align="right">690</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">597</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other (various)
</div></td>
<td> </td>
<td> </td>
<td align="right">10,945</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,450</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">60,829</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">26,245</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
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<!-- Begin Block Tagged Note 9 - us-gaap:ProductWarrantyDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>9. Warranties</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Homes are generally warranted against manufacturing defects for a period of one year
commencing at the time of sale to the retail customer. Estimated costs relating to home warranties
are provided at the date of sale. The Company has recorded a liability for estimated future
warranty costs relating to homes sold based upon management’s assessment of historical experience
factors, an estimate of the amount of homes in the distribution channel and current industry
trends. Activity in the liability for estimated warranties was as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Three Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at beginning of period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">9,371</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">13,891</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Liability assumed with
Palm Harbor
</div></td>
<td> </td>
<td> </td>
<td align="right">1,932</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Charged to costs and expenses
</div></td>
<td> </td>
<td> </td>
<td align="right">3,006</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,213</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Payments and deductions
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,826</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,113</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at end of period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">11,483</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">12,991</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<!-- Begin Block Tagged Note 10 - us-gaap:DebtDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>10. Debt Obligations</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company acquired securitized financings during the first quarter of fiscal 2012 as a part
of the Palm Harbor acquisition. Acquired securitized financings were acquired at fair value, which
resulted in a discount, and subsequently are accounted for a manner similar to ASC 310-30 to
accrete the discount.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company considers expected prepayments and estimates the amount and timing of undiscounted
expected principal, interest and other cash flows for consumer loans receivable held for investment
to determine the expected cash flows on securitized financings and the contractual payments. The
amount of contractual principal and contractual interest payments due on the securitized financings
in excess of all cash
flows expected as of the acquisition date should not be accreted (the non-accretable
difference). The remaining amount is accreted into interest expense over the remaining life of the
obligation (referred to as accretable yield).
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">April 23,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Securitized financings — contractual amount
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">130,851</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">134,205</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Purchase Discount
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Accretable
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(31,346</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(32,072</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Non-accretable (1)
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total securitized financings, net
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">99,505</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">102,133</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr style="font-size: 6pt">
<td width="3%"> </td>
<td width="1%"> </td>
<td width="96%"> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(1)</sup></td>
<td> </td>
<td>Because the contractual payments on securitized financing are determined by
actual cash flows, the Company expects that there will not be a non-accretable difference.</td>
</tr>
</table>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Over the life of the loans, the Company continues to estimate cash flows expected to be paid
on securitized financings. The Company evaluates at the balance sheet date whether the present
value of its securitized financings determined using the effective interest rate, has increased. The present value
of any subsequent decrease in cash flows expected to be paid adjusts the amount of accretable yield recognized on a prospective basis over the securitized financing’s remaining life.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The changes in accretable yield on securitized financings were as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="84%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at the beginning of the period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Additions
</div></td>
<td> </td>
<td> </td>
<td align="right">32,072</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accretion
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(726</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Reclassifications from (to) nonaccretable
discount
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Disposals
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance at the end of the period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">31,346</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On July 12, 2005, prior to the acquisition of Palm Harbor and CountryPlace, CountryPlace
completed its initial securitization (2005-1) for approximately $141.0 million of loans, which was
funded by issuing bonds totaling approximately $118.4 million. The bonds were issued in four
different classes: Class A-1 totaling $36.3 million with a coupon rate of 4.23%; Class A-2
totaling $27.4 million with a coupon rate of 4.42%; Class A-3 totaling $27.3 million with a coupon
rate of 4.80%; and Class A-4 totaling $27.4 million with a coupon rate of 5.20%. Maturity of the
bonds is at varying dates beginning in 2006 through 2015 and were issued with an expected weighted
average maturity of 4.66 years. For accounting purposes, this transaction was structured as a
securitized borrowing.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On March 22, 2007, CountryPlace, completed its second securitization (2007-1) for
approximately $116.5 million of loans, which was funded by issuing bonds totaling approximately
$101.9 million. The bonds were issued in four classes: Class A-1 totaling $28.9 million with a
coupon rate of 5.484%; Class A-2 totaling $23.4 million with a coupon rate of 5.232%; Class A-3
totaling $24.5 million with a coupon rate of 5.593%; and Class A-4 totaling $25.1 million with a
coupon rate of 5.846%. The bonds mature at varying dates beginning in 2008 through 2017 and were
issued with an expected weighted average maturity of 4.86 years. For accounting purposes, this
transaction was also structured as a securitized borrowing.
</div>
</div>
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<!-- Begin Block Tagged Note 11 - us-gaap:IncomeTaxDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>11. Income Taxes</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company’s deferred tax assets primarily result from financial statement accruals not
currently deductible for tax purposes, and its deferred tax liabilities primarily result from tax
amortization of goodwill. The Company complies with the provisions of FASB ASC 740, Income Taxes
(“ASC 740”), which clarifies the accounting for income taxes by prescribing a minimum recognition
threshold a tax position is required to meet before being recognized in the financial statements.
ASC 740 also provides guidance on derecognizing, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The Company has recorded an
insignificant amount of unrecognized tax benefits and there would be an insignificant effect on the
effective tax rate if all unrecognized tax benefits were recognized. The Company classifies
interest and penalties related to unrecognized tax benefits in tax expense.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Income tax returns are filed in the U.S. federal jurisdiction and in several state
jurisdictions. In July 2011, the Internal Revenue Service (“IRS”) completed its examination of the
Company’s federal income tax return for the fiscal year ended March 31, 2009. The examination
resulted in an insignificant tax balance due. The Company is no longer subject to examination by
the IRS for years before fiscal year 2007. The Company believes that its income tax filing
positions and deductions will be sustained on audit and does not anticipate any adjustments that
will result in a material change to the Company’s financial position. The total amount of
unrecognized tax benefit related to any particular tax position is not anticipated to change
significantly within
the next 12 months. The provision for income taxes generally represents income taxes paid or
payable for the current year plus the change in deferred taxes during the year.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
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<!-- Begin Block Tagged Note 12 - us-gaap:CommitmentsAndContingenciesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>12. Commitments and Contingencies</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Repurchase Contingencies — The Company is contingently liable under terms of repurchase
agreements with financial institutions providing inventory financing for retailers of its products.
These arrangements, which are customary in the industry, provide for the repurchase of products
sold to retailers in the event of default by the retailer. The risk of loss under these agreements
is spread over numerous retailers. The price the Company is obligated to pay generally declines
over the period of the agreement (generally 18 to 36 months) and the risk of loss is further
reduced by the resale value of the homes. The maximum amount for which the Company was contingently
liable under such agreements approximated $11.6 million at June 30, 2011, without reduction for the
resale value of the homes. The Company applies FASB ASC 460, <i>Guarantees </i>(“ASC 460”), and FASB ASC
450-20, <i>Loss Contingencies </i>(“ASC 450-20”), to account for its liability for repurchase commitments.
Under the provisions of ASC 460, the Company records the greater of the estimated value of the
non-contingent obligation or a contingent liability for each repurchase arrangement under the
provisions of ASC 450-20. The Company recorded an estimated liability of $690,000 and $597,000 at
June 30, 2011 and March 31, 2011, respectively, related to these commitments.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Letter of Credit — The Company maintains a $250,000 outstanding letter of credit with
J.P. Morgan Chase Bank N.A. issued to satisfy the remaining requirements of the self-funded
workers’ compensation program which concluded on September 30, 2006. There have been no draws
against the letter of credit.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Legal Matters — The Company is party to certain legal proceedings that arise in the ordinary
course and are incidental to its business. Certain of the claims pending against the Company in
these proceedings allege, among other things, breach of contract and warranty, product liability
and personal injury. Although litigation is inherently uncertain, based on past experience and the
information currently available, management does not believe that the currently pending and
threatened litigation or claims will have a material adverse effect on the Company’s consolidated
financial position, liquidity or results of operations. However, future events or circumstances
currently unknown to management will determine whether the resolution of pending or threatened
litigation or claims will ultimately have a material effect on the Company’s consolidated financial
position, liquidity or results of operations in any future reporting periods.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 13 - us-gaap:StockholdersEquityNoteDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>13. Stockholders’ Equity</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following tables represent changes in equity, including stockholders’ equity attributable
to Cavco’s stockholders and non-controlling interest for the three months ended June 30, 2011
(dollars in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="23%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="6%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000">Equity Attributable to Cavco Stockholders</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Redeemable</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Additional</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Accumulated</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Noncontrolling</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Common Stock</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Paid-in</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Retained</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Other</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Interest</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Shares</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Capital</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Earnings</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Loss</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance, March 31, 2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">35,819</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,817,606</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">68</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">129,211</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">21,390</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">150,669</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock option exercises and
associated tax benefits
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">71,907</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,435</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,436</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Share-based compensation
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">185</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">185</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Note payable conversion
</div></td>
<td> </td>
<td> </td>
<td align="right">36,173</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td> </td>
<td align="right">8,851</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8,608</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8,608</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other comprehensive loss
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(63</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(63</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balance, June 30, 2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">80,843</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,889,513</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">69</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">130,831</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">29,998</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(63</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">160,835</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 14 - us-gaap:ComprehensiveIncomeNoteTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>14. Other Comprehensive Income</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The difference between net income and total comprehensive income for the three months ended
June 30, 2011 and June 30, 2010 is as follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Three Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">17,459</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">850</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Unrealized gain on available-for-sale
investments, net of tax
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(63</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Comprehensive income
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">17,396</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">850</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 15 - us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>15. Stock-Based Compensation</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company maintains stock incentive plans whereby stock option grants or awards of
restricted stock may be made to certain officers, directors and key employees. The plans, which
are shareholder approved, permit the award of up to 1,350,000 shares of the Company’s common stock,
of which 278,026 shares were still available for grant at June 30, 2011. When options are
exercised, new shares of the Company’s common stock are issued. Stock options may not be granted
below 100% of the fair market value of the Company’s common stock at the date of grant and
generally expire seven years from the date of grant. Stock options and awards of restricted stock
vest over a period determined by the plan administrator, typically a one to five year period. The
stock incentive plans provide for accelerated vesting of stock options and removal of restrictions
on restricted stock awards upon a change in control (as defined in the plans).
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Stock-based compensation cost charged against income for the three months ended June 30, 2011,
was approximately $185,000. The Company recorded stock-based compensation expense of $138,000 for
the three months ended June 30, 2010.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of June 30, 2011, total unrecognized compensation cost related to stock options was
approximately $2,579,000 and the related weighted-average period over which it is expected to be
recognized is approximately 2.7 years.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes the option activity within the Company’s stock-based
compensation plans for the three months ended June 30, 2011:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Number</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">of Shares</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding at March 31, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">401,500</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Granted
</div></td>
<td> </td>
<td> </td>
<td align="right">71,100</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Exercised
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(71,750</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding at June 30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">400,850</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Exercisable at June 30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">152,625</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">A summary of restricted stock activity within the Company’s share-based compensation
plans and changes for the three months ended June 30, 2011 is as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Number</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">of Shares</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Nonvested at March 31, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">498</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Vested
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(157</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Nonvested at June 30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">341</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 16 - us-gaap:EarningsPerShareTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>16. Earnings Per Share</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Basic earnings per common share is computed based on the weighted-average number of common
shares outstanding during the reporting period. Diluted earnings per common share is computed based
on the combination of dilutive common share equivalents, comprised of shares issuable under the
Company’s share-based compensation plans and the weighted-average number of common shares
outstanding during the reporting period. Dilutive common share equivalents include the dilutive
effect of in-the-money options to purchase shares, which is calculated based on the average share
price for each period using the treasury stock method. However, when a net loss exists, no
potential common stock equivalents are included in the computation of the diluted per-share amount
because the computation would result in an anti-dilutive per-share amount. The following table sets
forth the computation of basic and diluted earnings per share:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Three Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income attributable to Cavco
common stockholders
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">8,608</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">518</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average shares outstanding:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Basic
</div></td>
<td> </td>
<td> </td>
<td align="right">6,838,324</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,541,739</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Common stock equivalents —
treasury stock method
</div></td>
<td> </td>
<td> </td>
<td align="right">56,056</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">211,526</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Add: Effect of dilutive stock options
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Diluted
</div></td>
<td> </td>
<td> </td>
<td align="right">6,894,380</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,753,265</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income per share attributable to Cavco
common stockholders:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Basic
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1.26</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.08</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Diluted
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1.25</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.08</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Anti-dilutive common stock equivalents excluded from the computation of diluted earnings
per share for the three months ended June 30, 2011 and 2010 were 4,820 and 547, respectively.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 17 - us-gaap:FairValueDisclosuresTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>17. Fair Value Measurements</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The book value and estimated fair value of the Company’s financial instruments are as follows
(in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">March 31, 2011</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Book</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Estimated</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Book</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Estimated</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Value</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Value</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash and cash equivalents (1)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">33,537</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">33,537</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">76,513</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">76,513</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Restricted cash (1)
</div></td>
<td> </td>
<td> </td>
<td align="right">6,994</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,994</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">436</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">436</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Investments (2)
</div></td>
<td> </td>
<td> </td>
<td align="right">15,533</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">15,533</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Consumer loans receivable (3)
</div></td>
<td> </td>
<td> </td>
<td align="right">126,151</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">125,713</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Inventory finance receivable (4)
</div></td>
<td> </td>
<td> </td>
<td align="right">18,244</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18,244</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17,759</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17,759</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Construction lending line (1)
</div></td>
<td> </td>
<td> </td>
<td align="right">4,782</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,782</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Securitized financings (5)
</div></td>
<td> </td>
<td> </td>
<td align="right">99,505</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">99,371</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 3pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td width="96%"></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(1)</sup></td>
<td> </td>
<td>The fair value approximates book value due to the instruments’ short term
maturity.</td>
</tr>
<tr style="font-size: 3pt">
<td> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(2)</sup></td>
<td> </td>
<td>The fair value is based on market prices.</td>
</tr>
<tr style="font-size: 3pt">
<td> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(3)</sup></td>
<td> </td>
<td>Includes consumer loans receivable held for investment, held for sale and
construction advances. The fair value of the loans held for investment is based on the
discounted value of the remaining principal and interest cash flows. The fair value of the
loans held for sale approximates book value since the sales price of these loans is known
as of June 30, 2011.</td>
</tr>
<tr style="font-size: 3pt">
<td> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(4)</sup></td>
<td> </td>
<td>The fair value approximates book value based on current market rates and the revolving nature of the loan portfolio.</td>
</tr>
<tr style="font-size: 3pt">
<td> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(5)</sup></td>
<td> </td>
<td>The fair value is estimated using recent transactions of factory-built housing asset-backed securities.</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In accordance with ASC 820, <i>Fair Value Measurements and Disclosures </i>(“ASC 820”), fair value is
defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. ASC 820 also establishes
a fair value hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value:
</div>
<div align="right">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="96%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="9%"> </td>
<td width="1%"> </td>
<td width="90%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">Level 1 —
</div></td>
<td> </td>
<td align="left" valign="top">Quoted prices in active markets for identical assets or liabilities.</td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td valign="top">
<div style="margin-left:0px; text-indent:-0px"> 
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
</tr>
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">Level 2 —
</div></td>
<td> </td>
<td align="left" valign="top">Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.</td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td valign="top">
<div style="margin-left:0px; text-indent:-0px"> 
</div></td>
<td> </td>
<td align="left" valign="top"> </td>
</tr>
<tr valign="bottom">
<td valign="top">
<div style="margin-left:0px; text-indent:-0px">Level 3 —
</div></td>
<td> </td>
<td align="left" valign="top">Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. The Company had no level 3
securities at the end of the first quarter ended June 30, 2011.</td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company utilizes the market approach to measure fair value for its financial assets and
liabilities. The market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Assets measured at fair value on a recurring basis are summarized below (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000">As of June 30, 2011</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 1</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 2</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 3</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Securities issued by the U.S Treasury and Government (1)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,147</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,147</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Mortgage-backed securities (1)
</div></td>
<td> </td>
<td> </td>
<td align="right">5,042</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,042</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Securities issued by states and political subdivisions (1)
</div></td>
<td> </td>
<td> </td>
<td align="right">1,207</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,207</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate debt securities (1)
</div></td>
<td> </td>
<td> </td>
<td align="right">4,385</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,385</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Marketable equity securities (1)
</div></td>
<td> </td>
<td> </td>
<td align="right">3,752</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,752</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 3pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td width="96%"></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(1)</sup></td>
<td> </td>
<td>Unrealized gains or losses on investments are recorded in accumulated other
comprehensive loss at each measurement date.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">No significant transfers between Level 1 and Level 2 occurred during the three months ended
June 30, 2011. The Company’s policy regarding the recording of transfers between levels is to
record any such transfers at the end of the reporting period.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Assets and liabilities measured at fair value on a non-recurring basis are summarized below (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000">As of June 30, 2011</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 1</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 2</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Level 3</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Loans held for investment
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">119,179</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">119,179</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Loans held for sale
</div></td>
<td> </td>
<td> </td>
<td align="right">4,931</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,931</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Construction advances
</div></td>
<td> </td>
<td> </td>
<td align="right">1,603</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,603</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Inventory finance receivable
</div></td>
<td> </td>
<td> </td>
<td align="right">18,244</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18,244</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Construction lending
facility
</div></td>
<td> </td>
<td> </td>
<td align="right">4,781</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,781</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Securitized financings
</div></td>
<td> </td>
<td> </td>
<td align="right">99,371</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">99,371</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company records impairment losses on long-lived assets held for sale when the fair value
of such long-lived assets is below their carrying values. The Company records impairment charges
on long-lived assets used in operations when events and circumstances indicate that long-lived
assets might be impaired and the undiscounted cash flows estimated to be generated by those assets
are less than their carrying amounts. During the three months ended June 30, 2011, the Company
recorded no impairment charges on assets held for sale or used in operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Assets measured on a nonrecurring basis also include impaired loans (nonaccrual loans)
disclosed in Note 5 and loans held for sale. No recent sales have been executed in an orderly
market of manufactured home loan portfolios with comparable product features, credit
characteristics, or performance. Impaired loans are measured using Level 3 inputs that are
calculated using discounted future cash flows. Loans held for sale are measured at the lower of
cost or fair value using Level 1 inputs that consist of commitments on hand from investors. These
loans are held for relatively short periods, typically no more than 45 days. As a result, changes
in loan-specific credit risk are not a significant component of the change in fair value. The cost
of loans held for sale is currently lower than the fair value.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">ASC 825, <i>Financial Instruments </i>(“ASC 825”), requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate fair value. Fair value estimates are made as of a specific point in time
based on the characteristics of the financial instruments and the relevant market information.
Where available, quoted market prices are used. In other cases, fair values are based on estimates
using other valuation techniques. These techniques involve uncertainties and are significantly
affected by the assumptions used and the judgments made regarding risk characteristics of various
financial instruments, discount rates, estimates of future cash flows, future expected loss
experience, and other factors. Changes in assumptions could significantly affect these estimates
and the resulting fair values. Derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in an immediate sale of the
instrument. Also, because of differences in methodologies and assumptions used to estimate fair
values, the Company’s fair values should not be compared to those of other companies.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Under ASC 825, fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Accordingly, the aggregate fair value
amounts presented do not represent the underlying market value of the Company.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 18 - cvco:DebtorInPossessionNoteReceivableTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>18. Debtor-In-Possession Note Receivable</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On November 29, 2010, Fleetwood Homes, Inc. entered into a DIP Revolving Credit Agreement (the
“DIP Agreement”) and a Security Agreement (the “DIP Security Agreement”) with Palm Harbor Florida
and certain of its subsidiaries. Palm Harbor Florida was a manufacturer and marketer of
factory-built housing and a provider of related financing and insurance. Also on November 29, 2010,
Fleetwood Homes’ newly-formed subsidiary, Palm Harbor Delaware, entered into an Asset Purchase
Agreement (the “Purchase Agreement”) with Palm Harbor Florida.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Palm Harbor Florida and those of its subsidiaries that were parties to the DIP Agreement and
the Purchase Agreement filed for chapter 11 bankruptcy protection on November 29, 2010. Pursuant to
the terms and conditions of the DIP Agreement, Fleetwood Homes agreed to provide up to $55.0
million for a debtor-in-possession credit facility to finance Palm Harbor’s reorganization under
chapter 11 of the U.S. Bankruptcy Code. The DIP loan facility bore interest at 7% per annum. Palm
Harbor Florida’s obligations under the DIP Agreement were secured by a first position lien on
substantially all of Palm Harbor Florida’s assets. The credit facility was partially used by Palm
Harbor Florida to extinguish its Textron Financial Corporation debt facility and to fund
post-petition operations, commitments to customers, and employee obligations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On April 23, 2011, the DIP credit facility was retired in conjunction with the closing of the
acquisition of Palm Harbor Florida, discussed further below.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 19 - us-gaap:BusinessCombinationDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>19. Acquisition of Palm Harbor Homes, Inc.</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Description of the Acquisition </i>— Fleetwood Homes, through its wholly-owned subsidiary, Palm
Harbor Delaware, entered into the Purchase Agreement with Palm Harbor Florida to purchase
substantially all of the assets, and assume specified liabilities, of Palm Harbor Florida, pursuant
to an auction process under Section 363 of the U.S. Bankruptcy Code. On March 1, 2011, Palm Harbor
Delaware was selected as the successful bidder in the court auction. The transaction was approved
and a sale order entered by the U.S. Bankruptcy Court on March 4, 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During the first quarter of fiscal year 2012, Palm Harbor Delaware completed the purchase of
the Palm Harbor Florida assets and the assumption of specified liabilities pursuant to the Amended
and Restated Asset Purchase Agreement dated March 1, 2011. The effective date of the transaction
was April 23, 2011 (the “Acquisition Date”), except for the stock of Standard Casualty Co. The aggregate gross purchase price was $83.9 million and is exclusive of transaction costs, specified
liabilities assumed and post-closing adjustments. Of the purchase price, (i) approximately $45.3
million was used to retire the debtor-in-possession loan previously made by Fleetwood Homes to Palm
Harbor Florida; and (ii) $13.4 million was deposited in escrow pending regulatory approval to
transfer the stock of Standard Casualty Co. to Acquisition Co., at which time the escrowed funds
will be released to the Palm Harbor estate. The purchase price was funded by Fleetwood Homes’ cash
on hand, along with contributions of $36.0 million each from the Company and Third Avenue (see Note
21).
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Palm Harbor Delaware acquired five operating manufactured housing production facilities, idled
factories in nine locations, 49 operating retail locations, one office building, real estate, all
related equipment, accounts receivable, customer deposits, inventory, certain trademarks and trade
names, intellectual property, and specified contracts and leases. In addition, as of the
Acquisition Date, Palm Harbor Delaware purchased all of the outstanding shares of CountryPlace
Acceptance Corp., CountryPlace Mortgage, Ltd. and their wholly-owned finance subsidiaries. Palm
Harbor Delaware also acquired all of the outstanding shares of Standard Insurance Agency, Inc. and
its wholly-owned insurance agency subsidiary., On June 7, 2011, regulatory approval of the
acquisition of Standard Casualty Co. was received from the Texas Department of Insurance and on
June 10, 2011 (the “SCC Acquisition Date”), Palm Harbor Delaware completed the purchase of Standard
Casualty Co. Further, Acquisition Co. assumed certain liabilities of Palm Harbor Florida,
including primarily debt facilities of the finance subsidiaries.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The foregoing descriptions of the DIP Agreement, DIP Security Agreement, and Purchase
Agreement do not purport to be complete and are qualified in their entirety by reference to the DIP
Agreement, the DIP Security Agreement, and the Purchase Agreement which were filed as Exhibits
10.1, 10.2, and 10.3, respectively, to the Company’s Current Report on Form 8-K filed with the SEC
on November 29, 2010.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The purchase of the Palm Harbor Florida assets provides further operating capacity, increased
home distribution, and entry into financial and insurance businesses specific to the Company’s
industry. The transaction further expanded the Company’s geographic reach at a national level by
adding factories and retail locations serving the Northwest, South Central, Southeast and
Mid-Atlantic regions. The Company believes it will have the opportunity to achieve certain
synergies and cost reductions by eliminating redundant processes and overhead.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Acquisition Date Fair Value of Consideration Transferred </i>— The following table details the
acquisition-date fair value of the consideration transferred to acquire Palm Harbor (in thousands),
of which $74.0 million was in cash:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Acquisition Date</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash advanced to Palm Harbor under DIP financing, credited to
purchase
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">44,117</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Paid-in-kind interest on DIP financing, credited to purchase price
</div></td>
<td> </td>
<td> </td>
<td align="right">1,184</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Additional cash consideration
</div></td>
<td> </td>
<td> </td>
<td align="right">29,917</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Amounts credited for customer deposits acquired at closing
</div></td>
<td> </td>
<td> </td>
<td align="right">8,682</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total consideration transferred
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">83,900</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Recording of Assets Acquired and Liabilities Assumed </i>— The acquisition has been
accounted for using the acquisition method of accounting which requires, among other things, that
assets acquired and liabilities assumed be recognized at their fair values as of the acquisition
date. The following table summarizes the provisional amounts recognized for assets acquired and
liabilities assumed as of the Acquisition Date. Certain estimated values are not yet finalized
(see below) and are subject to change, which could be significant. The allocation of the purchase
price is still preliminary due to the short duration since the Acquisition Date and will be
finalized upon completion of the analysis of the fair values of Palm Harbor’s assets and specified
liabilities. The Company will finalize the amounts recognized as we obtain the information
necessary to complete the analysis. We expect to finalize these amounts as soon as possible but no
later than one year from the acquisition date.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes the provisional estimated fair values of the assets acquired
and liabilities assumed at the acquisition dates (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Acquisition Date</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash and cash equivalents
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">15,077</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Restricted cash
</div></td>
<td> </td>
<td> </td>
<td align="right">5,924</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Investments
</div></td>
<td> </td>
<td> </td>
<td align="right">16,636</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accounts receivable (1)
</div></td>
<td> </td>
<td> </td>
<td align="right">3,219</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Inventories
</div></td>
<td> </td>
<td> </td>
<td align="right">42,034</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Prepaid expenses and other assets
</div></td>
<td> </td>
<td> </td>
<td align="right">2,781</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Property, plant and equipment
</div></td>
<td> </td>
<td> </td>
<td align="right">13,782</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Assets held for sale
</div></td>
<td> </td>
<td> </td>
<td align="right">9,278</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Consumer loans receivable
</div></td>
<td> </td>
<td> </td>
<td align="right">126,030</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred income tax assets
</div></td>
<td> </td>
<td> </td>
<td align="right">14,532</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Intangible assets (2)
</div></td>
<td> </td>
<td> </td>
<td align="right">15,294</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total identifiable assets acquired
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">264,587</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accounts payable of the finance subsidiaries
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(1,917</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accrued liabilities
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(27,503</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Construction lending line
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3,974</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Securitized financings
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(101,786</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Debt of the finance subsidiaries
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(19,456</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred income tax liabilities
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(7,271</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total liabilities assumed
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(161,907</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Net identifiable assets acquired
</div></td>
<td> </td>
<td> </td>
<td align="right">102,680</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Bargain purchase recognized
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(18,780</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Net assets acquired
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">83,900</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 3pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr>
<td width="3%"></td>
<td width="1%"></td>
<td width="96%"></td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(1)</sup></td>
<td> </td>
<td>The fair value of accounts receivables acquired is $3,219, with the gross
contractual amount being $3,601. The Company determined that $382 would be uncollectible.</td>
</tr>
<tr style="font-size: 3pt">
<td> </td>
</tr>
<tr valign="top">
<td nowrap="nowrap" align="left"><sup style="font-size: 85%; vertical-align: text-top">(2)</sup></td>
<td> </td>
<td>Of the $15,294 of acquired intangible assets, $5,450 was assigned to trademarks
and trade names and $1,100 was assigned to state insurance licenses, which are considered
indefinite lived intangible assets and are not subject to amortization and $8,744 was
assigned to customer-related intangibles, technology and insurance business in force,
policies and renewal rights, subject to a weighted-average useful life of approximately 5
years.</td>
</tr>
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In connection with the acquisition of Palm Harbor, approximately $30 million was transferred
at closing of the Palm Harbor transaction on April 23, 2011 and $19.5 million was used to retire a
certain debt obligation of the Company’s new subsidiary, CountryPlace Acceptance Corp., on May 10,
2011 (including payoff of the loan, prepayment penalty and related legal fees).
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During the fiscal quarter ended June 30, 2011, the Company recognized $744,000 of acquisition
related costs that were expensed as incurred. During the year ended March 31, 2011, the Company
recognized $272,000 of acquisition related costs. These costs were recognized in selling, general
and administrative expenses on the Consolidated Statement of Operations. We anticipate additional
acquisition-related costs in fiscal year ended March 31, 2012 related to the purchase of the Palm Harbor assets.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Because the Company purchased Palm Harbor out of bankruptcy, the fair value of identifiable
assets acquired and specified liabilities assumed exceeded the fair value of the consideration
transferred. In accordance with ASC 805, <i>Business Combinations, </i>the Company consequently
reassessed the recognition and measurement of identifiable assets acquired and specified
liabilities assumed and concluded that the valuation procedures and resulting measures were
appropriate. As a result, the Company recognized a gain on bargain purchase of $18.8 million in
its consolidated statements of operations for the quarter ended June 30, 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The recorded amounts are provisional and subject to change primarily as follows:
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Amounts for inventory and property and equipment are pending completion of certain
confirmation of physical existence and condition.</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Amounts for intangibles, property held for sale, consumer loans receivable, securitized
financing obligation, deferred income taxes and accrued liabilities are pending finalization
of valuation efforts.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">A single estimate of fair value results from a complex series of judgments about future events
and uncertainties and relies heavily on estimates and assumptions. Judgments used to determine the
estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as
asset lives, can materially impact results of operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Pro Forma Impact of Acquisition (unaudited) </i>— The following table presents supplemental pro
forma information as if the acquisition of Palm Harbor had occurred on April 1, 2010 (in
thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Unaudited Pro Forma</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Consolidated Results</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Revenues
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">113,034</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">123,681</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Income (loss) attributable to Cavco stockholders
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(968</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">9,270</td>
<td nowrap="nowrap"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Diluted earnings per common share attributable to Cavco stockholders
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(0.14</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">1.37</td>
<td nowrap="nowrap"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The unaudited pro forma consolidated results were prepared using the acquisition method of
accounting and are based on the historical financial information of Cavco and Palm Harbor,
reflecting both Cavco and Palm Harbor results of operations for the three months ended June 30,
2011 and 2010, respectively. The historical financial information has been adjusted to give effect
to the pro forma events that are: (1) directly attributable to the acquisition; (2) factually
supportable; and (3) expected to have a continuing impact on the combined results. The unaudited
pro forma consolidated results are not necessarily indicative of what our consolidated results of
operations actually would have been had we completed the acquisition on April 1, 2010. In
addition, the unaudited pro forma consolidated results do not purport to project the future results
of operations of the combined company nor do they reflect the expected realization of any cost
savings associated with the acquisition, including the elimination of overhead costs. The results
reflect primarily the following pro forma pre-tax adjustments:
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Reclassification of amounts to conform to Cavco’s accounting policies resulting in no
impact to net income/(loss) (grossed up both net sales and cost of sales by $0.8 million and
$4.4 million for the three months ended June 30, 2011 and 2010, respectively, and decreased
SG&A and increased cost of sales by $0.7 million and $1.5 million, respectively).</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Reclassification of amounts to conform to Cavco’s accounting policies for revenue
recognition in the retail sales process, resulting in the reclassification of net sales and
cost of sales among periods. These revenue recognition adjustments resulted in a decrease
in net sales and cost of sales for the three months ended June 30, 2011 of $$203,000 and
$166,000, respectively, net of adjustment for amounts deferred under Cavco’s revenue
recognition policy. For fiscal year 2010, the revenue recognition pro forma adjustment
resulted in a net decrease in net sales of $565,000 and an increase in cost of sales of
$12,000, respectively.</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Elimination of Palm Harbor’s historical interest expense related to Senior Convertible
Notes discharged in bankruptcy, a note payable settled prior to the bankruptcy and a credit
agreement that has been terminated and will not be a part of the Company’s capitalization
going forward ($239 and $2,249 in the three months ended June 30, 2011 and 2010,
respectively).</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Elimination of $1.9 million of costs incurred and $187,000 of interest income in the
three months ended June 30, 2011, which are directly attributable to the bankruptcy and
subsequent acquisition, and which do not have a continuing impact on the combined company’s
operating results. Included in these costs are advisory, legal and regulatory costs incurred
by both legacy Cavco and legacy Palm Harbor and income and costs related to the
debtor-in-possession financing that has been terminated.</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Additional amortization expense (approximately $111,000 and $849,000 for the three months
ended June 30, 2011 and 2010, respectively) related to the fair value of identifiable
intangible assets acquired.</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Reduction in depreciation expense (approximately $128,000 in the three months ended June
30, 2011 and $572,000 in fiscal year 2010, respectively) related to the fair value
adjustment to property, plant and equipment acquired.</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="4%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Elimination of operating activities related to closed manufacturing facilities and retail
locations that (i) were not purchased in the transaction or (ii) are held for sale as of the
Date of Acquisition. The amounts eliminated included sales of $645,000, cost of sales of
$1.3 million, and SG&A of $558,000 for the three months ended June 30, 2011. For the three
months ended June 30, 2010, the amounts eliminated were sales of $12.0 million, cost of
sales of $10.7 million, and SG&A of $2.9 million.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In addition, all of the above adjustments were adjusted for the applicable tax impact.
</div>
</div>
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<!-- Begin Block Tagged Note 20 - us-gaap:MinorityInterestDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>20. Redeemable Noncontrolling Interest</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Redeemable Noncontrolling Interest </i>— During fiscal year 2010, the Company and an investment
partner, Third Avenue formed Fleetwood Homes, Inc., with an initial contribution of $35.0 million
each for equal fifty-percent ownership interests. On July 21, 2009, Fleetwood Homes entered into an
asset purchase agreement with Fleetwood Enterprises, Inc. and certain of its subsidiaries to
purchase certain assets and liabilities of its manufactured housing business. On the acquisition
date, Fleetwood Homes acquired seven operating manufactured housing plants and two idle factories.
Fleetwood Homes also purchased all related equipment, accounts receivable, inventory, certain
trademarks and trade names, intellectual property, and specified contracts and leases; and assumed
express warranty liabilities pertaining to certain of the previous operations. The purchase price
of the transaction was $25.8 million and was paid in cash by Fleetwood Homes.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company and Third Avenue subsequently contributed $36.0 million each in anticipation of
the purchase of Palm Harbor, which was completed during the first quarter of fiscal year 2012. See
Notes 19 and 21 for further information.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The results of the Fleetwood Homes and Palm Harbor operations have been included in the
Consolidated Financial Statements and the related Notes since the respective acquisition dates in
accordance with the provisions of ASC 810. Management has determined that, under GAAP, although
Fleetwood Homes is only fifty-percent owned by the Company, Cavco has a controlling interest and is
required to fully consolidate the results of Fleetwood Homes. The primary factors that contributed
to this determination were Cavco’s board and management control of Fleetwood Homes. To that end,
members of Cavco’s management hold all of the seats on the board of directors of Fleetwood Homes.
In addition, as part of a management services agreement among Cavco, Fleetwood Homes and Third
Avenue, Cavco provides all executive-level management services to Fleetwood Homes including, among
other things, general management oversight, marketing and customer relations, accounting and cash
management. Third Avenue’s financial interest in Fleetwood Homes is considered a “redeemable
noncontrolling interest,” and is designated as such in the Consolidated Financial Statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Temporary Equity Classification </i>— ASC 480 <i>Distinguishing Liabilities from Equity </i>includes
guidance regarding the classification and measurement of redeemable securities, including a
requirement that equity instruments that are not required to be classified as liabilities be
classified as temporary equity and outside of permanent equity if they are redeemable (1) at a
fixed or determinable price on a fixed or determinable date, (2) at the option of the holder, or
(3) upon the occurrence of an event that is not solely within the control of the issuer.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In accordance with the Shareholder Agreement entered into among Fleetwood Homes and its
shareholders (Cavco and Third Avenue), as amended on November 30, 2010 (the “Shareholder
Agreement”), after the fifth anniversary of the Fleetwood Acquisition Date, (i.e. after August 17,
2014), or at any time after Fleetwood Homes has earned net income of at least $10.0 million in each
of its two most recently completed consecutive fiscal years, Third Avenue has the right (“Put
Right”) to require Cavco to purchase all of Third Avenue’s shares of Fleetwood Homes common stock
for an amount based upon a calculation that is designed to approximate fair value. Likewise, Cavco has the right (“Call Right”) to require Third Avenue
to sell all of its shares of Fleetwood Homes common stock based on the same timing and calculation
as described above for the Put Right. The conditions for the Put Right or Call Right to become
exercisable have not been met as of June 30, 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The purchase price to be payable by Cavco for the purchase of Third Avenue’s shares pursuant
to the exercise of the Put Right or the Call Right may be settled in cash or shares of common stock
of Cavco. However, the circumstances under which net share settlement would be allowed are not
solely within the control of Cavco. The availability of net share settlement is dependent upon a
number of factors. For example, at the time of such purchase, Cavco’s common stock must be listed
on either the NASDAQ or the New York Stock Exchange. In the case of Third Avenue’s exercise of its
Put Right, Cavco may elect to pay all or a portion of such purchase price in the form of shares of
common stock of Cavco. In the case of Cavco’s exercise of its Call Right, Third Avenue may elect to
receive all or a portion of such purchase price in the form of shares of common stock of Cavco. In
addition, net share settlement would not be available if it were to lead to a change of control of
Cavco. If either Cavco or Third Avenue makes such election, the shares of Cavco common stock to be
issued to Third Avenue would be valued based on the average closing price of Cavco’s common stock
for the sixty most recent trading days. There is no explicit cap on the maximum number of common
shares that could be potentially issuable upon redemption; therefore, GAAP requires that Third
Avenue’s noncontrolling interest in Fleetwood Homes be classified as a temporary equity mezzanine
item between liabilities and stockholders’ equity.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The carrying amount is subject to adjustment, after attribution of net income or loss of
Fleetwood Homes, if there are changes in the redemption value at the end of the reporting period.
For the period since the Fleetwood Acquisition Date through June 30, 2011, the Company determined
that the potential redemption value of the redeemable noncontrolling interest did not exceed its
carrying value and no adjustment was needed.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
</div>
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<!-- Begin Block Tagged Note 21 - cvco:ConvertibleNotePayableTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>21. Convertible Note Payable</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On December 1, 2010, the Company and Third Avenue entered into separate convertible note
payable agreements with their subsidiary, Fleetwood Homes, for $14.0 million each, convertible to
200 shares of Fleetwood Homes, Inc. common stock at the successful close of the contemplated Palm
Harbor transaction. The convertible notes were subsequently increased by $22.0 million each,
convertible to an additional 314.28 shares, for a total of $36.0 million per note in the fourth
quarter of 2011, convertible to 514.28 shares. The convertible notes bore interest of 2.5% per
annum. Concurrent with the successful completion of the acquisition of Palm Harbor Florida, all
outstanding convertible notes were converted to shares of Fleetwood Homes, Inc. on April 23, 2011
and redeemable noncontrolling interest increased by $36.0 million. Any right to interest income was
forfeited by the note holders upon conversion in accordance with the terms of the agreements.
</div>
</div>
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<!-- Begin Block Tagged Note 22 - us-gaap:RelatedPartyTransactionsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>22. Related Party Transactions</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At June 30, 2011, Third Avenue Management LLC beneficially owned approximately 12.1% of our
outstanding common shares and thus meets the definition of a principal owner under FASB ASC 850,
Related Party Disclosures (“ASC 850”). Third Avenue Management LLC and Third Avenue are either
directly or indirectly under common control. Third Avenue’s participation in ownership of Fleetwood
Homes, the Fleetwood Homes transaction, convertible note payable, and the subsequent Palm Harbor
acquisition are therefore considered related party transactions in accordance with ASC 850.
</div>
</div>
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<!-- Begin Block Tagged Note 23 - us-gaap:SegmentReportingDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>23. Business Segment Information</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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 (loss) income from
operations by segment for the three months ended June 30, 2011 and 2010 (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">Three Months Ended</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net sales:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Factory-built housing
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">92,840</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">47,505</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Financial services
</div></td>
<td> </td>
<td> </td>
<td align="right">6,141</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">98,981</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">47,505</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">(Loss) income from operations:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Factory-built housing
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(2,671</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">2,046</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Financial services
</div></td>
<td> </td>
<td> </td>
<td align="right">2,746</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">General corporate charges
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(905</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(841</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(830</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">1,205</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">As of</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">March 31,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total assets:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Factory-built housing
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">253,772</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">192,866</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Financial services
</div></td>
<td> </td>
<td> </td>
<td align="right">145,606</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Corporate
</div></td>
<td> </td>
<td> </td>
<td align="right">29,148</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">76,576</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">428,526</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">269,442</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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Total number of shares of common stock held by shareholders. May be all or portion of the number of common shares authorized. These shares represent the ownership interest of the common shareholders. Shares outstanding equals shares issued minus shares held in treasury and other adjustments, if any.
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Face amount or stated value per share of nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer); generally not indicative of the fair market value per share.
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The maximum number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) permitted to be issued by an entity's charter and bylaws.
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Total number of nonredeemable preferred shares (or preferred stock redeemable solely at the option of the issuer) issued to shareholders (includes related preferred shares that were issued, repurchased, and remain in the treasury). May be all or portion of the number of preferred shares authorized. Excludes preferred shares that are classified as debt.
Aggregate share number for all nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer) held by stockholders. Does not include preferred shares that have been repurchased.
In a business combination in which the amount of net identifiable assets acquired and liabilities assumed exceeds the aggregate consideration transferred or to be transferred (as defined), this element represents the amount of gain recognized by the entity.
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The amount of net income (loss) for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.
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Sum of operating profit and nonoperating income or expense before Income or Loss from equity method investments, income taxes, extraordinary items, and noncontrolling interest.
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The portion of net Income or Loss attributable to the noncontrolling interest (if any) deducted in order to derive the portion attributable to the parent.
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The aggregate amount of other income amounts, the components of which are not separately disclosed on the income statement, resulting from ancillary business-related activities (that is, excluding major activities considered part of the normal operations of the business) also known as other nonoperating income recognized for the period. Such amounts may include: (a) dividends, (b) interest on securities, (c) profits on securities (net of losses), and (d) miscellaneous other income items.
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Aggregate revenue recognized during the period (derived from goods sold, services rendered, insurance premiums, or other activities that constitute an entity's earning process). For financial services companies, also includes investment and interest income, and sales and trading gains.
The aggregate total costs related to selling a firm's product and services, as well as all other general and administrative expenses. Direct selling expenses (for example, credit, warranty, and advertising) are expenses that can be directly linked to the sale of specific products. Indirect selling expenses are expenses that cannot be directly linked to the sale of specific products, for example telephone expenses, Internet, and postal charges. General and administrative expenses include salaries of non-sales personnel, rent, utilities, communication, etc.
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The average number of shares or units issued and outstanding that are used in calculating diluted EPS or earnings per unit (EPU), determined based on the timing of issuance of shares or units in the period.
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Number of [basic] shares or units, after adjustment for contingently issuable shares or units and other shares or units not deemed outstanding, determined by relating the portion of time within a reporting period that common shares or units have been outstanding to the total time in that period.
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On November 29, 2010, Fleetwood Homes, Inc. entered into a DIP Revolving Credit Agreement (the
“DIP Agreement”) and a Security Agreement (the “DIP Security Agreement”) with Palm Harbor Florida
and certain of its subsidiaries. Palm Harbor Florida was a manufacturer and marketer of
factory-built housing and a provider of related financing and insurance. Also on November 29, 2010,
Fleetwood Homes’ newly-formed subsidiary, Palm Harbor Delaware, entered into an Asset Purchase
Agreement (the “Purchase Agreement”) with Palm Harbor Florida.
Palm Harbor Florida and those of its subsidiaries that were parties to the DIP Agreement and
the Purchase Agreement filed for chapter 11 bankruptcy protection on November 29, 2010. Pursuant to
the terms and conditions of the DIP Agreement, Fleetwood Homes agreed to provide up to $55.0
million for a debtor-in-possession credit facility to finance Palm Harbor’s reorganization under
chapter 11 of the U.S. Bankruptcy Code. The DIP loan facility bore interest at 7% per annum. Palm
Harbor Florida’s obligations under the DIP Agreement were secured by a first position lien on
substantially all of Palm Harbor Florida’s assets. The credit facility was partially used by Palm
Harbor Florida to extinguish its Textron Financial Corporation debt facility and to fund
post-petition operations, commitments to customers, and employee obligations.
On April 23, 2011, the DIP credit facility was retired in conjunction with the closing of the
acquisition of Palm Harbor Florida, discussed further below.
This is focus fiscal period of the document report. For a first quarter 2006 quarterly report, which may also provide financial information from prior periods, the first fiscal quarter should be given as the fiscal period focus. Values: FY, Q1, Q2, Q3, Q4, H1, H2, M9, T1, T2, T3, M8, CY.
This is focus fiscal year of the document report in CCYY format. For a 2006 annual report, which may also provide financial information from prior periods, fiscal 2006 should be given as the fiscal year focus. Example: 2006.
The end date of the period reflected on the cover page if a periodic report. For all other reports and registration statements containing historical data, it is the date up through which that historical data is presented. If there is no historical data in the report, use the filing date. The format of the date is CCYY-MM-DD.
The type of document being provided (such as 10-K, 10-Q, N-1A, etc). The document type is limited to the same value as the supporting SEC submission type, minus any "/A" suffix. The acceptable values are as follows: S-1, S-3, S-4, S-11, F-1, F-3, F-4, F-9, F-10, 6-K, 8-K, 10, 10-K, 10-Q, 20-F, 40-F, N-1A, 485BPOS, 497, NCSR, N-CSR, N-CSRS, N-Q, 10-KT, 10-QT, 20-FT, and Other.
Indicate number of shares outstanding of each of registrant's classes of common stock, as of latest practicable date. Where multiple classes exist define each class by adding class of stock items such as Common Class A [Member], Common Class B [Member] onto the Instrument [Domain] of the Entity Listings, Instrument
Indicate "Yes" or "No" whether registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. This information should be based on the registrant's current or most recent filing containing the related disclosure.
Indicate whether the registrant is one of the following: (1) Large Accelerated Filer, (2) Accelerated Filer, (3) Non-accelerated Filer, or (4) Smaller Reporting Company. Definitions of these categories are stated in Rule 12b-2 of the Exchange Act. This information should be based on the registrant's current or most recent filing containing the related disclosure.
State aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to price at which the common equity was last sold, or average bid and asked price of such common equity, as of the last business day of registrant's most recently completed second fiscal quarter. The public float should be reported on the cover page of the registrants form 10K.
Indicate "Yes" or "No" if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Is used on Form Type: 10-K, 10-Q, 8-K, 20-F, 6-K, 10-K/A, 10-Q/A, 20-F/A, 6-K/A, N-CSR, N-Q, N-1A.
On December 1, 2010, the Company and Third Avenue entered into separate convertible note
payable agreements with their subsidiary, Fleetwood Homes, for $14.0 million each, convertible to
200 shares of Fleetwood Homes, Inc. common stock at the successful close of the contemplated Palm
Harbor transaction. The convertible notes were subsequently increased by $22.0 million each,
convertible to an additional 314.28 shares, for a total of $36.0 million per note in the fourth
quarter of 2011, convertible to 514.28 shares. The convertible notes bore interest of 2.5% per
annum. Concurrent with the successful completion of the acquisition of Palm Harbor Florida, all
outstanding convertible notes were converted to shares of Fleetwood Homes, Inc. on April 23, 2011
and redeemable noncontrolling interest increased by $36.0 million. Any right to interest income was
forfeited by the note holders upon conversion in accordance with the terms of the agreements.
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Property, plant and equipment are carried at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of each asset. Estimated useful lives for
significant classes of assets are as follows: buildings and improvements 10 to 39 years, and
machinery and equipment 3 to 25 years. Repairs and maintenance charges are expensed as incurred.
Property, plant and equipment consist of the following (in thousands):
The entire disclosure for long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale. Examples include land, buildings, machinery and equipment, and other types of furniture and equipment including, but not limited to, office equipment, furniture and fixtures, and computer equipment and software. This disclosure may include property plant and equipment accounting policies and methodology, a schedule of property, plant and equipment gross, additions, deletions, transfers and other changes, depreciation, depletion and amortization expense, net, accumulated depreciation, depletion and amortization expense and useful lives, income statement disclosures, assets held for sale and public utility disclosures.
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Principles Board Opinion (APB) -Number 12 -Paragraph 5 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
At June 30, 2011, Third Avenue Management LLC beneficially owned approximately 12.1% of our
outstanding common shares and thus meets the definition of a principal owner under FASB ASC 850,
Related Party Disclosures (“ASC 850”). Third Avenue Management LLC and Third Avenue are either
directly or indirectly under common control. Third Avenue’s participation in ownership of Fleetwood
Homes, the Fleetwood Homes transaction, convertible note payable, and the subsequent Palm Harbor
acquisition are therefore considered related party transactions in accordance with ASC 850.
The entire disclosure for related party transactions, including the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 57 -Paragraph 1-4 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
Redeemable Noncontrolling Interest — During fiscal year 2010, the Company and an investment
partner, Third Avenue formed Fleetwood Homes, Inc., with an initial contribution of $35.0 million
each for equal fifty-percent ownership interests. On July 21, 2009, Fleetwood Homes entered into an
asset purchase agreement with Fleetwood Enterprises, Inc. and certain of its subsidiaries to
purchase certain assets and liabilities of its manufactured housing business. On the acquisition
date, Fleetwood Homes acquired seven operating manufactured housing plants and two idle factories.
Fleetwood Homes also purchased all related equipment, accounts receivable, inventory, certain
trademarks and trade names, intellectual property, and specified contracts and leases; and assumed
express warranty liabilities pertaining to certain of the previous operations. The purchase price
of the transaction was $25.8 million and was paid in cash by Fleetwood Homes.
The Company and Third Avenue subsequently contributed $36.0 million each in anticipation of
the purchase of Palm Harbor, which was completed during the first quarter of fiscal year 2012. See
Notes 19 and 21 for further information.
The results of the Fleetwood Homes and Palm Harbor operations have been included in the
Consolidated Financial Statements and the related Notes since the respective acquisition dates in
accordance with the provisions of ASC 810. Management has determined that, under GAAP, although
Fleetwood Homes is only fifty-percent owned by the Company, Cavco has a controlling interest and is
required to fully consolidate the results of Fleetwood Homes. The primary factors that contributed
to this determination were Cavco’s board and management control of Fleetwood Homes. To that end,
members of Cavco’s management hold all of the seats on the board of directors of Fleetwood Homes.
In addition, as part of a management services agreement among Cavco, Fleetwood Homes and Third
Avenue, Cavco provides all executive-level management services to Fleetwood Homes including, among
other things, general management oversight, marketing and customer relations, accounting and cash
management. Third Avenue’s financial interest in Fleetwood Homes is considered a “redeemable
noncontrolling interest,” and is designated as such in the Consolidated Financial Statements.
Temporary Equity Classification — ASC 480 Distinguishing Liabilities from Equity includes
guidance regarding the classification and measurement of redeemable securities, including a
requirement that equity instruments that are not required to be classified as liabilities be
classified as temporary equity and outside of permanent equity if they are redeemable (1) at a
fixed or determinable price on a fixed or determinable date, (2) at the option of the holder, or
(3) upon the occurrence of an event that is not solely within the control of the issuer.
In accordance with the Shareholder Agreement entered into among Fleetwood Homes and its
shareholders (Cavco and Third Avenue), as amended on November 30, 2010 (the “Shareholder
Agreement”), after the fifth anniversary of the Fleetwood Acquisition Date, (i.e. after August 17,
2014), or at any time after Fleetwood Homes has earned net income of at least $10.0 million in each
of its two most recently completed consecutive fiscal years, Third Avenue has the right (“Put
Right”) to require Cavco to purchase all of Third Avenue’s shares of Fleetwood Homes common stock
for an amount based upon a calculation that is designed to approximate fair value. Likewise, Cavco has the right (“Call Right”) to require Third Avenue
to sell all of its shares of Fleetwood Homes common stock based on the same timing and calculation
as described above for the Put Right. The conditions for the Put Right or Call Right to become
exercisable have not been met as of June 30, 2011.
The purchase price to be payable by Cavco for the purchase of Third Avenue’s shares pursuant
to the exercise of the Put Right or the Call Right may be settled in cash or shares of common stock
of Cavco. However, the circumstances under which net share settlement would be allowed are not
solely within the control of Cavco. The availability of net share settlement is dependent upon a
number of factors. For example, at the time of such purchase, Cavco’s common stock must be listed
on either the NASDAQ or the New York Stock Exchange. In the case of Third Avenue’s exercise of its
Put Right, Cavco may elect to pay all or a portion of such purchase price in the form of shares of
common stock of Cavco. In the case of Cavco’s exercise of its Call Right, Third Avenue may elect to
receive all or a portion of such purchase price in the form of shares of common stock of Cavco. In
addition, net share settlement would not be available if it were to lead to a change of control of
Cavco. If either Cavco or Third Avenue makes such election, the shares of Cavco common stock to be
issued to Third Avenue would be valued based on the average closing price of Cavco’s common stock
for the sixty most recent trading days. There is no explicit cap on the maximum number of common
shares that could be potentially issuable upon redemption; therefore, GAAP requires that Third
Avenue’s noncontrolling interest in Fleetwood Homes be classified as a temporary equity mezzanine
item between liabilities and stockholders’ equity.
The carrying amount is subject to adjustment, after attribution of net income or loss of
Fleetwood Homes, if there are changes in the redemption value at the end of the reporting period.
For the period since the Fleetwood Acquisition Date through June 30, 2011, the Company determined
that the potential redemption value of the redeemable noncontrolling interest did not exceed its
carrying value and no adjustment was needed.
The entire disclosure for noncontrolling interest in consolidated subsidiaries, which could include the name of the subsidiary, the ownership percentage held by the parent, the ownership percentage held by the noncontrolling owners, the amount of the noncontrolling interest, the location of this amount on the balance sheet (when not reported separately), an explanation of the increase or decrease in the amount of the noncontrolling interest, the noncontrolling interest share of the net Income or Loss of the subsidiary, the location of this amount on the income statement (when not reported separately), the nature of the noncontrolling interest such as background information and terms, the amount of the noncontrolling interest represented by preferred stock, a description of the preferred stock, and the dividend requirements of the preferred stock.
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 51 -Paragraph 38 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
Repurchase Contingencies — The Company is contingently liable under terms of repurchase
agreements with financial institutions providing inventory financing for retailers of its products.
These arrangements, which are customary in the industry, provide for the repurchase of products
sold to retailers in the event of default by the retailer. The risk of loss under these agreements
is spread over numerous retailers. The price the Company is obligated to pay generally declines
over the period of the agreement (generally 18 to 36 months) and the risk of loss is further
reduced by the resale value of the homes. The maximum amount for which the Company was contingently
liable under such agreements approximated $11.6 million at June 30, 2011, without reduction for the
resale value of the homes. The Company applies FASB ASC 460, Guarantees (“ASC 460”), and FASB ASC
450-20, Loss Contingencies (“ASC 450-20”), to account for its liability for repurchase commitments.
Under the provisions of ASC 460, the Company records the greater of the estimated value of the
non-contingent obligation or a contingent liability for each repurchase arrangement under the
provisions of ASC 450-20. The Company recorded an estimated liability of $690,000 and $597,000 at
June 30, 2011 and March 31, 2011, respectively, related to these commitments.
Letter of Credit — The Company maintains a $250,000 outstanding letter of credit with
J.P. Morgan Chase Bank N.A. issued to satisfy the remaining requirements of the self-funded
workers’ compensation program which concluded on September 30, 2006. There have been no draws
against the letter of credit.
Legal Matters — The Company is party to certain legal proceedings that arise in the ordinary
course and are incidental to its business. Certain of the claims pending against the Company in
these proceedings allege, among other things, breach of contract and warranty, product liability
and personal injury. Although litigation is inherently uncertain, based on past experience and the
information currently available, management does not believe that the currently pending and
threatened litigation or claims will have a material adverse effect on the Company’s consolidated
financial position, liquidity or results of operations. However, future events or circumstances
currently unknown to management will determine whether the resolution of pending or threatened
litigation or claims will ultimately have a material effect on the Company’s consolidated financial
position, liquidity or results of operations in any future reporting periods.
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Interpretation (FIN) -Number 14 -Paragraph 3 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 5 -Paragraph 9, 10, 11, 12 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
Available-for-sale securities were acquired during the first quarter of fiscal 2012 as a part
of the Palm Harbor acquisition. In accordance with ASC 805, Business Combinations (“ASC 805”) the
individual securities were valued at fair value as of the Acquisition Date and therefore, no
individual security has been in a continuous unrealized loss position at June 30, 2011. The
following table summarizes the Company’s available-for-sale investment securities, gross unrealized
gains and losses and fair value, aggregated by investment category as of June 30, 2011 (in
thousands):
June 30, 2011
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
U.S. Treasury and Government
Agencies
$
1,148
$
—
$
(1
)
$
1,147
Mortgage-backed securities
5,063
24
(45
)
5,042
States and political subdivisions
1,205
1
—
1,206
Corporate debt securities
4,411
—
(26
)
4,385
Marketable equity securities
3,802
33
(82
)
3,753
Total
$
15,629
$
58
$
(154
)
$
15,533
Consistent with improvements seen in the overall stock market in recent quarters, and based on
the Company’s ability and intent to hold the investments for a reasonable period of time sufficient
for a forecasted recovery of fair value, the Company does not consider the investments to be
other-than-temporarily impaired at June 30, 2011.
The Company’s investments in marketable equity securities consist of investments in common
stock of bank trust, insurance, and public utility companies ($1.5 million of the total fair value
and $11,000 of the total unrealized losses) and industrial companies ($2.3 million of the total
fair value and $71,000 of the total unrealized losses).
The amortized cost and fair value of the Company’s investment securities at June 30, 2011, by
contractual maturity, are shown in the table below (in thousands). Expected maturities will differ
from contractual maturities because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
June 30,
2011
Due in less than one year
$
974
Due after one year through five years
6,716
Due after
five years through ten years
262
Due after ten years
3,828
Marketable equity securities
3,753
Total investment securities available-for-sale
$
15,533
Realized gains and losses from the sale of securities are determined using the specific
identification method. Gross gains realized on the sales of investment securities for the first
quarter of fiscal 2012 were approximately $17,000. Gross losses were approximately $4,000 for the
first quarter of fiscal 2012.
Tabular disclosure of investments in certain debt and equity securities (and certain other trading assets) which include all debt and equity securities (other than those equity securities accounted for under the equity or cost methods of accounting) with readily determinable fair values. Other trading assets include assets that are carried on the balance sheet at fair value and held for trading purposes. A debt security represents a creditor relationship with an enterprise that is in the form of a security. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities (and other trading assets).
Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 115 -Paragraph 3, 19, 20, 21, 22, 137 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
Homes are generally warranted against manufacturing defects for a period of one year
commencing at the time of sale to the retail customer. Estimated costs relating to home warranties
are provided at the date of sale. The Company has recorded a liability for estimated future
warranty costs relating to homes sold based upon management’s assessment of historical experience
factors, an estimate of the amount of homes in the distribution channel and current industry
trends. Activity in the liability for estimated warranties was as follows (in thousands):
The entire disclosure for standard and extended product warranties and other product guarantee contracts, including a tabular reconciliation of the changes in the guarantor's aggregate product warranty liability for the reporting period.
Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Interpretation (FIN) -Number 45 -Paragraph 14 -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
The difference between net income and total comprehensive income for the three months ended
June 30, 2011 and June 30, 2010 is as follows (in thousands):
Three Months Ended
June 30,
2011
2010
Net income
$
17,459
$
850
Unrealized gain on available-for-sale
investments, net of tax
The entire disclosure for comprehensive income. Includes, but is not limited to, the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains (losses) on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains (losses) on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains (losses) on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain (loss) and net prior service cost or credit for pension plans and other postretirement benefit plans.
Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 130 -Paragraph 14-26 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
The Company acquired securitized financings during the first quarter of fiscal 2012 as a part
of the Palm Harbor acquisition. Acquired securitized financings were acquired at fair value, which
resulted in a discount, and subsequently are accounted for a manner similar to ASC 310-30 to
accrete the discount.
The Company considers expected prepayments and estimates the amount and timing of undiscounted
expected principal, interest and other cash flows for consumer loans receivable held for investment
to determine the expected cash flows on securitized financings and the contractual payments. The
amount of contractual principal and contractual interest payments due on the securitized financings
in excess of all cash
flows expected as of the acquisition date should not be accreted (the non-accretable
difference). The remaining amount is accreted into interest expense over the remaining life of the
obligation (referred to as accretable yield).
June 30,
April 23,
2011
2011
Securitized financings — contractual amount
$
130,851
$
134,205
Purchase Discount
Accretable
(31,346
)
(32,072
)
Non-accretable (1)
—
—
Total securitized financings, net
$
99,505
$
102,133
(1)
Because the contractual payments on securitized financing are determined by
actual cash flows, the Company expects that there will not be a non-accretable difference.
Over the life of the loans, the Company continues to estimate cash flows expected to be paid
on securitized financings. The Company evaluates at the balance sheet date whether the present
value of its securitized financings determined using the effective interest rate, has increased. The present value
of any subsequent decrease in cash flows expected to be paid adjusts the amount of accretable yield recognized on a prospective basis over the securitized financing’s remaining life.
The changes in accretable yield on securitized financings were as follows:
June 30,
2011
Balance at the beginning of the period
$
—
Additions
32,072
Accretion
(726
)
Reclassifications from (to) nonaccretable
discount
—
Disposals
—
Balance at the end of the period
$
31,346
On July 12, 2005, prior to the acquisition of Palm Harbor and CountryPlace, CountryPlace
completed its initial securitization (2005-1) for approximately $141.0 million of loans, which was
funded by issuing bonds totaling approximately $118.4 million. The bonds were issued in four
different classes: Class A-1 totaling $36.3 million with a coupon rate of 4.23%; Class A-2
totaling $27.4 million with a coupon rate of 4.42%; Class A-3 totaling $27.3 million with a coupon
rate of 4.80%; and Class A-4 totaling $27.4 million with a coupon rate of 5.20%. Maturity of the
bonds is at varying dates beginning in 2006 through 2015 and were issued with an expected weighted
average maturity of 4.66 years. For accounting purposes, this transaction was structured as a
securitized borrowing.
On March 22, 2007, CountryPlace, completed its second securitization (2007-1) for
approximately $116.5 million of loans, which was funded by issuing bonds totaling approximately
$101.9 million. The bonds were issued in four classes: Class A-1 totaling $28.9 million with a
coupon rate of 5.484%; Class A-2 totaling $23.4 million with a coupon rate of 5.232%; Class A-3
totaling $24.5 million with a coupon rate of 5.593%; and Class A-4 totaling $25.1 million with a
coupon rate of 5.846%. The bonds mature at varying dates beginning in 2008 through 2017 and were
issued with an expected weighted average maturity of 4.86 years. For accounting purposes, this
transaction was also structured as a securitized borrowing.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 129 -Paragraph 2, 4 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
The accompanying Consolidated Financial Statements of Cavco Industries, Inc., and its
subsidiaries (collectively, the “Company” or “Cavco”), have been prepared without audit pursuant to
the rules and regulations of the Securities and Exchange Commission (“SEC”) for Quarterly Reports
on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance with generally
accepted accounting principles (“GAAP”) in the United States of America have been condensed or
omitted pursuant to such rules and regulations.
In the opinion of management, these statements include all of the normal recurring adjustments
necessary to fairly state the Company’s Consolidated Financial Statements. The Consolidated
Statements of Operations and Consolidated Statements of Cash Flows for the interim periods are not
necessarily indicative of the results or cash flows for the full year. Certain prior period amounts
have been reclassified to conform to current period classification. The Company has evaluated
subsequent events after the balance sheet date of June 30, 2011 through the date of the filing of
this report with the SEC and there were no disclosable subsequent events. The Company suggests
that these Consolidated Financial Statements be read in conjunction with the audited Consolidated
Financial Statements and the Notes to Consolidated Financial Statements included in the Company’s
Annual Report on Form 10-K filed with the SEC on June 3, 2011 (the “Form 10-K”).
During fiscal year 2010, the Company and an investment partner, Third Avenue Value Fund
(“Third Avenue”), formed Fleetwood Homes, Inc. (“Fleetwood Homes”), with a contribution of $35.0
million each for equal fifty-percent ownership interests. On August 17, 2009, Fleetwood Homes
acquired seven operating manufactured housing plants, two idle factories, all related equipment,
accounts receivable, inventory, certain trademarks and trade names, intellectual property, and
specified contracts and leases; and assumed express warranty liabilities pertaining to certain of
the previous operations of a predecessor company.
The results of the Fleetwood Homes operations have been included in the Consolidated Financial
Statements and the related Notes in accordance with the provisions of Financial Accounting
Standards Board Accounting Standards Codification (“FASB ASC”) 810, Consolidation (“ASC 810”).
Management has determined that, under GAAP, although Fleetwood Homes is only fifty-percent owned by
the Company, Cavco has a controlling interest and is required to fully consolidate the results of
Fleetwood Homes. The primary factors that contributed to this determination were Cavco’s board and
management control of Fleetwood Homes. To that end, members of Cavco’s management hold all of the
seats on the board of directors of Fleetwood Homes. In addition, as part of a management services
agreement among Cavco, Fleetwood Homes and Third Avenue, Cavco provides all executive-level
management services to Fleetwood Homes including, among other things, general management oversight,
marketing and customer relations, accounting and cash management. Third Avenue’s financial
interest in Fleetwood Homes is considered a “redeemable noncontrolling interest,” and is designated
as such in the Consolidated Financial Statements (see Note 20).
During fiscal year 2011, Fleetwood Homes, through its wholly-owned subsidiary, Palm Harbor
Homes, Inc., a Delaware corporation (“Palm Harbor” or “Palm Harbor Delaware”), entered into an
agreement (the “Purchase Agreement”) with Palm Harbor Homes, Inc., a Florida corporation, and
certain of its subsidiaries (collectively “Palm Harbor Florida”) to purchase substantially all of
the assets and assume specified liabilities of Palm Harbor Florida, pursuant to an auction process
under Section 363 of the U.S. Bankruptcy Code. The effective date of the transaction was April 23,
2011 (the “Acquisition Date”), except for the stock of Standard Casualty Co. The aggregate gross
purchase price was $83.9 million and is exclusive of transaction costs, specified liabilities
assumed and post-closing adjustments. Approximately $45.3 million of the purchase price was used to
retire the Debtor-In-Possession (“DIP”) loan previously made by Fleetwood Homes to Palm Harbor
Florida. The purchase price was funded by Fleetwood Homes’ cash on hand, along with equal
contributions of $36.0 million each from the Company and Third Avenue. On June 7, 2011, regulatory
approval of the acquisition of Standard Casualty Co. was received from the Texas Department of
Insurance and on June 10, 2011 (the “SCC Acquisition Date”), Palm Harbor Delaware completed the
purchase of the insurance subsidiary.
Palm Harbor Delaware acquired five operating manufactured housing production facilities, idled
factories in nine locations, 49 operating retail locations, one office building, real estate, all
related equipment, accounts receivable, customer deposits, inventory, certain trademarks and trade
names, intellectual property, and specified contracts and leases. In addition, as of the
Acquisition Date, Palm Harbor Delaware purchased all of the outstanding shares of CountryPlace
Acceptance Corp., CountryPlace Mortgage, Ltd. and their wholly-owned finance subsidiaries
(collectively, “CountryPlace”). Palm Harbor Delaware also acquired all of the outstanding shares of
Standard Casualty Co., Standard Insurance Agency, Inc. and its subsidiary (collectively,
“Standard”). Further, Palm Harbor Delaware assumed certain liabilities of Palm Harbor Florida,
including primarily debt facilities of the finance subsidiaries (see Note 19). The results of the
Palm Harbor operations since the Acquisition Date have been included in the Consolidated Financial
Statements and the related Notes in accordance with the provisions of ASC 810.
Revenue Recognition. Revenue from homes sold to independent retailers is generally recognized
when the home is shipped, at which time title passes to the independent retailer, and
collectability is reasonably assured. Homes sold to independent retailers are generally either
paid for prior to shipment or floorplan financed by the independent retailer through standard
industry arrangements, which include repurchase agreements. Manufacturing sales financed under
repurchase agreements are reduced by a provision for estimated repurchase obligations (see Note
12). The recognition of revenue from homes sold under inventory finance programs involving funds
provided by the Company is deferred until such time that payment for the related inventory finance
note receivable is received by the Company (see Note 6). Retail sales by Company-owned retail
locations are recognized when funding is reasonably assured, the customer has entered into a
legally binding sales contract, title has transferred and the home is accepted by the customer,
delivered and permanently located at the customer’s site.
At the Acquisition Date, management evaluated consumer loans receivable held for investment to
determine whether there was evidence of deterioration of credit quality prior to acquisition and if
it was probable that the Company would be unable to collect all amounts due according to the loan’s
contractual terms. The Company also considered expected prepayments and estimated the amount and
timing of undiscounted expected principal, interest and other cash flows. The Company determined
the excess of the pool’s scheduled contractual principal and contractual interest payments over the undiscounted
cash flows expected as of the acquisition date as an amount that should not be accreted (the
non-accretable difference). The remaining difference is accreted into interest income over the
remaining life of the loans (referred to as accretable yield). Interest income on consumer loans
receivable is recognized as net sales.
Interest income on consumer loans receivable originated after the Acquisition Date is
recognized in net sales on an accrual basis. When a loan held for investment is determined to be
partially or fully uncollectible, the estimated loss is charged against the allowance for loan
losses. Recoveries on losses previously charged to the allowance are credited to the allowance at
the time the recovery is collected. For loans held for investment originated after the acquisition,
loan origination fees are deferred and amortized into net sales over the contractual life of the
loan using the interest method. For loans held for sale, loan origination fees and gains or losses
on sales are recognized upon sale of the loans.
Premium income from insurance policies is recognized on an as earned basis. Premium amounts
collected are amortized into net sales over the life of the policy. Policy acquisition costs are
also amortized as cost of sales over the life of the policy.
Management regularly makes an assessment to determine whether a decline in value of an
individual security is other-than-temporary. The Company considers the following factors when
making its assessment: (1) the Company’s ability and intent to hold the investment to maturity, or
a period of time sufficient to allow for a recovery in market value; (2) whether it is probable
that the Company will be able to collect the amounts contractually due; and (3) whether any
decision has been made to dispose of the investment prior to the balance sheet date. Investments
on which there is an unrealized loss that is deemed to be other-than-temporary are written down to
fair value with the loss recorded in earnings.
Consumer Loans Receivable. Consumer loans receivable consists of manufactured
housing loans originated by CountryPlace (securitized, held for investment, or held for sale) and
construction advances on non-conforming mortgages. CountryPlace was acquired on April 23, 2011 in
conjunction with the Palm Harbor transaction. The fair value of consumer loans receivable was
calculated as of the Acquisition Date, as determined by the present value of expected future cash
flows, with no allowance for loan loss recorded. The difference between the undiscounted cash flows
expected and the investment in the loan is recognized as interest income on a level-yield method
over the life of the loan. Increases in expected cash flows subsequent to the acquisition are
recognized prospectively through adjustment of the yield on the loans over the remaining life.
Decreases in expected cash flows subsequent to the acquisition are recognized as an allowance for
loan loss. Interest income on consumer loans receivable is recognized in net sales.
Loans held for investment consist of loan contracts collateralized by the borrowers’ homes
and, in some instances, related land. Construction loans in progress are stated at the aggregate
amount of cumulative funded advances. Loans held for sale consist of loan contracts collateralized
by single-family residential mortgages. Loans held for sale are stated at the lower of cost or
market on an aggregate basis. Loans held for sale are loans that, at the time of origination, are
originated with the intent to resell in the mortgage market to investors, such as the Federal
National Mortgage Association (FNMA or Fannie Mae), with which the Company has pre-existing
purchase agreements, or to sell as part of a Government National Mortgage Association (GNMA or
Ginnie Mae)-insured pool of loans.
Prior to being acquired by the Company, on July 12, 2005 and March 22, 2007, CountryPlace
completed two securitizations of factory-built housing loan receivables. These two securitizations
were accounted for as financings, which use the portfolio method of accounting in accordance with
ASC 310, Receivables — Nonrefundable Fees and Other (“ASC 310”).
The securitizations included
provisions for removal of accounts by CountryPlace and other factors that preclude sale accounting
of the securitizations under ASC 860, Transfers and Servicing. Both securitizations were accounted
for as securitized borrowings.
The Company acquired the consumer loans receivable and related
securitized financings during the first quarter of fiscal 2012 as a part of the Palm Harbor
transaction. Since the Acquisition Date, the acquired securitized financings are accounted for in
a manner similar to ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality
(“ASC 310-30”).
Certain direct loan origination costs for loans held for investment originated after the acquisition are deferred and amortized
over the estimated life of the portfolio and amortized using the effective interest method.
Certain direct loan origination costs for loans held for sale are expensed as incurred.
Allowance for Loan Losses. The allowance for loan losses reflects CountryPlace’s judgment of
the probable loss exposure on their loans originated since the Date of Acquisition in the held for
investment portfolio as of the end of the reporting period. CountryPlace’s loan portfolio is
comprised of loans related primarily to factory-built Palm Harbor homes. The allowance for loan
losses is developed at a portfolio level, as pools of homogeneous loans, and not allocated to
specific individual loans or to impaired loans. A range of probable losses is calculated after
giving consideration to, among other things, the composition of the loan portfolio, including
historical loss experience by static pool, expected probable losses based on industry experience
for a given range of borrower credit scores, the composition of the portfolio by credit score and
seasoning, loan type characteristics, and recent loss experience. CountryPlace then makes a
determination of the best estimate within the range of loan losses.
CountryPlace accounts for the loans that were acquired in the Palm Harbor transaction in a
manner similar to ASC 310-30. At the date of acquisition, management evaluated such loans to
determine whether there was evidence of deterioration of credit quality since acquisition and if it
was probable that CountryPlace would be unable to collect all amounts due according to the loans’
contractual terms.
Over the life of the loans, the Company continues to estimate cash flows expected to be
collected. The Company evaluates at the balance sheet date whether the present value of its loans
determined using the effective interest rate, has decreased and if so, recognizes an allowance for
loan loss subsequent to the acquisition date. The present value of any subsequent increase in the
loan pool’s actual cash flows expected to
be collected is used first to reverse any existing allowance for loan loss. Any remaining
increase in cash flows expected to be collected adjusts the amount of accretable yield recognized
on a prospective basis over the loan pool’s remaining life. See Note 5.
Loans are placed on nonaccrual status when either principal or interest is past due and
remains unpaid for 120 days or more or when there is a clear indication that the borrower has the
inability or unwillingness to meet payments as they become due. Payments received on nonaccrual
loans are accounted for on a cash basis, first to interest and then to principal. Upon determining
that a nonaccrual loan is impaired, interest accrued and the uncollected receivable prior to
identification of nonaccrual status is charged to the allowance for loan losses.
The Company has modified payment amounts and/or interest rates for borrowers that, in
management’s judgment, exhibited the willingness and ability to continue to pay and met certain
other conditions. These modified loans were considered to be troubled debt restructurings. The
Company no longer considers modified loans to be troubled debt restructurings once the modified
loan is seasoned for six months, is not delinquent and is at a market rate of interest.
Investment Securities. Management determines the appropriate classification of its investment
securities at the time of purchase. The Company’s investments include marketable debt and equity
securities that are held as available-for-sale. All investments classified as available-for-sale
are recorded at fair value with any unrealized gains and losses reported in accumulated other
comprehensive income (loss), net of tax if applicable. Realized gains and losses from the sale of
securities are determined using the specific identification method.
Other Income. Other income totals $360,000 and $180,000 in the three months ended June 30,
2011 and 2010, respectively. In fiscal 2012, other income consists of interest related to
Debtor-in-Possession note receivable and inventory finance receivable balances, and of interest
income earned primarily on cash balances.
Accumulated other comprehensive income (loss). Accumulated other comprehensive income (loss)
is comprised of unrealized gains and losses on available-for-sale investments.
Recent Accounting Pronouncements. In July 2010, the FASB issued Accounting Standards Update
(“ASU”) 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses, which requires entities to provide new disclosures
in their financial statements about their financing receivables, including credit risk exposures
and the allowance for credit losses on a disaggregated basis. The ASU is effective for public
entities for reporting periods ending on or after December 15, 2010 for disclosures of financing
receivables as of the end of a reporting period. The disclosures related to activity that occurs
during a reporting period are required to be adopted for periods beginning on or after December 15,
2010. In April 2011, the FASB issued ASU 2011-02, A Creditor’s Determination of Whether a
Restructuring Is a Troubled Debt Restructuring. ASU 2011-02 clarifies when creditors should
classify loan modifications as troubled debt restructurings. In addition, ASU 2011-02 deferred the
effective date of the disclosures about troubled debt restructurings in ASU 2010-20 to periods
beginning after June 15, 2011. The Company adopted the provisions of ASU 2010-20 relating to
period-end disclosures as of December 31, 2010, and the remaining provisions during the quarter
ended March 31, 2011, except for the disclosures related to troubled debt restructurings, which
will be effective for the Company’s quarter ending September 30, 2011. The Company is currently
evaluating the effect ASU 2011-02 will have on the Company’s disclosures in the Notes to the
Consolidated Financial Statements.
In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805): Disclosure
of Supplementary Pro Forma Information for Business Combinations. The amendments in this update are
effective prospectively for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2010. The
amendments affected the Company’s disclosures of pro forma information surrounding the Palm Harbor
acquisition, see Note 19.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. The amendments to this update are effective for public companies for fiscal
years, and interim periods within those years, beginning after December 15, 2011. In this update,
an entity has the option to present the total of comprehensive income, the components of net
income, and the components of other comprehensive income either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. In both choices, an entity is
required to present each component of net income along with total net income, each component of
other comprehensive income along with a total for other comprehensive income, and a total amount
for comprehensive income. This update eliminates the option to present the components of other
comprehensive income as part of the statement of changes in stockholders’ equity. The Company is
currently evaluating the effect ASU 2011-05 will have on the Company’s disclosures in the Notes to
Consolidated Financial Statements.
For a description of other significant accounting policies used by the Company in the
preparation of its Consolidated Financial Statements, please refer to Note 1 of the Notes to
Consolidated Financial Statements in the Form 10-K.
Reference 4: http://www.xbrl.org/2003/role/presentationRef -Name Statement of Position (SOP) -Publisher AICPA -Number 94-6 -Paragraph 10 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Staff Position (FSP) -Number FAS140-4/FIN46(R)-8 -Paragraph 8, C1, C7 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
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The entire disclosure for inventory. This may include, but is not limited to, the basis of stating inventory, the method of determining inventory cost, the major classes of inventory, and the nature of the cost elements included in inventory. If inventory is stated above cost, accrued net losses on firm purchase commitments for inventory and losses resulting from valuing inventory at the lower-of-cost-or-market may also be included. For LIFO inventory, may disclose the amount and basis for determining the excess of replacement or current cost over stated LIFO value and the effects of a LIFO quantities liquidation that impacts net income.
Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 43 -Chapter 3 -Section A -Paragraph 9 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
The Company acquired consumer loans receivable during the first quarter of fiscal 2012 as a
part of the Palm Harbor transaction. Acquired consumer loans receivable held for investment were
acquired at fair value and subsequently are accounted for in a manner similar to ASC 310-30.
Consumer loans receivable held for sale is carried at the lower of cost or market value. The
following table summarizes consumer loans receivable (in thousands):
June 30,
2011
Consumer loans receivable held for investment
$
118,377
Consumer loans receivable held for sale
4,931
Construction advances on non-conforming mortgages
3,206
Consumer loans receivable
126,514
Deferred financing cost, net
(363
)
Consumer loans receivable, net
$
126,151
At the Acquisition Date, management evaluated consumer loans receivable held for investment to
determine whether there was evidence of deterioration of credit quality prior to acquisition and if
it was probable that the Company would be unable to collect all amounts due according to the loan’s
contractual terms. The Company also considered expected prepayments and estimated the amount and
timing of undiscounted expected principal, interest and other cash flows. The Company determined
the excess of the pool’s scheduled contractual principal and contractual interest payments over all
cash flows expected as of the acquisition date as an amount that should not be accreted (the
non-accretable difference). The remaining difference is accreted into interest income over the
remaining life of the loans (referred to as accretable yield). Interest income on consumer loans
receivable is recognized as net sales.
June 30,
April 23,
2011
2011
Consumer loans receivable held for investment
— contractual amount
$
330,781
$
339,166
Purchase Discount
Accretable
(115,471
)
(118,335
)
Non-accretable
(96,472
)
(100,151
)
Allowance for loan losses
—
—
Less consumer loans receivable reclassified as
other assets
(461
)
—
Total consumer loans receivable held for
investment, net
$
118,377
$
120,680
Over the life of the loans, the Company continues to estimate cash flows expected to be
collected. The Company evaluates at the balance sheet date whether the present value of its loans
determined using the effective interest rate, has decreased and if so, recognizes an allowance for
loan loss subsequent to the acquisition date. The present value of any subsequent increase in the
loan pool’s actual cash flows expected to be collected is used first to reverse any existing
allowance for loan loss. Any remaining increase in cash flows expected to be collected adjusts the
amount of accretable yield recognized on a prospective basis over the loan pool’s remaining life.
The changes in accretable yield on acquired consumer loans receivable held for investment were
as follows:
June 30,
2011
Balance at the beginning of the period
$
—
Additions
118,335
Accretion
(2,864
)
Reclassifications from (to) nonaccretable
discount
—
Disposals
—
Balance at the end of the period
$
115,471
The Company’s consumer loans receivable consists of fixed-rate, fixed-term, fully-amortizing
single-family home loans. These loans are either secured by a manufactured home, excluding the
land upon which the home is located (chattel property loans and retail installment sale contracts),
or by a combination of the home and the land upon which the home is located (real property mortgage
loans). The real property mortgage loans are primarily for manufactured homes. Combined land and
home loans are further disaggregated by the type of loan documentation: those conforming to the
requirements of Government-Sponsored Enterprises (GSEs), and those that are non-conforming. In
most instances, the Company’s loans are secured by a first-lien position and are provided for the
purchase of a home. In rare instances the Company may provide other types of loans in second-lien
or unsecured positions. Accordingly, the Company classifies its loans receivable assets as
follows: chattel loans, conforming mortgages, non-conforming mortgages, and other loans.
The following tables disaggregate consumer loans receivable for each class by portfolio
segment as of June 30, 2011 (in thousands):
Consumer Loans Held for Investment
Consumer
Securitized
Securitized
Construction
Loans Held
Asset Class
2005
2007
Unsecuritized
Advances
For Sale
Total
Chattel loans
$
49,808
$
33,763
$
3,055
$
—
$
—
$
86,626
Conforming mortgages
—
—
1,571
3,205
4,931
9,707
Non-conforming mortgages
4,864
15,187
10,081
—
—
30,132
Other loans
—
—
49
—
—
49
$
54,672
$
48,950
$
14,756
$
3,205
$
4,931
$
126,514
In measuring credit quality within each segment and class, the Company uses commercially
available credit scores (“FICO”). At the time of each loan’s origination, the Company obtained
credit scores from each of the three primary credit bureaus, if available. To evaluate credit
quality of individual loans, the Company uses the mid-point of the available credit scores, or if
only two scores are available, the Company uses the lower of the two. Except in the case of
troubled debt restructurings or other loan modifications, the Company does not update credit bureau
scores after the time of origination.
The following table disaggregates the Company’s consumer loans receivable by class and credit
quality indicator as of June 30, 2011 (in thousands):
The entire disclosure for financing receivables. Examples of financing receivables include, but are not limited to, loans, trade accounts receivables, notes receivable, credit cards, and receivables relating to a lessor's right(s) to payment(s) from a lease other than an operating lease that is recognized as assets.
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 (loss) income from
operations by segment for the three months ended June 30, 2011 and 2010 (in thousands):
The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.
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The following tables represent changes in equity, including stockholders’ equity attributable
to Cavco’s stockholders and non-controlling interest for the three months ended June 30, 2011
(dollars in thousands):
Equity Attributable to Cavco Stockholders
Redeemable
Additional
Accumulated
Noncontrolling
Common Stock
Paid-in
Retained
Other
Interest
Shares
Amount
Capital
Earnings
Loss
Total
Balance, March 31, 2011
$
35,819
6,817,606
$
68
$
129,211
$
21,390
$
—
$
150,669
Stock option exercises and
associated tax benefits
The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.
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6. Inventory Finance Receivables and Allowance for Loan Loss
The Company’s inventory finance receivables balance consists of two classes: (i) amounts
loaned by the Company under participation inventory financing programs; and (ii) direct inventory
financing arrangements for the home product inventory needs of our independent distribution base.
Under the terms of the participation programs, the Company provides loans to independent
financial institutions representing a significant portion of the funds that such financiers then
lend to retailers to finance
their inventory purchases of our products. The participation inventory finance receivables
are unsecured general obligations of the independent floorplan lenders.
Under the terms of the direct inventory finance arrangements, the Company provides all of the
inventory finance funds. These notes are secured by the inventory collateral and other security
depending on borrower circumstances. The other terms of direct inventory finance arrangements vary
depending on the needs of the borrower and the opportunity for the Company, but generally follow
the same tenets as the participation programs.
Inventory finance receivables, net, consist of the following by class of financing receivable
(in thousands):
June 30,
March 31,
2011
2011
Direct inventory finance receivables
$
12,060
$
12,157
Participation inventory finance receivables
6,357
5,771
Allowance for loan loss
(173
)
(169
)
$
18,244
$
17,759
The Company evaluates the potential for loss from its participation inventory finance
programs based on the independent lender’s overall financial stability and has determined that an
applicable allowance for loan loss was not needed at June 30, 2011s and March 31, 2011,
respectively.
With respect to the direct inventory finance notes receivable, the risk of loss is spread over
numerous borrowers. Borrower inventory levels and activity are monitored in conjunction with
third-party service providers, where applicable, to estimate the potential for loss on the related
notes receivable, considering potential exposures including repossession costs, remarketing
expenses, impairment of value and the risk of collateral loss. The Company has historically been
able to resell repossessed unused homes, thereby mitigating loss experience. If a default occurs
and collateral is lost, the Company is exposed to loss of the full value of the home loan. If the
Company determines that it is probable that a borrower will default, a specific reserve is
determined and recorded within the estimated allowance for loan loss. The Company recorded an
allowance for loan loss of $173,000 and $169,000 at June 30, 2011 and March 31, 2011, respectively.
The following table represents changes in the estimated allowance for loan losses, including
related additions and deductions to the allowance for loan loss applicable to the direct inventory
finance receivables (in thousands):
Three Months Ended
June 30,
2011
2010
Balance at beginning of period
$
169
$
40
Provision for credit losses
4
105
Loans charged off, net of recoveries
—
4
Balance at end of period
$
173
$
149
The following table disaggregates inventory finance notes receivable and the estimated
allowance for loan loss for each class of financing receivable by evaluation methodology (in
thousands):
Direct Inventory Finance
Participation Inventory Finance
June 30,
March 31,
June 30,
March 31,
2011
2011
2011
2011
Inventory finance notes
receivable:
Collectively evaluated
for impairment
$
11,484
$
11,116
$
—
$
—
Individually evaluated
for impairment
576
1,041
6,357
5,771
Total
$
12,060
$
12,157
$
6,357
$
5,771
Allowance for loan loss:
Collectively evaluated
for impairment
$
(173
)
$
(169
)
$
—
$
—
Individually evaluated
for impairment
—
—
—
—
Total
$
(173
)
$
(169
)
$
—
$
—
Loans are subject to regular review and are given management’s attention whenever a problem
situation appears to be developing. Loans with indicators of potential performance problems are
placed on watch list status and are subject to additional monitoring and scrutiny. Nonperforming
status includes loans accounted for on a non-accrual basis and accruing loans with principal
payments past due 90 days or more. The Company’s policy is to place loans on nonaccrual status
when interest is past due and remains unpaid 90 days or more or when there is a clear indication
that the borrower has the inability or unwillingness to meet payments as they become due. Payments
received on nonaccrual loans are recorded on a cash basis, first to interest and then to principal.
Charge-offs occur when it becomes probable that outstanding amounts will not be recovered. At
June 30, 2011, the Company did not have any loans on nonaccrual status and was not aware of any
potential problem loans that would have a material effect on the inventory finance receivables
balance. The following table disaggregates the Company’s inventory finance receivables by class
and credit quality indicator (in thousands):
Direct Inventory Finance
Participation Inventory Finance
June, 30
March 31,
June, 30
March 31,
2011
2011
2011
2011
Risk profile based on payment activity:
Performing
$
11,966
$
11,995
$
6,357
$
5,771
Watch list
94
162
—
—
Nonperforming
—
—
—
—
Total
$
12,060
$
12,157
$
6,357
$
5,771
The Company has concentrations of inventory finance notes receivable related to factory-built
homes located in the following states, measured as a percentage of inventory finance receivables
principal balance outstanding as of June 30, 2011 and March 31, 2011:
June 30,
March 31,
2011
2011
Arizona
19.6
%
21.9
%
Texas
14.6
%
18.0
%
California
12.0
%
9.0
%
The States of California, Arizona, and to a lesser degree Texas, have experienced economic
weakness. The risks created by these concentrations have been considered in the determination of
the adequacy of the allowance for loan losses. The Company did not have concentrations in excess
of 10% of the principal balance of the inventory finance receivables in any other states as of June
30, 2011 or March 31, 2011, respectively.
Basic earnings per common share is computed based on the weighted-average number of common
shares outstanding during the reporting period. Diluted earnings per common share is computed based
on the combination of dilutive common share equivalents, comprised of shares issuable under the
Company’s share-based compensation plans and the weighted-average number of common shares
outstanding during the reporting period. Dilutive common share equivalents include the dilutive
effect of in-the-money options to purchase shares, which is calculated based on the average share
price for each period using the treasury stock method. However, when a net loss exists, no
potential common stock equivalents are included in the computation of the diluted per-share amount
because the computation would result in an anti-dilutive per-share amount. The following table sets
forth the computation of basic and diluted earnings per share:
Three Months Ended
June 30,
2011
2010
Net income attributable to Cavco
common stockholders
$
8,608
$
518
Weighted average shares outstanding:
Basic
6,838,324
6,541,739
Common stock equivalents —
treasury stock method
56,056
211,526
Add: Effect of dilutive stock options
—
—
Diluted
6,894,380
6,753,265
Net income per share attributable to Cavco
common stockholders:
Basic
$
1.26
$
0.08
Diluted
$
1.25
$
0.08
Anti-dilutive common stock equivalents excluded from the computation of diluted earnings
per share for the three months ended June 30, 2011 and 2010 were 4,820 and 547, respectively.
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In a business combination in which the amount of net identifiable assets acquired and liabilities assumed exceeds the aggregate consideration transferred or to be transferred (as defined), this element represents the amount of gain recognized by the entity.
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Includes currency on hand as well as demand deposits with banks or financial institutions. It also includes other kinds of accounts that have the general characteristics of demand deposits in that the Entity may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months. Compensating balance arrangements that do not legally restrict the withdrawal or usage of cash amounts may be reported as Cash and Cash Equivalents, while legally restricted deposits held as compensating balances against borrowing arrangements, contracts entered into with others, or company statements of intention with regard to particular deposits are not generally reported as cash and cash equivalents. Includes cash and cash equivalents associated with the entity's continuing operations. Excludes cash and cash equivalents associated with the disposal group (and discontinued operation).
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The increase (decrease) during the reporting period in cash and cash equivalents. While for technical reasons this element has no balance attribute, the default assumption is a debit balance consistent with its label.
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The component of income tax expense for the period representing the increase (decrease) in the entity's deferred tax assets and liabilities pertaining to continuing operations.
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The aggregate expense recognized in the current period that allocates the cost of tangible assets, intangible assets, or depleting assets to periods that benefit from use of the assets.
The net realized gain (loss) on investments sold during the period, not including gains (losses) on securities separately or otherwise categorized as trading, available-for-sale, or held-to-maturity, which, for cash flow reporting, is a component of proceeds from investing activities.
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The difference between the sale price or salvage price and the book value of a property, plant, and equipment asset that was sold or retired during the reporting period. This element refers to the gain (loss).
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The net gain (loss) resulting from a sale of loans, including adjustments to record loans classified as held-for-sale at the lower-of-cost-or-market and fair value adjustments to loan held for investment purposes.
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The increase (decrease) during the reporting period in the amounts payable to vendors for goods and services received and the amount of obligations and expenses incurred but not paid.
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The increase (decrease) during the reporting period in amount due within one year (or one business cycle) from customers for the credit sale of goods and services.
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The increase (decrease) during the reporting period in the aggregate value of all inventory held by the reporting entity, associated with underlying transactions that are classified as operating activities.
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The increase (decrease) during the reporting period in the value of prepaid expenses and other assets not separately disclosed in the statement of cash flows, for example, deferred expenses, intangible assets,or income taxes.
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The net cash inflow or outflow for the increase (decrease) associated with funds that are not available for withdrawal or use (such as funds held in escrow) and are associated with underlying transactions that are classified as operating activities. This may include cash restricted for regulatory purposes.
Interest generated from day to day operating activities of the business. This element represents a revenue generating activity and is therefore gross (before any related cost of revenue items).
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The net cash from (used in) all of the entity's operating activities, including those of discontinued operations, of the reporting entity. Operating activities generally involve producing and delivering goods and providing services. Operating activity cash flows include transactions, adjustments, and changes in value that are not defined as investing or financing activities. While for technical reasons this element has no balance attribute, the default assumption is a debit balance consistent with its label.
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The cash outflow to acquire debt and equity securities not classified as either held-to-maturity securities or trading securities which would be classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders' equity.
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The cash outflow associated with the acquisition of long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale; includes cash outflows to pay for construction of self-constructed assets.
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The net cash inflow or cash outflow from a contractual arrangement with the lender, including letter of credit, standby letter of credit and revolving credit arrangements, under which borrowings can be made up to a specific amount at any point in time with either short term or long term maturity that is collateralized (backed by pledge, mortgage or other lien in the entity's assets).
The cash inflow associated with the sale or maturity (principal being due) of securities not classified as either held-to-maturity securities or trading securities which are classified as available-for-sale securities.
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The cash inflow from the sale of long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale.
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The cash inflow associated with the amount received from holders exercising their stock options. This item inherently excludes any excess tax benefit, which the entity may have realized and reported separately.
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The sum of the periodic provision charged to earnings, based on an assessment of uncollectibility from the counterparty on account of loan, lease or other credit losses, to reduce these accounts to the amount that approximates their net realizable value.
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The aggregate amount of noncash, equity-based employee remuneration. This may include the value of stock or unit options, amortization of restricted stock or units, and adjustment for officers' compensation. As noncash, this element is an add back when calculating net cash generated by operating activities using the indirect method.
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The book value and estimated fair value of the Company’s financial instruments are as follows
(in thousands):
June 30, 2011
March 31, 2011
Book
Estimated
Book
Estimated
Value
Fair Value
Value
Fair Value
Cash and cash equivalents (1)
$
33,537
$
33,537
$
76,513
$
76,513
Restricted cash (1)
6,994
6,994
436
436
Investments (2)
15,533
15,533
—
—
Consumer loans receivable (3)
126,151
125,713
—
—
Inventory finance receivable (4)
18,244
18,244
17,759
17,759
Construction lending line (1)
4,782
4,782
—
—
Securitized financings (5)
99,505
99,371
—
—
(1)
The fair value approximates book value due to the instruments’ short term
maturity.
(2)
The fair value is based on market prices.
(3)
Includes consumer loans receivable held for investment, held for sale and
construction advances. The fair value of the loans held for investment is based on the
discounted value of the remaining principal and interest cash flows. The fair value of the
loans held for sale approximates book value since the sales price of these loans is known
as of June 30, 2011.
(4)
The fair value approximates book value based on current market rates and the revolving nature of the loan portfolio.
(5)
The fair value is estimated using recent transactions of factory-built housing asset-backed securities.
In accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), fair value is
defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. ASC 820 also establishes
a fair value hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value:
Level 1 —
Quoted prices in active markets for identical assets or liabilities.
Level 2 —
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level 3 —
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. The Company had no level 3
securities at the end of the first quarter ended June 30, 2011.
The Company utilizes the market approach to measure fair value for its financial assets and
liabilities. The market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities.
Assets measured at fair value on a recurring basis are summarized below (in thousands):
As of June 30, 2011
Total
Level 1
Level 2
Level 3
Securities issued by the U.S Treasury and Government (1)
$
1,147
$
—
$
1,147
$
—
Mortgage-backed securities (1)
5,042
—
5,042
—
Securities issued by states and political subdivisions (1)
1,207
—
1,207
—
Corporate debt securities (1)
4,385
—
4,385
—
Marketable equity securities (1)
3,752
3,752
—
—
(1)
Unrealized gains or losses on investments are recorded in accumulated other
comprehensive loss at each measurement date.
No significant transfers between Level 1 and Level 2 occurred during the three months ended
June 30, 2011. The Company’s policy regarding the recording of transfers between levels is to
record any such transfers at the end of the reporting period.
Assets and liabilities measured at fair value on a non-recurring basis are summarized below (in thousands):
As of June 30, 2011
Total
Level 1
Level 2
Level 3
Loans held for investment
$
119,179
$
—
$
—
$
119,179
Loans held for sale
4,931
4,931
—
—
Construction advances
1,603
—
—
1,603
Inventory finance receivable
18,244
—
—
18,244
Construction lending
facility
4,781
4,781
—
—
Securitized financings
99,371
—
99,371
—
The Company records impairment losses on long-lived assets held for sale when the fair value
of such long-lived assets is below their carrying values. The Company records impairment charges
on long-lived assets used in operations when events and circumstances indicate that long-lived
assets might be impaired and the undiscounted cash flows estimated to be generated by those assets
are less than their carrying amounts. During the three months ended June 30, 2011, the Company
recorded no impairment charges on assets held for sale or used in operations.
Assets measured on a nonrecurring basis also include impaired loans (nonaccrual loans)
disclosed in Note 5 and loans held for sale. No recent sales have been executed in an orderly
market of manufactured home loan portfolios with comparable product features, credit
characteristics, or performance. Impaired loans are measured using Level 3 inputs that are
calculated using discounted future cash flows. Loans held for sale are measured at the lower of
cost or fair value using Level 1 inputs that consist of commitments on hand from investors. These
loans are held for relatively short periods, typically no more than 45 days. As a result, changes
in loan-specific credit risk are not a significant component of the change in fair value. The cost
of loans held for sale is currently lower than the fair value.
ASC 825, Financial Instruments (“ASC 825”), requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate fair value. Fair value estimates are made as of a specific point in time
based on the characteristics of the financial instruments and the relevant market information.
Where available, quoted market prices are used. In other cases, fair values are based on estimates
using other valuation techniques. These techniques involve uncertainties and are significantly
affected by the assumptions used and the judgments made regarding risk characteristics of various
financial instruments, discount rates, estimates of future cash flows, future expected loss
experience, and other factors. Changes in assumptions could significantly affect these estimates
and the resulting fair values. Derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in an immediate sale of the
instrument. Also, because of differences in methodologies and assumptions used to estimate fair
values, the Company’s fair values should not be compared to those of other companies.
Under ASC 825, fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Accordingly, the aggregate fair value
amounts presented do not represent the underlying market value of the Company.
The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.
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Description of the Acquisition — Fleetwood Homes, through its wholly-owned subsidiary, Palm
Harbor Delaware, entered into the Purchase Agreement with Palm Harbor Florida to purchase
substantially all of the assets, and assume specified liabilities, of Palm Harbor Florida, pursuant
to an auction process under Section 363 of the U.S. Bankruptcy Code. On March 1, 2011, Palm Harbor
Delaware was selected as the successful bidder in the court auction. The transaction was approved
and a sale order entered by the U.S. Bankruptcy Court on March 4, 2011.
During the first quarter of fiscal year 2012, Palm Harbor Delaware completed the purchase of
the Palm Harbor Florida assets and the assumption of specified liabilities pursuant to the Amended
and Restated Asset Purchase Agreement dated March 1, 2011. The effective date of the transaction
was April 23, 2011 (the “Acquisition Date”), except for the stock of Standard Casualty Co. The aggregate gross purchase price was $83.9 million and is exclusive of transaction costs, specified
liabilities assumed and post-closing adjustments. Of the purchase price, (i) approximately $45.3
million was used to retire the debtor-in-possession loan previously made by Fleetwood Homes to Palm
Harbor Florida; and (ii) $13.4 million was deposited in escrow pending regulatory approval to
transfer the stock of Standard Casualty Co. to Acquisition Co., at which time the escrowed funds
will be released to the Palm Harbor estate. The purchase price was funded by Fleetwood Homes’ cash
on hand, along with contributions of $36.0 million each from the Company and Third Avenue (see Note
21).
Palm Harbor Delaware acquired five operating manufactured housing production facilities, idled
factories in nine locations, 49 operating retail locations, one office building, real estate, all
related equipment, accounts receivable, customer deposits, inventory, certain trademarks and trade
names, intellectual property, and specified contracts and leases. In addition, as of the
Acquisition Date, Palm Harbor Delaware purchased all of the outstanding shares of CountryPlace
Acceptance Corp., CountryPlace Mortgage, Ltd. and their wholly-owned finance subsidiaries. Palm
Harbor Delaware also acquired all of the outstanding shares of Standard Insurance Agency, Inc. and
its wholly-owned insurance agency subsidiary., On June 7, 2011, regulatory approval of the
acquisition of Standard Casualty Co. was received from the Texas Department of Insurance and on
June 10, 2011 (the “SCC Acquisition Date”), Palm Harbor Delaware completed the purchase of Standard
Casualty Co. Further, Acquisition Co. assumed certain liabilities of Palm Harbor Florida,
including primarily debt facilities of the finance subsidiaries.
The foregoing descriptions of the DIP Agreement, DIP Security Agreement, and Purchase
Agreement do not purport to be complete and are qualified in their entirety by reference to the DIP
Agreement, the DIP Security Agreement, and the Purchase Agreement which were filed as Exhibits
10.1, 10.2, and 10.3, respectively, to the Company’s Current Report on Form 8-K filed with the SEC
on November 29, 2010.
The purchase of the Palm Harbor Florida assets provides further operating capacity, increased
home distribution, and entry into financial and insurance businesses specific to the Company’s
industry. The transaction further expanded the Company’s geographic reach at a national level by
adding factories and retail locations serving the Northwest, South Central, Southeast and
Mid-Atlantic regions. The Company believes it will have the opportunity to achieve certain
synergies and cost reductions by eliminating redundant processes and overhead.
Acquisition Date Fair Value of Consideration Transferred — The following table details the
acquisition-date fair value of the consideration transferred to acquire Palm Harbor (in thousands),
of which $74.0 million was in cash:
Acquisition Date
Fair Value
Cash advanced to Palm Harbor under DIP financing, credited to
purchase
$
44,117
Paid-in-kind interest on DIP financing, credited to purchase price
1,184
Additional cash consideration
29,917
Amounts credited for customer deposits acquired at closing
8,682
Total consideration transferred
$
83,900
Recording of Assets Acquired and Liabilities Assumed — The acquisition has been
accounted for using the acquisition method of accounting which requires, among other things, that
assets acquired and liabilities assumed be recognized at their fair values as of the acquisition
date. The following table summarizes the provisional amounts recognized for assets acquired and
liabilities assumed as of the Acquisition Date. Certain estimated values are not yet finalized
(see below) and are subject to change, which could be significant. The allocation of the purchase
price is still preliminary due to the short duration since the Acquisition Date and will be
finalized upon completion of the analysis of the fair values of Palm Harbor’s assets and specified
liabilities. The Company will finalize the amounts recognized as we obtain the information
necessary to complete the analysis. We expect to finalize these amounts as soon as possible but no
later than one year from the acquisition date.
The following table summarizes the provisional estimated fair values of the assets acquired
and liabilities assumed at the acquisition dates (in thousands):
Acquisition Date
Fair Value
Cash and cash equivalents
$
15,077
Restricted cash
5,924
Investments
16,636
Accounts receivable (1)
3,219
Inventories
42,034
Prepaid expenses and other assets
2,781
Property, plant and equipment
13,782
Assets held for sale
9,278
Consumer loans receivable
126,030
Deferred income tax assets
14,532
Intangible assets (2)
15,294
Total identifiable assets acquired
$
264,587
Accounts payable of the finance subsidiaries
$
(1,917
)
Accrued liabilities
(27,503
)
Construction lending line
(3,974
)
Securitized financings
(101,786
)
Debt of the finance subsidiaries
(19,456
)
Deferred income tax liabilities
(7,271
)
Total liabilities assumed
(161,907
)
Net identifiable assets acquired
102,680
Bargain purchase recognized
(18,780
)
Net assets acquired
$
83,900
(1)
The fair value of accounts receivables acquired is $3,219, with the gross
contractual amount being $3,601. The Company determined that $382 would be uncollectible.
(2)
Of the $15,294 of acquired intangible assets, $5,450 was assigned to trademarks
and trade names and $1,100 was assigned to state insurance licenses, which are considered
indefinite lived intangible assets and are not subject to amortization and $8,744 was
assigned to customer-related intangibles, technology and insurance business in force,
policies and renewal rights, subject to a weighted-average useful life of approximately 5
years.
In connection with the acquisition of Palm Harbor, approximately $30 million was transferred
at closing of the Palm Harbor transaction on April 23, 2011 and $19.5 million was used to retire a
certain debt obligation of the Company’s new subsidiary, CountryPlace Acceptance Corp., on May 10,
2011 (including payoff of the loan, prepayment penalty and related legal fees).
During the fiscal quarter ended June 30, 2011, the Company recognized $744,000 of acquisition
related costs that were expensed as incurred. During the year ended March 31, 2011, the Company
recognized $272,000 of acquisition related costs. These costs were recognized in selling, general
and administrative expenses on the Consolidated Statement of Operations. We anticipate additional
acquisition-related costs in fiscal year ended March 31, 2012 related to the purchase of the Palm Harbor assets.
Because the Company purchased Palm Harbor out of bankruptcy, the fair value of identifiable
assets acquired and specified liabilities assumed exceeded the fair value of the consideration
transferred. In accordance with ASC 805, Business Combinations, the Company consequently
reassessed the recognition and measurement of identifiable assets acquired and specified
liabilities assumed and concluded that the valuation procedures and resulting measures were
appropriate. As a result, the Company recognized a gain on bargain purchase of $18.8 million in
its consolidated statements of operations for the quarter ended June 30, 2011.
The recorded amounts are provisional and subject to change primarily as follows:
•
Amounts for inventory and property and equipment are pending completion of certain
confirmation of physical existence and condition.
•
Amounts for intangibles, property held for sale, consumer loans receivable, securitized
financing obligation, deferred income taxes and accrued liabilities are pending finalization
of valuation efforts.
A single estimate of fair value results from a complex series of judgments about future events
and uncertainties and relies heavily on estimates and assumptions. Judgments used to determine the
estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as
asset lives, can materially impact results of operations.
Pro Forma Impact of Acquisition (unaudited) — The following table presents supplemental pro
forma information as if the acquisition of Palm Harbor had occurred on April 1, 2010 (in
thousands):
Unaudited Pro Forma
Consolidated Results
Three Months Ended June 30,
2011
2010
Revenues
$
113,034
$
123,681
Income (loss) attributable to Cavco stockholders
(968
)
9,270
Diluted earnings per common share attributable to Cavco stockholders
(0.14
)
1.37
The unaudited pro forma consolidated results were prepared using the acquisition method of
accounting and are based on the historical financial information of Cavco and Palm Harbor,
reflecting both Cavco and Palm Harbor results of operations for the three months ended June 30,
2011 and 2010, respectively. The historical financial information has been adjusted to give effect
to the pro forma events that are: (1) directly attributable to the acquisition; (2) factually
supportable; and (3) expected to have a continuing impact on the combined results. The unaudited
pro forma consolidated results are not necessarily indicative of what our consolidated results of
operations actually would have been had we completed the acquisition on April 1, 2010. In
addition, the unaudited pro forma consolidated results do not purport to project the future results
of operations of the combined company nor do they reflect the expected realization of any cost
savings associated with the acquisition, including the elimination of overhead costs. The results
reflect primarily the following pro forma pre-tax adjustments:
•
Reclassification of amounts to conform to Cavco’s accounting policies resulting in no
impact to net income/(loss) (grossed up both net sales and cost of sales by $0.8 million and
$4.4 million for the three months ended June 30, 2011 and 2010, respectively, and decreased
SG&A and increased cost of sales by $0.7 million and $1.5 million, respectively).
•
Reclassification of amounts to conform to Cavco’s accounting policies for revenue
recognition in the retail sales process, resulting in the reclassification of net sales and
cost of sales among periods. These revenue recognition adjustments resulted in a decrease
in net sales and cost of sales for the three months ended June 30, 2011 of $$203,000 and
$166,000, respectively, net of adjustment for amounts deferred under Cavco’s revenue
recognition policy. For fiscal year 2010, the revenue recognition pro forma adjustment
resulted in a net decrease in net sales of $565,000 and an increase in cost of sales of
$12,000, respectively.
•
Elimination of Palm Harbor’s historical interest expense related to Senior Convertible
Notes discharged in bankruptcy, a note payable settled prior to the bankruptcy and a credit
agreement that has been terminated and will not be a part of the Company’s capitalization
going forward ($239 and $2,249 in the three months ended June 30, 2011 and 2010,
respectively).
•
Elimination of $1.9 million of costs incurred and $187,000 of interest income in the
three months ended June 30, 2011, which are directly attributable to the bankruptcy and
subsequent acquisition, and which do not have a continuing impact on the combined company’s
operating results. Included in these costs are advisory, legal and regulatory costs incurred
by both legacy Cavco and legacy Palm Harbor and income and costs related to the
debtor-in-possession financing that has been terminated.
•
Additional amortization expense (approximately $111,000 and $849,000 for the three months
ended June 30, 2011 and 2010, respectively) related to the fair value of identifiable
intangible assets acquired.
•
Reduction in depreciation expense (approximately $128,000 in the three months ended June
30, 2011 and $572,000 in fiscal year 2010, respectively) related to the fair value
adjustment to property, plant and equipment acquired.
•
Elimination of operating activities related to closed manufacturing facilities and retail
locations that (i) were not purchased in the transaction or (ii) are held for sale as of the
Date of Acquisition. The amounts eliminated included sales of $645,000, cost of sales of
$1.3 million, and SG&A of $558,000 for the three months ended June 30, 2011. For the three
months ended June 30, 2010, the amounts eliminated were sales of $12.0 million, cost of
sales of $10.7 million, and SG&A of $2.9 million.
In addition, all of the above adjustments were adjusted for the applicable tax impact.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
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The entire disclosure for cash and cash equivalent footnotes, which may include the types of deposits and money market instruments, applicable carrying amounts, restricted amounts and compensating balance arrangements. Cash and equivalents include: (1) currency on hand (2) demand deposits with banks or financial institutions (3) other kinds of accounts that have the general characteristics of demand deposits (4) short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only investments maturing within three months from the date of acquisition qualify.
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The Company’s deferred tax assets primarily result from financial statement accruals not
currently deductible for tax purposes, and its deferred tax liabilities primarily result from tax
amortization of goodwill. The Company complies with the provisions of FASB ASC 740, Income Taxes
(“ASC 740”), which clarifies the accounting for income taxes by prescribing a minimum recognition
threshold a tax position is required to meet before being recognized in the financial statements.
ASC 740 also provides guidance on derecognizing, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The Company has recorded an
insignificant amount of unrecognized tax benefits and there would be an insignificant effect on the
effective tax rate if all unrecognized tax benefits were recognized. The Company classifies
interest and penalties related to unrecognized tax benefits in tax expense.
Income tax returns are filed in the U.S. federal jurisdiction and in several state
jurisdictions. In July 2011, the Internal Revenue Service (“IRS”) completed its examination of the
Company’s federal income tax return for the fiscal year ended March 31, 2009. The examination
resulted in an insignificant tax balance due. The Company is no longer subject to examination by
the IRS for years before fiscal year 2007. The Company believes that its income tax filing
positions and deductions will be sustained on audit and does not anticipate any adjustments that
will result in a material change to the Company’s financial position. The total amount of
unrecognized tax benefit related to any particular tax position is not anticipated to change
significantly within
the next 12 months. The provision for income taxes generally represents income taxes paid or
payable for the current year plus the change in deferred taxes during the year.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
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The Company maintains stock incentive plans whereby stock option grants or awards of
restricted stock may be made to certain officers, directors and key employees. The plans, which
are shareholder approved, permit the award of up to 1,350,000 shares of the Company’s common stock,
of which 278,026 shares were still available for grant at June 30, 2011. When options are
exercised, new shares of the Company’s common stock are issued. Stock options may not be granted
below 100% of the fair market value of the Company’s common stock at the date of grant and
generally expire seven years from the date of grant. Stock options and awards of restricted stock
vest over a period determined by the plan administrator, typically a one to five year period. The
stock incentive plans provide for accelerated vesting of stock options and removal of restrictions
on restricted stock awards upon a change in control (as defined in the plans).
Stock-based compensation cost charged against income for the three months ended June 30, 2011,
was approximately $185,000. The Company recorded stock-based compensation expense of $138,000 for
the three months ended June 30, 2010.
As of June 30, 2011, total unrecognized compensation cost related to stock options was
approximately $2,579,000 and the related weighted-average period over which it is expected to be
recognized is approximately 2.7 years.
The following table summarizes the option activity within the Company’s stock-based
compensation plans for the three months ended June 30, 2011:
Number
of Shares
Outstanding at March 31, 2011
401,500
Granted
71,100
Exercised
(71,750
)
Outstanding at June 30, 2011
400,850
Exercisable at June 30, 2011
152,625
A summary of restricted stock activity within the Company’s share-based compensation
plans and changes for the three months ended June 30, 2011 is as follows:
The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.
Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
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The noncurrent portion of the recorded investment in a contractual right to receive money on demand or on fixed or determinable dates, that is recognized as an asset in the creditor's statement of financial position.
The current portion of the recorded investment in a contractual right to receive money on demand or on fixed or determinable dates, that is recognized as an asset in the creditor's statement of financial position.
Carrying amount of as of the balance sheet date of goodwill and intangible assets, allocated to the reportable segment. These assets, acquired either individually or as part of a group of assets, in either an asset acquisition or business combination, are assessed at least annually for impairment.
Carrying value as of the balance sheet date of liabilities incurred (and for which invoices have typically been received) and payable to vendors for goods and services received that are used in an entity's business. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Amount due from customers or clients, within one year of the balance sheet date (or the normal operating cycle, whichever is longer), for goods or services (including trade receivables) that have been delivered or sold in the normal course of business, reduced to the estimated net realizable fair value by an allowance established by the entity of the amount it deems uncertain of collection.
Carrying value as of the balance sheet date of obligations incurred and payable, pertaining to costs that are statutory in nature, are incurred on contractual obligations, or accumulate over time and for which invoices have not yet been received or will not be rendered. Examples include taxes, interest, rent and utilities. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Accumulated change in equity from transactions and other events and circumstances from non-owner sources, net of tax effect, at period end. Excludes Net Income (Loss), and accumulated changes in equity from transactions resulting from investments by owners and distributions to owners. Includes foreign currency translation items, certain pension adjustments, unrealized gains and losses on certain investments in debt and equity securities, other than temporary impairment (OTTI) losses related to factors other than credit losses on available-for-sale and held-to-maturity debt securities that an entity does not intend to sell and it is not more likely than not that the entity will be required to sell before recovery of the amortized cost basis, as well as changes in the fair value of derivatives related to the effective portion of a designated cash flow hedge.
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Value received from shareholders in common stock-related transactions that are in excess of par value or stated value and amounts received from other stock-related transactions. Includes only common stock transactions (excludes preferred stock transactions). May be called contributed capital, capital in excess of par, capital surplus, or paid-in capital.
Sum of the carrying amounts as of the balance sheet date of all assets that are recognized. Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
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Sum of the carrying amounts as of the balance sheet date of all assets that are expected to be realized in cash, sold, or consumed within one year (or the normal operating cycle, if longer). Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
Current assets (normally turning over within one year or one business cycle if longer) that are held for sale apart from normal operations and anticipated to be sold within one year.
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Investments in debt and equity securities which are categorized neither as trading securities nor held-to-maturity securities and which are intended be sold or mature within one year from the balance sheet date or the normal operating cycle, whichever is longer. Such securities are reported at fair value; unrealized gains (losses) related to Available-for-sale Securities are excluded from earnings and reported in a separate component of shareholders' equity (other comprehensive income), unless the Available-for-sale security is designated as a hedge or is determined to have had an other than temporary decline in fair value below its amortized cost basis. All or a portion of the unrealized holding gain (loss) of an Available-for-sale security that is designated as being hedged in a fair value hedge is recognized in earnings during the period of the hedge, as are other than temporary declines in fair value below the cost basis for investments in equity securities and debt securities that an entity intends to sell or it is more likely than not that it will be required to sell before the recovery of its amortized cost basis. Other than temporary declines in fair value below the cost basis for debt securities categorized as Available-for-sale that an entity does not intend to sell and for which it is not more likely than not that the entity will be required to sell before the recovery of its amortized cost basis are bifurcated into credit losses and losses related to all other factors. Other than temporary declines in fair value below cost basis related to credit losses are recognized in earnings, and losses related to all other factors are recognized in other comprehensive income.
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Investments in debt and equity securities which are categorized neither as held-to-maturity nor trading and which are intended to be sold or mature more than one year from the balance sheet date or operating cycle, if longer. Such securities are reported at fair value; unrealized gains (losses) related to Available-for-sale Securities are excluded from earnings and reported in a separate component of shareholders' equity (other comprehensive income), unless the Available-for-sale security is designated as a hedge or is determined to have had an other than temporary decline in fair value below its amortized cost basis. All or a portion of the unrealized holding gain (loss) of an Available-for-sale security that is designated as being hedged in a fair value hedge is recognized in earnings during the period of the hedge, as are other than temporary declines in fair value below the cost basis for investments in equity securities and debt securities that an entity intends to sell or it is more likely than not that it will be required to sell before the recovery of its amortized cost basis. Other than temporary declines in fair value below the cost basis for debt securities categorized as Available-for-sale that an entity does not intend to sell and for which it is not more likely than not that the entity will be required to sell before the recovery of its amortized cost basis are bifurcated into credit losses and losses related to all other factors. Other than temporary declines in fair value below cost basis related to credit losses are recognized in earnings, and losses related to all other factors are recognized in other comprehensive income.
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Includes currency on hand as well as demand deposits with banks or financial institutions. It also includes other kinds of accounts that have the general characteristics of demand deposits in that the Entity may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months. Compensating balance arrangements that do not legally restrict the withdrawal or usage of cash amounts may be reported as Cash and Cash Equivalents, while legally restricted deposits held as compensating balances against borrowing arrangements, contracts entered into with others, or company statements of intention with regard to particular deposits are not generally reported as cash and cash equivalents. Includes cash and cash equivalents associated with the entity's continuing operations. Excludes cash and cash equivalents associated with the disposal group (and discontinued operation).
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 95 -Paragraph 7 -Footnote 1 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
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Aggregate par or stated value of issued nonredeemable common stock (or common stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable common shares, par value and other disclosure concepts are in another section within stockholders' equity.
The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, are classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward is presented as a reduction of the related deferred tax asset.
Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 41, 42, 43 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise separates deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, are classified according to the expected reversal date of the temporary difference.
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Carrying amount (lower of cost or market) as of the balance sheet date of inventories less all valuation and other allowances. Excludes noncurrent inventory balances (expected to remain on hand past one year or one operating cycle, if longer).
Total of all Liabilities and Stockholders' Equity items (or Partners' Capital, as applicable), including the portion of equity attributable to noncontrolling interests, if any.
Total obligations incurred as part of normal operations that are expected to be paid during the following twelve months or within one business cycle, if longer.
The carrying value as of the balance sheet date of the current portion of long-term obligations drawn from a line of credit, which is a bank's commitment to make loans up to a specific amount. Examples of items that might be included in the application of this element may consist of letters of credit, standby letters of credit, and revolving credit arrangements, under which borrowings can be made up to a maximum amount as of any point in time conditional on satisfaction of specified terms before, as of and after the date of drawdowns on the line. Includes short-term obligations that would normally be classified as current liabilities but for which (a) postbalance sheet date issuance of a long term obligation to refinance the short term obligation on a long term basis, or (b) the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long term basis and the following conditions are met (1) the agreement does not expire within 1 year and is not cancelable by the lender except for violation of an objectively determinable provision, (2) no violation exists at the BS date, and (3) the lender has entered into the financing agreement is expected to be financially capable of honoring the agreement.
Reflects the aggregate carrying amount of all commercial loans and leases held in portfolio, net of unearned income and the allowance for losses on commercial loans and leases.
Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 01-6 -Paragraph 13 -Subparagraph e -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
An amount representing an agreement for an unconditional promise by the maker to pay the Company (holder) a definite sum of money within one year from the balance sheet date (or the normal operating cycle, whichever is longer), net of any write-downs taken for collection uncertainty on the part of the holder. Such amount may include accrued interest receivable in accordance with the terms of the debt. The debt also may contain provisions and related items including a discount or premium, payable on demand, secured, or unsecured, interest bearing or noninterest bearing, among a myriad of other features and characteristics. This amount does not include amounts related to receivables held-for-sale.
Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Research Bulletin (ARB) -Number 43 -Section A -Paragraph 4 -Chapter 3 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
The amount for notes payable (written promise to pay), due to related parties. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer).
Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 57 -Paragraph 2 -Subparagraph d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
Aggregate par or stated value of issued nonredeemable preferred stock (or preferred stock redeemable solely at the option of the issuer). This item includes treasury stock repurchased by the entity. Note: elements for number of nonredeemable preferred shares, par value and other disclosure concepts are in another section within stockholders' equity.
Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 129 -Paragraph 2, 3, 4, 5, 6, 7, 8 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
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The total of the amounts paid in advance for capitalized costs that will be expensed with the passage of time or the occurrence of a triggering event, and will be charged against earnings within one year or the normal operating cycle, if longer, and the aggregate carrying amount of current assets, as of the balance sheet date, not separately presented elsewhere in the balance sheet. Current assets are expected to be realized or consumed within one year (or the normal operating cycle, if longer).
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Tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and that are expected to provide economic benefit for more than one year; net of accumulated depreciation. Examples include land, buildings, machinery and equipment, and other types of furniture and equipment including, but not limited to, office equipment, furniture and fixtures, and computer equipment and software.
Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 12 -Paragraph 5 -Subparagraph b, c -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
The carrying amounts of cash and cash equivalent items which are restricted as to withdrawal or usage. Restrictions may include legally restricted deposits held as compensating balances against short-term borrowing arrangements, contracts entered into with others, or entity statements of intention with regard to particular deposits; however, time deposits and short-term certificates of deposit are not generally included in legally restricted deposits. Excludes compensating balance arrangements that are not agreements which legally restrict the use of cash amounts shown on the balance sheet. For a classified balance sheet represents the current portion only (the noncurrent portion has a separate concept); there is a separate and distinct element for unclassified presentations.
Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Audit and Accounting Guide (AAG) -Number AAG-BRD -Chapter 4 -Paragraph 80 -Subparagraph Exhibit 4-8, 3 -IssueDate 2006-05-01 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.
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Total of all stockholders' equity (deficit) items, net of receivables from officers, directors, owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (noncontrolling interest, minority interest). This excludes temporary equity and is sometimes called permanent equity.
The carrying value (book value) of an entity's issued and outstanding stock which is not included within permanent equity in Stockholders Equity. Temporary equity is a security with redemption features that are outside the control of the issuer, is not classified as an asset or liability in conformity with GAAP, and is not mandatorily redeemable. Includes any type of security that is redeemable at a fixed or determinable price or on a fixed or determinable date or dates, is redeemable at the option of the holder, or has conditions for redemption which are not solely within the control of the issuer. If convertible, the issuer does not control the actions or events necessary to issue the maximum number of shares that could be required to be delivered under the conversion option if the holder exercises the option to convert the stock to another class of equity. If the security is a warrant or a rights issue, the warrant or rights issue is considered to be temporary equity if the issuer cannot demonstrate that it would be able to deliver upon the exercise of the option by the holder in all cases. Includes stock with a put option held by an ESOP and stock redeemable by a holder only in the event of a change in control of the issuer.
Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number D-98 -Paragraph 2 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.