Manufacturing Operations. Our homes are constructed in plant facilities using
an assembly-line process employing from 50 to 250 employees at each facility.
Most of our homes are constructed in one or more sections (also known as floors
or modules) on a permanently affixed steel or wood support chassis. Each section
is assembled in stages beginning with the construction of the chassis, followed
by the addition of other constructed and purchased components and ending with
a final quality control inspection. The efficiency of the assembly-line process
and the benefits of constructing homes in a controlled factory environment enables
us to produce quality homes in less time and at a lower cost per square foot
than building homes on individual sites.
We operate 19 manufacturing facilities in Millersburg and Woodburn, Oregon;
Nampa, Idaho; Riverside, California; Phoenix and Goodyear, Arizona; Austin,
Fort Worth, Seguin and Waco, Texas; Montevideo, Minnesota; Nappanee, Indiana;
Lafayette, Tennessee; Martinsville and Rocky Mount, Virginia; Douglas, Georgia;
and Ocala and Plant City, Florida. These manufacturing facilities range from
approximately 41,000 to 341,000 square feet of floor space. The production schedules
for our manufacturing facilities are based on wholesale orders received from
independent and Company-owned distributors, which fluctuate from week to week.
In general, however, our facilities are structured to operate on a one shift
per day, five days per week basis, and we currently manufacture a typical home
in approximately six production days.
Manufactured housing is a regional business and the primary geographic market
for a typical manufacturing facility is within a 350-mile radius. Each of our
manufacturing facilities serves between 10 to 93 retailers along with a large
number of one-time purchasers. Because we produce homes to fill existing wholesale
orders, our manufacturing plants generally do not carry finished goods inventories,
except for homes awaiting delivery.
The principal materials used in the production of our manufactured homes include
wood, wood products, steel, aluminum, gypsum wallboard, windows, doors, fiberglass
insulation, carpet, vinyl, fasteners, plumbing materials, appliances and electrical
items. We buy these materials from various third-party manufacturers and distributors.
The inability to obtain any materials used in the production of our homes, whether
resulting from material shortages, limitation of supplier facilities or other
events affecting production of component parts, may affect our ability to meet
or maintain production requirements.
Finance. We provide a source of home buyer financing to our customers on competitive
terms through our subsidiary, CountryPlace. CountryPlace offers conforming mortgages
to purchasers of numerous brands of factory-built homes sold by Company-owned
retail sales centers and certain independent retailers, builders, communities
and developers. CountryPlace is an approved seller/servicer with Fannie Mae,
is approved by HUD to originate FHA-insured mortgages under its Direct Endorsement
program, and is approved to issue Ginnie Mae mortgage-backed securities. Most
loans originated through CountryPlace are sold to investors. CountryPlace also
provides various loan origination and servicing functions for non-affiliated
entities under contract.
All of CountryPlace’s loan contracts held are fixed rate and have monthly
scheduled payments of principal and interest. The scheduled payments for each
contract would, if made on their respective due dates, result in a full amortization
of the contract. Loan contracts secured by collateral that is geographically
concentrated could experience higher rates of delinquencies, default and foreclosure
losses than loan contracts secured by collateral that is more geographically
dispersed. CountryPlace has loan contracts secured by factory-built homes located
in 27 states, including Texas, Florida, New Mexico, Arizona and Alabama.
Changes in laws or other events that adversely affect liquidity in the secondary
mortgage market could hurt our business. The GSEs, principally Fannie Mae, Ginnie
Mae and the Federal Home Mortgage Corporation, as well as the FHA, play a significant
role in buying home mortgages and creating investment securities that are either
sold to investors or held in their portfolios. These organizations provide liquidity
to the secondary mortgage market and have experienced financial difficulties
in recent years. Any new federal laws or regulations that restrict or curtail
their activities, or any other events or conditions that prevent or restrict
these enterprises from continuing their historic businesses, could affect the
ability of our customers to obtain loans or could increase home loan interest
rates, fees and credit standards. This could reduce demand for our homes and/or
the loans that we originate and adversely affect our results of operations.
Commercial Financing. Certain of our wholesale factory-built housing sales
to independent retailers were purchased through wholesale floor plan financing
arrangements. Under a typical floor plan financing arrangement, an independent
financial institution specializing in this line of business 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 customarily requires us,
as the manufacturer of the home, 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 in
most cases is 18 to 36 months). The price at which we may be obligated to repurchase
a home under these agreements is based upon the amount financed, plus certain
administrative and shipping expenses.
Inventory financing for the industry’s wholesale distribution chain continues
to be in short supply. Faced with illiquid capital markets in late calendar
year 2008, each of the manufactured housing sector’s remaining inventory
finance companies (floor plan lenders) initiated significant changes and one
company ceased lending activities in the industry entirely. Other finance programs
are subject to more restrictive terms that continue to evolve, and in some cases,
require the financial involvement of the Company. As a result, the Company has
entered into certain commercial loan programs whereby the Company provides a
significant amount of the funds that independent financiers lend to distributors
to finance retail inventories of our products. In addition, the Company has
entered into direct commercial loan arrangements with distributors of our products
under which the Company provides funds for financing purchases (see Note 6 to
the Consolidated Financial Statements). The Company’s involvement in commercial
loans has increased the availability of manufactured home financing to distributors,
communities and developers. We believe that our taking part in the wholesale
financing of homes is helpful to the borrowers and allows our homes continued
exposure to potential home buyers. These initiatives support the Company’s
ongoing efforts to expand our distribution base in all of our markets with existing
and new customers. However, the initiatives expose the Company to risks associated
with the creditworthiness of certain customers and business partners, including
independent retailers, developers, communities and inventory financing partners,
many of whom may be adversely affected by the volatile conditions in the economy
and financial markets.
Consumer Financing. Sales of factory-built homes are significantly affected
by the availability and cost of consumer financing. There are three 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 (generally
HUD code homes); non-conforming mortgages for purchasers of the home and the
land on which the home is placed; and conforming mortgage loans which comply
with the requirements of FHA, Veterans Affairs or GSE loans.