10-Q

UNITED STATES
SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2003

OR

[   ] 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	(IRS Employer
incorporation or organization)	Identification Number)

1001 North Central Avenue, Suite 800, Phoenix, Arizona 85004

(Address of principal executive offices)
(Zip Code)

(602) 256-6263

(Registrant’s 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 [X]  No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [  ] No [X]

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

Class	Outstanding at November 7, 2003
Common Stock, $.01 Par Value	3,146,495 Shares

TABLE OF CONTENTS

		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		Notes to Consolidated Financial Statements
	Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3: Quantitative and Qualitative Disclosures about Market Risk
	Item 4: Controls and Procedures
Part II. Other Information
	Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

CAVCO INDUSTRIES, INC. AND SUBSIDIARY
Form 10-Q Table of Contents
September 30, 2003

		Page
Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2003 and September 30, 2003 (unaudited)	1
	Consolidated Statements of Operations (unaudited) for the three and six months ended September 30, 2002 and 2003	2
	Consolidated Statements of Cash Flows (unaudited) for the six months ended September 30, 2002 and 2003	3
	Notes to Consolidated Financial Statements	4 – 7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8 – 10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4.	Controls and Procedures	11
Part II. OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K	11
SIGNATURES		12

CAVCO INDUSTRIES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

		March 31,			September 30,
		2003			2003
					(Unaudited)
ASSETS
Current assets
	Cash	$	—		$	21,290
	Restricted cash		2,275			1,847
	Accounts receivable		5,264			5,438
	Inventories		6,861			7,884
	Prepaid expenses and other current assets		640			958
	Deferred income taxes		—			5,600
	Receivable from Centex		12,224			—
	Retail assets held for sale		7,841			5,089
Total current assets			35,105			48,106
Property, plant and equipment, at cost:
	Land		2,330			2,330
	Buildings and improvements		4,914			4,998
	Machinery and equipment		6,458			6,396
			13,702			13,724
	Accumulated depreciation		(4,541	)		(5,021	)
			9,161			8,703
Goodwill			67,346			67,346
Total assets		$	111,612		$	124,155
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
	Accounts payable	$	3,250		$	4,675
	Accrued liabilities		16,016			17,975
Total current liabilities			19,266			22,650
Deferred income taxes			—			6,844
Commitments and contingencies
Stockholders’ equity
	Preferred Stock, $.01 par value, 1,000,000 shares authorized, no shares issued or outstanding		—			—
	Common Stock, $.01 par value; 10,000,000 shares authorized; Outstanding 3,091,399 (proforma March 31, 2003) and 3,146,495 (September 30, 2003) shares, respectively		31			31
	Additional paid-in capital		120,030			120,330
	Unamortized value of restricted stock		—			(688	)
	Accumulated deficit		(27,715	)		(25,012	)
Total stockholders’ equity			92,346			94,661
Total liabilities and stockholders’ equity		$	111,612		$	124,155

See Notes to Consolidated Financial Statements

1

CAVCO INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

		Three Months Ended						Six Months Ended
		September 30,						September 30,
		2002			2003			2002			2003
Net sales		$	28,322		$	30,820		$	54,529		$	60,335
Cost of sales			23,279			25,526			44,806			49,740
Gross profit			5,043			5,294			9,723			10,595
Selling, general and administrative expenses			2,961			3,454			6,045			7,139
Income from operations			2,082			1,840			3,678			3,456
Interest income (expense)			(102	)		48			(211	)		75
Income from continuing operations before income taxes			1,980			1,888			3,467			3,531
Income tax expense			—			(755	)		—			(755	)
Income from continuing operations			1,980			1,133			3,467			2,776
Discontinued operations:
	Loss from discontinued manufacturing operations		(237	)		—			(491	)		—
	Loss from discontinued retail operations		(965	)		—			(1,723	)		(73	)
Net Income		$	778		$	1,133		$	1,253		$	2,703
Net income per share					$	0.36					$	0.87
Weighted average shares outstanding (basic and diluted)						3,146,495						3,118,947
Proforma financial information:
	Income from continuing operations before income taxes	$	1,980					$	3,467		$	3,531
	Proforma income tax expense		(792	)					(1,387	)		(1,412	)
	Proforma income from continuing operations		1,188						2,080			2,119
	Proforma loss from discontinued operations, net of proforma taxes		(721	)					(1,328	)		(44	)
	Proforma net income	$	467					$	752		$	2,075
Proforma net income (loss) per share:
	Continuing operations (basic and diluted)	$	0.38					$	0.67		$	0.68
	Discontinued operations (basic and diluted)		(0.23	)					(0.43	)		(0.01	)
	Net income (basic and diluted)	$	0.15					$	0.24		$	0.67
Proforma weighted average shares outstanding (basic and diluted)			3,091,399						3,091,399			3,118,947

See Notes to Consolidated Financial Statements

2

CAVCO INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

				Six Months Ended September 30,
				2002			2003
OPERATING ACTIVITIES
	Net income			$	1,253		$	2,703
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Depreciation - continuing operations			579			604
		Depreciation - discontinued operations			374			—
		Amortization of restricted stock			—			312
		Deferred income taxes provision			—			544
		Changes in operating assets and liabilities:
			Restricted cash		(1,148	)		428
			Accounts receivable		(3,397	)		(174	)
			Inventories		3,103			1,729
			Prepaid expenses and other current assets		(285	)		(318	)
			Accounts payable and accrued liabilities		(1,055	)		3,384
	Net cash provided by (used in) operating activities				(576	)		9,212
INVESTING ACTIVITIES
	Continuing operations:
		Purchases of property, plant and equipment			(176	)		(146	)
	Discontinued operations:
		Purchases of property, plant and equipment			(190	)		—
		Proceeds from disposition of assets			123			—
	Net cash used in investing activities				(243	)		(146	)
FINANCING ACTIVITIES
	Funding provided by Centex				819			12,224
	Net cash provided by financing activities				819			12,224
Net increase in cash					—			21,290
Cash at beginning of period					—			—
Cash at end of period				$	—		$	21,290
Supplemental disclosures of cash flow information:
	Cash paid during the period for interest			$	467		$	—
Supplemental schedule of noncash financing activities:
	Issuance of restricted stock						$	1,000
	Assumption of net deferred tax liability						$	700

See Notes to Consolidated Financial Statements

3

CAVCO INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2003
(Dollars in thousands, except per share data)
(unaudited)

1.    Basis of Presentation

     The consolidated interim financial statements include the accounts of Cavco Industries, Inc. (“Cavco Inc.”) and its wholly-owned subsidiary (collectively, the “Company”) after elimination of all significant intercompany balances and transactions. The statements have been prepared, without audit, in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted.

     In the opinion of the Company, all adjustments (consisting of normal, recurring accruals) necessary to present fairly the information in the consolidated financial statements of the Company have been included. The results of operations for such interim periods are not necessarily indicative of results for the full year. The Company suggests that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes to consolidated financial statements included in the Company’s Form 10 Registration Statement filed with the Securities and Exchange Commission on June 23, 2003 (the “Form 10”).

     Effective June 30, 2003, Cavco Industries, LLC (“Cavco LLC”) was merged into Cavco Inc. and 100% of the outstanding shares of common stock of Cavco Inc. were distributed to the stockholders of Centex Corporation (“Centex”), Cavco Inc.’s parent company. Subsequent to this distribution, Cavco Inc. became a separate public company. The stockholders’ equity section of the balance sheet has been presented assuming the merger of Cavco LLC into Cavco Inc. had occurred as of March 31, 2003 and 3,091,399 shares of common stock of Cavco Inc. were issued and outstanding.

     Prior to June 30, 2003, Cavco LLC was incorporated into the consolidated Federal income tax returns of Centex. Therefore, income taxes are not provided for prior to June 30, 2003. Proforma income tax expense is calculated assuming a 40% effective tax rate. As a result of the distribution described above, proforma tax amounts have been presented on the face of the statement of operations as if the Company was a stand-alone taxable entity. As a stand-alone taxable entity, the deferred taxes associated with its assets and liabilities have been assumed by the Company from Centex and recorded in its financial statements.

2.    Discontinued Operations

     Prior to March 31, 2003, the Company distributed its New Mexico and Texas manufacturing facilities to Centex and these operations are classified as discontinued manufacturing operations. These facilities had no operations during the three and six month periods ended September 30, 2003.

     The Company has initiated plans to dispose of certain of its retail sales centers and these operations are classified as discontinued retail operations. Retail assets held for sale represent finished goods inventories to be liquidated in conjunction with the disposal of these retail sales centers. Net sales for the retail sales centers to be disposed of were $5,747 and $6,344 for the three month periods ended September 30, 2003 and 2002, respectively and $12,359 and $14,408 for the six month periods ended September 30, 2003 and 2002, respectively.

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3.    Inventories

     Raw materials inventories are valued at the lower of cost (first-in, first-out method which approximates actual cost) or market. Finished goods are valued at the lower of cost or market, using the specific identification method. Inventories at March 31, 2003 and September 30, 2003 were as follows:

	March 31,		September 30,
	2003		2003
Raw materials	$	2,754	$	2,774
Work in process		1,566		1,808
Finished goods		2,541		3,302
Total inventories	$	6,861	$	7,884

4.    Revolving line of credit

     On September 17, 2003, the Company established a revolving line of credit facility (“RLC”) with Bank One, NA. The RLC provides for borrowings up to $15 million with availability limited to 80% of eligible accounts receivable and 50% of eligible inventory, as determined on a monthly basis. As of September 30, 2003, the amount available under the RLC was approximately $8.8 million. The Company has not made any draws under the RLC. The outstanding principal amount of borrowings under the RLC bears interest at the Company’s election at either the prime rate or the London Interbank Offered Rate plus 2.25%. The RLC expires on July 31, 2005.

     The RLC contains certain restrictive and financial covenants, which, among other things, limit the Company’s ability to pay dividends, purchase treasury stock, pledge assets, incur additional indebtedness and make capital expenditures, and requires the Company to maintain certain defined leverage and debt service coverage ratios.

5.    Warranties

     Homes are 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 provided a liability for estimated future warranty costs relating to homes sold, based upon management’s assessment of historical experience factors and current industry trends. Activity in the liability for estimated warranties was as follows:

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2002			2003			2002			2003
Balance at beginning of period	$	4,767		$	4,213		$	4,789		$	4,241
Charged to costs and expenses		1,234			1,561			2,903			3,081
Deductions		(1,629	)		(1,458	)		(3,320	)		(3,006	)
Balance at end of period	$	4,372		$	4,316		$	4,372		$	4,316

5

6.    Contingencies

     The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for independent 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 and is further reduced by the resale value of repurchased homes. The maximum amount for which the Company was contingently liable under such agreements approximated $20,405 at September 30, 2003. The Company has a reserve for repurchase commitments based on prior experience and market conditions of $2,000 at March 31, 2003 and September 30, 2003.

     The Company is engaged in various legal proceedings that are incidental to and arise in the course of its business. Certain of the cases filed against the Company and other companies engaged in businesses similar to the Company allege, among other things, breach of contract and warranty, product liability and personal injury. These kinds of suits are typical of suits that have been filed in recent years, and they sometimes seek certification as class actions, the imposition of large amounts of compensatory and punitive damages and trials by jury. Legal fees associated with these lawsuits are expensed as incurred. In the opinion of management, the ultimate liability, if any, with respect to the proceedings in which the Company is currently involved is not expected to have a material adverse effect on the Company’s financial position or results of operations. However, the potential exists for unanticipated material adverse judgments against the Company.

7.    Business Segment Information

     The Company operates in two business segments in the manufactured housing industry — Manufacturing and Retail. Through its Manufacturing segment, the Company designs and manufactures homes which are sold primarily in the southwestern United States to a network of dealers which includes Company-owned retail locations comprising the Retail segment. The Company’s Retail segment derives its revenues from home sales to individuals. The accounting policies of the segments are the same as those described in the Form 10. Retail segment results include retail profits from the sale of homes to consumers but do not include any manufacturing segment profits associated with the homes sold. Intercompany transactions between reportable operating segments are eliminated in consolidation. Each segment’s results include corporate office costs that are directly and exclusively incurred for the segment. The following table summarizes information with respect to the Company’s business segments for the periods indicated:

6

			Three Months Ended						Six Months Ended
			September 30,						September 30,
			2002			2003			2002			2003
Net sales
	Manufacturing		$	26,497		$	28,756		$	51,921		$	57,377
	Retail			3,664			4,421			7,672			8,450
	Less: Intercompany			(1,839	)		(2,357	)		(5,064	)		(5,492	)
		Total consolidated net sales	$	28,322		$	30,820		$	54,529		$	60,335
Income (loss) from operations
	Manufacturing		$	2,807		$	3,105		$	5,106		$	6,143
	Retail			(170	)		(92	)		(284	)		(167	)
	Intercompany profit in inventory			20			60			40			60
	General corporate charges			(575	)		(1,233	)		(1,184	)		(2,580	)
		Total consolidated income from operations	$	2,082		$	1,840		$	3,678		$	3,456
Depreciation
	Manufacturing		$	193		$	200		$	398		$	398
	Retail			27			40			55			78
	Corporate			63			59			126			128
		Total consolidated depreciation	$	283		$	299		$	579		$	604
Capital expenditures
	Manufacturing		$	100		$	118		$	173		$	143
	Retail
	Corporate									3			3
		Total consolidated capital expenditures	$	100		$	118		$	176		$	146

			As of
			March 31,		September 30,
			2003		2003
Total assets
	Manufacturing		$	85,820	$	86,062
	Retail			5,565		5,772
	Retail assets held for sale			7,841		5,089
	Corporate			12,386		27,232
		Total consolidated assets	$	111,612	$	124,155

Total Corporate assets are comprised primarily of the receivable from Centex at March 31, 2003 and cash and deferred taxes at September 30, 2003.

7

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

Overview

     Effective June 30, 2003, Cavco Industries, LLC (“Cavco LLC”), our predecessor, was merged into Cavco Industries, Inc. (the “Company”) and 100% of the outstanding shares of common stock of the Company were distributed to the stockholders of Centex Corporation (“Centex”), Cavco LLC’s parent company. Subsequent to this distribution, the Company became a separate public company. The consolidated financial statements contained in this quarterly report reflect the financial condition and results of operations of the Company and unless the context otherwise requires, all financial information contained in this section gives effect to the reorganization as if it had occurred prior to the date of such financial information.

     The Company is the largest producer of manufactured homes in Arizona and 12th largest producer of manufactured homes in the United States in terms of wholesale shipments, based on 2002 data published by Manufactured Home Merchandiser. Headquartered in Phoenix, Arizona, the Company designs and produces manufactured homes which are sold to a network of retailers located primarily in the Southwestern United States. The retail segment of the Company operates retail sales locations which offer homes produced by the Company and other manufacturers to retail customers.

Results of Operations - (Dollars in thousands)

Three and six months ended September 30, 2003 compared to 2002

     Net Sales. Total net sales increased 8.8% to $30,820 for the three months ended September 30, 2003 compared to $28,322 last year. For the first half of fiscal 2004, net sales increased 10.6% to $60,335 versus $54,529 last year.

     Manufacturing net sales increased 8.5% to $28,756 for the three months ended September 30, 2003 from $26,497 for last year and 10.5% to $57,377 for the first half of fiscal 2004 from $51,921 last year. These increases were primarily attributable to the trend toward larger homes with more amenities. While the number of homes sold during the current quarter remained relatively constant at 850 wholesale shipments versus 839 last year, the average sales price per home increased 7.1% to $33,831 versus $31,582 last year. For the first half of fiscal 2004, the number of homes sold increased to 1,734 from 1,651 last year and the average sales price per home increased 5.2% to $33,089 versus $31,448 last year. In addition to the trend toward larger homes, manufacturing net sales were positively impacted by higher volume of homes sold resulting from our efforts to expand our market share in Arizona and California through recruiting of new independent dealers and expansion of specialty products to markets different from those for traditional manufactured homes.

     Retail net sales increased $757 to $4,421 for the three months ended September 30, 2003 versus $3,664 for the same period last year and $778 to $8,450 for the six months ended September 30, 2003 versus $7,672 last year. These increases in retail sales were primarily due to one new retail sales center added during the first quarter of fiscal 2004.

     Gross Profit. Gross profit as a percent of sales decreased to 17.2% and 17.6% for the three and six months ended September 30, 2003, respectively, from 17.8% for the comparable periods last year. The decrease in gross profit as a percent of sales was primarily due to increases in material costs. The negative impact of increased material costs was partially offset by economies achieved with increased production. Gross profit increased to $5,294 for the three months ended September 30, 2003 from $5,043 last year and $10,595 for the first half of fiscal 2004 from $9,723 last year. These increases in gross profit were due to the overall increase in net sales partially offset by the lower gross profit percentage.

8

     Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 16.6% or $493 to $3,454 or 11.2% of net sales for the three months ended September 30, 2003 versus $2,961 or 10.5% of net sales last year. Selling, general and administrative expenses increased 18.1% or $1,094 to $7,139 or 11.8% of sales for the first half of fiscal 2004 versus $6,045 or 11.1% of sales last year. These increases are attributable to the incremental costs related to being a stand alone public company and a $300 charge for accrued lease costs related to vacated office space recorded in the second quarter of fiscal 2004.

     Interest (Income) Expense. Interest income represents income earned on unrestricted cash during the three and six months ended September 30, 2003. In anticipation of the distribution noted above, all of the Company’s outstanding third party debt was repaid and the intercompany debt owed to Centex was contributed to capital prior to March 31, 2003. As a result, the Company has not incurred any interest expense in fiscal 2004.

     Income Taxes. The effective income tax rate for the quarter ended September 30, 2003 approximated the Company’s combined statutory rate of 40%. Prior to the distribution on June 30, 2003, Cavco LLC was incorporated in the consolidated federal income tax return of Centex. Therefore, income taxes were not provided for by Cavco LLC as Cavco LLC and Centex had agreed that all taxes or tax benefits from filing a consolidated income tax return would either be borne by or benefit Centex. Cavco LLC was a disregarded entity for federal income tax purposes and therefore on a stand-alone basis would not be subject to federal income taxes. As a result of the distribution described above, proforma tax amounts for all periods prior to the date of the distribution have been presented on the face of the statement of operations as if the Company was a stand-alone taxable entity. Pro forma income tax expense (benefit) is calculated based on a combined statutory rate of 40%.

Discontinued Operations

     Discontinued Manufacturing Operations. In anticipation of the distribution, the Company distributed to Centex its ownership interest in its idled manufacturing facilities in New Mexico and Texas during fiscal 2003 and these operations are classified as discontinued. Because the Company no longer owns or operates these facilities, there were no results of operations during the three and six month periods ended September 30, 2003 versus losses of $237 and $491 for the comparable periods last year.

     Discontinued Retail Operations There were no operating losses in the quarter for the stores we have identified for sale or disposal as the costs related to the liquidation of inventory were in line with our expectations of net realizable values. The loss from discontinued retail operations for the first half of fiscal 2004 primarily represents accrued lease costs related to one of the retail locations we closed during the quarter.

Liquidity and Capital Resources

     Prior to the distribution noted above, we participated in Centex’s central cash management program, wherein all of our cash receipts were remitted to Centex and all cash disbursements were funded by Centex. Subsequent to the distribution, we are now responsible for funding our own operating needs.

     On September 17, 2003, the Company established a revolving line of credit facility (“RLC”) with Bank One, NA. The RLC provides for borrowings up to $15 million with availability limited to 80% of eligible accounts receivable and 50% of eligible inventory, as determined on a monthly basis. As of September 30, 2003, the amount available under the RLC was approximately $8.8 million. The Company has not made any draws under the RLC. The outstanding principal amount of borrowings under the RLC bears interest at the Company’s election at either the prime rate or the London Interbank Offered Rate plus 2.25%. The RLC expires on July 31, 2005.

9

     The RLC contains certain restrictive and financial covenants, which, among other things, limit the Company’s ability to pay dividends, purchase treasury stock, pledge assets, incur additional indebtedness and make capital expenditures, and requires the Company to maintain certain defined leverage and debt service coverage ratios.

     We believe that cash on hand at September 30, 2003, together with cash flow from operations and cash to be provided by retail assets held for sale, will be sufficient to fund our operations for at least the next twelve months. In addition, as described above, we have entered into a $15 million credit facility with Bank One that can be used to supplement these sources of liquidity.

     Operating activities provided $9,212 of cash during the six months ended September 30, 2003 compared to using $576 of cash during the first six months of last year. Cash generated by operating activities was primarily derived from operating income before non-cash charges, the liquidation of retail inventories held for sale and an increase in accounts payable and accrued expenses resulting from the timing of payments due to vendors and various service providers.

     Investing activities required the use of $146 of cash during the six months ended September 30, 2003 compared to the use of $243 last year. The cash used for investing activities during the first half of fiscal 2004 was for normal recurring capital expenditures.

     Financing activities provided $12,224 of cash in during the six months ended September 30, 2003 resulting from the payment by Centex of the capital contribution committed during fiscal 2003 in anticipation of the distribution.

Critical Accounting Policies

     In our Form 10 filed with the Securities and Exchange Commission on June 23, 2003, 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 its consolidated financial statements.

FORWARD-LOOKING STATEMENTS

     Various sections of this Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when we are discussing our beliefs, estimates or expectations.

     All forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results or performance may differ materially from anticipated results or performance. Also, forward-looking statements are based upon management’s estimates of fair values and of future costs, using currently available information. Therefore, actual results may differ materially from those expressed or implied in those statements. Factors that could cause such differences to occur include, but are not limited to, those discussed in our Form 10 filed with the Securities and Exchange Commission under the heading “Risk Factors”. We expressly disclaim any obligation to update any forward-looking statements contained in this report or elsewhere, whether as a result of new information, future events or otherwise. For all of these reasons, you are cautioned not to place undue reliance on any forward-looking statements included in this report or elsewhere.

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Item 3: Quantitative and Qualitative Disclosures about Market Risk

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. We are not currently party to any market risk sensitive instruments that could be reasonably expected to have a material effect on our financial condition or results of operations.

Item 4: Controls and Procedures

     An evaluation has been performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2003. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2003, for the purpose of ensuring that information required to be disclosed in this Report has been processed, summarized and reported in a timely manner. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to September 30, 2003.

Part II. Other Information

Item 6. Exhibits and Reports on Form 8-K

            (a)    Exhibits

                     10.1 Credit Agreement dated September 17, 2003 between Bank One, NA and Cavco Industries, Inc.

                     31.1 Certification of the Chief Executive Officer of Cavco Industries, Inc. pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

                     31.2 Certification of the Chief Financial Officer of Cavco Industries, Inc. pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

                     32.1 Certification of the Chief Executive Officer of Cavco Industries, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

                     32.2 Certification of the Chief Financial Officer of Cavco Industries, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

            (b)    Reports on Form 8-K

                     The Company filed a Current Report on Form 8-K on October 22, 2003, with respect to a press release announcing its fiscal second quarter net earnings for the quarter ended September 30, 2003.

            All other items required under Part II are omitted because they are not applicable.

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Signatures

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

	Cavco Industries, Inc.
	Registrant
November 10, 2003	/s/ Joseph H. Stegmayer
	Joseph H. Stegmayer – President and Chief Executive Officer
November 10, 2003	/s/ Sean K. Nolen
	Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

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Exhibit Index

               10.1 Credit Agreement dated September 17, 2003 between Bank One, NA and Cavco Industries, Inc.

               31.1 Certification of the Chief Executive Officer of Cavco Industries, Inc. pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

               31.2 Certification of the Chief Financial Officer of Cavco Industries, Inc. pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

               32.1 Certification of the Chief Executive Officer of Cavco Industries, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

               32.2 Certification of the Chief Financial Officer of Cavco Industries, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-10.1 3 p68453exv10w1.htm EXHIBIT 10.1

Exhibit 10.1

Credit Agreement

This agreement between Bank One, NA, with its main office in Chicago, IL, and its successors and assigns, (the “Bank”), whose address is 201 N. Central Ave, 21st Floor, AZ1-1178, Phoenix, AZ 85004, and Cavco Industries, Inc. (the “Borrower”), whose address is 1001 North Central Avenue, Suite 800, Phoenix, AZ 85004.

1. Credit Facilities.

1.1	Scope. This agreement governs Facility A, and, unless otherwise agreed to in writing by the Bank and the Borrower or prohibited by applicable law, governs the Credit Facilities.
1.2	Facility A (Line of Credit). The Bank has approved a credit facility to the Borrower in the principal sum not to exceed $15,000,000.00 in the aggregate at any one time outstanding (“Facility A”). Credit under Facility A shall be repayable as set forth in a Line of Credit Note executed concurrently with this agreement, and any renewals, modifications or extensions thereof. The proceeds of Facility A shall be used for the following purpose: general business purposes, including working capital.
	Non Usage Fee. The Borrower shall pay to the Bank a non-usage fee on the average daily unused portion of Facility A at a rate of 0.25% per annum, payable in arrears within fifteen (15) days of the end of each calendar quarter for which the fee is owing.
1.3	Borrowing Base. The aggregate principal amount of advances outstanding at any one time under Facility A shall not exceed the lesser of the Borrowing Base or $15,000,000.00. If at any time the aggregate principal amount of advances outstanding under Facility A exceeds the Borrowing Base, the Borrower shall immediately pay to the Bank an amount equal to the difference between such aggregate principal amount of advances and the Borrowing Base. “Borrowing Base” means the aggregate of:

A. 80% of Eligible Accounts,

B. 50% of Eligible Inventory, not to exceed the aggregate of $5,000,000.00.

2. Definitions. As used in this agreement, the following terms have the following respective meanings:

2.1	“Credit Facilities” means all extensions of credit from the Bank to the Borrower, whether now existing or hereafter arising, including but not limited to those described in Section 1.
2.2	“Liabilities” means all obligations, indebtedness and liabilities of the Borrower to any one or more of the Bank, BANK ONE CORPORATION, and any of their subsidiaries, affiliates or successors, now existing or later arising, including, without limitation, all loans, advances, interest, costs, overdraft indebtedness, credit card indebtedness, lease obligations, or obligations relating to any Rate Management Transaction, all monetary obligations incurred or accrued during the pendency of any bankruptcy, insolvency, receivership or other similar proceedings, regardless of whether allowed or allowable in such proceeding, and all renewals, extensions, modifications, consolidations or substitutions of any of the foregoing, whether the Borrower may be liable jointly with others or individually liable as a debtor, maker, co-maker, drawer, endorser, guarantor, surety or otherwise, and whether voluntarily or involuntarily incurred, due or not due, absolute or contingent, direct or indirect, liquidated or unliquidated. The term “Rate Management Transaction” in this agreement means any transaction (including an agreement with respect thereto) now existing or hereafter entered into among the Borrower, the Bank or BANK ONE CORPORATION, or any of its subsidiaries or affiliates or their successors, which is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures.
2.3	“Notes” means the Line of Credit Note(s) described in Section 1, and all promissory notes, instruments and/or contracts evidencing the terms and conditions of the Liabilities.

2.4	“Account” means a trade account, account receivable, other receivable, or other right to payment for goods sold or leased or services rendered owing to the Borrower or to CRG Holdings, LLC, a wholly owned subsidiary of Borrower (“CRG”) (or to a third party grantor acceptable to the Bank).
2.5	“Account Debtor” means the person or entity obligated upon an Account.
2.6	“Capital Expenditures” means any expenditure or the incurrence of any obligation or liability by the Borrower for any asset which is classified as a capital asset.
2.7	“Distributions” means all dividends and other distributions made by the Borrower to its shareholders, partners, owners or members, as the case may be, other than salary, bonuses, and other compensation for services expended in the current accounting period.
2.8	“Eligible Accounts” means, at any time, all of the Borrower’s and CRG’s Accounts. The net amount of any Eligible Account against which the Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature. Unless otherwise agreed to by the Bank in writing, Eligible Accounts do not include Accounts: (1) with respect to which the Account Debtor is an employee or agent of the Borrower or CRG; (2) with respect to which the Account Debtor is affiliated with or related to the Borrower or CRG; (3) with respect to which goods are placed on consignment, guaranteed sale, or other terms by reason of which the payment by the Account Debtor may be conditional; (4) with respect to which the Account Debtor is not a resident of the United States, except to the extent such Accounts are supported by insurance, bonds or other assurances satisfactory to the Bank; (5) with respect to which the Borrower or CRG is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to the Borrower or CRG; (6) which are subject to dispute, counterclaim, or setoff; (7) with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor; (8) with respect to which the Bank, in its sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory; (9) of any Account Debtor who has filed or has had filed against it a petition in bankruptcy or an application for relief under any provision of any state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has had appointed a trustee, custodian, or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due; (10) with respect to which the Account Debtor is the United States government or any department or agency of the United States; (11) which have not been paid in full within sixty (60) days from the invoice date; (12) which are in the nature of rebates due from vendors and suppliers of parts and other inventory purchased by the Borrower or CRG; and (13) which may be subject to year end adjustments. In no event will the balance of any Account of any single Account Debtor be eligible whenever the portion of the Account which has not been paid within sixty (60) days from the invoice date is in excess of 25% of the total amount outstanding on the Account.
2.9	“Eligible Inventory” means, at any time, all of the Borrower’s and CRG’s Inventory except: (1) Inventory which is not owned by the Borrower or CRG free and clear of all security interests, liens, encumbrances, and claims of third parties; (2) Inventory which the Bank, in its sole discretion, deems to be obsolete, unsalable, damaged, defective, or unfit for further processing; (3) Work in process, (4) Inventory consisting of used modular or manufactured homes, and (5) Inventory consisting of furniture. For the purpose of this Agreement and the calculation of the Borrowing Base, the value of Borrower’s Eligible Inventory shall be reduced by the sum of (i) any general ledger reserves for raw materials, (ii) any general ledger reserves for finished goods, (iii) any allowance for volume discounts or rebates for finished goods, plus (iv) any allowance for interest reimbursement payments to retailers of Borrower’s Inventory.
2.10	“Inventory” means all of the Borrower’s and CRG’s raw materials, work in process, finished goods, merchandise, parts and supplies, of every kind and description, and goods held for sale or lease or furnished under contracts of service in which the Borrower or CRG now has or hereafter acquires any right, whether held by the Borrower, CRG, or others, and all documents of title, warehouse receipts, bills of lading, and all other documents of every type covering all or any part of the foregoing. Inventory includes inventory temporarily out of the Borrower’s or CRG’s custody or possession and all returns on Accounts.
2.11	“Intangible Assets” means the aggregate amount of all assets classified as intangible assets under generally accepted accounting principles, including, without limitation, goodwill, trademarks, patents, copyrights, organization expenses, franchises, licenses, trade names, brand names, mailing lists, catalogs, excess of cost over book value of assets acquired, and bond discount and underwriting expenses.

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2.12	“Subordinated Debt” means debt subordinated to the Bank in manner and by agreement reasonably satisfactory to the Bank.
2.13	“Tangible Net Worth” means total assets less the sum of Intangible Assets, and total liabilities.

3. Conditions Precedent.

3.1 Conditions Precedent to Initial Extension of Credit. Before the first extension of credit governed by this agreement, whether by disbursement of a loan, issuance of a letter of credit, or otherwise, the Borrower shall deliver to the Bank, in form and substance satisfactory to the Bank:

A. Loan Documents. The Notes, and as applicable, the letter of credit applications, the security agreements, the pledge agreements, financing statements, mortgages or deeds of trust, the guaranties, the subordination agreements, and any other loan documents which the Bank may reasonably require to give effect to the transactions described in this agreement;

B. Evidence of Completed Distribution, Due Organization and Good Standing. Evidence, satisfactory to the Bank, of (i) the approval from the Securities and Exchange Commission (the “SEC”) and the completion of the distribution of the shares of stock of Borrower by Centex Corporation to the current shareholders of Centex Corporation in accordance with the terms of that certain Form 10 Registration Statement filed by Borrower with the SEC on April 23, 2003, and (ii) the due organization and good standing of the Borrower and every other business entity that is a party to this agreement or any other loan document required by this agreement;

C. Evidence of Authority to Enter into Loan Documents. Evidence that (i) each party to this agreement and any other loan document required by this agreement is authorized to enter into the transactions described in this agreement and the other loan documents, and (ii) the person signing on behalf of each such party is authorized to do so; and

D. Fees. Payment of the following fees, all of which the Borrower acknowledges have been earned by the Bank: commitment fee $37,500.00.

E. Lien Priority. Evidence, satisfactory to the Bank, that Bank has a first and prior lien on all collateral for the Credit Facilities, including, without limitation, all Accounts and Inventory (as such terms are defined under the Uniform Commercial Code of Arizona, as in effect from time to time) of Borrower and CRG Holdings, LLC. Such evidence to include (i) termination statements relating to financing statements listing other creditors of Borrower or CRG Holdings, LLC as secured parties, (ii) lien subordination agreements from other creditors of Borrower or CRG Holdings, LLC, and (iii) landlord lien waivers executed by all lessors of leased property where any of the collateral may be located from time to time.

Notwithstanding anything contained in this Agreement to the contrary, the failure of the Borrower to satisfy all the conditions precedent to the initial extension of credit set forth above on or before that date which is sixty (60) days from the date of this Agreement shall constitute a default by Borrower under this Agreement.

3.2 Conditions Precedent to Each Extension of Credit. Before any extension of credit governed by this agreement, whether by disbursement of a loan, issuance of a letter of credit or otherwise, the following conditions must be satisfied:

A. Representations. The representations of the Borrower under this agreement and under any other document or agreement executed by Borrower in connection with the Credit Facilities are true in all material respects on and as of the date of the extension of credit;

B. No Event of Default. No event of default has occurred in any provision of this agreement, the Notes or any agreement related to the Credit Facilities and is continuing or would result from the extension of credit, and no event has occurred which would constitute the occurrence of any such event of default but for the lapse of time until the end of any grace or cure period; and

C. Additional Approvals, Opinions, and Documents. The Bank has received any other approvals, opinions and documents as it may reasonably request.

4. Affirmative Covenants. The Borrower shall:

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4.1 Insurance. Maintain insurance with financially sound and reputable insurers covering its properties and business against those casualties and contingencies and in the types and amounts as are customary for companies of similar size and engaged in a similar line of business.

4.2 Existence. Maintain its existence and business operations as presently in effect in accordance in all material respects with all applicable laws and regulations, pay its debts and obligations when due under normal terms, and pay on or before their due date, all taxes, assessments, fees and other governmental monetary obligations, except as they may be contested in good faith by proper proceedings if they have been properly reflected on its books.

4.3 Financial Records. Maintain proper books and records of account, in accordance with generally accepted accounting principles, and consistent with financial statements previously submitted to the Bank.

4.4 Inspection. Permit the Bank upon reasonable notice to inspect and copy the Borrower’s business records at such times and at such intervals as the Bank may reasonably require, and to discuss during reasonable business hours the Borrower’s business, operations, and financial condition with the Borrower’s officers and accountants.

4.5 Financial Reports. Furnish to the Bank whatever information, books and records the Bank may reasonably request, including at a minimum:

A. Within thirty (30) days after and as of the end of each calendar month, the following lists, each certified as correct by one of its authorized agents:

     (1) a list of accounts receivable, aged from date of invoice, and

     (2) a list of accounts payable, aged from date of receipt.

B. Within thirty (30) days after each monthly period, a borrowing base certificate, in the form of Exhibit A attached hereto, along with such supporting documentation as the Bank may request.

C. Via either the EDGAR System or its Home Page, within one hundred twenty (120) days after the filing of its Annual Report on Form 10-K for the fiscal year then ended with the Securities and Exchange Commission, but no event later than one hundred fifty (150) days after the end of such fiscal year, the financial statements for such fiscal year as contained in such Annual Report on Form 10-K and, as soon as it shall become available, the annual report to shareholders of the Borrower for the fiscal year then ended.

D. For each fiscal quarter other than the last fiscal quarter of each fiscal year, via either the EDGAR System or its Home Page, within forty-five (45) days after the filing of its Quarterly Report on Form 10-Q for the fiscal quarter then ended with the Securities and Exchange Commission, but no event later than ninety (90) days after the end of such fiscal quarter, copies of the financial statements for such fiscal quarter as contained in such Quarterly Report on Form 10-Q.

E. Via either the EDGAR System or its Home Page, promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any subsidiary with the Securities and Exchange Commission or any governmental authority succeeding to any or all of the functions of said Commission.

If for any reason the EDGAR System and/or its Home Page are not available to the Borrower as is required for making available the financial statements or reports referred to above, the Borrower shall then furnish a copy of such financial statements or reports to the Bank.

For the purposes of this section, “EDGAR System” means the Electronic Data Gathering Analysis and Retrieval System owned and operated by the United States Securities and Exchange Commission or any replacement system, and “Home Page” means the Borrower’s corporate home page on the World Wide Web accessible through the Internet via the universal resource locator (URL) identified as “www.cavco.com” or such other universal resource locator that the Borrower shall designate in writing to the Bank as its corporate home page on the World Wide Web.

4.6 Notices of Claims, Litigation, Defaults, etc. Promptly inform the Bank in writing of (1) all existing and all threatened litigation, claims, investigations, administrative proceedings and similar actions affecting the Borrower which could materially and adversely affect the financial condition of the Borrower; (2) the occurrence of any event which gives rise to the Bank’s option to terminate the Credit Facilities; (3) the institution of steps by the Borrower to withdraw from, or the institution of any steps to terminate, any employee benefit plan as to which the Borrower may have liability; (4) any

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	additions to the locations or changes in the locations of the Borrower’s businesses; and (5) any alleged breach of any provision of this agreement or of any other agreement related to the Credit Facilities by the Bank.
4.7	Additional Information. Furnish such additional information and statements respecting the Borrower or CRG or their respective businesses, as the Bank may reasonably request, from time to time.
4.8	Insurance Reports. Furnish to the Bank, upon request of the Bank, reports on each existing insurance policy showing such information as the Bank may reasonably request.
4.9	Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between the Borrower and any other party unless the failure to so comply would not have a material adverse effect on the financial condition of the Borrower or its ability to repay the Credit Facilities.
4.10	Title to Assets and Property. Maintain good and marketable title to all of the Borrower’s assets and properties, except for assets or properties that are obsolete or have been disposed of in the ordinary course of business.
4.11	Additional Assurances. Make, execute and deliver to the Bank such other agreements as the Bank may reasonably request to evidence the Credit Facilities and to perfect any security interests required thereunder.
4.12	Employee Benefit Plans. Maintain each employee benefit plan as to which the Borrower may have any liability, in compliance in all material respects with all applicable requirements of law and regulations.
4.13	Compliance Certificates. Provide the Bank, within forty-five (45) days after the end of each fiscal quarter, with a certificate executed by the Borrower’s chief financial officer, or other officer or a person acceptable to the Bank, certifying that, as of the date of the certificate, no event of default exists under any provision of this agreement.

5. Negative Covenants.

5.1	Unless otherwise noted, the financial requirements set forth in this section will be computed in accordance with generally accepted accounting principles applied on a basis consistent with financial statements previously submitted by the Borrower to the Bank.
5.2	Without the written consent of the Bank, the Borrower will not:

A. Dividends. Acquire or retire any of its shares of capital stock, or declare or pay dividends or make any other distributions upon any of its shares of capital stock, except in the absence of the occurrence of any default, dividends in its capital stock.

B. Debt. Incur, or permit to remain outstanding, debt for borrowed money or installment obligations, except debt reflected in the latest financial statement of the Borrower furnished to the Bank prior to execution of this agreement and not to be paid with proceeds of borrowings under the Credit Facilities, purchase money loans from others for the acquisition of equipment up to $1,200,000.00 in the aggregate during any fiscal year. For purposes of this covenant, the sale of any account receivable is the incurring of debt for borrowed money.

C. Guaranties. Guarantee or otherwise become or remain secondarily liable on the undertaking of another, except for endorsement of drafts for deposit and collection in the ordinary course of business and guaranties executed in connection with repurchase agreements for inventory entered into in the normal course of business.

D. Liens. Create or permit to exist any lien on any of its property, real or personal, except: existing liens described in Schedule I; liens to the Bank; and the liens described on Schedule II.

E. Use of Proceeds. Use, or permit any proceeds of the Credit Facilities to be used, directly or indirectly, for the purpose of “purchasing or carrying any margin stock” within the meaning of Federal Reserve Board Regulation U. At the Bank’s request, the Borrower will furnish a completed Federal Reserve Board Form U-1.

F. Continuity of Operations. (1) Engage in any business activities substantially different from those in which the Borrower is presently engaged; (2) cease operations, liquidate, merge, acquire or consolidate with any other entity, change its name, dissolve, or sell any assets out of the ordinary course of business; or (3) enter into any arrangement with any person providing for the leasing by the Borrower or any subsidiary of real or personal property which has been sold or transferred by the Borrower or subsidiary to such person.

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G. Limitation on Negative Pledge Clauses. Enter into any agreement with any person other than the Bank which prohibits or limits the ability of the Borrower or any of its subsidiaries to create or permit to exist any lien on any of its property, assets or revenues, whether now owned or hereafter acquired, except for liens permitted by Section 5.2D.

H. Conflicting Agreements. Enter into any agreement containing any provision which would be violated or breached by the performance of the Borrower’s obligations under this agreement.

I. Investments. Invest in, or purchase, create, form or acquire any interest in, any other enterprise or entity.

J. Leverage Ratio. Permit at any time, its ratio of total liabilities less deferred taxes to Tangible Net Worth to be greater than 2.00 to 1.00.

K. Capital Expenditures. Acquire, whether by purchase or capital lease, fixed assets if the aggregate purchase price of such assets to the Borrower, and all subsidiaries if any, shall exceed $1,500,000.00 in the aggregate in any one fiscal year.

L. Debt Service Coverage Ratio. Permit at any time, its ratio of net income before taxes, plus interest expense, plus depreciation expense, plus amortization expense, minus Capital Expenditures, minus actual taxes paid, for the twelve month period then ending to current portion of long term debt and capitalized lease payments made, plus interest expense, to be less than 1.50 to 1.00.

6. Representations.

6.1

Representations by the Borrower. The Borrower represents that: (a) the execution and delivery of this agreement and the Notes, and the performance of the obligations they impose, do not violate any law, conflict with any agreement by which it is bound, or require the consent or approval of any governmental authority or other third party, (b) this agreement and the Notes are valid and binding agreements, enforceable according to their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws or general principles of equity (c) all balance sheets, profit and loss statements, and other financial statements and other information furnished by Borrower to the Bank in connection with the Liabilities are accurate in all material respects and fairly reflect the financial condition of the organizations and persons to which they apply on their effective dates, including contingent liabilities of every type, in accordance with generally accepted accounting principles, which financial condition has not changed materially and adversely since those dates, (d) no litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against the Borrower is pending or threatened, and no other event has occurred, which may in any one case or in the aggregate materially adversely affect the Borrower’s financial condition and properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by the Bank in writing, (e) all of the Borrower’s tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being contested by the Borrower in good faith and for which adequate reserves have been provided, or those the failure to file or pay could not reasonably be expected to have a material adverse effect on the financial condition of the Borrower or its ability to repay the Credit Facilities (f) the Borrower is not a “holding company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended, (g) the Borrower is not a “holding company”, or a “subsidiary company” of a “holding company” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company” within the meaning of the Public Utility Holding Company Act of 1935, as amended, (h) there are no defenses or counterclaims, offsets or adverse claims, demands or actions of any kind, personal or otherwise, that the Borrower could assert with respect to this agreement or the Credit Facilities, (i) the Borrower owns, or is licensed to use, all trademarks, trade names, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted other than those the failure to own or be licensed to use could not reasonably be expected to have a material adverse effect on the financial condition of the Borrower or its ability to repay the Credit Facilities, and (j) no part of the proceeds of the Credit Facilities will be used for “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System of the United States (the “Board”) as now and from time to time hereafter in effect or for any purpose which violates the provisions of any regulations of the Board. Borrower further represents that: (a) it is duly organized, existing and in good standing pursuant to the laws under which it is organized, and (b) the execution and delivery of this agreement and the Notes and the performance of the obligations they impose (i) are within its powers, (ii) have been duly authorized by all necessary action of its governing body, and (iii) do not contravene the terms of its articles of incorporation or organization, its by-laws, or any partnership, operating or other agreement governing its affairs.

6.2

Representations Regarding Assets. With respect to any asset of the Borrower utilized in the calculation of the Borrowing Base set forth in this agreement, the Borrower represents and warrants to the Bank: (1) each asset represented by the Borrower to be eligible for Borrowing Base purposes of this agreement conforms to the eligibility

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definitions set forth in this agreement; (2) all asset values delivered to the Bank will be true and correct, subject to immaterial variance; and be determined on a consistent accounting basis; (3) except as agreed to the contrary by the Bank in writing, each asset is now and at all times hereafter while utilized in the calculation of Borrowing Base will be in the Borrower’s physical possession and shall not be held by others on consignment, sale or approval, or sale or return; (4) except as reflected in schedules delivered to the Bank, each asset is now and at all times hereafter while utilized in the calculation of Borrowing Base will be of good and merchantable quality, free from defects; (5) each asset is not now and will not at any time hereafter while utilized in the calculation of Borrowing Base be stored with a bailee, warehouseman, or similar party without the Bank’s prior written consent, and in such event, the Borrower will concurrently at the time of bailment cause any such bailee, warehouseman, or similar party to issue and deliver to the Bank, warehouseman receipts in the Bank’s name evidencing the storage of the assets; and (6) the Bank, its assigns, or agents shall have the right at any time and at the Borrower’s expense to inspect, examine and audit the Borrower’s records, and if Accounts are included in the calculation of Borrowing Base, confirm with Account Debtors the accuracy of such Accounts, and inspect and examine the assets and to check and test the same as to quality, quantity, value, and condition.

7.	Default/Remedies. If any of the Credit Facilities are not paid at maturity, whether by acceleration or otherwise, or if an event of default by Borrower or any Guarantor occurs under the terms of this agreement, the Notes or any agreement related to the Credit Facilities, then the Bank shall have all of the rights and remedies provided by any law or agreement.
8.	Miscellaneous.

8.1	Notice. Any notices and demands under or related to this document shall be in writing and delivered to the intended party at its address stated herein, and if to the Bank, at its main office if no other address of the Bank is specified herein, by one of the following means: (a) by hand, (b) by a nationally recognized overnight courier service, or (c) by certified mail, postage prepaid, with return receipt requested. Notice shall be deemed given: (a) upon receipt if delivered by hand, (b) on the Delivery Day after the day of deposit with a nationally recognized courier service, or (c) on the third Delivery Day after the notice is deposited in the mail. “Delivery Day” means a day other than a Saturday, a Sunday or any other day on which national banking associations are authorized to be closed. Any party may change its address for purposes of the receipt of notices and demands by giving notice of such change in the manner provided in this provision.
8.2	No Waiver. No delay on the part of the Bank in the exercise of any right or remedy waives that right or remedy. No single or partial exercise by the Bank of any right or remedy precludes any other future exercise of it or the exercise of any other right or remedy. No waiver or indulgence by the Bank of any default is effective unless it is in writing and signed by the Bank, nor shall a waiver on one occasion bar or waive that right on any future occasion.
8.3	Integration. This agreement, the Notes, and any agreement related to the Credit Facilities embody the entire agreement and understanding between the Borrower and the Bank and supersede all prior agreements and understandings relating to their subject matter. If any one or more of the obligations of the Borrower under this agreement or the Notes is invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining obligations of the Borrower shall not in any way be affected or impaired, and the invalidity, illegality or unenforceability in one jurisdiction shall not affect the validity, legality or enforceability of the obligations of the Borrower under this agreement or the Notes in any other jurisdiction.
8.4	Governing Law and Venue. This agreement is delivered in the State of Arizona and governed by Arizona law (without giving effect to its laws of conflicts). The Borrower agrees that any legal action or proceeding with respect to any of its obligations under this agreement may be brought by the Bank in any state or federal court located in the State of Arizona, as the Bank in its sole discretion may elect. By the execution and delivery of this agreement, the Borrower submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. The Borrower waives any claim that the State of Arizona is not a convenient forum or the proper venue for any such suit, action or proceeding.
8.5	Captions. Section headings are for convenience of reference only and do not affect the interpretation of this agreement.
8.6	Survival of Representations and Warranties. The Borrower understands and agrees that in extending the Credit Facilities, the Bank is relying on all representations, warranties, and covenants made by the Borrower in this agreement or in any certificate or other instrument delivered by the Borrower to the Bank under this agreement. The Borrower further agrees that regardless of any investigation made by the Bank, all such representations, warranties and covenants will survive the making of the Credit Facilities and delivery to the Bank of this agreement, shall be continuing in nature, and shall remain in full force and effect until such time as the Borrower’s indebtedness to the Bank shall be paid in full.

7

8.7	Non-Liability of the Bank. The relationship between the Borrower and the Bank created by this agreement is strictly a debtor and creditor relationship and not fiduciary in nature, nor is the relationship to be construed as creating any partnership or joint venture between the Bank and the Borrower. The Borrower is exercising the Borrower’s own judgement with respect to the Borrower’s business. All information supplied to the Bank is for the Bank’s protection only and no other party is entitled to rely on such information. There is no duty for Bank to review, inspect, supervise or inform the Borrower of any matter with respect to the Borrower’s business. The Bank and the Borrower intend that the Bank may reasonably rely on all information supplied by the Borrower to the Bank, together with all representations and warranties given by the Borrower to the Bank, without investigation or confirmation by the Bank and that any investigation or failure to investigate will not diminish the Bank’s right to so rely.
8.8	Indemnification of the Bank. The Borrower agrees to indemnify, defend and hold the Bank and BANK ONE CORPORATION, or any of its subsidiaries or affiliates or their successors, and each of their respective shareholders, directors, officers, employees and agents (collectively, the “Indemnified Persons”) harmless from any and all obligations, claims, liabilities, losses, damages, penalties, fines, forfeitures, actions, judgments, suits, costs, expenses and disbursements of any kind or nature (including, without limitation, any Indemnified Person’s reasonable attorneys’ fees) (collectively, the “Claims”) which may be imposed upon, incurred by or assessed against any Indemnified Person (whether or not caused by any Indemnified Person’s sole, concurrent, or contributory negligence) arising out of or relating to this agreement; the exercise of the rights and remedies granted under this agreement (including, without limitation, the enforcement of this agreement and the defense of any Indemnified Person’s action or inaction in connection with this agreement); and in connection with the Borrower’s failure to perform all of the Borrower’s obligations under this agreement, except to the limited extent that the Claims against any such Indemnified Person are caused by such Indemnified Person’s willful misconduct, bad faith or gross negligence. The indemnification provided for in this section shall survive the termination of this agreement and shall extend to and continue to benefit each individual or entity who is or has at any time been an Indemnified Person.
	The Borrower’s indemnity obligations under this section shall not in any way be affected by the presence or absence of covering insurance, or by the amount of such insurance or by the failure or refusal of any insurance carrier to perform any obligation on its part under any insurance policy or policies affecting the Borrower’s assets or the Borrower’s business activities. Should any Claim be made or brought against any Indemnified Person by reason of any event as to which the Borrower’s indemnification obligations apply, then, upon any Indemnified Person’s demand, the Borrower, at its sole cost and expense, shall defend such Claim in the Borrower’s name, if necessary, by the attorneys for the Borrower’s insurance carrier (if such Claim is covered by insurance), or otherwise by such attorneys as Borrower shall select, subject to the approval of any Indemnified Person, which approval shall not be unreasonably withheld. Any Indemnified Person may also engage its own attorneys at its reasonable discretion to defend the Borrower and to assist in its defense and the Borrower agrees to pay the fees and disbursements of such attorneys.
	Notwithstanding the foregoing or anything else in this agreement or any other loan document to the contrary, in no event shall Borrower be liable under this indemnity provision for any lost profits or for any special, indirect, consequential or punitive damages.
8.9	Counterparts. This agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same agreement.
8.10	Sole Discretion of the Bank. Whenever the Bank’s consent or approval is required under this agreement, the decision as to whether or not to consent or approve shall be in the sole and exclusive discretion of the Bank and the Bank’s decision shall be final and conclusive.
8.11	Advice of Counsel. The Borrower acknowledges that it has been advised by counsel, or had the opportunity to be advised by counsel, in the negotiation, execution and delivery of this agreement and any documents executed and delivered in connection with the Credit Facilities.
8.12	Recovery of Additional Costs. If the imposition of or any change in any law, rule, regulation, or guideline, or the interpretation or application of any thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify, or make applicable any taxes (except federal, state, or local income or franchise taxes imposed on the Bank), reserve requirements, capital adequacy requirements, or other obligations which would (A) increase the cost to the Bank for extending or maintaining the Credit Facilities, (B) reduce the amounts payable to the Bank under the Credit Facilities, or (C) reduce the rate of return on the Bank’s capital as a consequence of the Bank’s obligations with respect to the Credit Facilities, then the Borrower agrees to pay the Bank such additional amounts as will compensate the Bank therefor, within five (5) days after the Bank’s written demand for

8

	such payment. The Bank’s demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by the Borrower, which explanation and calculations shall be conclusive in the absence of manifest error.
8.13	Conflicting Terms. If this agreement is inconsistent with any provision in any agreement related to the Credit Facilities, the Bank shall determine, in the Bank’s sole and absolute discretion, which of the provisions shall control any such inconsistency.
8.14	Expenses. The Borrower agrees to pay or reimburse the Bank for all its out-of-pocket costs and expenses and reasonable attorneys’ fees (including the fees of in-house counsel) incurred in connection with the development, preparation and execution of, and in connection with the enforcement or preservation of any rights under, this agreement, any amendment, supplement, or modification thereto, and any other documents prepared in connection herewith or therewith. These costs and expenses include without limitation any costs or expenses incurred by the Bank in any bankruptcy, reorganization, insolvency or other similar proceeding.

9.

WAIVER OF SPECIAL DAMAGES. THE BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.

10.

JURY WAIVER. THE BORROWER AND THE BANK HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN THE BORROWER AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN.

Dated: September 17, 2003

Address(es) for Notices:		Borrower:
1001 North Central Avenue, Suite 800		Cavco Industries, Inc.
Phoenix, AZ 85004
Attn:	Sean K. Nolen	By:	/s/ Sean K. Nolen
			Sean K. Nolen	V.P., C.F.O., Treasurer
			Printed Name	Title
		Date:	September 17, 2003
Address for Notices:		Bank:
201 N. Central Ave, 21st Floor, AZ1-1178		Bank One, NA, with its main office in Chicago, IL
Phoenix, AZ 85004
Attn:	Sanat B. Patel	By:	/s/ Sanat B. Patel
			Sanat B. Patel	Vice President
			Printed Name	Title
		Date:	September 30, 2003

9

SCHEDULE I
LIENS

[TO BE PROVIDED BY BORROWER]

10

SCHEDULE II
LIENS

     (i)  pledges or deposits made to secure payment of worker’s compensation, or to participate in any fund in connection with worker’s compensation, unemployment insurance, pensions, or other social security programs;

     (ii)  good faith pledges or deposits made to secure performance of bids, tenders, insurance or other contracts (other than for the repayment of borrowed money), or leases, or to secure statutory obligations, surety or appeal bonds, or indemnity, performance, or other similar bonds, as all such liens arise in the ordinary course of business of the Borrower;

     (iii)  encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of real property, none of which impair in any material respect the use of such property by the Borrower in the operation of its business, and none of which is violated by existing or proposed structures or land use;

     (iv)  liens of landlords or of mortgagees of landlords, arising solely by operation of law, on fixtures and movable property located on premises leased in the ordinary course of business;

     (v)  the following, so long as the applicability, amount, or validity of which is being contested in good faith by appropriate proceedings diligently conducted, and against which reserves or other provisions required by generally accepted accounting principles have been made, levy and execution thereon have been stayed and continue to be stayed, and they do not in the aggregate materially detract from the value of the property of Borrower in question, or materially impair the use thereof in the operation of its business: (A) claims and liens for taxes; (B) claims and liens upon, and defects of title to, real or personal property, including any attachment of personal or real property or other legal process prior to adjudication of a dispute of the merits; and (C) claims and liens of mechanics, materialmen, warehousemen, carriers, landlords, or other like liens;

     (vi)  liens in assets or properties acquired with purchase money debt permitted under 5.2B above and securing only such purchase money debt;

     (vii)  liens on any property or asset of any corporation or other entity existing at the time such corporation or other entity becomes a subsidiary or is merged or consolidated with or into Borrower or a subsidiary or at the time such property or asset is acquired from such corporation or other entity, other than any lien placed on any property or asset of such corporation or other entity in contemplation of such acquisition, merger, or consolidation;

     (viii)  liens for current taxes not yet due; and

     (ix)  any renewals, extensions, or refinancings (but not increase in the principal amount thereof) of any of the foregoing liens.

11 EX-31.1 4 p68453exv31w1.htm EXHIBIT 31.1

Exhibit 31.1

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 registrant’s 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)) 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.	Evaluated the effectiveness of the registrant’s 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
c.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’ s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s 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 registrant’s internal control over financial reporting.

Dated: November 10, 2003

By:	/s/ Joseph H. Stegmayer
	Joseph H. Stegmayer
	Chief Executive Officer

EX-31.2 5 p68453exv31w2.htm EXHIBIT 31.2

Exhibit 31.2

Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Sean K. Nolen, 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 registrant’s 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)) 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.	Evaluated the effectiveness of the registrant’s 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
c.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’ s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s 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 registrant’s internal control over financial reporting

Dated: November 10, 2003

By:	/s/ Sean K. Nolen
	Sean K. Nolen
	Chief Financial Officer

EX-32.1 6 p68453exv32w1.htm EXHIBIT 32.1

Exhibit 32.1

Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     For the purpose of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Joseph H. Stegmayer, the Chief Executive Officer of Cavco Industries, Inc. (the “Company”), hereby certifies that, to his knowledge:

(i)	the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Dated:  November 10, 2003

By:	/s/  Joseph H. Stegmayer
	Joseph H. Stegmayer
	Chief Executive Officer

The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed as part of the Form 10-Q.

EX-32.2 7 p68453exv32w2.htm EXHIBIT 32.2

Exhibit 32.2

Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     For the purpose of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Sean K. Nolen, the Chief Financial Officer of Cavco Industries, Inc. (the “Company”), hereby certifies that, to his knowledge:

(i)	the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Dated: November 10, 2003

By:	/s/ Sean K. Nolen
	Sean K. Nolen
	Chief Financial Officer

The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed as part of the Form 10-Q.

End of Filing

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