We were formed in 1977 and are one of the leading manufacturers and marketers of factory-built homes in the United States. We market nationwide through vertically integrated operations, encompassing manufactured and modular housing, chattel and mortgage bank financing as well as insurance. At March 31, 2006, we operated 18 manufacturing facilities in nine states that sell homes in 32 states through 116 of our company-owned retail superstores and builder locations and approximately 350 independent retail dealers, builders and developers. Through our 80% owned subsidiary, CountryPlace Mortgage, Ltd., we offer chattel and non-conforming land/home loans to purchasers of manufactured homes. Through our investment as the sole limited partner in BSM Financial L.P., we offer conforming and non-conforming mortgages. The loans originated through CountryPlace are held for our own investment portfolio and ultimately securitized whereas the mortgages originated through BSM are immediately sold in traditional secondary markets. We provide property and casualty insurance for owners of manufactured homes through our subsidiary, Standard Casualty Company.
Beginning in 1999, the manufactured housing industry entered a cyclical downturn as the result of the tightening of credit standards, limited retail and wholesale financing availability, increased levels of repossessions, excessive retail inventory levels and manufacturing capacities. This is evidenced by a 58% decrease in industry-wide shipments of manufactured homes from calendar year 1999 to calendar year 2005. During this time, our manufactured housing shipments declined 49%.
With the manufactured housing industry not showing any signs of recovery, we decided to diversify our operations by entering the modular home business and acquired Nationwide Homes in June 2002. We have since added modular production to nine of our manufactured housing facilities. Industry-wide shipments of modular homes have increased 20% from calendar year 2002 to calendar year 2005. During this time, our modular home shipments increased 243%. Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” further explains the impacts of these conditions on our operating results.
In the second quarter of fiscal 2006, the Federal Emergency Management Agency (FEMA) contracted with various factory-built homebuilders to produce and deliver approximately 21,000 manufactured homes in connection with its Hurricane Katrina relief efforts. As a result of our contract with FEMA, we produced and delivered 583 homes totaling $15.9 million in net sales during fiscal 2006. Excluding the shipments to FEMA, manufactured housing industry shipments have been flat at a 44-year industry low for calendar years ended 2003, 2004 and 2005.
Factory-Built Operations
Our factory-built operations consist of the production and sale of manufactured homes and modular homes. Our manufactured homes are constructed in accordance with the Federal Manufactured Home Construction and Safety Standards (HUD regulations). Approximately 80% of the homes we produced in fiscal 2006, including 583 single-section homes sold to FEMA, were built to HUD regulations. The remaining 20% of homes we produced were modular homes, which are built in accordance with state or local building codes.
The following table sets forth the total factory-built homes sold as well as the number of manufacturing facilities we operated for the fiscal years indicated:
| Fiscal Year Ended | ||||||||||
| March 31, 2006 |
March 25, 2005 |
March 26, 2004 |
March 28, 2003 |
March 29, 2002 | ||||||
| Factory-built homes sold: |
||||||||||
| Single-section |
1,015 | 355 | 474 | 727 | 1,473 | |||||
| Multi-section |
6,282 | 6,211 | 6,780 | 7,280 | 8,465 | |||||
| Modular |
1,614 | 1,382 | 962 | 670 | — | |||||
| Total factory-built homes sold |
8,911 | 7,948 | 8,216 | 8,677 | 9,938 | |||||
| Operating manufacturing facilities (at end of fiscal year) |
18 | 18 | 19 | 19 | 15 | |||||
The principal materials used in the production of our factory-built homes include wood, wood products, gypsum wallboard, steel, fiberglass insulation, carpet, vinyl, fasteners, appliances, electrical items, windows and doors. We believe that the materials used in the production of our factory-built homes are readily available from a wide variety of suppliers and the loss of any single supplier would not have a material adverse effect on our business. The two suppliers which accounted for more than 5% of our total purchases during the fiscal year ended March 31, 2006 represented 11.4% and 5.8%, respectively, of our total purchases during the fiscal year ended March 31, 2006. Prices of certain materials such as lumber, gypsum, steel and insulation can fluctuate significantly due to changes in supply and demand. Although we and others in the industry typically have been able to pass higher material costs on to the consumer through price increases, such increases typically lag the escalation of material costs. No assurances can be made that we will be able to pass these costs on in future years.
We received the 2006 Manufactured Housing Institute’s (MHI) National Industry Award for “Manufacturer of the Year” in April 2006. MHI is the national trade organization representing all segments of the manufactured and modular housing industry, including manufacturers, retailers, community owners, suppliers, financial institutions, state associations and developers. All MHI members were eligible to vote in the selection process, making this award one of the most prestigious honors bestowed in the industry.
Manufactured Homes
We manufacture single and multi-section manufactured homes under various brand names including Palm Harbor ™ , Masterpiece ™ , Keystone ™ , CountryPlace, River Bend and Windsor Homes ™ . Approximately 86% of the manufactured homes we produced in fiscal 2006 were multi-section as compared to 94% in fiscal 2005. Excluding the 583 single-section homes we produced for FEMA, 94% of the homes we produced in fiscal 2006 were multi-section. We offer over 600 floor plans, ranging in size from approximately 800 to 3,200 square feet. Approximately 90% of the manufactured homes we produce are structurally or decoratively customized to the homebuyer’s specifications. Although we produce a wide price range of manufactured homes, the average retail sales price (excluding land) of our manufactured homes was approximately $74,000 during fiscal 2006.
Our homes are manufactured in indoor facilities, which have approximately 100,000 square feet of floor space and employ an average of 230 associates who generally work one shift per day, five days per week. Construction of our homes is performed in stages using an assembly-line process. Each section is permanently attached to a steel support chassis, various components such as floors, interior and exterior walls and a roof are added and function testing is performed. We currently manufacture a typical manufactured home in approximately five days. Our facilities have the capacity to produce an aggregate of approximately 100 sections per day. The current rate of production is 65 sections per day.
Our typical manufactured home contains two to five bedrooms, a living room, family room, dining room, kitchen, two or three bathrooms and features central air conditioning and heating, a range, refrigerator, carpeting and drapes. In addition, we offer optional amenities, including dishwashers, washers, dryers, furniture packages and specialty cabinets, as well as a wide range of colors, moldings and finishes. Optional features usually associated with site-built homes such as stone fireplaces, ceramic tile floors, showers and countertops, computer rooms, skylights, vaulted ceilings and whirlpool baths are also offered. We have a unique package of energy saving construction features referred to as “EnerGmiser ™ ” which includes, among other things, additional insulation to reduce heating and cooling costs, which exceeds statutorily-mandated energy efficiency levels. We were recognized as a leader in energy-efficient construction when we received the 2006 Gold EnergyValue Housing Award in the factory-built home/hot climate category by the National Association of Home Builders Research Center.
We are constantly introducing new floor plans, decors, exteriors, features and accessories to appeal to changing trends in different regions of the country. Our manufactured homes are designed and copyrighted after extensive field research and consumer feedback. We have developed engineering systems which, through the use of computer-aided technology, permit customization of homes and assist with product development and enhancement.
The completed manufactured homes are transported by independent trucking companies to either the retail sales center or to the customer’s site. The transportation cost is borne by the independent retailer. Retailers or other independent installers are responsible for placing the manufactured home on site, joining the interior and exterior seams, making utility hook-ups and, in certain instances, providing installation and finish-out services. The industry practice is to have third parties hired by the retailer provide the installation and finish-out services. Our associates, rather than third parties, perform the installation and finish out services on manufactured homes sold. We believe our finish-out services ensure that our quality procedures are applied during the entire process and increase customer satisfaction, thereby providing us a competitive advantage.
Our backlog of manufactured housing orders as of May 30, 2006 was approximately $23.2 million, as compared to approximately $37.0 million as of June 2, 2005. Since retailers may cancel orders prior to production without penalty, we do not consider our order backlog to be firm orders; however, such cancellations rarely occur. Because of the seasonality of the manufactured housing market, the level of backlog generally declines during the winter months.
Modular Homes
We manufacture modular homes through our wholly owned subsidiary, Nationwide Custom Homes, Inc. Nationwide operates two facilities in Martinsville, Virginia, one in Arabi, Georgia, and one in Siler City, North Carolina. In addition, nine of our manufactured housing facilities produce modular homes principally under the brand name Discovery Custom Homes. We produce a wide price range of modular homes with an average retail sales price (excluding land) of $149,000 during fiscal 2006.
Our modular homes include single story ranch homes, split-levels, cape cods and two and three story homes. Like a manufactured home, a typical modular home contains the standard rooms and features and offers optional amenities, decors, exteriors and floor plans.
Each modular home is assembled in sections. The process begins on a production line where a team of assemblers creates the floor and walls of the house. The section is then wheeled down a tracked path where various stages of finish are performed and components are added—from wiring and insulation early in the process to fixtures and floor coverings just prior to shipping. Modular homes are typically completed in one to two weeks.
The homes are shipped directly off the manufacturing line to the customer’s site. Once on site, the homes are typically crane set on the foundation, the roof is raised and the final seam of roof shingles along the ridges of the roofline is applied.
We have won various awards for our modular product during the past year including a design award from the National Modular Housing Council for “Best Modular Home (over 1,800 square feet)—Production Category” for our Cambria model and the Ohio Manufactured Housing Association Award for Outstanding Modular Manufacturer of the Year for enhancing the image of the manufactured and modular homes industry through outstanding customer service and business practices.
Our backlog of modular orders as of May 30, 2006, was approximately $54.9 million, as compared to approximately $47.1 million as of June 2, 2005.
Retail
Our homes are sold through a distribution network consisting of retail superstores we own and independent dealers, builders and developers. We had a shift in our distribution network from 71% to 60% to 50% of our homes being sold by our company-owned superstores and builder locations from fiscal 2004 to fiscal 2005 to fiscal 2006, respectively. Excluding the 583 homes sold to FEMA in fiscal 2006, 54% of our homes were sold by
our company-owned superstores and builder locations. As we have executed our planned strategy of increasing sales of our modular homes, the percentage of homes sold to independent dealers, builders and developers has increased. The following table sets forth the number of homes we sold through each of these distribution channels, as well as the number of company-owned retail superstores and independent dealers, builders and developers during the past three fiscal years:
| March 31, 2006 |
March 25, 2005 |
March 26, 2004 | ||||
| Factory-built homes sold by: |
||||||
| Company-owned superstores and builder locations |
4,471 | 4,762 | 5,846 | |||
| Independent dealers, builders and developers (1) |
4,440 | 3,186 | 2,370 | |||
| Total |
8,911 | 7,948 | 8,216 | |||
| Number of: |
||||||
| Company-owned superstores and builder locations |
116 | 121 | 149 | |||
| Independent dealers, builders and developers |
350 | 375 | 275 | |||
| Total |
466 | 496 | 424 | |||
We first established company-owned retail superstores in 1992 and currently have 112 superstores in 19 states. A typical retail superstore consists of a sales office, which is a manufactured home, and factory-built model homes of various sizes, floor plans, features and prices. Currently, 78 of our retail superstores have modular model homes on display and many of our retail superstores also sell used and repossessed homes. Customers may purchase one of the model homes or may order a home that will be built at one of our manufacturing facilities and customized to meet their needs.
Through Nationwide, we have four builder locations in Virginia and North Carolina. Our typical builder location consists of a modular model home which serves as a sales office.
Our independent retailer network principally consists of local dealers and builders that market land/home packages and developers of communities. No single independent retailer accounted for 5% or more of our net sales during fiscal 2006, 2005 or 2004.
Independent Builders and Developers
Approximately 53% of the modular homes we sold in fiscal 2006 were sold through Nationwide’s independent distribution network, which consists of approximately 135 local builders and developers with whom we have developed relationships through direct marketing, trade shows, the Internet and referrals. Nationwide transports the home to the builder’s/developer’s site and the builder/developer contracts crews to lift the home with a crane onto its foundation and subsequently perform the finish-out services. Modular homes typically require a larger amount of work to be done on-site to complete the production of the homes. Currently nine of our manufactured housing facilities also build modular homes and sell homes directly to builders and developers. Approximately 13% of the modular homes we sold in fiscal 2006 were sold from these nine facilities directly to builders and developers.
General Contractors
During fiscal 2005, we began to serve as a general contractor for both manufactured and modular homes with respect to virtually all aspects of the sale and construction process in certain regions of the country. This could include foundation work, driveways, landscape installations and other amenities the customer requests in addition to the home. We anticipate expanding this role to additional geographic regions in future periods. During fiscal year 2006, we completed 517 jobs for our company-owned superstores and builder locations and 352 for independent dealers, builders and developers.
Markets Served
During the fiscal year ended March 31, 2006, the percentage of our revenues by region was as follows:
| Region |
Primary States |
Percentage of Revenue by Region |
|||
| Southeast |
Florida, North Carolina, Alabama, Georgia, South Carolina, Mississippi, Tennessee, Virginia, West Virginia, Maryland, Connecticut, Delaware | 47.8 | % | ||
| Central |
Texas, Oklahoma, Arkansas, Louisiana | 22.5 | |||
| West |
New Mexico, Arizona, California, Colorado, Oregon, Washington, Montana, Nevada, Idaho | 27.6 | |||
| Midwest |
Ohio, Michigan, Indiana, Kentucky, Illinois, Pennsylvania, Missouri | 2.1 | |||
| 100 | % | ||||
The two states which accounted for greater than 10% of our revenues were Florida and Texas with 27.4% and 19.7%, respectively, of total revenues.
Factory-built housing, which consists of manufactured housing and modular housing, is a regional business and the primary geographic market is within a 250-mile radius for a manufactured housing facility and within a one to two day drive for a modular housing facility. Each of our manufactured housing facilities typically serves 25 to 100 retailers, and the facility sales staff maintains personal contact with each retailer, whether company-owned or independent. Our decentralized operations allow us to be more responsive in addressing regional customer preferences of product innovation and home design.
Consumer Financing
We maintain relationships with conventional lenders who provide two basic types of consumer financing in the factory-built housing industry: chattel or personal property loans for purchasers of a home with no real estate involved and land/home and mortgage loans which finance the land, home and all improvements on the property. There are two types of mortgage loans—conforming and non-conforming. Conforming loans conform to FHA, VA, Freddie Mac and Fannie Mae standards. Generally, the type of required foundations installed must conform to Federal requirements and the borrower must meet certain criteria. Non-conforming loans are financed by a major bank or lending institution which does not require a specific foundation type and have more flexible criteria. Beginning in fiscal 2000 and continuing through fiscal 2006, many consumer lenders have tightened credit-underwriting standards which has resulted in reduced lending volumes and lower sales volumes of manufactured homes.
Some of our customers obtain third-party construction financing, which allows for progress payments to be made to us at periodic intervals during the manufacturing, sale and closing process. This type of financing is primarily available to those customers obtaining land/home and mortgage loans, which finance the land, home and improvements of a piece of real property. Such third-party construction financing through our customers is generally more advantageous to us in that the cash is received earlier and can be used for various corporate purposes.
In addition, we provide financing to our customers on competitive terms through our 80% owned subsidiary, CountryPlace, and our investment as the sole limited partner in BSM. Through CountryPlace, we offer customary chattel loans and non-conforming land/home loans for manufactured homes. Through BSM, we offer conforming and non-conforming mortgage financing for both modular and manufactured homes. The loans originated through CountryPlace are held for our own investment portfolio and ultimately securitized whereas the mortgages originated through BSM are immediately sold in traditional secondary markets. We believe that providing these financing alternatives to our customers improves our responsiveness to the financing needs of prospective purchasers and provides us with an additional source of earnings.
Insurance
We offer property and casualty insurance as well as extended warranties for owners of manufactured homes through our subsidiary, Standard Casualty. During fiscal 2006, 58% and 90% of homeowners who purchased a home through our own retail superstores purchased property and casualty insurance and extended warranties, respectively. At the end of fiscal 2006, Standard Casualty had approximately 10,500 policies in force.
Wholesale Financing
In accordance with factory-built housing industry practice, substantially all retailers finance a portion of their purchases of manufactured homes through wholesale “floor plan” financing arrangements. Under a typical floor plan financing arrangement, a financial institution provides the retailer with a loan for the purchase price of the home and maintains a security interest in the home as collateral. The financial institution which provides financing to the retailer customarily requires us to enter into a separate repurchase agreement with the financial institution under which we are obligated, upon default by the retailer and under certain other circumstances, to repurchase the financed home at declining prices over the term of the repurchase agreement (which generally ranges from 12 to 18 months). The price at which we may be obligated to repurchase a home under these agreements is based upon our original invoice price plus certain administrative and shipping expenses. Our obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer.
The risk of loss under such repurchase agreements is mitigated by the fact that (i) approximately 50% of our homes are sold to independent dealers, builders and developers; (ii) a majority of the homes we sell to independent dealers, builders and developers are pre-sold to specific retail customers; (iii) we monitor each dealer’s, builder’s and retailer’s inventory position on a regular basis; (iv) sales of our manufactured homes are spread over a large number of dealers, builders and developers; (v) none of our independent dealers, builders and developers accounted for more than 5% of our net sales in fiscal 2006; (vi) the price we are obligated to pay declines over time and (vii) we are, in most cases, able to resell homes repurchased from credit sources in the ordinary course of business without incurring significant losses. We estimate that our potential obligations under such repurchase agreements were approximately $25.7 million as of March 31, 2006. During the fiscal years ended March 31, 2006, March 25, 2005 and March 26, 2004, we incurred losses under these repurchase agreements totaling $157,000, $65,000 and $6,000, respectively.
Beginning in fiscal 2000, lenient credit standards, which had facilitated increased industry-wide wholesale shipments in previous years, tightened, resulting in declining wholesale shipments, declining margins and lower retail sales levels for most industry participants through fiscal 2006. During this time, several major floor plan lenders have exited the wholesale financing business and a number of regional banks have either entered the retail financing business or increased their lending volumes.
Competition
The factory-built housing industry is highly competitive at both the manufacturing and retail levels, with competition based upon several factors, including price, product features, reputation for service and quality, depth of field inventory, promotion, merchandising and the terms of retail customer financing. In addition, manufactured and modular homes compete with new and existing site-built homes, as well as apartments, townhouses and condominiums. The efficiency of the assembly-line process, protection from the weather and nationwide purchasing power enable us to produce a home in approximately one to two weeks and typically at a lower cost than a conventional site-built home of similar quality. We do not view any of our competitors as being dominant in the industry, although some of our competitors possess substantially greater manufacturing, distribution and marketing resources than us.
Although many lenders to the factory-built housing industry have reduced their volume or gone out of business, there are still competitors to CountryPlace and BSM in the markets where we do business. These competitors include national, regional and local banks, independent finance companies, mortgage brokers and mortgage banks. None of these competitors is considered to be dominant or to have a material impact on the financing opportunities at CountryPlace or BSM.
Business Segment Information
We operate 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. See Note 15 of “Notes to Consolidated Financial Statements” in Item 8 of this report for information on our net sales, income (loss) from operations, identifiable assets, depreciation and amortization expense and capital expenditures by segment for fiscal 2006, 2005 and 2004.
Government Regulation
Our factory-built homes are subject to a number of federal, state and local laws, codes and regulations. Construction of our manufactured homes is governed by the National Manufactured Housing Construction and Safety Standards Act of 1974, as amended (the Home Construction Act). In 1976, the Department of Housing and Urban Development (HUD) issued regulations under the Home Construction Act establishing comprehensive national construction standards. The HUD regulations, known collectively as the Federal Manufactured Home Construction and Safety Standards, cover all aspects of manufactured home construction, including structural integrity, fire safety, wind loads, thermal protection and ventilation. Such regulations preempt conflicting state and local regulations on such matters, and are subject to continual change. Our manufacturing facilities and the plans and specifications of our manufactured homes have been approved by a HUD-certified inspection agency. Further, an independent HUD-certified third-party inspector regularly reviews our manufactured homes for compliance with the HUD regulations during construction. Failure to comply with applicable HUD regulations could expose us to a wide variety of sanctions, including mandated closings of our manufacturing facilities. We believe our manufactured homes meet or surpass all present HUD requirements. Our modular homes are subject to state and/or local codes with certification and regulation and we believe our modular homes meet all state and/or local codes.
Manufactured and site-built homes are all typically built with some products that contain formaldehyde resins. Since February 1985, HUD has regulated the allowable concentrations of formaldehyde in certain products used in manufactured homes and requires manufacturers to warn purchasers as to formaldehyde-associated risks. The Environmental Protection Agency and other governmental agencies have in the past evaluated the effects of formaldehyde. We use materials in our manufactured homes that meet HUD standards for formaldehyde emissions and believe we comply with HUD and other applicable government regulations in this regard.
The transportation of factory-built homes on highways is subject to regulation by various federal, state and local authorities. Such regulations may prescribe size and road use limitations and impose lower than normal speed limits and various other requirements.
Our manufactured homes are subject to local zoning and housing regulations. In certain cities and counties in areas where our homes are sold, local governmental ordinances and regulations have been enacted which restrict the placement of manufactured homes on privately-owned land or which require the placement of manufactured homes in manufactured home communities. Such ordinances and regulations may adversely affect our ability to sell homes for installation in communities where they are in effect. A number of states have adopted procedures governing the installation of manufactured homes. Utility connections are subject to state and local regulation and must be complied with by the retailer or other person installing the home. Our modular homes are also subject to local zoning regulations which govern the placement of homes.
Certain of our warranties may be subject to the Magnuson-Moss Warranty Federal Trade Commission Improvement Act, which regulates the descriptions of warranties on products. The description and substance of our warranties are also subject to a variety of state laws and regulations. A number of states require manufactured home producers to post bonds to ensure the satisfaction of consumer warranty claims.
A variety of laws affect the financing of the homes we manufacture. The Federal Consumer Credit Protection Act (Truth-in-Lending) and Regulation Z promulgated thereunder require written disclosure of
information relating to such financing, including the amount of the annual percentage rate and the finance charge. The Federal Fair Credit Reporting Act also requires certain disclosures to potential customers concerning credit information used as a basis to deny credit. The Federal Equal Credit Opportunity Act and Regulation B promulgated thereunder prohibit discrimination against any credit applicant based on certain specified grounds. The Real Estate Settlement Procedures Act and Regulation X promulgated thereunder require certain disclosures regarding the nature and costs of real estate settlements. The Federal Trade Commission has adopted or proposed various Trade Regulation Rules dealing with unfair credit and collection practices and the preservation of consumers’ claims and defenses. Installment sales contracts eligible for inclusion in a Government National Mortgage Association program are subject to the credit underwriting requirements of the Federal Housing Association. A variety of state laws also regulate the form of the installment sale contracts or financing documents and the allowable deposits, finance charge and fees chargeable pursuant to installment sale contracts or financing documents. Our sale of insurance products is subject to various state insurance laws and regulations which govern allowable charges and other insurance practices.
Our operations are also subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. Governmental authorities have the power to enforce compliance with their regulations, and violations may result in the payment of fines, the entry of injunctions or both. The requirements of such laws and enforcement policies have generally become more strict in recent years. Accordingly, we are unable to predict the ultimate cost of compliance with environmental laws and enforcement policies. See “Item 3. Legal Proceedings.”
Palm Harbor’s insurance operations are regulated by the state insurance boards where they underwrite their policies. Underwriting, premiums, investments and capital reserves are subject to the rules and regulations of these state agencies.
Seasonality
Our business is seasonal. Generally we experience higher sales volume during the months of March through October. Our sales are slower during the winter months and shipments can be delayed in areas of the country that experience harsh weather conditions.
Associates
As of March 31, 2006, we had approximately 5,000 associates. All of our associates are non-union. We have not experienced any labor-related work stoppages and believe that our relationship with our associates is good.
Website Access to Company Reports and Other Documents
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on our website at www.palmharbor.com as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Those reports are also available at the SEC’s website, www.sec.gov . You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of our annual report will be made available, free of charge, upon written request to our corporate secretary at our principal executive office.
We have adopted a code of conduct. A copy of our code of conduct is available at our website, www.palmharbor.com.
Item 1A. Risk Factors
Certain statements contained in this annual report are forward-looking statements within the safe harbor provisions of the Securities Litigation Reform Act. Forward-looking statements give our current expectations or
forecasts of future events and can be identified by the fact that they do not relate strictly to historical or current facts. Investors should be aware that all forward-looking statements are subject to risks and uncertainties and, as a result of certain factors, actual results could differ materially from these expressed in or implied by such statements. These risks include such assumptions, risks, uncertainties and factors associated with the following:
Financing for our retail customers may be limited, which could affect our sales volume.
Our retail customers generally secure financing from third party lenders, which have been negatively affected by adverse loan experience. Several major lenders, which had previously provided financing for our customers, have withdrawn from the manufactured housing finance business. Reduced availability of such financing is currently having an adverse effect on the manufactured housing business and our home sales. Availability of financing is dependent on the lending practices of financial institutions, financial markets, governmental policies and economic conditions, all of which are largely beyond our control. Quasi-governmental agencies such as Fannie Mae and Freddie Mac, which are important purchasers of loans from financial institutions, have tightened standards relating to the manufactured housing loans that they will buy. Most states classify manufactured homes as personal property rather than real property for purposes of taxation and lien perfection, and interest rates for manufactured homes are generally higher and the terms of the loans shorter than for site-built homes. Financing for the purchase of manufactured homes is often more difficult to obtain than conventional home mortgages. There can be no assurance that af
