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Contingent Liabilities And Commitments | 12 Months Ended
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Jul. 31, 2011
Contingent Liabilities And Commitments |
Contingent Liabilities And Commitments | I. CONTINGENT LIABILITIES AND COMMITMENTS The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for certain dealers of certain of its products. These arrangements, which are customary in the industry, provide for the repurchase of products sold to dealers in the event of default by the dealer. The repurchase price is generally determined by the original sales price of the product and pre-defined curtailment arrangements and the Company typically resells the repurchased product at a discount from its repurchase price. The risk of loss from these agreements is spread over numerous dealers. In addition to the guarantee under these repurchase agreements, the Company also provides limited guarantees to certain of its dealers, most of which are expected to expire by December, 2011. Our principal commercial commitments under repurchase agreements and guarantees at July 31, 2011 and July 31, 2010 are summarized in the following chart:
|  |  |  | Total Amount Committed |  |  |  |  | Term of
|  |  |  |  |  | July 31, 2011 |  |  |  |  | July 31, 2010 |  |  |  |  | Commitments
Commitment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Guarantee on dealer financing |  |  |  |  |  | $ | 1,684 |  |  |  |  | $ | 1,524 |  |  |  |  | Various
Standby repurchase obligation on dealer financing |  |  |  |  |  | $ | 791,933 |  |  |  |  | $ | 563,636 |  |  |  |  | Up to eighteen months
The repurchase agreement obligations generally extend up to eighteen months from the date of sale of the related product to the dealer. The repurchase and guarantee reserve balances as of July 31, 2011 and 2010, which are included in other current liabilities on the Consolidated Balance Sheets, are $3,479 and $3,312, respectively, and include the deferred estimated fair value of the implied guarantee under outstanding repurchase obligations and the estimated loss upon the eventual resale of expected repurchased product. These reserves do not include any amounts for direct guarantees as the Company does not currently expect any losses from such guarantees. The table below reflects losses incurred under repurchase agreements for the past three fiscal years. The higher losses in fiscal 2009 resulted from the more difficult market conditions in the recreation vehicle business during that year. Management believes that any future losses under these agreements will not have a significant effect on the Company's consolidated financial position or results of operations.
|  | Fiscal 2011 |  |  |  |  | Fiscal 2010 |  |  |  |  | Fiscal 2009 |
Cost of units repurchased |  |  | $ 5,876 |  |  |  |  |  | $ 10,001 |  |  |  |  |  | $ 32,913 |
Realization of units resold |  |  | 5,023 |  |  |  |  |  | 8,665 |  |  |  |  |  | 27,652 |
Losses due to repurchase |  |  | $ 853 |  |  |  |  |  | $ 1,336 |  |  |  |  |  | $ 5,261 |
The Company obtains certain vehicle chassis from automobile manufacturers under converter pool agreements. These agreements generally provide that the manufacturer will supply chassis at the Company's various production facilities under the terms and conditions set forth in the agreement. The manufacturer does not transfer the certificate of origin to the Company and, accordingly, the Company accounts for the chassis as consigned, unrecorded inventory. Upon being put into production, the Company becomes obligated to pay the manufacturer for the chassis. Chassis are typically converted and delivered to customers within 90 days of delivery. If the chassis is not converted within 90 days of delivery to the Company, the Company generally purchases the chassis and records the inventory. At July 31, 2011, chassis on hand accounted for as consigned, unrecorded inventory was approximately $23,138. In addition to this consigned inventory, at July 31, 2011, an additional $12,520 of chassis provided by customers were located at the Company's production facilities pending further manufacturing. The Company never purchases these chassis and does not include their cost in its billings to the customer for the completed unit. In addition to the matters described below, the Company is involved in certain litigation arising out of its operations in the normal course of its business, most of which is based upon state "lemon laws", warranty claims, other claims and accidents (for which the Company carries insurance above a specified self-insured retention or deductible amount). The outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. There is significant judgment required in assessing both the probability of an adverse outcome and the determination as to whether an exposure can be reasonably estimated. In management's opinion, the ultimate disposition of any current legal proceedings or claims against the Company will not have a material adverse affect on the Company's financial condition or operating results, except that an adverse outcome in a significant litigation matter, including the matters discussed herein, could have a material adverse effect on the operating results of a particular reporting period. SEC Matter The Company had been subject to an SEC review since 2007 regarding the facts and circumstances giving rise to the restatement of its previously issued financial statements as of July 31, 2006 and 2005, and for each of the years in the three-year period ended July 31, 2006, and the financial results in each of the quarterly periods in 2006 and 2005, and its financial statements as of and for the three months ended October 31, 2006 and related matters. The Company reached an agreement with the SEC resolving this matter. The settlement was approved by the U.S. District Court for the District of Columbia and a final judgment incorporating its terms was entered on May 23, 2011. The Company cooperated fully with the SEC in the resolution of this matter. Under the terms of the settlement, the Company has consented, without admitting or denying the allegations in the SEC's complaint, to the entry of a final judgment of the Court ordering the Company to comply with the Cease and Desist Order issued by the SEC on October 18, 1999, enjoining the Company from violating the books and records and internal control provisions of the federal securities laws and regulations thereunder, imposing a civil cash penalty of $1,000 and requiring the Company to hire an independent consultant not unacceptable to the SEC staff. The $1,000 civil cash penalty, which was previously provided for, has been remitted to the SEC. As of August 30, 2011, the independent consultant completed its review and evaluation of internal accounting controls with respect to certain specified areas as defined in the judgment and issued a report. The report did not recommend any material improvements or enhancements to the Company's existing system of internal accounting controls in relation to the specified areas that would, when taken together with the Company's existing internal accounting controls, be necessary to provide reasonable assurance that the Company is in compliance with the books and records and internal control provisions of the Securities Exchange Act of 1934. FEMA Trailer Formaldehyde Litigation Beginning in 2006, a number of lawsuits were filed against numerous trailer and manufactured housing manufacturers, including complaints against the Company. The complaints were filed in various state and federal courts throughout Louisiana, Alabama, Texas and Mississippi on behalf of Gulf Coast residents who lived in travel trailers, park model trailers and manufactured homes provided by the Federal Emergency Management Agency ("FEMA") following Hurricanes Katrina and Rita in 2005. The complaints generally allege that residents who occupied FEMA supplied emergency housing units, such as travel trailers, were exposed to formaldehyde emitted from the trailers. The plaintiffs allege various injuries from exposure, including health issues and emotional distress. Most of the initial cases were filed as class action suits. The Judicial Panel on Multidistrict Litigation (the "MDL panel") has the authority to designate one court to coordinate and consolidate discovery and pretrial proceedings. The MDL panel transferred the actions to the United States District Court for the Eastern District of Louisiana (the "MDL Court") because the actions in different jurisdictions involved common questions of fact. The MDL Court denied class certification in December 2008, and consequently, the cases are now being administered as a mass joinder of claims. There are approximately 4,100 suits currently pending in the MDL Court. The number of cases currently pending against the Company is approximately 550. Many of these lawsuits involve multiple plaintiffs, each of whom have brought claims against the Company. A number of cases against the Company have been dismissed for various reasons, including duplicative and unmatched lawsuits and failure of plaintiffs to appear or prosecute their claims. In the event a case does not settle or is not dismissed during the MDL proceeding, it is remanded back to the original court for disposition or trial. In September 2009, the MDL Court commenced hearing both bellwether jury trials and bellwether summary jury trials. The summary jury trial process is an alternative dispute resolution method which is non-binding and confidential. The Company has participated in one confidential summary jury trial. Currently, it is unknown how many plaintiffs' claims against the Company will proceed in the MDL Court and how many claims will be dismissed. It is also unknown how many plaintiffs will continue to litigate if their case is dismissed without prejudice or remanded back to their court of origin. In July 2011, the MDL Court issued Corrected Pretrial Order No. 88 governing the plaintiff fact sheet deficiency process, the purpose of which, as explained in Pretrial Order 86, is to provide defendants with the necessary information to evaluate claims for global settlement. Pursuant to Corrected Pretrial Order No. 88, defendants have identified deficiencies in the plaintiffs' fact sheets required to be completed by each plaintiff. Defendants, including the Company, have identified thousands of deficiencies and provided deficiency notices to plaintiffs' counsel. If a plaintiff fails to cure material deficiencies in his or her fact sheet, the defendants are authorized to file for dismissal of such claim. At this time, the Company is unable to provide a reasonable estimate for the range of loss in the event of an adverse outcome, beyond amounts accrued as of July 31, 2011, because the number of plaintiffs is undetermined and at this stage of the proceedings, evidence of potential damages for each plaintiff has not been introduced. A group of mobile and manufactured home defendants have agreed to pay $2,625 to settle certain claims that plaintiffs have allegedly been sickened by levels of formaldehyde in the manufactured homes. We understand that settlements have been reached with at least two of the trailer manufacturers, but the terms have not been publicly disclosed. While the Company may consider pursuing settlement of the matter given the uncertainty of litigation and the cost of defending each individual case if the MDL proceeding ends and the MDL Court remands the individual cases back to their courts of origin, it is uncertain whether the parties can agree upon a mutually acceptable resolution of the litigation. The Company strongly disputes the allegations and continues to vigorously defend the lawsuits. Fisher v. K. Flanigan et al. and Damon Corporation In 2005, plaintiff commenced an action against the Flanigans, the owners of a 1998 model year Damon motorhome, in the New York State Supreme Court, County of Erie, No. I2005-162. The complaint alleged that Mr. Fisher incurred serious and permanent bodily injuries after losing his balance and falling while walking in the motorhome's kitchen area as a result of Mr. Flanigan's negligent and reckless operation of the vehicle. In 2006, Fisher filed an amended complaint adding Damon, the final stage manufacturer of the motorhome, as a defendant alleging, as an additional cause of action, that the motorhome was defectively manufactured, designed or assembled and seeking to hold Damon jointly and severally liable for plaintiff's damages, including lost wages, past and future medical expenses, and past and future pain, suffering and loss of enjoyment of life. Subsequently, the plaintiff modified the claims against Damon, asserting that Damon is liable on the theories of failure to warn and defective design. The trial court granted Damon's motion for summary judgment with respect to the design defect claim but denied Damon's motion seeking dismissal of plaintiff's failure to warn claim. Both Damon and plaintiff have appealed the trial court's rulings on the two claims. The Flanigan defendants have entered into a settlement with the plaintiff. Trial is scheduled for 2012, and Damon continues to vigorously defend itself against the asserted claims.

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