| FLEETWOOD ENTERPRISES INC/DE/ Item 1A Risk Factors Investors or potential investors in Fleetwood should carefully consider the risks described below |
| Additional risks of which we are presently unaware or that we currently consider immaterial may also impair our business operations and hinder our financial performance |
| We have had significant losses in the last six fiscal years and it is possible that we may not be able to regain profitability in the foreseeable future |
| This could cause us to limit future capital expenditures and also increase the difficulty of implementing our business and finance strategies or meeting our obligations when due |
| Continued losses may reduce our liquidity and may cause us to reduce our expenditures on capital improvements, machinery and equipment, and research and development |
| This could have a negative effect on our ability to maintain production schedules, manufacture products of high quality, and develop and manufacture new products that will achieve market acceptance |
| If we continue to suffer losses, we could be unable to implement our business and financial strategies or meet our obligations when due |
| Our losses in recent fiscal years were caused mostly by the following conditions: · reduced demand in the manufactured housing and, during certain periods, recreational vehicle industries; · low utilization of capacity, particularly in our manufactured housing and towable plants; · certain wholesale and retail lenders abandoning the manufactured housing market; · restrictive lending standards in the manufactured housing market by the remaining retail lenders; · relatively high interest rates for manufactured homes as opposed to site-built homes; · competition with resellers of repossessed manufactured homes; · variable economic conditions, stock market declines, and diminished consumer confidence; · caution in potential motor home buyers, particularly first-time buyers, caused by high and volatile fuel prices; · untimely entry into the manfactured housing retail business in the late 1990s; · excess retail inventories in manufactured housing in the early part of the decade; · overproduction of RVs during fiscal 2005, leading to excess finished goods inventories and increased retail inventories in our distribution network; · unforeseen manufacturing complexities resulting from the introduction of new products, primarily in the travel trailer segment; and · lack of market acceptance of certain new products |
| We cannot provide assurance that the conditions that have resulted in our substantial losses since fiscal year 2001 will not continue in fiscal 2007 and beyond |
| In addition to the foregoing conditions, actions we took in response to the circumstances that contributed significantly to the losses included: · downsizing initiatives within all our businesses, including asset impairment charges, the writedown of idle manufacturing facilities, employee severance payments and plant closing costs; and · impairment and other charges in fiscal 2005 and 2006 related reorganization and to the retail and financial services businesses, which were sold during fiscal 2006 and are presented as discontinued operations in the financial statements |
| 14 ______________________________________________________________________ We may be unable to comply in the future with financial covenants contained in our senior secured credit facility, which could result in a default under our debt obligations, and our lenders could accelerate our debt or take other actions which could restrict our ability to operate |
| In May 2004, we announced the early renewal and extension of our secured credit facility with Bank of America |
| If our liquidity and our operating results deteriorate significantly due to business or economic conditions, we may breach covenants under the amended and restated facility, resulting in a default |
| We were required to amend the facility in March 2005 and reset a financial covenant in order to avoid a covenant breach |
| Under the senior secured facility agreement, as amended, we are not subject to a financial performance covenant except in the event that our average monthly liquidity, defined as cash, cash equivalents and unused borrowing capacity, falls below dlra90 million on a consolidated basis or dlra60 million within the borrowing subsidiaries |
| Under these circumstances, we are required to meet a designated cumulative EBITDA requirement |
| A breach of the covenant could result in a default under this facility, as well as a cross-default in our 5prca convertible senior subordinated debentures and our capital lease obligations |
| In the event of a future default under our debt obligations, we cannot be certain that our lenders will agree to forebear from enforcing any remedies otherwise available to them or that they will grant us any further waivers or amend our covenants |
| Our credit facility ranks senior to the convertible senior subordinated debentures and the 6prca convertible subordinated debentures |
| Our credit facility is secured by substantially all of our assets, excluding the cash value of our Company-owned life insurance and certain fixed assets, including some of our real property |
| Upon the occurrence of an event of default, our lenders could elect to declare all amounts outstanding under the facility, together with accrued interest, to be immediately due and payable |
| A default under our senior secured facility could also cause a default under our 5prca convertible senior subordinated debentures |
| If we were unable to repay all outstanding balances, the lenders could proceed against our assets, and any proceeds realized upon the sale of assets would be used first to satisfy all amounts outstanding under our senior debt and, thereafter, any of our other liabilities, including liabilities relating to our convertible securities |
| Lender actions in the event of default might: · restrict our investment in working capital and capital expenditures; · limit our ability to react to changes in market conditions due to a lack of resources to develop new products; · hamper the marketing of our products due to a lack of funds to support advertising expenditures; · increase our risk of not surviving an extended downturn in our businesses compared to other competitors whose capital structures are less highly leveraged; · restrict our ability to merge, acquire or sell properties; and · cause us to seek protection from our creditors through bankruptcy proceedings or otherwise |
| We may not be able to obtain corporate financing in the future, and the terms of any future financings may limit our ability to manage our business |
| Difficulties in obtaining financing on favorable terms would have a negative effect on our ability to execute our business strategy |
| In addition to capital available under the senior secured credit facility, we anticipate that we may be required to seek additional capital in the future, including financing necessary to refinance or replace existing long-term debt or to fund capital expenditures |
| There can be no assurance that we will be able to obtain future financings, if needed, on acceptable terms, if at all |
| 15 ______________________________________________________________________ On July 20, 2005, Standard & Poor’s announced that it had lowered the Company’s corporate credit rating from BB- to B+, with a negative outlook |
| At the same time, it lowered its rating on the Company’s convertible senior subordinated debentures from B to B- |
| Standard & Poor’s rating for the outstanding issue of convertible trust preferred securities remains D despite the payment on February 15, 2006, of the accrued distributions on that security that had been previously deferred, as permitted by its terms |
| In lowering the ratings, Standard & Poor’s cited the Company’s losses from continuing operations in fiscal 2005, but also noted that the expected sale of the assets of Fleetwood’s retail business will eliminate the operating losses from that operation while creating some additional near-term liquidity |
| Standard & Poor’s said the move should also enable the newly configured management team to channel resources into quickly stemming the losses within the Company’s historically strong RV Group, although it indicated that the ratings remain highly vulnerable to further downgrade should these efforts prove more time consuming or costly than expected |
| If we are unable to obtain alternative or additional financing arrangements in the future, or if we cannot obtain financing on acceptable terms, we may not be able to execute our business strategies |
| Moreover, the terms of any such additional financing may restrict our financial flexibility, including the debt we may incur in the future, or may restrict our ability to manage our business as we had intended |
| The market price of our common stock has been volatile, and may decline again in the future |
| The market price of our common stock has fluctuated significantly in recent years and generally declined, from a closing price of dlra45dtta04 per share on March 6, 1998, to a low of dlra2dtta57 per share on August 9, 2002 |
| The market price of our common stock may continue to fluctuate as a result of a number of factors |
| Factors that could cause fluctuations in the market price of our common stock include: · actual and anticipated variations in our operating results; · general economic and financial market conditions; · actual and anticipated volatility in the price and availability of fuel; · interest rates; · general conditions, including changes in demand and inventory levels, in the manufactured housing and recreational vehicle industries; · future issuances of our common stock, including issuances of common stock in connection with financing activities, conversion of the convertible trust preferred securities or the existing convertible senior subordinated debentures, or upon exercise of stock options, any of which could have a dilutive effect on our earnings per share and otherwise cause the market price of our common stock to decline; · perceptions of the strengths and weaknesses of the manufactured housing and recreational vehicle industries; · our ability to pay principal and interest on our debt when due; · developments in our relationships with our lenders, customers, and/or suppliers; · announcements of alliances, mergers or other relationships by or among our competitors and/or our suppliers and customers; · announcements and introduction of new products and models by us or our competitors and the success or failure of these new products and models; · developments related to regulations, including zoning regulations; 16 ______________________________________________________________________ · further downgrades of our corporate credit ratings of our senior implied debt or of specific securities; and · changes in senior management |
| In addition, the stock market in general has experienced price and volume fluctuations that have affected the stock prices of companies in the manufactured housing and recreational vehicle industries and that may be unrelated to the operating performance of the companies within these industries |
| These broad market fluctuations may also adversely affect the market price of our common stock |
| Ongoing weakness in the manufactured housing market and more recent weakness in the motor home market |
| The manufactured housing industry has been in a prolonged slump that was initiated by undisciplined lending practices in the late 1990s |
| Although in recent years the industry has stabilized as default rates have fallen and inventories of repossessed homes have returned to more acceptable levels, there can be no assurance that the demand for manufactured housing will recover to what historically was considered more normal levels |
| More recently the motor home market has weakened in concert with lower consumer confidence, volatile fuel prices and rising interest rates |
| Ongoing weakness could limit growth opportunities and have a negative effect on future sales and profitability |
| Global tensions and fuel shortages, higher prices for fuel or rising interest rates could have a negative impact on consumer confidence and could have a resulting negative effect on sales of recreational vehicles |
| Gasoline or diesel fuel is required for the operation of motor homes and vehicles used to tow travel trailers and folding trailers |
| Particularly in view of increased international tensions and increased global demand for oil, there can be no assurance that the supply of these petroleum products will continue uninterrupted, that rationing will not be imposed, or that the price of or tax on these petroleum products will not significantly increase in the future |
| Increases in gasoline prices and speculation about potential fuel shortages, combined with rising interest rates, have had an unfavorable effect on consumer confidence in the past, including the recent past |
| As a result, these forces have caused a decline in demand for recreational vehicles from time to time, which then had a material adverse effect on our sales volume |
| Increases in the price of oil also can result in significant increases in the price of many of the components in our products, which may have a negative impact on margins or sales volumes |
| Availability and cost of financing for our retailers or retail customers, particularly in our manufactured housing business, could continue to affect our sales volume |
| Our dealers, as well as retail buyers of our products, generally secure financing from third party lenders, which, in the case of manufactured housing, have been negatively affected by adverse loan experience |
| For example, Conseco, Associates, Chase and GreenPoint, which had been very important lenders for customers of our dealers in the 1990s, have withdrawn from the manufactured housing finance business |
| Reduced availability of such financing and higher interest rates have had, and continue to have, an adverse effect on the manufactured housing business and our housing sales |
| If third party financing were to become unavailable or were to be further restricted, this could have a material adverse effect on our results of operations |
| 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 |
| For example, floorplan lenders have tightened credit availability, Conseco and Deutsche have exited that business in the manufactured housing industry and Transamerica and Bombardier’s manufactured housing wholesale finance businesses have been acquired by General Electric Corp |
| In addition, 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 17 ______________________________________________________________________ property rather than real property for purposes of taxation and lien perfection |
| Interest rates for manufactured homes are generally higher and the terms of the loans shorter than for site-built homes |
| In the current environment, financing for the purchase of manufactured homes is often more difficult to obtain than conventional home mortgages |
| There can be no assurance that affordable wholesale or retail financing for either manufactured homes or recreational vehicles will be available on a widespread basis in the future |
| In accordance with customary practice in the manufactured housing and recreational vehicle industries, we enter into repurchase agreements with various financial institutions pursuant to which we agree, in the event of a default by an independent retailer in its obligation to these credit sources, to repurchase product at declining prices over the term of the agreements, typically 12, 18 or 24 months |
| The difference between the gross repurchase price and the price at which the repurchased product can then be resold, which is typically at a discount to the original sale price, represents a financial expense to us |
| Thus, if we were obligated to repurchase a large number of manufactured homes or recreational vehicles in the future, this would increase our costs, which could have a negative effect on our earnings |
| Tightened credit standards by lenders and more aggressive attempts to accelerate collection of outstanding accounts with dealers could result in defaults by dealers and consequent repurchase obligations on our part that may be higher than has historically been the case |
| During fiscal 2006, we repurchased 35 manufactured homes and 31 recreational vehicles at an aggregate gross purchase price of dlra2dtta1 million, incurring a loss upon resale of approximately dlra428cmam000, compared to repurchases during fiscal 2005 of 85 manufactured homes and 89 recreational vehicles at an aggregate purchase price of dlra6dtta3 million, and a loss upon resale of approximately dlra1dtta2 million |
| Our businesses are both cyclical and seasonal and this can lead to fluctuations in our operating results |
| The industries in which we operate are highly cyclical, as well as seasonal, and there can be substantial fluctuations in our manufacturing shipments, retail sales and operating results, and the results for any prior period may not be indicative of results for any future period |
| Companies within both the manufactured housing and recreational vehicle industries are subject to volatility in operating results due to external factors such as economic, demographic and political changes |
| Factors affecting the manufactured housing industry include: · interest rates and the availability of financing for manufactured homes; · apartment vacancies and rents; · interest rates and terms of financing for site-built homes; · defaults by retail customers resulting in repossessions; · general economic conditions; · inventory levels; · availability of manufactured home sites; · commodity availability and prices; · unemployment trends; · international tensions and hostilities; and · consumer confidence |
| Factors affecting the recreational vehicle industry include: · overall consumer confidence and the level of discretionary consumer spending; 18 ______________________________________________________________________ · fuel availability and prices; · general economic conditions; · interest rates; · international tensions and hostilities; · inventory levels; · unemployment trends; and · commodity availability and prices |
| We cannot provide assurance that the factors that are currently adversely affecting our business will not continue to have an adverse effect in the future |
| We have also experienced, and expect to continue to experience, significant variability in sales, production and net income as a result of seasonality in our businesses |
| Demand for manufactured housing and, particularly, recreational vehicles, generally declines during the winter season, while sales and profits in both industries are generally highest during the spring and summer months |
| In addition, unusually severe weather conditions in some markets may delay the timing of purchases and shipments from one quarter to another |
| If there is a rise in the frequency and size of product liability and other claims against us, including wrongful death, our business, results of operations and financial condition may be harmed |
| We are frequently subject, in the ordinary course of business, to litigation involving products liability and other claims, including wrongful death, against us related to personal injury and warranties |
| We partially self-insure our products liability claims and purchase excess products liability insurance in the commercial insurance market |
| We cannot be certain that our insurance coverage will be sufficient to cover all future claims against us |
| Any increase in the frequency and size of these claims, as compared to our experience in prior years, may cause the premiums that we are required to pay for insurance to rise significantly |
| It may also increase the amounts we pay in punitive damages, which may not be covered by our insurance |
| We are also presently party to actions in litigation that the plaintiffs are seeking to have certified as class actions |
| If any of these actions is decided in a manner adverse to us, the resulting liability may be significant |
| These factors may have a material adverse effect on our results of operations and financial condition |
| In addition, if these claims rise to a level of frequency or size that is significantly higher than similar claims made against our competitors, our reputation and business will be harmed |
| When we introduce new products we may incur expenses that we did not anticipate, such as recall expenses, resulting in reduced earnings |
| The introduction of new models is critical to our future success, particularly in our recreational vehicle business |
| We have additional costs when we introduce new models, such as initial labor or purchasing inefficiencies, but we may also incur unexpected expenses |
| For example, we may experience unexpected engineering or design flaws that will force a recall of a new product |
| In addition, we may make business decisions that include offering incentives to stimulate the sales of products not adequately accepted by the market, or to stimulate sales of older or obsolete models |
| The costs resulting from these types of problems could be substantial and have a significant adverse effect on our earnings |
| Excess inventories of our products among retailers and housing repossessions may have a negative effect on our sales volume and profit margins |
| The level of manufactured housing and recreational vehicle retail inventories and the existence of repossessed homes in the market can have a significant impact on manufacturing shipments and operating results, as evidenced in the manufactured housing industry during the past five years |
| The continuing 19 ______________________________________________________________________ deterioration in the availability of retail financing and competition from repossessed homes has extended the inventory adjustment period beyond what was originally expected |
| More liberal lending standards in the past resulted in loans to less-creditworthy customers, many of whom have defaulted on these loans |
| Lenders have repossessed the customers’ homes and resold them at prices significantly below the retail price of a new home, thereby increasing competition for manufacturers of new homes |
| This situation was exacerbated by the bankruptcy filings of Oakwood Homes and Conseco in 2003, which led both companies to sell large numbers of repossessed homes for cash at distressed prices at auctions or at wholesale, rather than to attempt to refinance the defaulted loans |
| These circumstances led to an increase in recent years in the number of available repossessed homes and to a further deterioration in the price of these homes |
| These factors appear to have stabilized; however, if they were to deteriorate once more, or if retail demand were to significantly weaken, the resulting inventory overhang could result in price competition and further pressure on profit margins within the industry and could have an adverse impact on our operating results |
| We may not be able to obtain financing in the future, and the terms of any future financings may limit our ability to manage our business |
| Difficulties in obtaining financing on favorable terms would have a negative effect on our ability to execute our business strategy |
| The recreational vehicle and manufactured housing industries are highly competitive and some of our competitors have stronger balance sheets and cash flows, as well as greater access to capital, than we do |
| The relative strength of our competitors could result in decreased sales volume and earnings for us, which could have a material adverse effect on our results of operations and financial condition |
| The manufactured housing industry is highly competitive |
| As of December 31, 2005, there were approximately 67 manufacturers of homes and fewer than 5cmam000 active retailers |
| Based on retail sales, the 10 largest manufacturers accounted for approximately 78 percent of the retail manufactured housing market in calendar 2005, including our sales, which represented 18dtta7 percent of the market |
| Competition with other housing manufacturers is based primarily on price, product features, reputation for service and quality, retail inventory, merchandising, and the terms and availability of wholesale and retail customer financing |
| Growth in manufacturing capacity during the 1990s increased competition at both the manufacturing and retail levels and resulted in both regional and national competitors increasing their presence in the markets in which we compete |
| Though manufacturing capacity has been curtailed since the late 1990s, overproduction of manufactured housing in these regions could lead to greater competition and result in decreased margins, which could have a material adverse effect on our results of operations |
| In addition, manufactured homes compete with new and existing site-built homes, apartments, townhouses and condominiums |
| The supply of such housing has increased in recent years with the still ample availability of construction financing and relatively attractive mortgage financing, reducing the demand for manufactured homes |
| Manufactured homes also compete with resales of homes that have been repossessed by financial institutions as a result of credit defaults by dealers or customers |
| Repossession rates for manufactured homes hit historic highs several years ago and although they have declined more recently, there can be no assurance that repossession rates will not rise again, thereby adversely affecting our sales volume and profit margins |
| The manufactured housing industry, as well as the site-built housing development industry, has experienced consolidation in recent years, which could result in the emergence of competitors, including developers of site-built homes that are larger than we are and have greater financial resources than we have |
| For example, the large conglomerate Berkshire Hathaway has acquired two of our major competitors, Clayton Homes and Oakwood Homes |
| This combination could ultimately strengthen competition in the industry and adversely affect our business |
| 20 ______________________________________________________________________ The recreational vehicle market is also highly competitive and it too has experienced some industry consolidation |
| Sales from the five largest manufacturers represented approximately 66 percent of the retail market in calendar 2005, including our sales, which represented 12dtta5 percent of the market |
| Competitive pressures, especially in the entry-level segment of the market for travel trailers, have resulted in a reduction of profit margins |
| Sustained increases in competitive pressures could have a material adverse effect on our results of operations |
| There can be no assurance that existing or new competitors will not develop products that are superior to our recreational vehicles or that achieve better consumer acceptance, thereby adversely affecting our sales volume and profit margins |
| Changes in consumer preferences for our products or our failure to gauge those preferences could lead to reduced sales and additional costs |
| We believe that historical consumer preferences for our products in general, and recreational vehicles in particular, are likely to change over time |
| We further believe that the introduction of new features, designs and models will be critical to the future success of our recreational vehicle operations |
| Delays in the introduction of new models or product features, or a lack of market acceptance of new features, designs or models, could have a material adverse effect on our business |
| For example, we may incur significant additional costs in designing or redesigning models that are not accepted in the marketplace |
| Products may not be accepted for a number of reasons, including changes in consumer preferences or our failure to properly gauge consumer preferences |
| We may also experience production difficulties, such as inefficiencies in purchasing and increased labor costs, as we introduce new models |
| We cannot be certain that new product introductions will not infringe on revenues from existing models and adversely affect our results of operations |
| There can be no assurance that any of these new models or products will be introduced to the market on time or that they will be successful when introduced |
| We established a network of Company-owned retail stores that required significant restructuring and downsizing, but our efforts did not succeed in making it profitable |
| Our sale of the business in fiscal 2006 resulted in significant losses and restructuring charges, and fewer retail outlets |
| We have not yet fully replaced the distribution network |
| We responded to the retail consolidation in the manufactured housing sector, beginning in fiscal 1998, by forming our own retail business and establishing a network of Company-owned stores to replace distribution points lost to competitors |
| We made numerous acquisitions between June 1998 and August 2001 |
| We also originated more than 100 locations |
| The combination of the two strategies carried us to a high of 244 stores in November 2000 |
| Since its inception, this business segment operated at a loss, and as the retail market for manufactured housing slowed, the losses grew |
| Although we had reduced the number of stores that we operated to 135 at the time we sold a substantial part of the business, the stores still purchased 16 percent of our wholesale output |
| While 85 of these stores are still in operation as independent Fleetwood outlets, we have experienced a loss in sales |
| Despite our efforts to replace or augment certain of these distribution points, there is no assurance that we can successfully do so |
| The market for our manufactured homes is heavily concentrated in the southern part of the United States, and a continued decline in demand in that area could have a material negative effect on sales |
| The market for our manufactured homes is geographically concentrated, with the top 15 states accounting for over 65 percent of the industry’s total retail sales in calendar 2005 |
| The southern and south central United States accounts for a significant portion of our manufactured housing sales |
| A downturn in economic conditions in these regions that is worse than that of other regions could have a disproportionately material adverse effect on our results of operations |
| We have experienced a decline in the demand for manufactured homes in recent years in the southern and south central United States, and there can be no assurance that the demand for manufactured homes will not continue to decline in those 21 ______________________________________________________________________ regions or other areas in which we experience high product sales and any such decline could have a material adverse effect on our results of operations |
| Increased costs, including costs of component parts and labor, potentially impacted by changes in labor rates and practices, could reduce our operating income |
| Our results of operations may be significantly affected by the availability and pricing of manufacturing components and labor, as well as changes in labor practices |
| Although we attempt to mitigate the effect of any cost escalation in components and labor costs by negotiating with current or new suppliers and by increasing productivity or, where necessary, by increasing the sales prices of our products, we cannot be certain that we will be able to do so without it having an adverse impact on the competitiveness of our products and, therefore, our sales volume |
| Changes in labor rates and practices, including changes resulting from union activity, could significantly affect our costs and thereby reduce our operating income |
| If we cannot successfully offset increases in our manufacturing costs, this could have a material adverse impact on our margins, operating income and cash flows |
| Even if we were able to offset higher manufacturing costs by increasing the sales prices of our products, the realization of any such increases often lags behind the rise in manufacturing costs, especially in our manufactured housing operations, due in part to our commitment to give our retailers price protection with respect to previously placed customer orders |
| We depend on a small group of suppliers for some of our components, and the loss of any of these suppliers could affect our ability to obtain components at competitive prices, which would decrease our sales or margins |
| Most recreational vehicle and manufactured home commodity components are readily available from a variety of sources |
| However, a few proprietary or specialty components are produced by a small group of quality suppliers that have the capacity to support our requirements on a national basis |
| Primarily, this situation occurs in the case of motor home chassis, where Spartan and Freightliner supply diesel-powered chassis, and Workhorse Custom Chassis and Ford Motor Company are the dominant suppliers of Class A gas chassis, and Ford Motor Company is the dominant supplier of Class C chassis |
| Shortages, production delays or work stoppages by the employees of such suppliers could have a material adverse effect on our sales |
| If we cannot obtain an adequate chassis supply, this could result in a decrease in our sales and earnings |
| Changes in zoning regulations could affect the number of sites available for our manufactured homes, and zoning regulations could affect the market for our new products, both of which could affect our sales |
| Any limitation on the growth of the number of sites available for manufactured homes, or on the operation of manufactured housing communities, could adversely affect our sales |
| In addition, new product opportunities that we may wish to pursue for our manufactured housing business could cause us to encounter new zoning regulations and affect the potential market for these new products |
| Manufactured housing communities and individual home placements are subject to local zoning ordinances and other local regulations relating to utility service and construction of roadways |
| In the past, there has been resistance by property owners to the adoption of zoning ordinances permitting the location of manufactured homes in residential areas, and we believe that this resistance has adversely affected the growth of the industry |
| The inability of the manufactured home industry to effect change in these zoning ordinances could have a material adverse effect on our results of operations and we cannot be certain that manufactured homes will receive more widespread acceptance or that additional localities will adopt zoning ordinances permitting the location of manufactured homes |
| Amendments of the regulations governing our businesses could have a material impact on our operations |
| Both our recreational vehicle and manufactured housing businesses are subject to extensive Federal and state regulations, including construction and safety standards for manufactured homes and safety and 22 ______________________________________________________________________ consumer protection laws relating to recreational vehicles |
| Amendments to any of these regulations and the implementation of new regulations could significantly increase the costs of manufacturing, purchasing, operating or selling our products and could have a material adverse effect on our results of operations |
| Our failure to comply with present or future regulations could result in fines, potential civil and criminal liability, suspension of sales or production, or cessation of operations |
| In addition, a major product recall could have a material adverse effect on our results of operations |
| Certain US tax laws currently afford favorable tax treatment for the purchase and sale of recreational vehicles that are used as the equivalent of second homes |
| These laws and regulations have historically been amended frequently, and it is likely that further amendments and additional regulations will be applicable to us and our products in the future |
| Amendments to these and other tax laws and regulations and the implementation of new regulations, including, for instance, changes that affect our ability to utilize our net operating losses, could have a material adverse effect on our results of operations |
| Our operations are subject to a variety of Federal and state environmental regulations relating to noise pollution and the use, generation, storage, treatment, emission and disposal of hazardous materials and wastes |
| Although we believe that we are currently in material compliance with applicable environmental regulations, our failure to comply with present or future regulations could result in fines, potential civil and criminal liability, suspension of production or operations, alterations to the manufacturing process, costly cleanup or capital expenditures |
| Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have an adverse effect on our business and stock price |
| Section 404 of the Sarbanes-Oxley Act requires us to evaluate annually the effectiveness of our internal controls over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal controls over financial reporting in our annual report |
| Section 404 also requires our independent registered public accounting firm to attest to, and report on, management’s assessment of our internal controls over financial reporting |
| If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we cannot assure you that we will be able to conclude in the future that we have effective internal controls over financial reporting in accordance with Section 404 |
| We do not currently pay dividends on our common stock, and under the terms of the documents governing the Convertible Trust Preferred Securities, we have the right to defer payment of distributions on those securities |
| On October 31, 2001, we announced that we would discontinue the payment of dividends on our common stock after the previously declared dividend payment on November 14, 2001 |
| On October 31, 2001, we also elected to defer distributions due to be made on November 15, 2001, on the 6prca convertible trust preferred securities and we had subsequently elected to defer all succeeding quarterly distributions through November 15, 2005 |
| We recommenced dividend payments on the trust preferred securities on February 16, 2006, but under the terms of these securities, we have the option to again defer payment of the distributions for a period of up to 20 consecutive quarters |
| The deferral of distributions on the 6prca convertible trust preferred securities would prevent us from declaring or paying any dividends on our common stock during the period of such deferrals |
| Although distributions on our 6prca convertible trust preferred securities have resumed, any future resumption of payment of dividends on our common stock would be at the discretion of our Board of Directors and is not currently contemplated |