UNITED STATES
SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 31, 2005~~June 30, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o		~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the transition period from to

Commission File Number 000-08822

Cavco Industries, Inc.

(Exact name of Registrant as specified in its charter)


Delaware		56-2405642

(State or other jurisdiction of ~~incorporation or organization)~~ incorporation)		(IRS Employer Identification Number)

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

(Address of principal executive offices)
(Zip Code)

(602) 256-6263

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last year)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero Accelerated filerþ Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

~~Indicate the number~~As of August 8, 2006, there were 6,358,980 shares ~~outstanding of each~~ of the ~~issuer’s classes of~~registrant’s common stock, ~~as of the close of the latest practicable date.~~


~~Class~~		~~Outstanding at January 26, 2006~~

~~Common Stock, $.01 Par Value~~		~~6,336,980 Shares~~

$.01 par value, issued and outstanding.

~~CAVCO INDUSTRIES, INC. AND SUBSIDIARY~~PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

CAVCO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)


	December 31,			March 31,			June 30,			March 31,
	2005			2005			2006			2006
	(Unaudited)						(Unaudited)
ASSETS
Current assets
Cash	$	12,046		$	46,457
Cash and cash equivalents							$	15,930		$	15,122
Short-term investments		39,900			—			47,400			42,900
Restricted cash		1,152			1,028			422			1,223
Accounts receivable		7,941			7,545			10,313			11,568
Inventories		12,013			10,262			14,570			12,733
Prepaid expenses and other current assets		1,975			1,202			806			1,446
Deferred income taxes		3,800			3,610			4,180			4,040

Total current assets		78,827			70,104			93,621			89,032


Property, plant and equipment, at cost:
Land		6,050			2,330			6,050			6,050
Buildings and improvements		6,241			5,045			6,913			6,744
Machinery and equipment		6,677			6,446			7,083			6,752

		18,968			13,821			20,046			19,546
Accumulated depreciation		(6,980	)		(6,349	)		(7,434	)		(7,202	)

		11,988			7,472			12,612			12,344

Goodwill		67,346			67,346			67,346			67,346


Total assets	$	158,161		$	144,922		$	173,579		$	168,722


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	4,279		$	5,978		$	5,285		$	6,269
Accrued liabilities		22,960			21,544			27,031			26,384

Total current liabilities		27,239			27,522			32,316			32,653


Deferred income taxes		10,550			9,090			11,450			11,040

Commitments and contingencies

Stockholders’ equity
Preferred Stock, $.01 par value; 1,000,000 shares authorized; No shares issued or outstanding		—			—			—			—
Common Stock, $.01 par value; 10,000,000 shares authorized; Outstanding 6,336,980 and 6,288,730 shares, respectively		63			63
Common Stock, $.01 par value; 20,000,000 shares authorized; Outstanding 6,358,980 and 6,352,980 shares, respectively								64			64
Additional paid-in capital		121,039			119,998			121,804			121,354
Unamortized value of restricted stock		(125	)		(313	)
Accumulated deficit		(605	)		(11,438	)
Retained earnings								7,945			3,611

Total stockholders’ equity		120,372			108,310			129,813			125,029


Total liabilities and stockholders’ equity	$	158,161		$	144,922		$	173,579		$	168,722

CAVCO INDUSTRIES, INC. ~~AND SUBSIDIARY~~

CONSOLIDATED ~~INCOME~~ STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

Three Months Ended Nine Months Ended
December 31, December 31,
2005 2004 2005 2004
Net sales $ 45,320 $ 38,820 $ 138,287 $ 113,392
Cost of sales 36,365 31,745 110,086 92,955

Gross profit 8,955 7,075 28,201 20,437
Selling, general and administrative expenses 3,946 3,505 12,265 10,923

Income from operations 5,009 3,570 15,936 9,514
Interest income 387 134 1,033 335

Income from continuing operations before income taxes 5,396 3,704 16,969 9,849
Income tax expense 1,874 1,445 6,388 3,902

Income from continuing operations 3,522 2,259 10,581 5,947
Income from discontinued retail operations less income taxes of $148 in 2005 and $100 in 2004 252 — 252 150

Net Income $ 3,774 $ 2,259 $ 10,833 $ 6,097

Net income per share (basic):
Continuing operations $ 0.56 $ 0.36 $ 1.68 $ 0.95
Discontinued retail operations 0.04 — 0.04 0.02

Net Income $ 0.60 $ 0.36 $ 1.72 $ 0.97

Net income per share (diluted):
Continuing operations $ 0.52 $ 0.34 $ 1.57 $ 0.91
Discontinued retail operations 0.04 — 0.04 0.02

Net Income $ 0.56 $ 0.34 $ 1.61 $ 0.93

Weighted average shares outstanding:
Basic 6,336,342 6,288,730 6,309,010 6,288,730

Diluted 6,775,614 6,548,394 6,721,977 6,529,864

Three Months Ended
June 30,
2006 2005
Net sales $ 54,050 $ 45,876
Cost of sales 43,431 36,239

Gross profit 10,619 9,637
Selling, general and administrative expenses 4,421 4,112

Income from operations 6,198 5,525
Interest income 574 282

Income before income taxes 6,772 5,807
Income tax expense 2,438 2,265

Net income $ 4,334 $ 3,542

Net income per share:
Basic $ 0.68 $ 0.56

Diluted $ 0.65 $ 0.53

Weighted average shares outstanding:
Basic 6,355,818 6,288,730

Diluted 6,641,376 6,646,042

On January 6, 2005, Cavco Industries, Inc. announced that its Board of Directors had authorized a 2-for-1 split of its common stock in the form of a 100% stock dividend. The dividend was paid on January 31, 2005See accompanying notes to stockholders of record as of January 18, 2005. The information for the three and nine months ended December 31, 2004 is presented as if this stock split had been completed at the beginning of these periods.

~~See Notes to Consolidated Financial Statements~~consolidated financial statements

CAVCO INDUSTRIES, INC. ~~AND SUBSIDIARY~~

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)


	Nine Months Ended December 31,						Three Months Ended June 30,
	2005			2004			2006			2005
OPERATING ACTIVITIES
Net income	$	10,833		$	6,097		$	4,334		$	3,542
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		696			828			232			233
Amortization of restricted stock		188			188
Deferred income taxes		1,270			1,610			270			600
Tax benefit of option exercises		460			—
Impairment charges		—			270
Share-based compensation expense								293			63
Tax benefit from option exercises								75			—
Incremental tax benefit from option exercises								(66	)		—
Changes in operating assets and liabilities:
Restricted cash		(124	)		(312	)		801			183
Accounts receivable		(396	)		524			1,255			(1,562	)
Inventories		(1,751	)		339			(1,837	)		(1,344	)
Prepaid expenses and other current assets		(773	)		268			641			625
Accounts payable and accrued liabilities		(283	)		(1,149	)		(338	)		1,796

Net cash provided by operating activities		10,120			8,663			5,660			4,136


INVESTING ACTIVITIES
Purchases of property, plant and equipment		(5,212	)		(384	)		(500	)		(199	)
Purchases of short-term investments		(67,900	)		—			(115,000	)		—
Proceeds from sale of short-term investments		28,000			—			110,500			—

Net cash used in investing activities		(45,112	)		(384	)		(5,000	)		(199	)


FINANCING ACTIVITIES
Common stock issued		581			—
Proceeds from issuance of common stock								82			—
Incremental tax benefit from option exercises								66			—

Net cash provided by financing activities		581			—			148			—


Net (decrease) increase in cash		(34,411	)		8,279
Cash at beginning of period		46,457			30,775
Net increase in cash and cash equivalents								808			3,937
Cash and cash equivalents at beginning of period								15,122			46,457


Cash at end of period	$	12,046		$	39,054
Cash and cash equivalents at end of period							$	15,930		$	50,394


Supplemental disclosures of cash flow information:

Cash paid during the period for income taxes	$	5,183		$	1,780		$	—		$	110

CAVCO INDUSTRIES, INC. ~~AND SUBSIDIARY~~

Notes to Consolidated Financial Statements
~~December 31, 2005~~June 30, 2006
(Dollars in thousands, except per share data)
~~(unaudited)~~(Unaudited)

1. Basis of Presentation

The accompanying consolidated interim financial statements ~~include the accounts~~ of Cavco Industries, Inc. (“Cavco Inc.”) and its wholly-owned subsidiary, CRG Holdings, LLC (collectively, the “Company”) ~~after elimination of all significant intercompany balances and transactions. The statements~~, have been prepared without audit ~~in accordance with United States generally accepted accounting principles~~pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for ~~interim financial information and with the instructions to~~Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~United States~~ generally accepted accounting principles in the United States of America have been condensed or ~~omitted.~~omitted pursuant to such rules and regulations.

In the opinion of ~~the Company,~~management, these statements include all ~~adjustments (consisting of~~the normal recurring ~~accruals)~~adjustments necessary to ~~present~~ fairly state the ~~information in the~~Company’s consolidated financial ~~statements of the Company have been included.~~statements. Certain previous period amounts in the ~~accompanying~~ consolidated financial statements have been reclassified to conform to the current period presentation. The ~~results~~Consolidated Statements of ~~operations~~Operations and Statements of Cash Flows for the interim periods are not necessarily indicative of the results or cash flows for the full year. The Company suggests that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes to consolidated financial statements included in the Company’s annual report on Form 10-K ~~Annual Report~~ filed with the ~~Securities and Exchange Commission~~SEC on May ~~20, 2005~~24, 2006 (the “Form 10-K”).

All shares authorized, outstanding and per share amounts for the three and nine months ended December 31, 2004 have been restated to give retroactive application to the January 31, 2005 two-for-one stock split effected in the form of a 100 percent stock dividend to Company stockholders of record on January 18, 2005.

The Company’s deferred tax assets primarily result from financial accruals and its deferred tax liabilities result from excess tax amortization of goodwill.

For a description of significant accounting policies used by the Company in the preparation of its consolidated financial statements, please refer to Note 1 of the notes to consolidated financial statements in the Form 10-K.

~~Accounting For Stock Based Compensation — The Company accounts for its stock-based compensation programs under APB No. 25,~~~~Accounting for Stock Issued to Employees~~~~and related interpretations (“APB 25”), under which no compensation expense has been recognized, as all options have been granted with an exercise price equal to the fair value~~2. Composition of Certain Financial Statement Captions

Inventories consist of the ~~common stock on the date of grant. The Company has adopted the disclosure-only provisions of SFAS No. 123,~~~~Accounting for Stock Based Compensation~~~~, as amended by SFAS No. 148,~~~~Accounting for Stock Based Compensation-Transition and Disclosure~~~~(“SFAS 123”). For the disclosure requirements of SFAS 123, the fair value of each option grant as~~following:

June 30, March 31,
2006 2006
Raw materials $ 6,717 $ 4,903
Work in process 2,912 2,731
Finished goods 4,941 5,099

$ 14,570 $ 12,733

Accrued liabilities consist of the date of the grant was estimated using the Black-Scholes option pricing method. The assumptions used for the three months ended December 31, 2005 were volatility of 26.1%, risk-free interest rate of 4.34%, dividend rate of 0.0%, and an expected life of the options of 5 years.following:

Options granted generally vest over a three-year period with 25% becoming vested on the grant date and the remainder becoming vested in cumulative 25% increments on each of the first three anniversaries of the grant date. Had compensation cost been determined as prescribed by SFAS 123, utilizing the assumptions detailed above and amortizing the resulting fair value of the stock options granted over the respective vesting period of the options, net income and earnings per share would have been reduced to the pro forma amounts for the three and nine months ended December 31, 2005 and 2004 as follows:

4

June 30, March 31,
2006 2006
Estimated warranties $ 7,050 $ 6,850
Salaries, wages and benefits 4,721 4,662
Accrued volume rebates 4,199 3,543
Customer deposits 2,157 4,291
Accrued insurance 2,011 2,015
Reserve for repurchase commitments 1,500 1,500
Other 5,393 3,523

$ 27,031 $ 26,384

Three Months Ended Nine Months Ended
December 31, December 31,
2005 2004 2005 2004
Net income, as reported $ 3,774 $ 2,259 $ 10,833 $ 6,097
Less: Total stock-based employee compensation determined under the fair value based method for all awards, net of related tax effects of $53, $64, $264 and $235, respectively (51 ) (96 ) (425 ) (353 )

Pro forma net income $ 3,723 $ 2,163 $ 10,408 $ 5,744

Basic net income per share:
As reported $ 0.60 $ 0.36 $ 1.72 $ 0.97
Pro forma $ 0.59 $ 0.34 $ 1.65 $ 0.91
Diluted net income per share:
As reported $ 0.56 $ 0.34 $ 1.61 $ 0.93
Pro forma $ 0.55 $ 0.33 $ 1.55 $ 0.88

~~Recent Accounting Pronouncements — During December 2004, the Financial Accounting Standards Board issued Statement No. 123R,~~~~Share-Based Payment~~(“SFAS 123R”), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. Share-based payments include stock options which the Company grants to some of its employees and directors under its stock incentive plan at prices equal to the market value of the stock on the dates the options were granted. SFAS 123R is effective for annual periods beginning after June 15, 2005. The Company plans to adopt SFAS 123R effective April 1, 2006.

Because the Company currently accounts for share-based payments to employees using the intrinsic value method under APB No. 25, it has recognized no compensation cost for stock options granted. Accordingly, the adoption of SFAS 123R’s fair value method will impact our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and net income per share above.

~~2. Inventories~~

Raw material inventories are valued at the lower of cost (first-in, first-out method which approximates actual cost) or market. Finished goods are valued at the lower of cost or market, using the specific identification method. Inventories at December 31, 2005 and March 31, 2005 were as follows:

December 31, March 31,
2005 2005
Raw materials $ 5,420 $ 3,811
Work in process 3,557 1,991
Finished goods 3,036 4,460

Total inventories $ 12,013 $ 10,262

3. Revolving ~~line~~Line of ~~credit~~Credit

The Company has established a $15 million revolving line of credit facility (“RLC”) with JPMorgan Chase Bank N.A. which expires on July 31, 2007. As of ~~December 31, 2005,~~June 30, 2006, $945 of the line amount is reserved for an outstanding letter of credit issued for the Company’s workers’ compensation program. The Company has not made any draws under the RLC. The outstanding principal amount of borrowings under the RLC bears interest at the Company’s election at either the prime rate or the London Interbank Offered Rate plus 1.75%. The RLC contains certain restrictive and financial covenants, which, among other things, limit the Company’s ability to pledge assets and incur additional indebtedness, and requires the Company to maintain a certain defined fixed charge coverage ratio.

4. Warranties

Homes are warranted against manufacturing defects for a period of one year commencing at the time of sale to the retail customer. Estimated costs relating to home warranties are provided at the date of sale. The Company has provided a liability for estimated future warranty costs relating to homes sold based upon management’s assessment of historical experience factors and current industry trends. Activity in the liability for estimated warranties was as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended
	December 31,						December 31,						June 30,
	2005			2004			2005			2004			2006			2005
Balance at beginning of period	$	5,858		$	4,575		$	5,576		$	4,596		$	6,850		$	5,576
Charged to costs and expenses		2,145			1,824			5,893			4,690			2,239			1,684
Deductions		(1,845	)		(1,416	)		(5,311	)		(4,303	)		(2,039	)		(1,697	)

Balance at end of period	$	6,158		$	4,983		$	6,158		$	4,983		$	7,050		$	5,563

Repurchase Contingencies — The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for independent retailers of its products. These arrangements, which are customary in the industry, provide for the repurchase of products sold to retailers in the event of default by the retailer. The risk of loss under these agreements is spread over numerous retailers. The price the Company is obligated to pay generally declines over the period of the agreement and is further reduced by the resale value of repurchased homes. The maximum amount for which the Company was contingently liable under such agreements approximated ~~$28,770~~$39,000 at ~~December 31, 2005.~~June 30, 2006, without reduction for the resale value of the homes. The Company ~~has~~had a reserve for repurchase commitments of $1,500 at June 30, 2006, based on prior experience and existing market ~~conditions of $1,500 at December 31, 2005.~~conditions. In connection with the repurchase agreement with one financial institution, the Company has provided a guaranty in the amount of $300 to ~~guaranty~~guarantee payment should one of the Company’s larger independent dealers default on certain of its obligations in the event of a repurchase by the lender. The ~~potential~~contingent liability related to this guaranty is included in the Company’s reserve for repurchase commitments.

6. Stock-Based Compensation

The Company maintains stock incentive plans whereby stock option grants or awards of restricted stock may be made to certain of our officers, directors and key employees. The plans, which are shareholder approved, permit the award of up to 1,350,000 shares of the Company’s common stock, of which 583,420 shares were still available for grant at June 30, 2006. When options are exercised, new shares of the Company’s common stock are issued. Stock options may not be granted below 100% of the fair market value of the Company’s common stock at the date of grant and generally expire seven years from the date of grant. Stock options and awards of restricted stock generally vest over a three-year period with 25% becoming vested on the grant date and the remainder becoming vested in cumulative 25% increments on each of the first three anniversaries of the grant date. The stock incentive plans provide for accelerated vesting of stock options and removal of restrictions on restricted stock awards upon a change in control (as defined in the plans).

Prior to April 1, 2006, the Company accounted for stock options issued under the above plans in accordance with the recognition and measurement provisions of APB Opinion No. 25,Accounting for Stock Issued to Employees(“APB 25”), and its related interpretations, as permitted by FASB Statement No. 123,Accounting for Stock-Based Compensation(“FAS 123”). Under the disclosure-only provisions of FAS 123, as amended by FASB Statement No. 148,Accounting for Stock Based Compensation-Transition and Disclosure, no option-based compensation cost was recognized, as all options were granted with an exercise price equal to the fair value of the underlying common stock on the date of grant.

Effective April 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123 – revised 2004,Share-Based Payment(“FAS 123(R)”), and SEC Staff Accounting Bulletin No. 107 (“SAB 107”), using the modified-prospective transition method. Other than restricted stock awards, no share-based compensation cost has been reflected in net income prior to the adoption of FAS 123(R) and the results for prior periods have not been restated. The recognized compensation costs during the first quarter of fiscal 2007 under the modified-prospective transition method include (i) compensation cost for all share-based payments granted prior to, but not yet vested as of April 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123 and (ii) compensation cost for all share-based payments granted subsequent to April 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of FAS 123(R).

The adoption of FAS 123(R) decreased income before income taxes for the three months ended June 30, 2006 by approximately $230 and decreased net income for the three months ended June 30, 2006 by approximately $147. Total compensation cost, including costs related to the vesting of restricted stock awards, charged against income for the three months ended June 30, 2006 was approximately $293. The total income tax benefit recognized in the income statement for share-based compensation arrangements was approximately $188. Had compensation cost for the Company’s employee stock-based compensation awards been determined based on the fair value at the grant date for the three months ended June 30, 2005, the Company’s net income and net income per share would have been reduced to the pro forma amounts indicated below:

Three Months Ended
June 30,
2005
Net income, as reported $ 3,542
Less: Total stock-based employee compensation determined under fair value based method for all awards, net of related tax benefits (303 )

Pro forma net income $ 3,239

Basic net income per share:
As reported $ 0.56

Pro forma $ 0.52

Diluted net income per share:
As reported $ 0.53

Pro forma $ 0.49

As of June 30, 2006, total unrecognized compensation cost related to stock options was approximately $901 and the related weighted-average period over which it is expected to be recognized is approximately 1.61 years.

The following table summarizes the option activity within the Company’s stock-based compensation plans for the three months ended June 30, 2006:

Weighted
Weighted Average
Average Remaining Aggregate
Number Exercise Contractual Intrinsic
of Shares Price Term Value
Outstanding at March 31, 2006 697,330 $ 15.40
Granted 5,000 45.46
Exercised (6,000 ) 13.66
Canceled or forfeited — —
Outstanding at June 30, 2006 696,330 $ 15.63 4.77 $ 20,060

Exercisable at June 30, 2006 482,685 $ 14.54 4.68 $ 14,430

The weighted-average estimated fair value of employee stock options granted during the three months ended June 30, 2006 and 2005 were $15.72 and $9.08 per share, respectively. The total intrinsic value of options exercised during the three months ended June 30, 2006 was approximately $190. No options were exercised during the three months ended June 30, 2005.

The Company uses the Black-Scholes-Merton option-pricing model (“Black-Scholes model”) to determine the fair value of stock options. The determination of the fair value of stock options on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include actual and projected employee stock option exercise behaviors, the Company’s expected stock price volatility over the term of the awards, risk-free interest rate, and expected dividends. The fair values of options granted were estimated at the date of grant using the following weighted average assumptions:

Three Months Ended
June 30,
2006 2005
Volatility 33.0% 29.2%
Risk-free interest rate 4.9% 3.9%
Dividend yield 0.0% 0.0%
Expected option life in years 4.25 5.00

Expected term- The Company estimates the expected term of options granted by using the simplified method as prescribed by SAB 107.

Expected volatility- The Company estimates the volatility of its common stock taking into consideration its historical stock price movement, the volatility of stock prices of companies of similar size with similar businesses to it and its expected future stock price trends based on known or anticipated events.

Risk-free interest rate- The Company bases the risk-free interest rate that it uses in the option pricing model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

Expected dividend- The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option-pricing model.

Forfeitures- The Company is required to estimate future forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation cost only for those awards that are expected to vest.

Though not required under the adoption provisions of FAS 123(R), the Company has made a policy decision to continue the use of the straight-line attribution method in order to remain consistent with the previous FAS 123 pro forma disclosures.

The Company also grants restricted stock awards to certain employees. Restricted stock awards are valued at the closing market value of the Company’s common stock on the date of grant, and the total value of the award is expensed ratably over the service period of the employees receiving the grants. No shares of restricted stock were granted during the three months ended June 30, 2006 and 2005. Share-based compensation cost related to all restricted stock awards outstanding during the three months ended June 30, 2006 and 2005, was approximately $63. All share-based compensation cost related to the Company’s restricted stock awards has been recognized as of June 30, 2006 as all awards have vested.

A summary of restricted stock activity within the Company’s share-based compensation plans and changes for the three months ended June 30, 2006 is as follows:

Nonvested Shares Shares Grant-Date
Fair Value
Nonvested at March 31, 2006 6,887 $ 9.07
Granted — —
Vested 6,887 9.07
Forfeited — —

Nonvested at June 30, 2006 — $ —

Finally, for the three months ended June 30, 2006, the adoption of FAS 123(R) resulted in a reclassification to reduce net cash provided by operating activities with an offsetting increase in net cash provided by financing activities of $66, related to incremental tax benefits from stock options exercised during the period.

7. Earnings Per Share

Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period increased by the weighted-average number of dilutive common stock equivalents outstanding during the period, using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share. Earnings per share calculations for the three and nine months ended December 31, 2004 have been restated to give retroactive application to the January 31, 2005 two-for-one stock split effected in the form of a 100 percent stock dividend to Company stockholders of record on January 18, 2005.


	Three Months Ended				Nine Months Ended				Three Months Ended
	December 31,				December 31,				June 30,
	2005		2004		2005		2004		2006		2005
Net income	$	3,774	$	2,259	$	10,833	$	6,097	$	4,334	$	3,542

Weighted average shares outstanding:
Basic		6,336,342		6,288,730		6,309,010		6,288,730		6,355,818		6,288,730
Add: Effect of dilutive stock options		439,272		259,664		412,967		241,134
Common stock equivalents — treasury stock method										285,558		357,312

Diluted		6,775,614		6,548,394		6,721,977		6,529,864		6,641,376		6,646,042


Net income per share:
Basic	$	0.60	$	0.36	$	1.72	$	0.97	$	0.68	$	0.56

Diluted	$	0.56	$	0.34	$	1.61	$	0.93	$	0.65	$	0.53

7.8. Discontinued Operations

The Company has plans to dispose of certain of its retail sales centers and these operations are classified as discontinued retail operations. Finished goods inventories to be liquidated in conjunction with the disposal of these retail sales centers approximated ~~$693~~$774 at ~~December 31, 2005. Income from discontinued retail operations~~June 30, 2006. There were no operating losses for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2006 or 2005 ~~and~~ for the ~~nine months ended December 31, 2004 resulted from better than anticipated results from liquidating retail inventories at~~stores identified for disposal as the costs related to the liquidation of inventory were consistent with our ~~closed locations. This income was partially offset by an accrual for the estimated remaining lease costs for one retail location closed during the second quarter~~expectations of ~~fiscal 2005.~~net realizable values. Net sales for the retail sales centers to be disposed of were ~~$948~~$1,432 and ~~$2,608~~$1,820 for the three month periods ended ~~December 31,~~June 30, 2006 and 2005, ~~and 2004, respectively, and $4,520 and $10,801 for the nine month periods ended December 31, 2005 and 2004,~~ respectively. ~~The decline in sales versus the prior year was primarily due to the sale of finished goods inventories and the closure or disposal of retail sales centers in accordance with the Company’s plans.~~

8.9. Business Segment Information

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

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

~~Overview~~Introduction

The ~~consolidated financial statements contained~~following should be read in conjunction with the Company’s Consolidated Financial Statements and the related Notes that appear in Item 1 of this ~~quarterly report reflect~~Report. References to “Note” or “Notes” refer to the ~~financial condition and results of operations of Cavco Industries, Inc. (the “Company”). The Company is~~Notes to the Company’s Consolidated Financial Statements.

Overview

We are the largest producer of manufactured homes in Arizona and ~~7th~~the 10th largest producer of manufactured ~~home builder~~homes in the United States in terms of ~~total dollar volume,~~wholesale shipments, based on ~~2004~~2005 data published by Manufactured Home Merchandiser. Headquartered in Phoenix, Arizona, the Company designs and produces manufactured homes which are sold to a network of retailers located primarily in the ~~Southwestern~~southwestern United States. The Company operated three homebuilding facilities located in Arizona, one manufacturing facility in Texas and ~~Western United States.~~seven Company-owned sales centers in three states. The retail segment of the Company operates retail sales locations which ~~primarily~~ offer homes produced by the Company and other manufacturers to retail customers.

Our Company is part of the manufactured housing industry. In recent years, our industry has experienced a significant downturn, and continues to operate at levels that are at a forty plus year low point. The availability of consumer financing remains a key issue to be resolved before marked emergence from these historic lows can occur. Progress has also been impeded by several economic challenges including goods and services price inflation, increased interest rates, higher land costs, and a slow down in housing in general. These issues are not new to us, and we continue to work diligently to produce the strongest financial results possible in spite of them.

We have worked to identify prospects for expansion of niche markets and have opened a new facility in Texas, which has the possibility of being a modest contributor to the business in the second half of the fiscal year. This factory began shipping park models and vacation cabins in April 2006 and may become more flexible in its product offering as market demands warrant. Our products are diverse and tailored to the needs and desires of our customers. Innovation in housing design is a forte of the Company and we strive to effectively prototype new models with expressive interiors and exteriors that compliment home styles in the areas in which they are to be located.

Results of Operations — (Dollars in thousands)

Three ~~and nine~~ months ended ~~December 31, 2005~~June 30, 2006 compared to ~~2004~~2005

Net Sales.Total net sales increased ~~17%~~18% to ~~$45,320~~$54,050 for the three months ended ~~December 31, 2005~~June 30, 2006 compared to ~~$38,820 last year. For~~$45,876 for the ~~first nine months of the fiscal year ending March 31, 2006, net sales increased 22% to $138,287 versus $113,392~~same period last year.

Manufacturing net sales increased ~~14%~~15% to ~~$44,013~~$51,568 for the three months ended ~~December 31, 2005~~June 30, 2006 from ~~$38,563 for last year and 20% to $133,923~~$44,788 for the ~~first nine months of fiscal 2006 from $111,846~~same period last year. ~~These increases in~~This increase was driven by a higher average selling price per home. The average sales ~~were attributable~~price per home increased 15.7% to ~~increases~~$48,512 versus $41,936 last year. However, the Company began to experience a decline in the ~~number of~~incoming order rates for homes ~~sold and wholesale sales prices. Total~~as total homes sold during the current quarter ~~increased 4.9%~~decreased to ~~1,049~~1,063 wholesale shipments versus ~~1,000 last year and the average sales price per home increased 8.8% to $41,957 versus $38,563~~1,068 last year. ~~The higher volume of homes sold resulted from stronger demand~~As a result, the Company’s order backlogs are reduced, causing modestly lower production levels. Industry sales have slowed considerably in California, an important market for ~~our products particularly~~the Company, while Arizona has experienced a smaller decline in ~~Arizona and California and expansion of specialty products to markets different from those for traditional manufactured homes. Wholesale~~ sales prices were increased to offset significant material cost increases experienced since early 2004. In addition, customers are trending toward larger homes with more amenities because lower interest rates have made higher priced homes more affordable and traditional mortgage financing can require more square footage to meet appraisal requirements.activity.

Retail net sales increased ~~$1,633~~$1,281 to ~~$3,864~~$4,319 for the three months ended ~~December 31, 2005~~June 30, 2006 from ~~$2,231~~$3,038 for the same period ~~last year and $3,045 to $10,211 for the first nine months of fiscal 2006 from $7,166~~ last year. This increase in retail sales was due to additional ~~units~~homes sold during the quarter and a higher average sales price per ~~unit.~~home.

Gross Profit.Gross profit as a percent of sales ~~increased~~decreased to ~~19.8%~~19.6% for the three months ended ~~December 31, 2005~~June 30, 2006 from ~~18.2% last year and to 20.4%~~21.0% for the ~~first nine months of fiscal 2006 from 18.0%~~same period last year. The increases in gross profit percentage were primarily due to increases in sales prices, which were enacted to offset material cost increases, and the efficiencies realized through higher production rates. Since early 2004, the Company has experienced significant cost increases in substantially all of the major components in the Company’s products, including lumber and lumber-related products, gypsum products, raw steel and products built with steel and petroleum-based products and services, including delivery costs. These circumstances were intensified by the hurricane activity in the gulf coast region of the United States during the second quarter of fiscal year 2006. The Company continues to recognize excellent operating margins, although inflation, including higher material and transportation costs, impacted this quarter. Unlike the same period in the prior fiscal year, the current market climate may no longer be ~~concerned about~~conducive to passing through higher material ~~availability and pricing as its suppliers respond to strong construction market demand that has been further escalated by these natural disasters.~~costs.

Interest Income.Interest income represents income earned on short-term investments and unrestricted ~~cash.~~cash and cash equivalents. Interest income ~~from $35,000 of the Company’s short-term investments~~ is earned on a tax-free ~~basis.~~basis from a portion of the Company’s short-term investments. The ~~increases~~increase in interest income ~~for the current quarter versus the comparative period for last year~~ resulted from the ~~increase in the~~ Company’s larger balance of investable funds and higher short-term interest rates.

Income Taxes.The effective income tax rate for the three ~~and nine~~ months ended ~~December 31, 2005~~June 30, 2006 was approximately ~~35% and 38%, respectively,~~36% versus approximately 39% ~~and 40%, respectively,~~ for the same ~~periods~~period last year. The lower income tax rates reflect the effects of tax-free interest income noted above, certain state income tax credits, and deductions provided in the American Jobs Creation Act.

Discontinued Retail Operations.~~Finished goods inventories~~The Company has plans to ~~be liquidated in conjunction with the disposal~~dispose of certain of its retail sales centers and these operations are classified as discontinued retail operations approximated $693 at December 31, 2005. Income from discontinued retail operations for the three and nine months ended December 31, 2005 and for the nine months ended December 31, 2004 resulted from better than anticipated results from liquidating retail inventories at our closed locations. This income was partially offset by an accrual for the estimated remaining lease costs for one retail location closed during the second quarter of fiscal 2005.(see Note 8).

Liquidity and Capital Resources

~~The RLC~~ contains certain restrictive and financial covenants, which, among other things, limit the Company’s ability to pledge assets and incur additional indebtedness, and requires the Company to maintain a certain defined fixed charge coverage ratio.

~~We believe~~The Company believes that cash, cash equivalents and short-term investments on hand at ~~December 31, 2005,~~June 30, 2006 together with cash flow from operations will be sufficient to fund our operations and provide for ~~at least~~growth for the next twelve ~~months.~~months and into the foreseeable future. In addition, ~~our~~as described above, we have entered into a $15 million ~~line of~~ credit facility ~~described above~~with JPMorgan Chase Bank N.A. that can be used to supplement these sources of liquidity.

~~Operating~~Our primary source of liquidity has historically been cash generated from operations. During the three months ended June 30, 2006 operating activities provided ~~$10,120~~$5,660 of cash as compared to $4,136 during the ~~nine months ended December 31, 2005 compared to providing $8,663 of cash during the first nine months of~~same period last year. Cash generated by operating activities for the current period was primarily derived from operating income before non-cash charges and the timing of collection of accounts receivable balances partially offset by higher inventories necessary ~~to supply increased production and~~ to ensure the availability of raw materials. Cash generated by operating activities in the prior ~~year~~period was primarily derived from operating income before non-cash charges and the timing of payments related to accounts payable balances partially offset by increased accounts receivable due to the timing of ~~payments.~~collections and increased inventory levels necessary to supply higher production volume.

Investing activities required the use of ~~$45,112~~$5,000 of cash during the ~~nine~~three months ended ~~December 31, 2005~~June 30, 2006 compared to the use of ~~$384~~$199 during the same period last year. The cash was primarily used to make net purchases of ~~$39,900~~$4,500 of short-term investments in order to enhance ~~yields. In addition, the Company also purchased $5,212~~yields, combined with $500 in purchases of property, plant and ~~equipment, including $1,550 for a production facility in Texas and $3,000 for land in Arizona on which~~equipment. Cash utilized during the ~~Company may build an additional production facility.~~prior period related to normal recurring capital expenditures.

Financing activities provided ~~$581~~$148 of cash during the ~~nine~~three months ended ~~December 31, 2005~~June 30, 2006 resulting from proceeds associated with the issuance of common stock ~~issued for~~and related incremental tax benefits upon exercise of stock options ~~exercised.~~under our stock incentive plans. The Company had no financing activities during the ~~nine~~three months ended ~~December 31, 2004.~~June 30, 2005.

Critical Accounting Policies

In Part II, Item 7 of our Form 10-K, ~~filed with the Securities and Exchange Commission on May 20, 2005,~~ under the heading “Critical Accounting Policies”, we have provided a discussion of the critical accounting policies that management believes affect its more significant ~~Judgments~~judgments and estimates used in the preparation of ~~its consolidated financial~~our Consolidated Financial Statements.

Recent Accounting Pronouncements

Beginning April 1, 2006, we have adopted FAS 123(R), which requires us to record stock-based compensation expense for awards granted to employees based on the fair value of the equity instrument at the time of grant. The change in accounting rules resulted in a decrease in reported earnings during the current period and will lead to decreases in future periods. We do not anticipate that the impacts will be material in future periods; however, the recognition of additional expense may negatively impact our future stock price. For the first quarter of fiscal 2007, we recorded stock-based compensation of approximately $230 (see Note 6).

Forward-looking Statements

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. In addition to the Risk Factors described in Part I, Item 1A.Risk Factorsin our Form 10-K, factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include, but are not limited to:

•		We have incurred net losses in prior periods and there can be no assurance that we will generate income in the future;

•		We operate in an industry that is currently experiencing a prolonged and significant downturn;

•		Housing demand and geographic concentration;

•		A write-off of all or part of our goodwill could adversely affect our operating results and net worth;

•		The cyclical and seasonal nature of the manufactured housing industry causes our revenues and operating results to fluctuate, and we expect this cyclicality and seasonality to continue in the future;

•		Our liquidity and ability to raise capital may be limited;

•		Tightened credit standards and curtailed lending activity by home-only lenders have contributed to a constrained consumer financing market;

•		The availability of wholesale financing for industry retailers is limited due to a reduced number of floor plan lenders and reduced lending limits;

•		We have contingent repurchase obligations related to wholesale financing provided to industry retailers;

•		The manufactured housing industry is highly competitive, and competition may increase the adverse effects of industry conditions;

•		If we are unable to establish or maintain relationships with independent retailers who sell our homes, our sales could decline;

•		Our results of operations can be adversely affected by labor shortages and the pricing and availability of raw materials;

•		If the manufactured housing industry is not able to secure favorable local zoning ordinances, our sales could decline and our business could be adversely affected;

1013

~~During December 2004,~~
• The loss of any of our executive officers could reduce our ability to execute our business strategy and could have a material adverse effect on our business and results of operations;
• We have a limited operating history as an independent company;
• You may have difficulty evaluating our business, as our historical financial information may not be representative of what our results of operations would have been if we had been an independent company;
• We may be required to satisfy certain indemnification obligations to Centex Corporation, our predecessor, or may not be able to collect on indemnification rights from Centex;
• We could be responsible for certain tax liabilities if the Internal Revenue Service challenges the tax-free nature of the share distribution that resulted in us becoming an independent company;
• Certain provisions of our organizational documents could delay or make more difficult a change in control of our company; and
• Volatility of stock price.

We may make additional written or oral forward-looking statements from time to time in filings with the ~~Financial Accounting Standards Board issued Statement No. 123R,~~~~Share-Based Payment~~~~(“SFAS 123R”), which requires companies~~SEC or in public news releases or statements. Such additional statements may include, but are not be limited to ~~measure and recognize compensation expense~~include, projections of revenues, income or loss, capital expenditures, acquisitions, plans for all stock-based payments at fair value. Share-based payments include stock options which the Company grants to some of its employees and directors under its stock incentive plan at prices equal to the market value of the stock on the dates the options were granted. SFAS 123R is effective for annual periods beginning after June 15, 2005. The Companyfuture operations, financing needs or plans, ~~to adopt SFAS 123R effective April 1, 2006.~~

~~Because the Company currently accounts for share-based payments to employees using the intrinsic value method under APB No. 25,~~~~Accounting for Stock Issued to Employees~~and related interpretations, it has recognized no compensation cost for stock options granted. Accordingly, the adoption of SFAS 123R’s fair value method will impact our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123R in prior periods, the impact of ~~that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income~~inflation and ~~net income per share in Note 1~~plans relating to our ~~consolidated financial statements.~~

~~FORWARD-LOOKING STATEMENTS~~products or services, as well as assumptions relating to the foregoing.

~~Various sections of~~Statements in this Report on Form 10-Q, including ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements~~those set forth in this section, may be considered “forward looking statements” within the meaning of ~~Section 27A of the Securities Act of 1933,~~ Section 21E of the Securities Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when we are discussing our beliefs, estimates or expectations.

Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results or performance may differ materially from anticipated results or performance. Also,1934. These forward-looking statements are ~~based upon management’s estimates of fair values~~often identified by words such as “estimate,” “predict,” “hope,” “may,” “believe,” “anticipate,” “plan,” “expect,” “require,” “intend,” “assume,” and of future costs, using currently available information. Therefore, actual results may differ materially from those expressed or implied in those statements. Factors that could cause such differences to occur include, but are not limited to, those discussed in our Form 10-K filed with the Securities and Exchange Commission under the heading “Risk Factors”. We expressly disclaim any obligation to update any forward-lookingsimilar words.

Forward-looking statements contained in this ~~report or elsewhere, whether~~Report on Form 10-Q speak only as ~~a result~~ of ~~new information, future events or otherwise. For all~~the date of ~~these reasons, you are cautioned not to place undue reliance on any forward-looking statements included in~~ this report or, ~~elsewhere.~~in the case of any document incorporated by reference, the date of that document. We do not intend to publicly update or revise any forward-looking statement contained in this Report on Form 10-Q or in any document incorporated herein by reference to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Item 3:3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market prices and interest rates. We may from time to time be exposed to interest rate risk inherent in our financial instruments, but are not currently subject to foreign currency or commodity price risk. We manage our exposure to these market risks through our regular operating and financing activities. We are not currently a party to any market risk sensitive instruments that could be reasonably expected to have a material effect on our financial condition or results of operations.

The Company maintains short-term investments. Short-term investments are comprised of auction rate certificates which are adjustable-rate securities with dividend rates that are reset by bidders through periodic “Dutch auctions” generally conducted every 7 to 35 days by a broker/dealer on behalf of the issuer. The Company believes these securities are highly liquid investments through the related auctions; however, the collateralizing securities have stated terms of up to thirty (30) years. The investment instruments are rated AAA by Standard & Poor’s Ratings Group, or equivalent. The Company’s investments are intended to establish a high-quality portfolio that preserves principal, meets liquidity needs, and delivers an appropriate yield in relationship to the Company’s investment guidelines and market conditions. Given the short-term nature of these investments, and that we have no borrowings outstanding, we do not believe that we are ~~not~~ subject to significant interest rate risk.

1114

Item 4:4. Controls and Procedures

An(a) Disclosure Controls and Procedures

The term “disclosure controls and procedures” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) (15 U.S.C. 78aet seq.) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to a member of company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, we carried out an evaluation, ~~has been performed~~ under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as ~~of December 31, 2005.~~defined in Exchange Act Rule 13a-15(e) and 15d-15(e). Based onupon that evaluation, ~~our management, including~~ our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on 10-Q, our disclosure controls and procedures ~~were~~are effective ~~as of December 31, 2005, for the purpose of ensuring that~~in enabling us to record, process, summarize and report information required to be ~~disclosed~~included in ~~this Report has been processed, summarized~~our periodic SEC filings within the required time period

(b) Changes In Internal Control Over Financial Reporting

The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and ~~reported~~the preparation of financial statements for external purposes in ~~a timely manner. There were no changes~~accordance with GAAP.

No change in the Company’s internal ~~controls~~control over financial reporting occurred during the fiscal quarter ended June 30, 2006 that ~~have~~ materially affected, or ~~are~~is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding reportable legal proceedings is contained in Part I, “Item 3. Legal Proceedings” in our Form 10-K. The following describes legal proceedings, if any, that became reportable during the quarter ended June 30, 2006, and, if applicable, amends and restates descriptions of previously reported legal proceedings in which there have been material developments during such quarter.

We are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. Certain of the claims pending against us in these proceedings allege, among other things, breach of contract and warranty, product liability and personal injury. Although litigation is inherently uncertain, based on past experience, the information currently available and the possible availability of insurance and/or indemnification, our management does not believe that the currently pending and threatened litigation or claims will have a material adverse effect on the Company’s consolidated financial position or results of operations. However, future events or circumstances, currently unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods.

Item 1A. Risk Factors

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I,Item 1A. Risk Factorsin our Form 10-K, which could materially affect our business, financial condition or future results. The risks described in this Report and in our Form 10-K are not the only risks facing

1215

our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

~~Part II.~~Item 4: Submission of Matters to a Vote of Security Holders

On June 29, 2006, the Company held its 2006 Annual Meeting of Stockholders. At the Annual Meeting, the stockholders elected Steven G. Bunger and Jack Hanna to serve as members of the Board of Directors for a three-year term. The term of Jacqueline Dout will expire in 2007. The terms of Joseph H. Stegmayer and Michael H. Thomas will expire in 2008.

There were present at the Annual Meeting, in person or by proxy, stockholders of the Company who were holders of record on May 9, 2006 of 5,652,163 shares of common stock or 88.94% of the total shares of the outstanding common stock of the Company, which constituted a quorum. Of the 6,354,980 shares entitled to vote in such election, the votes cast were as follows:

Election of Directors: Votes For Votes Withheld
Steven G. Bunger 5,636,439 15,724
Jack Hanna 5,636,439 15,724

Additionally, the stockholders approved the amendment to the Company’s Restated Certificate of Incorporation to increase the authorized shares of common stock from 10,000,000 to 20,000,000. The votes cast were as follows:

Votes For Votes Against Abstentions Nonvotes
5,431,223 215,933 5,007 702,817

At the same meeting, a proposal for the ratification of the selection of Ernst & Young LLP as independent Auditor of the Company was submitted to the stockholders, and the votes caste were as follows:

Votes For Votes Withheld Abstentions Nonvotes
5,643,279 2,582 6,302 702,817

Item 5: Other Information

On August 9, 2006, the Compensation Committee (the “Committee”) of the Company’s Board of Directors approved the Vice President and Chief Financial Officer Incentive Compensation Plan for Fiscal Year 2007 (the “CFO Incentive Plan”). The CFO Incentive Plan, which covers the Company’s fiscal year beginning April 1, 2007, consists of three components: (i) a Specific Objectives Based Bonus, (ii) an Earnings Growth Incentive Bonus, and (iii) a Restricted Stock Award. The amount of the Specific Objectives Based Bonus, which ranges between $60,000 and $80,000, will be determined at the sole discretion of the Board of Directors, with a minimum payment of $60,000. The Earnings Growth Incentive Bonus is payable based upon achievement of certain specified increases in the income of the Company from continuing operations during fiscal year 2007. Mr. Urness also received a Restricted Stock Award of 923 shares under the Cavco Industries, Inc. 2003 Stock Incentive Plan. The restricted shares shall vest in twenty percent increments over the next five years on the anniversaries of the Grant Date.

Item 6: Exhibits

~~31.1~~
Exhibit No. Exhibit
3.1* Restated Certificate of Incorporation, as Amended
3.2(1) Amended and Restated Bylaws
10.1*(2) Summary of Vice President and Chief Financial Officer Incentive Compensation Plan for Fiscal Year 2007
31.1* Certification of the Principal Executive Officer Pursuant to Rule 13-14(a) under the Securities Exchange Act of 1934
31.2* Certification of the Principal Financial Officer pursuant to Rule 13-14(a) under the Securities Exchange Act of 1934
32** Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


*		filed herewith

**		furnished herewith

(1) Incorporated by reference to Exhibit 3.2 of the ~~Chief Executive Officer of Cavco Industries, Inc. pursuant to Rules 13a-14 and 15d-14 promulgated under~~Annual Report on Form 10-K for the ~~Securities Exchange Act of 1934, as amended.~~fiscal year ended March 31, 2004

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

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

~~32.2 Certification of the Chief Financial Officer of Cavco Industries, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~(2) Management contract or compensatory plan or arrangement

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

1316


				Page
~~Part~~PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements
	~~Item 1.~~	~~Financial Statements~~

		~~Consolidated Balance Sheets as of December 31, 2005 (unaudited) and March 31, 2005~~			1

		~~Consolidated Income Statements (unaudited) for the three and nine months ended December 31, 2005 and 2004~~			2

		~~Consolidated Statements of Cash Flows (unaudited) for the nine months ended December 31, 2005 and 2004~~			3

		~~Notes to Consolidated Financial Statements~~			~~4 — 8~~

	Consolidated Balance Sheets as of June 30, 2006 (unaudited) and March 31, 2006	1

	Consolidated Statements of Operations (unaudited) for the three months ended June 30, 2006 and 2005	2

	Consolidated Statements of Cash Flows (unaudited) for the three months ended June 30, 2006 and 2005	3

	Notes to Consolidated Financial Statements	4 - 10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		~~9 —~~ 11	- 14

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk			11	14

	Item 4.	Controls and Procedures			12	15

~~Part~~PART II.OTHER INFORMATION

Item 1.	~~Item 6.~~Legal Proceedings	~~Exhibits~~			13	15

~~SIGNATURES~~Item 1A.	Risk Factors	15

Item 4.	14Submission of Matters to a Vote of Security Holders	16

Item 5.	Other Information	16

Item 6.	Exhibits	16

SIGNATURES		17

~~EX-31.1~~Exhibit 3.1
~~EX-31.2~~EX-10.1
~~EX-32.1~~Exhibit 31.1
~~EX-32.2~~Exhibit 31.2
Exhibit 32


			Cavco Industries, Inc. Registrant
August 9, 2006	/s/ Joseph H. Stegmayer
	Joseph H. Stegmayer – Chairman,
	President and Chief Executive Officer (Principal Executive Officer)


		~~Registrant~~

~~January 31,~~August 9, 2006		/s/ ~~Joseph H. Stegmayer~~
	Daniel L. Urness
			~~Joseph H. Stegmayer — Chairman,~~
		~~President and~~
		~~Chief Executive Officer~~
		~~(Principal Executive Officer)~~

~~January 31, 2006~~		~~/s/~~ Daniel L. Urness

			Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
				~~(Principal Financial and~~
		~~Accounting Officer)~~


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number			Exercise		Contractual		Intrinsic
	of Shares			Price		Term		Value
Outstanding at March 31, 2006		697,330		$	15.40
Granted		5,000			45.46
Exercised		(6,000	)		13.66
Canceled or forfeited		—			—
Outstanding at June 30, 2006		696,330		$	15.63		4.77	$	20,060

Exercisable at June 30, 2006		482,685		$	14.54		4.68	$	14,430


Nonvested Shares	Shares		Grant-Date Fair Value
Nonvested at March 31, 2006		6,887	$	9.07
Granted		—		—
Vested		6,887		9.07
Forfeited		—		—

Nonvested at June 30, 2006		—	$	—


	As of				As of
	December 31,		March 31,		June 30,		March 31,
	2005		2005		2006		2006
Total assets
Manufacturing	$	97,405	$	89,358	$	101,687	$	101,139
Retail		4,956		5,383		4,340		5,466
Corporate, primarily cash, short-term investments and deferred taxes		55,800		50,181
Corporate						67,552		62,117

Total consolidated assets	$	158,161	$	144,922	$	173,579	$	168,722

•		The loss of any of our executive officers could reduce our ability to execute our business strategy and could have a material adverse effect on our business and results of operations;

•		We have a limited operating history as an independent company;

•		You may have difficulty evaluating our business, as our historical financial information may not be representative of what our results of operations would have been if we had been an independent company;

•		We may be required to satisfy certain indemnification obligations to Centex Corporation, our predecessor, or may not be able to collect on indemnification rights from Centex;

•		We could be responsible for certain tax liabilities if the Internal Revenue Service challenges the tax-free nature of the share distribution that resulted in us becoming an independent company;

•		Certain provisions of our organizational documents could delay or make more difficult a change in control of our company; and

•		Volatility of stock price.


Election of Directors:	Votes For	Votes Withheld
Steven G. Bunger	5,636,439	15,724
Jack Hanna	5,636,439	15,724


Votes For	Votes Against	Abstentions	Nonvotes
5,431,223	215,933	5,007	702,817


Exhibit No.		Exhibit
3.1*		Restated Certificate of Incorporation, as Amended
3.2(1)		Amended and Restated Bylaws
10.1*(2)		Summary of Vice President and Chief Financial Officer Incentive Compensation Plan for Fiscal Year 2007
31.1*		Certification of the Principal Executive Officer Pursuant to Rule 13-14(a) under the Securities Exchange Act of 1934
31.2*		Certification of the Principal Financial Officer pursuant to Rule 13-14(a) under the Securities Exchange Act of 1934
32**		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002