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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number 1-7444

Registrant’s telephone number, including area code: (336) 664-2400

Securities registered pursuant to Section 12(b) of the Act:

None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.50 Per Share.

     Indicate by check mark whether the Company: (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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes [X]      No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Company’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes [ ]      No [X]

     The aggregate market value of shares of the Company’s $.50 par value Common Stock, its only outstanding class of common equity, held by non-affiliates as of March 29, 2002 (the last business day of the Company’s most recently completed second fiscal quarter) was $68,608,980.

     The number of issued and outstanding shares of the Company’s $.50 par value Common Stock, its only outstanding class of common stock, as of December 1, 2002 was 9,537,485 shares.

PART I

Item 1. Business.

     Oakwood Homes Corporation, a North Carolina corporation (the “Company”), which was founded in 1946, designs, manufactures, markets and distributes manufactured and modular homes and finances the majority of its retail sales. Prior to November 1, 2002, the Company also provided a variety of insurance products to its customers and assumed a portion of the related underwriting risk through its captive reinsurance business. At September 30, 2002, the Company had a total of 32 manufacturing plants consisting of seven manufacturing plants in Texas, six in North Carolina, four in Indiana, three in each of Georgia and Oregon, two in each of Arizona and Pennsylvania, and one in each of California, Colorado, Kansas, Minnesota and Tennessee. The foregoing includes five idled plants, eight closed plants and five plants scheduled to be closed subsequent to September 30, 2002. Seven of the eight closed plants are currently held for sale. At September 30, 2002, the Company’s manufactured homes were sold at retail through 224 Company owned and operated sales centers located primarily in the southeastern and southwestern United States and to approximately 600 independent retailers located throughout the United States.

Proceedings Under Chapter 11 of the Bankruptcy Code

     On November 15, 2002 (the “Petition Date”), the Company and 14 of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under Chapter 11 of the federal bankruptcy laws (the “Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court in Wilmington, Delaware (the “Court”) under case number 02-13396. The reorganization is being jointly administered under the caption “In re Oakwood Homes Corporation, et al.”. The Debtors are currently operating their business as debtors-in-possession pursuant to the Bankruptcy Code. As a debtor-in-possession, the Company is authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the approval of the Court, after notice and an opportunity for a hearing.

     The Company decided to file for reorganization under Chapter 11 in order to restructure its balance sheet and access new working capital while continuing to operate in the ordinary course of business. This decision was based upon the continued poor performance of loans originated in 2000 and before, as well as extremely weak conditions in the manufactured housing industry and deteriorating terms in the asset-backed securitization market into which the Company sells its loans. Other factors contributing to the decision to file included a general economic recession, declining recovery rates in the repossession market, the substantial reduction in loan servicing fees received and the withdrawal of manufactured housing floor plan lenders offering financing to many of the Company’s wholesale dealers.

     On November 23, 2002 the Debtors reached an agreement in principle with Berkshire Hathaway Inc., Greenwich Capital Financial Products, Inc. and Ranch Capital LLC to provide debtor-in-possession (“DIP”) financing of up to $215 million during completion of the reorganization (the “DIP Facility”). The proposed DIP Facility includes an up to $140 million line of credit to be used for general corporate liquidity needs (the “Tranche A Revolving Loan”) and an up to $75 million loan servicing advance line (the “Tranche B Servicing Advance Loan”).

     On November 27, 2002 the Debtors entered into a Senior Secured, Super Priority Debtor-in-Possession Loan and Security Agreement (the “Interim DIP Agreement”) with Foothill Capital Corporation, Textron Financial Corporation and The CIT Group/Business Credit, Inc., pursuant to which such lenders agreed to provide the Company with up to $25 million in interim debtor-in-possession financing. Borrowings under the Interim DIP Agreement bore interest at prime plus 3.5% and were secured by a super priority lien on substantially all of the Company’s assets. The Interim DIP Agreement matured on December 31, 2002.

     On December 31, 2002 the Court approved the DIP Facility. The Debtors believe that documentation of the Tranche A Revolving Loan, which replaces the Company’s $65 million revolving credit facility and the Interim DIP Agreement, is substantially complete. The Debtors also believe that the Tranche B Servicing Advance Loan will be finalized by the end of January 2003. However, there can be no assurances that the DIP Facility will be finalized.

     The Company has also reached an agreement with a financial institution which provides for continued access to its loan purchase facility of up to $200 million under substantially the same terms. Continued borrowing under this facility is conditioned upon the finalization of the DIP Facility.

     The Company’s proposed reorganization plan, agreed to in principle by Berkshire Hathaway Inc., calls for the conversion of the Company’s $303 million of senior unsecured debt and its guarantees of principal and interest on $275 million of subordinated REMIC bonds into 100% of the Company’s post restructuring common shares. As a result, Berkshire Hathaway Inc., which is the largest holder of the Company’s unsecured debt, would become the Company’s largest shareholder upon the Company’s emergence from bankruptcy. The Company’s proposed reorganization plan also provides for the conversion of the Company’s current common shares into out-of-the-money warrants to purchase approximately 10% of the post restructuring common shares. However, there can be no assurances that the Company will be able to continue to operate as a going concern or that the proposed plan will be approved by the Court or the creditors of the Company.

     As part of the Company’s operational restructuring, five manufacturing plants in various states and the Company’s loan origination operations in Texas were closed on November 14, 2002. The Company simultaneously announced the closure of approximately 75 retail locations, principally in the Deep South, Tennessee and Texas markets. Substantially all of these retail locations will be closed by March 31, 2003. In connection with these and other previously announced closings, the Company recorded approximately $48.5 million in restructuring and other asset impairment charges subsequent to September 30, 2002 to reflect certain changes in the Company’s asset disposition strategy. On October 4, 2002, prior to the announcement of its planned operational restructuring, the Company announced the closure of approximately 40 retail sales centers. Following these closures, the Company will operate approximately 120 retail sales centers.

     On November 15, 2002 the New York Stock Exchange, Inc. (the “NYSE”) announced that it had determined that the Company’s common stock should be suspended from trading on the NYSE immediately. The Company understands that the NYSE has submitted an application to the Securities and Exchange Commission to delist the Company’s common stock from the NYSE with such delisting to be effective as of December 30, 2002.

     Under Section 362 of the Bankruptcy Code, actions to collect pre-petition indebtedness, as well as most other pending litigation, are stayed. Absent an order of the Court, substantially all pre-petition liabilities are subject to settlement under a plan of reorganization to be approved by the Court. Although the Debtors expect to file a reorganization plan that provides for emergence from bankruptcy as a going concern, there can be no assurance that a reorganization plan will be proposed by the Debtors or confirmed by the Court, or that any such plan will be successfully implemented.

     Under the Bankruptcy Code, the Debtors may also assume or reject executory contracts, including lease obligations, subject to the approval of the Court and certain other conditions. Parties affected by these rejections may file claims with the Court in accordance with the reorganization process. At this early stage of the bankruptcy, the Company cannot estimate or anticipate what effect the rejection and disposition of subsequent claims of executory contracts may have on the reorganization process.

     In January 2003 the Company expects to file with the Court schedules and statements of financial affairs setting forth, among other things, the assets and liabilities of the Debtors on the Petition Date, subject to the assumptions contained in certain notes filed in connection therewith. When filed, all of the schedules and statements will be subject to further amendment or modification. The Bankruptcy Code provides for a claims reconciliation and resolution process, although a bar date for filing claims has not yet been established. As the ultimate number and amount of allowed claims is not presently known, and because any settlement terms of such allowed claims are subject to a confirmed plan of reorganization, the ultimate distribution, if any, with respect to allowed claims is not presently ascertainable.

     The United States Trustee has appointed an unsecured creditors committee. The official committee and its legal representatives have a right to be heard on all matters that come before the Court and is the primary entity with which the Company will negotiate the terms of a plan of reorganization. To date, no other committees have been appointed by the United States Trustee. There can be no assurance this committee will support the Company’s positions in the bankruptcy proceedings or the plan of reorganization once proposed, and disagreements between the Company and this committee could protract the bankruptcy proceedings, could negatively impact the Company’s ability to operate during bankruptcy and could delay the Company’s emergence from bankruptcy or cause the bankruptcy proceedings to be converted from a reorganization to a liquidation.

     At this time, it is not possible to predict the effect of the Chapter 11 reorganization process on the Company’s business and results of operations or financial condition, various creditors and security holders, or when it may be possible to emerge from Chapter 11, although it is management’s intention to emerge from Chapter 11 as quickly as possible. The Company’s future results are dependent upon the timely development, confirmation and implementation of a plan of reorganization. The Company believes, however, that under any reorganization plan, the Company’s common stock would likely be substantially diluted or cancelled as a result of the conversion of debt to equity or as a result of other compromises of interest. Further, it is also likely that the Company’s senior notes and REMIC guarantee obligations will be converted to equity. The Company’s ability to continue to operate as a going concern is subject to numerous risks and uncertainties, including those described in “Forward Looking Statements” in the Management’s Discussion and Analysis section of this filing.

     The ultimate recovery, if any, by creditors, security holders and/or common shareholders will not be determined until confirmation of a plan or plans of reorganization. No assurance can be given as to what value will be ascribed in the bankruptcy proceedings to each of these constituencies. Accordingly, the Company urges that appropriate caution be exercised with respect to existing and future investments in any of these securities.

     The Consolidated Financial Statements contained herein have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and satisfaction of liabilities in the ordinary course of business. The ability of the Company to continue as a going concern is subject to numerous risks and uncertainties and is predicated upon, among other things, the confirmation of a reorganization plan, the DIP Facility and the loan purchase facility, the ability to generate cash flows from operations and the ability to obtain financing sources sufficient to satisfy the Company’s future obligations and meet current operating needs. The Consolidated Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of these uncertainties.

Manufactured Homes

     The Company designs and manufactures a number of models of homes. Each home contains a living room, dining area, kitchen, one, two, three, four or five bedrooms and one or two bathrooms, and is equipped with a hot water heater and central heating. Some homes are furnished with a sofa and matching chairs, dinette set, coffee and end tables, carpeting, lamps, draperies, curtains and screens. Optional furnishings and equipment include a range and oven, refrigerator, beds, a fireplace, washing machine, dryer, microwave oven, dishwasher, air conditioning, intercom, stereo systems, wet bar, vaulted ceilings, skylights, hardwood cabinetry and energy conservation items. The homes manufactured by the Company are primarily sold under the registered trademarks “Oakwood,” “Freedom,” “House Smart,” “Golden West,” “Schult,” “Crest,” and “Marlette” and the trade name “Victory.”

     The Company’s manufactured homes are constructed and furnished at the Company’s manufacturing facilities and transported on wheels to the homesite. The Company’s manufactured homes are normally occupied as permanent residences but can be transported on wheels to new homesites.

     The Company manufactures 14-foot and 16-foot wide single-section homes and multi-section homes consisting of two floors that are joined at the homesite and are 24, 28 or 32 feet wide. The Company also manufactures multi-section homes consisting of three or four floors. The Company’s homes range from 40 feet to 80 feet in length.

     At September 30, 2002, the Company manufactured homes at twenty-four plants located in Richfield (2), Rockwell (2) and Pine Bluff, North Carolina; Hillsboro (2), and Killeen, Texas; Moultrie (2), Georgia; Etna Green and Middlebury (2), Indiana; Albany and Hermiston (2), Oregon; Buckeye (2), Arizona; Lewistown and Milton, Pennsylvania; Perris, California; Plainville, Kansas; Redwood Falls, Minnesota; and Pulaski, Tennessee. The foregoing includes five idled plants and five plants scheduled to be closed as part of the Company’s operational restructuring described earlier.

     The Company purchases components and materials used in the manufacture of its homes on the open market and is not dependent upon any particular supplier. The principal raw materials purchased by the Company for use in the construction of its homes are lumber, steel, aluminum, galvanized pipe, insulating materials, drywall and plastics. Steel I-beams, axles, wheels and tires, roof and ceiling materials, home appliances, plumbing fixtures, furniture, floor coverings, windows, doors and decorator items are purchased or fabricated by the Company and are assembled and installed at various stages on the assembly line. Construction of the manufactured homes and the plumbing, heating and electrical systems installed in them must comply with the standards set by the Department of Housing and Urban Development (“HUD”) under the National Manufactured Home Construction and Safety Standards Act of 1974. See “Regulation.”

     The Company furnishes to each purchaser of a new home manufactured by the Company a one- or five-year limited warranty against defects in materials and workmanship, except for equipment and furnishings supplied by other manufacturers which are frequently covered by the manufacturers’ warranties.

Modular Homes

     In addition to traditional manufactured homes, the Company also manufactures modular homes which are built in accordance with state or local building codes and therefore are similar in specifications and design to site-built homes. The Company’s modular homes range in size from 960 square feet to 3,355 square feet and include a variety of single story ranch homes, one and a half story homes, two story homes, townhouses and duplex units, all of which can include attached garages built at the site by others. The Company has two manufacturing facilities which produce modular homes exclusively and seven additional facilities that produce both modular and manufactured homes.

Retail Sales

     At September 30, 2002, the Company sold manufactured homes through 224 Company owned and operated sales centers located in 26 states primarily in the southeastern and southwestern United States. See “Properties – Manufactured Home Sales Centers.” The Company closed 75 sales centers in fiscal 2002 and, as previously described announced plans subsequent to September 30, 2002 to close additional sales centers. Each of the Company’s sales centers hires and trains sales personnel. Generally, each salesperson is paid a commission based on the gross margin of his or her sales and certain volume targets, and each general manager is paid a commission based on the profits of the sales center.

     The Company operates its sales centers primarily under the names Oakwood® Mobile Homes and Freedom Homes®. At September 30, 2002, the Company also operated 37 factory certified home sales centers that sell primarily repossessed homes. As part of its operational restructuring, the Company has decided to close most of these factory certified home centers. During fiscal 2002, substantially all the Company’s retail sales of new homes were homes manufactured by the Company.

     The Company also sells used homes acquired in trade-ins. At September 30, 2002, the Company’s inventory of used homes was 609 homes as compared to 1,032 homes at September 30, 2001. Used homes in inventory do not include repossessed units.

     During recent years, the Company has placed increased emphasis on the sale of multi-section homes. In fiscal 2002, the Company’s retail sales of new multi-section homes represented 76% of the total number of new homes sold at retail, as compared to 70% in fiscal 2001.

     The retail sales price for new single-section homes sold by the Company in fiscal 2002 generally ranged from $18,000 to $54,000 with a mean sales price of approximately $32,000. The retail sales price of multi-section homes sold by the Company in fiscal 2002 generally ranged from $20,000 to $143,000, with a mean sales price of approximately $59,500.

     The Company’s sales have traditionally been higher in the period from late spring through early fall than in the winter months. Because a majority of the homes manufactured by the Company are sold directly to retail customers, the Company does not believe its backlog of orders is material.

Wholesale Sales

     The Company also sells its homes to approximately 600 independent retailers located throughout the United States. Sales to independent retail dealers accounted for approximately 44% and 35% of the Company’s total dollar volume of sales in fiscal 2002 and fiscal 2001.

     The Company expects that an increasing percentage of its sales will be through independent dealers in 2003 as a result of the Company’s retail store closings.

Company Retail Sales Financing

     A significant factor affecting sales of manufactured homes is the availability and terms of financing. Approximately 72% of the Company’s retail unit sales in fiscal 2002 were financed by installment sale contracts or mortgage loans arranged by the Company, each of which provided for monthly payments generally over a period of 5 to 30 years. The remaining 28% of retail unit sales were paid for with cash or financing obtained from other sources.

     In fiscal 2002, 99% of the aggregate loan originations relating to retail unit sales and dispositions of repossessed homes were installment sales, or loans financed and warehoused by the Company for investment or later sale, and 1% were installment sales or loans financed by others without recourse to the Company. At September 30, 2002, the Company held installment sale contracts or loans with a principal balance of approximately $126 million and serviced an additional $5.120 billion principal balance of installment sale contracts or loans, the substantial majority of which it originated and securitized. A substantial majority of the installment sale contracts owned by the Company and held for sale are pledged to financial institutions as collateral for loans to the Company.

     The Company processes credit applications with respect to customers seeking financing. The Company uses a credit scoring system, updated in fiscal 1998, to improve its credit decision-making process. The most significant criteria in the system are the stability, income and credit history of the borrower. This system requires a minimum credit score before the Company will consider underwriting a contract. This system allows the Company a greater ability to standardize the process by which it decides whether to extend credit to a customer.

     The Company retains a security interest in all homes it finances. In certain circumstances, the Company also obtains a security interest in the real property on which a home is located.

     The Company is responsible for all collection and servicing activities with respect to installment sale contracts it owns, as well as with respect to certain contracts that the Company originated and sold. The Company receives servicing fees with respect to installment sale contracts that it has sold but continues to service.

     The Company’s ability to finance installment sale contracts is dependent on the availability of funds to the Company. The Company obtains funds to finance installment sale contracts primarily through sales of real estate mortgage investment conduit (“REMIC”) trust certificates to institutional investors. During fiscal 2002, the Company sold $847 million of REMIC securities. The Company generally has no credit exposure with respect to securitized contracts except (i) with respect to breaches of representations and warranties, (ii) to the extent of any retained interests in a REMIC, (iii) with respect to required servicer advances, (iv) with respect to the servicing fee (which is subordinated) and (v) with respect to any REMIC security the Company has guaranteed.

     The Company also obtains financing from time to time from loans insured by the Federal Housing Administration (“FHA”). These installment sale contracts may be permanently funded through the Government National Mortgage Association (“GNMA”) pass-through program, under which the Company issues obligations guaranteed by GNMA. During fiscal 2002, the Company issued no obligations guaranteed by GNMA. FHA insurance minimizes the Company’s exposure to losses on these credit sales.

     The Company uses short-term credit facilities and internally generated funds to support installment sale contracts until a pool of installment sale contracts is accumulated to provide for permanent financing generally at fixed rates.

     In the past, the Company sold a significant number of installment sale contracts to unrelated financial institutions with full recourse to the Company in the event of default by the buyer. The Company receives endorsement fees from financial institutions for installment sale contracts it has placed with them on such a basis. Such fees totaled $16,000 in fiscal 2002. The Company’s contingent liability on installment sale contracts sold with full and limited recourse was approximately $16 million at September 30, 2002.

Independent Dealer Retail Sales Financing

     The Company provides permanent financing for homes sold by certain independent dealers that sell Company manufactured homes. During fiscal 2002, the Company financed approximately $255 million of the retail sales of these independent dealers.

Delinquency and Repossession

     In the event an installment sale contract or loan becomes delinquent, the Company, either as owner or as servicer, normally contacts the customer within 8 to 25 days thereafter in an effort to have the default cured. The Company, as owner or servicer, generally repossesses the home after payments have become 60 to 90 days delinquent if the Company is not able to work out a satisfactory arrangement with the customer. In the past, the Company generally attempted to resell the home. After the Company’s Chapter 11 filing, the Company stopped providing repossession refinances and expects to sell the substantial majority of repossessed homes through wholesale distribution channels.

     The Company maintains a reserve for estimated credit losses on installment sale contracts held prior to securitization and loans owned by the Company or sold to third parties with full or limited recourse. The Company provides for losses on credit sales in amounts necessary to maintain the reserves at levels the Company believes are sufficient to provide for probable losses based on the Company’s historical loss

experience, current economic conditions and portfolio performance measures. For fiscal 2002, $51,558,000 was charged to the reserve for losses on credit sales principally as a result of costs associated with the Company’s loan assumption program more fully described below. During fiscal 2001 and 2000, as a result of expenses incurred due to defaults and repossessions, $21,241,000, and $3,359,000 respectively, was charged to the reserve for losses on credit sales. The Company’s reserve for losses on credit sales at September 30, 2002 was $5,515,000, as compared to $3,399,000 at September 30, 2001 and $3,983,000 at September 30, 2000.

     The Company believes that its historical loss experience has been favorably affected by its ability to resell repossessed units through its retail sales centers. In an effort to reduce the cost of repossession and foreclosure, the Company made use of its loan assumption program beginning in 2001 as an alternative to foreclosure. Under this program, the Company endeavored to find a new buyer that met the then-current underwriting standards for repossessed homes who was willing to assume the defaulting obligor’s loan. The expenses associated with this program are reflected in the Consolidated Statement of Operations. During 2002, as a result of the significant expense associated with the program and the negative effect it was having on liquidity, the Company decided to substantially curtail the loan assumption program and converted the majority of assumption units to repossession status. The Company also determined in June 2002 that it would substantially increase the percentage of repossessed homes sold through wholesale channels of distribution.

     In fiscal 2002, 2001, and 2000, the Company repossessed or foreclosed 13,423, 11,727, and 8,666 homes, respectively. Including units pending assumption or equity transfer, the Company had a total of 7,063 unsold properties in repossession or foreclosure at September 30, 2002 compared to 5,940 and 2,603 at September 30, 2001 and 2000, respectively. The estimated net realizable value of unsold properties in repossession or foreclosure at September 30, 2002 was approximately $136 million. The net losses resulting from repossessions on Company originated loans as a percentage of the average principal amount of such loans outstanding for fiscal 2002, 2001 and 2000 was 4.60%, 2.15%, and 1.96%, respectively.

     At September 30, 2002 and September 30, 2001, delinquent installment sale contracts and loans expressed as a percentage of the total number of installment sale contracts and loans that the Company (a) services or (b) has sold with full recourse and that are serviced by others were as follows:

     At September 30, 2002 and September 30, 2001, delinquent installment sale contracts and loans expressed as a percentage of the total outstanding principal balance of installment sale contracts and loans that the Company (a) services or (b) has sold with full recourse and that are serviced by others were as follows:

Independent Retailer Repurchase Obligations

     Substantially all of the independent retailers who purchase homes from the Company finance new home inventories through wholesale credit lines provided by third parties under which a financial institution provides the retailer with a credit line for the purchase price of the home and maintains a security interest in the home as collateral. A wholesale credit line is used by the retailer to finance the acquisition of its display models, as well as to finance the initial purchase of a home from a manufacturer until the home buyers obtain permanent financing or otherwise pay the dealer for the installed home. In connection with the wholesale financing arrangement, the financial institution generally requires the Company to enter into a repurchase agreement with the financial institution under which the Company is obligated, upon default by the retailer, to repurchase its homes. Under the terms of such repurchase agreements, the Company agrees to repurchase homes at declining prices depending upon the age of the units. At September 30, 2002, the Company estimates that its contingent liability under these repurchase agreements was approximately $98 million. The Company’s losses under these arrangements to date have not been significant.

Insurance

     During 2002, 2001 and 2000 the Company operated a captive reinsurance underwriting subsidiary, domiciled in Bermuda, for property and casualty and credit life insurance and service contract business. Premiums from reinsured insurance policies are deferred and recognized as revenue over the term of the contracts, generally ranging from one to five years. Claims expenses are recorded as insured events occur. Policy acquisition costs, which consist principally of sales commissions and ceding fees, are deferred and amortized over the terms of the contracts.

     The Company estimates liabilities for reported unpaid insurance claims, which are reflected at undiscounted amounts, based upon reports from adjusters with respect to adjusted claims and based on historical average costs per claim for similar claims with respect to unadjusted claims. Adjustment expenses are accrued based on contractual rates with the ceding company. The ceding company, using a development factor that reflects historical average costs per claim and historical reporting lag trends, estimates liabilities for claims incurred but not reported. The Company does not consider anticipated investment income in determining whether premium deficiencies exist.

     Over the past two years the Company has taken various actions in order to reduce the levels of credit support, which take the form of letters of credit and/or cash, required to secure the reinsurance subsidiary’s obligations to pay claims and meet regulatory capital requirements. Effective August 1, 2000 the Company entered into an Extended Service Contract premium recapture agreement where unearned premium and loss reserves were transferred back to the ceding company. This transaction created a commission-based arrangement for this line of business. On March 1, 2001 the Company entered into a similar arrangement that amended the basis upon which credit life premiums are ceded. Under the terms of the agreement, all unearned credit life premiums and loss reserves were transferred back to the ceding company and credit life premiums were ceded on an earned basis, rather than on a written basis. Effective June 1, 2000 the Company entered into a physical damage quota share agreement under which the Company only reinsures 50% of the physical damage insurance risk, the remaining 50% of the risk being retained by the Company’s ceding insurer. As a result of the Company’s favorable loss experience, the Company recognized incremental commissions of $606,000 and $1.7 million in 2002 and 2001, respectively.

     As part of its decision to reorganize under Chapter 11, the Company analyzed the impact of the bankruptcy filing on the ability of the Company’s captive reinsurance business to continue to meet all regulatory liquidity and solvency requirements and the ongoing administrative costs of its operation. On November 1, 2002 the Company entered into a voluntary liquidation plan whereby the remaining 50% balance of the physical damage premium under the quota share agreement would be recaptured, thus eliminating all insurance underwriting risk. Under the terms of a physical damage recapture agreement, all unearned physical damage premiums and loss reserves were transferred back to the ceding company. As a result, effective November 1, 2002 the Company’s captive reinsurance subsidiary ceased to insure any policyholder risks and will discontinue all operations and be formally closed by January 31, 2003, subject to regulatory approval.

     In the future, the Company will continue to participate in commissions from its insurance operations at a lower administrative cost and without the need for credit support. Additionally the Company may participate in incremental commissions based on favorable loss experience.

Manufactured Housing Communities

     The Company has under development a manufactured housing subdivision in Hendersonville, North Carolina. The Company also owns land on which it intended to develop a manufactured housing subdivision in Pinehurst, North Carolina. The Pinehurst subdivision surrounds an existing golf course which the Company sold in fiscal 1998. The Company intends to attempt to sell its remaining interests in the Pinehurst subdivision. The Company does not intend to commit any material resources to the land development business in the future, but may become involved in land development or lot purchases from time to time to facilitate retail and wholesale sales.

Competition

     The manufactured housing and modular industry are highly competitive with particular emphasis on price, financing terms and features offered. There are numerous retail dealers and developers in most locations where the Company conducts retail, wholesale and financing operations. This has served to intensify competitive conditions as well as result in higher inventory levels across the industry. Several of the financing sources in the industry are larger than the Company and have greater financial resources. There are numerous firms producing manufactured homes in the Company’s market area, many of which are in direct competition with the Company. Several of these manufacturers, which sell the majority of their homes through independent dealers, are larger than the Company and have greater financial resources. The Company competes with other manufacturers and retailers on the basis of reputation, quality, financing ability, service, features offered and price.

     Manufactured and modular homes are a form of permanent, low-cost housing and are therefore in competition with other forms of housing, including site-built and prefabricated homes and apartments. Historically, manufactured homes have been financed as personal property with financing that has shorter maturities and higher interest rates than have been available for site-built homes. In recent years, however, there has been a growing trend toward financing manufactured housing with maturities more similar to the financing of real estate, especially when the manufactured housing is attached to permanent foundations on individually-owned lots. Multi-section homes are often attached to permanent foundations on individually-owned lots. As a result, maturities for certain manufactured housing loans have moved closer to those for site-built housing.

Regulation

     A variety of laws affect the financing of manufactured homes by the Company. The Federal Consumer Credit Protection Act (Truth-in-Lending) and Regulation Z promulgated thereunder require written disclosure of information relating to such financing, including the amount of the annual percentage rate and the finance charge. The Federal Fair Credit Reporting Act also requires certain disclosures to potential customers concerning credit information used as a basis to deny credit. The Federal Equal Credit Opportunity Act and Regulation B promulgated thereunder prohibit discrimination against any credit applicant based on certain specified grounds. The Federal Trade Commission has adopted or proposed various Trade Regulation Rules dealing with unfair credit and collection practices and the preservation of consumers’ claims and defenses. The Federal Trade Commission’s regulations also require disclosure of a manufactured home’s insulation specification. Installment sale contracts and loans eligible for inclusion in the GNMA Program are subject to the credit underwriting requirements of the FHA. A variety of state laws also regulate the form of the installment sale contracts and loan documents and the allowable deposits, finance charge and fees chargeable pursuant to installment sale contracts and loan documents. The sale of insurance products by the Company is subject to various state insurance laws and regulations which govern allowable charges and other insurance practices.

     The Company is also subject to the provisions of the Fair Debt Collection Practices Act, which regulates the manner in which the Company collects payments on installment sale contracts, and the Magnuson-Moss Warranty - Federal Trade Commission Improvement Act, which regulates descriptions of warranties on products. The descriptions and substance of the Company’s warranties are also subject to state laws and regulations.

     The Company’s manufacture of homes generally is subject to the National Manufactured Housing Construction and Safety Standards Act of 1974. In 1976, the Department of Housing and Urban Development (“HUD”) promulgated regulations, which have been amended from time to time, under this Act establishing comprehensive national construction standards covering many aspects of manufactured home construction and installation, including structural integrity, fire safety, wind loads and thermal protection. The Company’s modular homes are subject to state and local building codes.

     The transportation of manufactured homes on highways is subject to regulation by various federal, state and local authorities. Such regulations may prescribe size and road use limitations and impose lower than normal speed limits and various other requirements. Manufactured homes are also subject to local zoning and other regulations.

     The Company’s operations are subject to a variety of other statutes and regulations.

Financial Information About Industry Segments

     Financial information for each of the three fiscal years in the period ended September 30, 2002 with respect to the Company’s operating segments is included in Note 24 of the Consolidated Financial Statements.

Employees

     At September 30, 2002, the Company employed 7,765 persons, of which 2,193 were engaged in sales and service, 4,275 in manufacturing, 596 in consumer finance, and 701 in executive, administrative and clerical positions. As a result of its bankruptcy filing and reorganization, the Company expects that these numbers will decline.

Item 2. Properties.

Offices

     The Company owns its executive office space in Greensboro, North Carolina. The Company also owns two additional office buildings, which formerly served as its executive office space, located in two adjacent three-story buildings in Greensboro, North Carolina. At September 30, 2002, the Company leased office space in Texas, Arizona, Indiana and Florida. The Indiana and Florida offices were used by finance company operations that were closed during fiscal 2000 and 2001.

Manufacturing Facilities

     The location and ownership of the Company’s production plants, including idled facilities as of September 30, 2002, are as follows (certain locations have multiple plants):

     The Company also has seven manufacturing facilities that are currently being held for sale located in Ennis, Gainsville, and Navasota (2), Texas; Fort Morgan, Colorado; Moultrie, Georgia; and Etna Green, Indiana.

     The Company’s manufacturing facilities are generally one story metal prefabricated structures. The Company believes its facilities are in good condition. These facilities are located on tracts of land generally ranging from 10 to 50 acres. The production area in these facilities ranges from approximately 50,000 to 250,000 square feet. In addition, the Company owns a 112,000 square foot warehouse in Elkhart, Indiana.

     The land and buildings at all of the facilities owned by the Company were subject to mortgages with an aggregate balance of $6,800,000 at September 30, 2002.

     Based on the Company’s normal manufacturing schedule of one shift per day for a five-day week, the Company believes that its manufacturing lines, including those idled, have the capacity to produce approximately 62,400 floors annually, depending on product mix. During fiscal 2002 the Company manufactured 36,459 floors at its plants.

Manufactured Home Sales Centers

     The Company’s manufactured home retail sales centers consist of tracts of from 3/4 to 4 1/2 acres of land on which manufactured homes are displayed, each with a sales office containing from approximately 600 to 1,300 square feet of floor space. The Company operated 224 sales centers selling new and used homes at September 30, 2002 located in 26 states distributed as follows: North Carolina (47), Texas (32), Virginia (18), South Carolina (15), Tennessee (12), Washington (9), Ohio (8), Arizona (7), Oregon (7), West Virginia (7), Colorado (6), Kentucky (6), Louisiana (6), Missouri (6), New Mexico (6), Georgia (5), Oklahoma (5), Florida (4), Idaho (4), Delaware (3), Nevada (3), Utah (3), Kansas (2), Arkansas (1), California (1), and Michigan (1). Additionally, the Company operated 37 factory certified sales centers which sold repossessed homes. If the Company’s restructuring plan is completed as it is currently proposed, the Company will operate approximately 120 sales centers selling new and used homes and approximately 10 factory certified centers.

     Thirty-five sales centers are on property owned by the Company and the other locations are leased by the Company for a specified term of from one to ten years or on a month-to-month basis. Rents paid by the Company during the year ended September 30, 2002 for the leased sales centers totaled approximately $11,324,000.

Manufactured Housing Communities

     The Company has under development a manufactured housing subdivision in Hendersonville, North Carolina. The Company also owns property in Pinehurst, North Carolina on which it intended to develop a manufactured housing subdivision. The Company intends to offer the property for sale.

Item 3. Legal Proceedings.

     On November 15, 2002, Oakwood Homes Corporation and 14 of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under Chapter 11 of the federal bankruptcy laws (the “Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court in Wilmington, Delaware (the “Court”). The Debtors are currently operating their business as debtors-in-possession pursuant to the Bankruptcy Code. As a debtor-in-possession, the Company is authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the approval of the Court, after notice and an opportunity for a hearing.

     During fiscal 2001 a lawsuit was filed against the Company and certain of its subsidiaries in the Circuit Court of Saline County, Arkansas. The plaintiffs filed this suit seeking certification of a nationwide class of persons (i) who were charged “dealer prep,” “FTC,” or “destination” charges and (ii) who were sold homeowners’ insurance or credit life insurance in connection with their purchases of manufactured homes. The complaint alleges common law fraud and violations of the North Carolina, Florida and Arkansas deceptive trade practices acts. The plaintiffs are seeking compensatory and punitive damages but have limited their alleged damages to less than $75,000 per person, inclusive of costs and attorney’s

fees. The Company moved to compel arbitration of the claims of all purchasers who signed arbitration agreements (all purchasers after October 1, 1996). The trial court denied this motion and the Company filed an interlocutory appeal to the Arkansas Supreme Court. That appeal is fully briefed but has not yet been scheduled for oral argument. The trial court stayed all proceedings as to post-October 1, 1996 sales but allowed proceedings to continue with respect to the pre-October 1, 1996 sales. Specifically, the trial court allowed discovery and motions to proceed as to all persons who purchased homes before October 1, 1996. On September 18, 2002, the trial court announced its decision to certify a class of persons who were charged “dealer prep” and “FTC” charges prior to October 1, 1996. The trial court denied certification of a class of persons who were sold homeowners’ insurance or credit life insurance prior to October 1, 1996. As of December 16, 2002 an order of class certification had not been entered by the trial court. If such an order is entered, it will likely be appealed. The Company intends to vigorously defend this case.

     In addition, the Company is subject to legal proceedings and claims that have arisen in the ordinary course of its business and have not been finally adjudicated, and in management’s opinion, the ultimate resolution of these matters is not expected to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

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

     Not applicable.

PART II

Items 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

     The Company’s common stock has previously been listed on the New York Stock Exchange, Inc. (the “NYSE”). On November 15, 2002, the NYSE announced that it had determined that the Company’s common stock should be suspended from trading on the NYSE immediately. The NYSE submitted an application to the Securities and Exchange Commission to delist the Company’s common stock from the NYSE and such delisting became effective as of December 30, 2002. The Company’s common stock is currently traded in the “over-the-counter” market. As of December 1, 2002, the Company estimates that it had approximately 21,000 beneficial holders of its common stock.

     The high and low sales prices of the Company’s common stock as reported on the NYSE for each fiscal quarter during our last two fiscal years is as follows:

     The Company did not pay cash dividends on its Common Stock during the past two fiscal years.

     Information relating to securities authorized for issuance under the Company’s equity compensation plans is contained in Item 12 of this Form 10-K.

Item 6. Selected Financial Data.

(1)

Includes the cumulative effect of accounting changes of approximately $16.9 million. See Note 2 to the Consolidated Financial Statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Unless otherwise indicated, all references to annual periods refer to fiscal years ended September 30.

Overview

On November 15, 2002 (the “Petition Date”), Oakwood Homes Corporation and 14 of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under Chapter 11 of the federal bankruptcy laws (the “Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court in Wilmington, Delaware (the “Court”). The Debtors are currently operating their business as debtors-in-possession pursuant to the Bankruptcy Code. As a debtor-in-possession, the Company is authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the approval of the Court, after notice and an opportunity for a hearing.

     The Company decided to file for reorganization under Chapter 11 in order to restructure its balance sheet and access new working capital while continuing to operate in the ordinary course of business. This decision was based upon the continued poor performance of loans originated in 2000 and before, as well as extremely weak conditions in the manufactured housing industry and deteriorating terms in the asset-backed securitization market into which the Company sells its loans. Other factors contributing to the decision to file included a general economic recession, declining recovery rates in the repossession market, the substantial reduction in loan servicing fees received and the withdrawal of manufactured housing floor plan lenders offering financing to many of the Company’s wholesale dealers.

Further information related to the bankruptcy filing is included in the “Liquidity and Capital Resources” section.

Critical Accounting Policies

The Company has chosen accounting policies that it believes are appropriate to accurately and fairly report its results of operations and financial position, and it applies those accounting policies in a consistent manner. The preparation of the Company’s Consolidated Financial Statements in conformity with generally accepted accounting principles requires that the Company’s management make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The Company evaluates these estimates and assumptions on an ongoing basis. Actual results can and frequently will differ from these estimates. It is possible that materially different amounts would be reported under different conditions or using different methods or assumptions.

     The Company believes that the following accounting policies are the most critical because they involve the most significant judgments and estimates used in the preparation of the Consolidated Financial Statements.

Loan securitization

The Company finances its lending activities primarily by securitizing the loans it originates using Real Estate Mortgage Investment Conduits (“REMICs”) or, for certain FHA-insured loans, using collateralized mortgage obligations issued under authority granted to the Company by the Government National Mortgage Association (“GNMA”).

     The Company allocates the sum of its basis in the loans conveyed to each REMIC and the costs of forming the REMIC among the REMIC interests retained and the REMIC interests sold to investors based upon the relative estimated fair values of such interests.

     The Company estimates the fair value of retained REMIC interests, including regular and residual interests, servicing contracts and guarantee liabilities based, in part, upon net credit loss, discount rate and prepayment assumptions which management believes market participants would use for similar instruments.

     In accordance with EITF 99-20, income on retained REMIC regular and residual interests is recorded using the level yield method over the period such interests are outstanding. The rate of voluntary prepayments and the amount and timing of credit losses affect the Company’s yield on retained regular and residual REMIC interests and the fair value of such interests and of servicing contracts and guarantee liabilities in periods subsequent to the securitization; the actual rate of voluntary prepayments and credit losses typically varies over the life of each

transaction and from transaction to transaction. If over time the Company’s prepayment and credit loss experience is more favorable than that assumed, the Company’s yield on its REMIC residual interests will be enhanced. If experience is worse than assumed, then impairment charges could result. The yield to maturity of regular REMIC interests may be influenced by prepayment rates and net credit losses, but is less likely to be influenced by such factors because cash distributions on regular REMIC interests are senior to distributions on residual REMIC interests.

     REMIC residual and regular interests retained by the Company following securitization are considered available for sale and are carried at their estimated fair value. The Company has no securities held for trading or investment purposes.

     Declines in the value of retained REMIC interests are recognized when the fair value of the retained interest is less than its carrying value and the timing and/or the amount of cash expected to be received from the retained interest has changed adversely from the previous valuation which determined the carrying value of the retained interest. When both of these circumstances occur, the carrying value of the retained interest is reduced to its estimated fair value.

     Information with respect to the sensitivity of certain retained REMIC interests (including REMIC residual and regular interests, servicing assets and liabilities and guarantee liabilities) to changes in key economic assumptions is included in Note 6 to the Consolidated Financial Statements.

Servicing contracts and fees

Servicing fee income is recognized as earned, net of amortization of servicing assets and liabilities, which are amortized in proportion to and over the period of estimated net servicing income. If the estimated fair value of a servicing contract is less than its carrying value, the Company records a valuation allowance by a charge to earnings to reduce the carrying value of the contract to its estimated fair value. Valuation allowances may be reversed to earnings upon the recovery of a contract’s fair value. Such recoveries are only recognized after sustained performance of the pool has been demonstrated.

Guarantee liabilities

The Company estimates the fair value of guarantee liabilities as the greater of the estimated price differential between guaranteed and substantially similar unguaranteed securities offered for sale by the Company and the present value of payments, if any, estimated to be made as a result of such guarantees. Guarantee liabilities are amortized to income over the period during which the guarantee is outstanding. Amortization is commenced only upon a demonstrated history of pool performance.

     If the present value of any estimated guarantee payments exceeds the amount recorded with respect to such guarantee, the Company records an impairment charge to earnings to increase the guarantee liability to such present value.

Loans held for sale or investment

Loans held for sale are carried at the lower of cost or market. Loans held for investment are carried at their outstanding principal amounts, less unamortized discounts and plus unamortized premiums.

Reserve for credit losses

The Company maintains reserves for estimated credit losses on loans held for investment, on loans warehoused prior to securitization and on loans sold to third parties with full or limited recourse. The Company provides for losses in amounts necessary to maintain the reserves at amounts the Company believes are sufficient to provide for probable future losses based upon the Company’s historical loss experience, current economic conditions and an assessment of current portfolio performance measures.

Insurance underwriting

During 2002, 2001 and 2000 the Company operated a captive reinsurance underwriting subsidiary, domiciled in Bermuda, for property and casualty and credit life insurance and service contract business. Premiums from reinsured insurance policies are deferred and recognized as revenue over the term of the contracts, generally ranging from one to five years. Claims expenses are recorded as insured events occur. Policy acquisition costs, which consist principally of sales commissions and ceding fees, are deferred and amortized over the terms of the contracts.

     The Company estimates liabilities for reported unpaid insurance claims, which are reflected at undiscounted amounts, based upon reports from adjusters with respect to adjusted claims and based on historical average costs per claim for similar claims with respect to unadjusted claims. Adjustment expenses are accrued based on contractual rates with the ceding company. The ceding company, using a development factor that reflects historical average costs per claim and historical reporting lag trends, estimates liabilities for claims incurred but not reported. The Company does not consider anticipated investment income in determining whether premium deficiencies exist. The Company accounts for catastrophe reinsurance ceded in accordance with EITF 93-6, “Accounting for Multi-Year Retrospectively Rated Contracts by Ceding and Assuming Enterprises.”

Income taxes

The Company accounts for deferred income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are based on the temporary differences between the financial reporting basis and tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. Valuation allowances are provided against assets if it is anticipated that it is more likely than not that some or all of a deferred tax asset may not be realized.

Results of Operations

Total sales decreased 8% to $927 million in fiscal 2002 from $1.0 billion last year, following a 16% decrease in 2001 from the $1.2 billion reported in 2000. Total revenues declined 15% to $927 million from $1.1 billion last year, compared to $1.3 billion reported for 2000.

     The following table summarizes certain key sales statistics for each of the last three years:

2002 Compared to 2001

Net sales

The Company’s sales volume continued to be adversely affected by extremely competitive industry conditions and weak economic conditions, particularly in certain of the Company’s key markets, in 2002. Retail sales dollar volume decreased 21%, reflecting a 28% decrease in new unit volume, principally due to a decrease in the weighted average number of sales centers open during the year. This decrease was partially offset by increases of 5% and 7% in the average new unit sales prices of single-section and multi-section homes, respectively, as well as a shift in product mix toward multi-section homes, which have higher average selling prices than single-section homes. Multi-section homes accounted for 76% of retail new unit sales compared to 70% in 2001. Average retail sales prices of single-section and multi-section homes increased as a result of fewer promotional programs targeted at selling older inventory models during 2002 compared to 2001 and a continuing trend to selling larger homes. Additionally, the Company believes that its sales of new homes may have been adversely affected by the excessive number of repossessed homes in the market.

     During 2002 the Company opened no new sales centers compared to one new sales center during 2001. During 2002 the Company closed 72 underperforming sales centers and converted 3 sales centers to centers that exclusively market repossessed inventory, compared to 2001 when the Company closed 48 underperforming sales centers and converted 32 sales centers to centers that exclusively market repossessed inventory. The closure or conversion of certain sales centers in both 2002 and 2001 resulted principally from the Company’s restructuring plans, which are described further below. Total new retail sales dollars at sales centers open more than one year decreased 3% during 2002. Subsequent to September 30, 2002, the Company announced the closing of additional retail stores as further described in the “Liquidity and Capital Resources” section of Management’s Discussion and Analysis.

     Wholesale sales represent sales of manufactured homes to independent retailers. Wholesale sales dollar volume increased 17%, reflecting a 20% increase in wholesale unit volume, which was partially offset by a 9% decrease in the average new unit sales price of single-section homes.

Gross profit

Consolidated gross profit margin increased from 20.9% in 2001 to 23.5% in 2002. This increase primarily resulted from improved manufacturing efficiencies and reduced promotional pricing at retail associated with the Company’s planned inventory reduction. These increases were partially offset by a higher percentage of wholesale sales in 2002. Wholesale sales typically carry lower margins than the Company’s integrated retail sales.

Consumer finance revenues

Consumer finance revenues are summarized as follows:

     The decrease in interest income reflects decreased income on retained regular REMIC interests as a result of the sale of a majority of these assets during the fourth quarter of 2001, as well as lower average outstanding balances of loans held for sale in the warehouse prior to securitization and lower average interest rates on loans held for sale in the warehouse prior to securitization. The lower average warehouse balances result from the timing of securitizations and lower loan originations due to sales volume.

     Loan servicing fees, which are reported net of amortization of servicing assets and liabilities, increased as a result of a decrease in servicing asset amortization and an increase in servicing liability amortization. This increase was partially offset by lower overall servicing cash flows from the Company’s securitizations. The timing and amount of servicing cash flows may vary based on the performance of loans in the securitizations and the number of repossessions liquidated. In some instances, however, certain securitizations did not generate sufficient cash flows to enable the Company to receive its full servicing fee. The Company has not recorded revenues or receivables for these shortfalls because the Company’s right to receive servicing fees generally is subordinate to the holders of regular REMIC interests. For 2002, 2001 and 2000 the Company received cash servicing fees of $32.7 million, $39.0 million and $37.2 million, respectively.

     The decrease in REMIC residual income is primarily a result of the sale of a majority of these assets during the fourth quarter of 2001.

     The gain on sale of securities and loans reflects the completion of four securitizations for both 2002 and 2001. The gains in 2002 and 2001 reflect an increase in the spread between the yield on loans originated by the Company and the cost of funds obtained when the loans were securitized.

     The Company recorded charges of $3.5 million to reduce the carrying value of loans held for sale to a lower of cost or market basis during 2002. No such charges were recorded during 2001.

     Impairment and valuation provisions are summarized as follows:

     These impairment and valuation provisions generally resulted from changes in the Company’s estimates of net credit losses and voluntary prepayment rates on securitized loans. During June 2002 the Company decided to substantially curtail its loan assumption program, which was implemented in 2001. The elimination of the loan assumption program, and the Company’s need to reduce the number of repossessed homes on hand, will require the Company to increase the number of repossessed homes sold through the wholesale distribution channel, which typically carries much lower recovery rates than those sold through the retail distribution channel. As a result of this decision, the Company expects future net credit losses to increase, particularly in the near-to-mid term. Accordingly, the Company has recorded impairment charges to reflect updated valuations of its estimated REMIC residual asset cash flows, projected shortfalls in future servicing fee revenues and estimated payments under guarantee obligations on certain subordinated securities sold. The Company expects the decline in recovery rates to be most significant over the next 18 – 24 months, reflecting the Company’s current disposition plan, the weakened economy and the industry’s current oversupply of repossessed homes. Downward adjustments to assumed recovery rates were less substantial for later periods. In addition to these changes to estimated net credit losses, the Company also reduced its voluntary prepayment speed assumptions over the estimated lives of the securitization transactions to reflect the industry’s current retail lending interest rate environment, reduced retail consumer lending capacity as well as the Company’s recent actual voluntary prepayment experience.

     As further described in Note 6 to the Consolidated Financial Statements, the Company’s retained interests in securitizations are sensitive to changes in certain key economic assumptions, particularly the net credit losses assumption which includes estimations of the timing, frequency and severity of loan defaults. At September 30, 2002 the aggregate valuation of retained interests was a net liability of $103.1 million, reflecting the guarantee obligations and the net servicing liability on certain of the REMIC securities. The effect of a 10% adverse change in the net credit losses assumption at September 30, 2002 would increase the net liability by approximately $50.4 million. Management continues to monitor performance of the loan pools and underlying collateral and adjust the carrying value of assets and liabilities arising from loan securitizations as appropriate. Changes in loan pool performance and market conditions, such as general economic conditions and higher industry inventory levels of repossessed homes, may affect recovery rates and default rates and result in future impairment and valuation provisions.

     The Company believes that its historical loss experience has been favorably affected by its ability to resell repossessed units through its retail sales centers. In an effort to reduce the cost of repossession and foreclosure, the Company made use of its loan assumption program beginning in 2001 as an alternative to foreclosure. Under this program, the Company endeavored to find a new buyer that met the then-current underwriting standards for repossessed homes who was willing to assume the defaulting obligor’s loan. The expenses associated with this program, which are reflected in the provision for losses on credit sales in the Consolidated Statement of Operations, amounted to $44.3 million in 2002 and $12.2 million in 2001. As previously discussed, during June 2002 the Company decided to substantially curtail the loan assumption program as a result of the significant expense associated with the program and the negative effect it was having on liquidity. The Company converted the majority of assumption units to repossession status. The reduction in use of the program will reduce the cash costs associated with the program. See further discussion in the “Liquidity and Capital Resources” section below.

     In the past, the Company generally attempted to sell the home at retail and refinanced the home. After the Company’s Chapter 11 filing, the Company stopped providing repossession refinancing and expects to sell the substantial majority of repossessed homes through wholesale distribution channels.

     For the year ended September 30, 2002 total credit losses on loans originated by the Company, including losses relating to assets securitized by the Company, loans held for investment, loans held for sale and loans sold with full or partial recourse, amounted to approximately 4.60% of the average principal balance of the related loans, compared to approximately 2.15% one year ago. Because losses on repossessions are reflected in the loss ratio principally in the period during which the repossessed property is disposed of, fluctuations in the number of repossessed properties disposed of from period to period may cause variations in the charge-off ratio. Expenses associated with the loan assumption program implemented in June 2001, as described above, are also included in total credit losses as a percentage of average principal balance and are the principal reason for the increase during 2002. At September 30, 2002 the Company had a total of 7,063 unsold properties in repossession or foreclosure (approximately 5.27% of the total number of serviced assets) compared to 5,940 (including pending assumption or equity transfer units) and 2,603 at September 30, 2001 and 2000, respectively (approximately 4.43% and 1.99%, respectively, of the total number of serviced assets).

     At September 30, 2002 the delinquency rate on Company serviced assets was 5.4%, compared to 6.1% at September 30, 2001. Higher delinquency levels may result in increased repossessions and related future impairment and valuation provisions.

Insurance revenues

Insurance revenues from the Company’s captive reinsurance business decreased 23% to $29.9 million in 2002 from $38.9 million in 2001. This decrease reflects lower new insurance premium sales as a result of lower new home sales by the Company’s retail operations, as well as the sale of policies with shorter insurance terms, predominantly annual policies only. If these adverse trends continue, insurance revenues will continue to decline in future periods.

     Over the past two years the Company has taken various actions in order to reduce the levels of credit support, which take the form of letters of credit and/or cash, required to secure the reinsurance subsidiary’s obligations to pay claims and meet regulatory capital requirements. Effective August 1, 2000 the Company entered into an Extended Service Contract premium recapture agreement where unearned premium and loss reserves were transferred back to the ceding company. This transaction created a commission-based arrangement for this line of business. On March 1, 2001 the Company entered into a similar arrangement that amended the basis upon which credit life premiums are ceded. Under the terms of the agreement, all unearned credit life premiums and loss reserves were transferred back to the ceding company and credit life premiums were ceded on an earned basis, rather than on a written basis. Effective June 1, 2000 the Company entered into a physical damage quota share agreement under which the Company only reinsures 50% of the physical damage insurance risk, the remaining 50% of the risk being retained by the Company’s ceding insurer. As a result of the Company’s favorable loss experience, the Company recognized incremental commissions of $606,000 and $1.7 million in 2002 and 2001, respectively.

     As part of its decision to reorganize under Chapter 11, the Company analyzed the impact of the bankruptcy filing on the ability of the Company’s captive reinsurance business to continue to meet all regulatory liquidity and solvency requirements and the ongoing administrative costs of its operation. On November 1, 2002 the company entered into a voluntary liquidation plan whereby the remaining 50% balance of the physical damage premium under the quota share agreement would be recaptured, thus eliminating all insurance underwriting risk. Under the terms of a physical damage recapture agreement, all unearned physical damage premiums and loss reserves were transferred back to the ceding company. As a result, effective November 1, 2002 the Company’s captive reinsurance subsidiary ceased to insure any policyholder risks and will discontinue all operations and be formally closed by January 31, 2003, subject to regulatory approval.

     In the future the Company will continue to participate in commissions from its insurance operations at a lower administrative cost and without the need for credit support. Additionally the Company may participate in incremental commissions based on favorable loss experience. Management believes this arrangement will reduce the volatility of the Company’s earnings by lowering its underwriting exposure to natural disasters such as hurricanes and floods, while at the same time allowing the Company to participate in additional profit streams in the event of favorable loss experience.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased $50.9 million, or 16%, in 2002 compared to 2001. As a percentage of net sales, selling, general and administrative expenses decreased to 28.0% of net sales in 2002 from 30.9% of net sales in 2001. This decrease is primarily a result of ongoing cost containment measures and the closure of underperforming sales centers having a high ratio of fixed costs to sales. Selling, general and administrative expenses in 2001 also included a $2.1 million charge associated with the closure of 12 retail sales centers.

Consumer finance operating expenses

Consumer finance operating expenses increased $11.0 million, or 27%, during 2002 principally as a result of costs associated with increased headcount, higher depreciation expense due to the capitalization of new computer systems, higher expenses associated with the discounting of customer advances and extensions balances and $2.4 million in operating costs associated with the Company’s servicer advance facility.

Insurance operating expenses

Insurance operating expenses decreased 13% to $13.5 million during 2002 primarily as a result of favorable loss ratios and because a larger percentage of insurance revenues were derived from products with lower expense ratios. Because reinsurance claims costs are recorded as insured events occur, reinsurance underwriting risk may increase the volatility of the Company’s earnings, particularly with respect to property and casualty reinsurance. However, the quota share agreement described previously, as well as the Company’s purchase of catastrophe reinsurance, should reduce the Company’s underwriting exposure to natural disasters.

Restructuring charges

During 1999 the Company recorded restructuring charges of approximately $25.9 million, related primarily to the closing of four manufacturing lines, the temporary idling of five others and the closing of approximately 40 sales centers. The charges in 1999 included severance and other termination costs related to approximately 2,150 employees primarily in manufacturing, retail and finance operations, costs associated with closing plants and sales centers, and asset writedowns.

     During 2000 the Company reversed into income $6.4 million of charges initially recorded in 1999. Approximately $2.9 million of the reversal related to the Company’s legal determination that it was not required to pay severance amounts to certain terminated employees under the Worker Adjustment and Retraining Notification Act (“WARN”). Upon the expiration of a six-month waiting period specified by WARN and the Company’s final calculation of the number of affected employees in relation to its workforce at the time of the restructuring announcement, the Company determined that it was not required to pay amounts previously accrued. During 2000 the Company also reevaluated its restructuring plans and determined that the losses associated with the closing of retail sales centers, the idling or closing of manufacturing plants, the disposition of certain assets and legal costs were less than anticipated and $3.5 million of the charges were reversed. During 2000 the Company recorded an additional $3.8 million charge, primarily related to severance costs associated with a reduction in headcount of 250 people primarily in the corporate, finance and manufacturing operations area, and the closure of offices.

     During the fourth quarter of 2001 the Company recorded restructuring charges of approximately $17.8 million, primarily related to the closing of approximately 90 underperforming retail sales centers, a majority of which were located in the South, in areas where the Company has experienced poor operating results as well as poor credit performance. These restructuring activities were substantially complete by March 31, 2002.

     Market conditions, particularly in the South where the majority of store closings occurred, remained fluid during the six months ended March 31, 2002. While the Company did close the originally identified approximately 90 stores, these changing market conditions caused the Company to revise its initial determination of the number of stores to be either sold to independent dealers, converted to centers that exclusively market repossessed inventory or closed. The Company originally estimated that the disposition of the stores would be approximately evenly divided between those sold to independent dealers, converted to centers exclusively marketing repossessed inventory or closed. Ultimately, approximately 27 stores were sold, 23 were converted and 40 were closed. As a result of the change in the ultimate disposition of certain of the stores, as well as changes in the original estimate of costs to exit the stores, the Company reversed into income in the quarter ended March 31, 2002, $2.1 million of restructuring charges originally recorded in the fourth quarter of fiscal 2001.

     During the fourth quarter of 2002 the Company recorded restructuring charges of approximately $8.8 million, primarily related to the closing of approximately 40 underperforming retail sales centers and five centers that exclusively market repossessed inventory. The stores to be closed are located principally in the South and Texas, where the Company has continued to experience poor operating results and unsatisfactory credit performance.

     Of the $2.9 million remaining in the restructuring reserve at September 30, 2002, $900,000 related to provisions established prior to the fourth quarter of 2001. The Company is contractually obligated to pay the amounts remaining in the reserve at September 30, 2002.

     During the execution of the Company’s restructuring plans, approximately 2,950 employees were affected, of which 2,150 and 250 were terminated during the fourth quarters of 1999 and 2000, respectively. The Company terminated approximately 400 employees as part of its fourth quarter 2001 plan. The Company expects to terminate approximately 150 employees as part of its fourth quarter 2002 plan.

     The components of the restructuring provisions are as follows:

Goodwill and other asset impairment charges

During 2002 the Company recorded $70.1 million of charges related principally to the impairment of the carrying value of goodwill, assembled workforces and distribution networks. Such impairment provisions related to intangible assets amounted to $41.5 million and were based upon an analysis of cash flows. Additionally, the Company recorded asset impairment charges related to the closure of a manufacturing plant and certain underperforming retail sales centers amounting to $23.0 million. During 2002 the manufacturing plant that was closed in support of the Company’s overall business strategy to align production rates with anticipated sales generated an operating loss of $3.1 million. The underperforming retail sales centers generated an aggregate operating loss of $2.8 million in 2002. As a result of the closure of these retail sales centers and the closure of sales centers announced subsequent to September 30, 2002, the Company also recorded a charge of $9.7 million in the fourth quarter of 2002 to reduce the carrying value of inventory located at these stores to its estimated realizable value. The Company intends to sell a substantial portion of the inventory located at these retail sales centers through wholesale distribution channels, which historically generate reduced margins, in an effort to expedite the sales center closing process.

     Approximately $65.5 million of the $70.1 million charge was noncash in nature and has been disclosed separately in the accompanying Consolidated Statement of Operations. The noncash portions of the charge relate to the reduction in carrying value of assets, including land improvements, leasehold improvements, machinery and equipment, goodwill and intangible assets. The remaining $4.6 million of the $70.1 million of asset impairment charges related to cash costs associated with the closure of the manufacturing facility and has been included in cost of sales in the Company’s Consolidated Statement of Operations contained in Item 8 of the Annual Report on Form 10-K.

Provision for losses on credit sales

The provision for losses on credit sales increased from $20.7 million in 2001 to $52.5 million in 2002 principally as a result of increased expenses associated with the Company’s loan assumption program. Costs associated with the loan assumption program were $44.3 million in 2002 and $12.2 million in 2001.

Interest expense

Interest expense decreased $15.0 million, or 27%, during 2002 due principally to lower average balances outstanding on short-term credit facilities. In addition, 2001 includes $3.1 million of costs associated with efforts to replace the Company’s revolving credit facility.

Income taxes

In 2002 the Company recorded an income tax benefit of $6.5 million resulting from the completion of an examination of the Company’s federal income tax returns for fiscal years 1997 through 2000 and the favorable resolution of certain income tax contingencies for which the Company had previously recorded a provision.

     The Company also recorded an income tax benefit of $72.2 million resulting from the enactment of the Job Creation and Worker Assistance Act of 2002 (“the Act”) on March 8, 2002. The Act extended the period to which net operating losses could be carried back from two years to five years, giving the Company the opportunity to file for refunds of income taxes paid relating to the 1996 and 1997 tax years. After filing its 2001 income tax return, the Company received in April 2002 a cash refund of $46.6 million. The remaining tax benefit from the extended carryback period in the form of a cash refund of approximately $26 million is expected to be realized after the Company files its income tax return for the year ending September 30, 2002.

     Through September 30, 2002 a valuation allowance of $131.8 million has been established, in accordance with the requirements of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“FAS 109”). Realization of the deferred tax assets (net of recorded valuation allowances) is largely dependent upon future profitable operations and future reversal of existing taxable temporary differences. Because the Company has operated at a loss in its four most recent fiscal years and because it believes difficult competitive and economic conditions may continue for the foreseeable future, the Company believes that under the provisions of FAS 109, it is not appropriate to record income tax benefits on current losses in excess of anticipated refunds of taxes previously paid. The valuation allowance may be reversed to income in future periods to the extent that the related deferred income tax assets are realized as a reduction of taxes otherwise payable on any future earnings or the valuation allowances are otherwise no longer required. Additionally, the Company’s bankruptcy filing and resulting proposed plan of reorganization may result in further limitations on the realization of operating loss carryforwards.

2001 Compared to 2000

Net sales

The Company’s sales volume continued to be adversely affected by extremely competitive industry conditions in 2001. Retail sales dollar volume decreased 15%, reflecting an 18% decrease in new unit volume and a 2% decrease in the average new unit sales price of single-section homes. These decreases were partially offset by a 1% increase in the average new unit sales price of multi-section homes and a shift in product mix toward multi-section homes, which have higher average selling prices than single-section homes. Average retail sales prices of single section homes declined as a result of competitive pricing pressure and various promotional programs targeted at selling older inventory models. Multi-section homes accounted for 70% of retail new unit sales compared to 64% in 2000.

     During 2001 the Company opened one new sales center compared to 11 sales centers during 2000. During 2001 the Company also closed 48 underperforming sales centers and converted 32 sales centers to centers that exclusively market repossessed inventory. The closure or conversion of certain sales centers during 2001 resulted principally from the Company’s restructuring plan, which was announced during the fourth quarter of 2001 as previously described. During 2000, 45 sales centers were closed. Total new retail sales dollars at sales centers open more than one year decreased 12% during 2001.

     Wholesale sales dollar volume decreased 16% due to a 19% decrease in wholesale unit volume, partially offset by a 2% increase in the average new unit sales price of multi-section homes.

Gross profit

Consolidated gross profit margin decreased from 22.1% in 2000 to 20.9% in 2001 primarily as a result of competitive pricing pressures, various promotional programs targeted at selling older inventory models and unfavorable manufacturing variances caused by reduced production schedules experienced during 2001.

Consumer finance revenues

Consumer finance revenues are summarized as follows:

     The decrease in interest income primarily reflected lower average outstanding balances of loans held for sale in the warehouse prior to securitization, resulting from a decrease in loan originations and the timing of securitizations. This decrease was offset by higher average interest rates on loans held for sale in the warehouse prior to securitization.

     Loan servicing fees, which are reported net of amortization of servicing assets and liabilities, increased as a result of higher overall servicing cash flows from the Company’s securitizations. In some instances, however, certain securitizations did not generate sufficient cash flows to enable the Company to receive its full servicing fee. The Company has not recorded revenues or receivables for these shortfalls because the Company’s right to receive servicing fees generally is subordinate to the holders of regular REMIC interests.

     The decrease in REMIC residual income reflects reduced cash flow from certain retained residual interests due to increased liquidations of repossessions in certain securitizations and lower recovery rates on the liquidations.

     The gain/(loss) on sale of securities and loans reflects the completion of four securitizations for both 2001 and 2000. In addition, during fiscal 2000 the Company recorded provisions of $12.0 million to reduce the carrying value of loans held for sale to the lower of cost or market, resulting in aggregate gains on securities sold and loans sold or held for sale of $10.2 million in 2001 compared to aggregate losses of $28.8 million in 2000. The gains in 2001 reflect the increased spread between the yield on loans originated by the Company and the cost of funds obtained when the loans were securitized.

     Impairment and valuation provisions are summarized as follows:

     During the fourth quarter of fiscal 2001 the Company sold substantially all subordinated securities retained from prior securitizations. Impairment charges of $20.6 million were recorded during the third quarter of 2001 to reduce the carrying value of these regular REMIC interests to their estimated net realizable value.

     Except for the impairment charge related to the completed sale of the regular REMIC interests described above, impairment and valuation charges generally result from changes in assumptions of default rates and recovery rates on securitized loans. Management monitors performance of the loan pools and underlying collateral and adjusts the carrying value of assets and liabilities arising from loan securitizations as appropriate. Changes in loan pool performance and market conditions, such as general economic conditions and higher industry inventory levels of repossessed homes, may affect recovery rates and default rates and result in future impairment and valuation provisions.

     The Company believes that its historical loss experience has been favorably affected by its ability to resell repossessed units through its retail sales centers. In an effort to reduce the cost of repossession and foreclosure during 2001, the Company also increasingly made use of its assumption program as an alternative to foreclosure. Under this program, the Company endeavored to find a new buyer that met the then-current underwriting standards for repossessed homes who is willing to assume the defaulting obligor’s loan. The expenses associated with this program, which have been recorded in the provision for losses on credit sales in the Consolidated Statement of Operations were $12.2 million in 2001. At September 30, 2001 the Company had 2,253 loans that were pending assumption under this program, which are included as unsold properties in repossession or foreclosure in the following paragraph.

     For the year ended September 30, 2001 total credit losses on loans originated by the Company, including losses relating to assets securitized by the Company, loans held for investment, loans held for sale and loans sold with full or partial recourse, amounted to approximately 2.15% of the average principal balance of the related loans, compared to approximately 1.96% in 2000. Because losses on repossessions are reflected in the loss ratio principally in the period during which the repossessed property is disposed of, fluctuations in the number of repossessed properties disposed of from period to period may cause variations in the charge-off ratio. At September 30, 2001 the Company had a total of 5,940 unsold properties in repossession or foreclosure, including pending assumption or equity transfer units (approximately 4.43% of the total number of serviced assets), compared to 2,603 and 2,417 at September 30, 2000 and 1999, respectively (approximately 1.99% and 1.90%, respectively, of the total number of serviced assets.)

     At September 30, 2001 the delinquency rate on Company serviced assets was 6.1%, compared to 4.5% at September 30, 2000. Higher delinquency levels may result in increased repossessions and related future impairment and valuation provisions.

Insurance revenues

Insurance revenues from the Company’s captive reinsurance business decreased 31% to $38.9 million in 2001 from $56.4 million in 2000. A substantial portion of insurance revenues is derived from insurance policies sold in connection with new home sales by the Company’s retail operations.

     Effective June 1, 2000, August 1, 2000 and March 1, 2001, respectively, the Company entered into a quota share agreement for its physical damage policies, a commission-based arrangement for its extended service contract line of business and an arrangement that amended the basis upon which credit life premiums are ceded. These agreements are more fully described in the “2002 Compared to 2001 – Insurance revenues” discussion above. As a result of the Company’s favorable loss experience since the inception of the quota share agreement, the Company recognized incremental commissions of $1.7 million during 2001.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased $24.3 million, or 7%, in 2001 compared to 2000. As a percentage of net sales, selling, general and administrative expenses increased to 30.9% of net sales in 2001 from 28.2% of net sales in 2000. This increase is primarily a result of certain salesperson compensation incentives associated with a reduction of inventory levels and higher operating expenses at sales centers in the process of closing, combined with a lower sales base over which to spread the Company’s fixed portion of distribution and overhead costs. In addition, during the third quarter of 2001 the Company recorded in selling, general and administrative expenses a $2.1 million charge, most of which was noncash in nature, related to the closing of 12 sales centers.

Consumer finance operating expenses

Consumer finance operating expenses decreased $2.7 million, or 6%, during 2001 principally as a result of the effect of the Company’s cost reduction initiatives undertaken during the fourth quarter of 2000 and during 2001.

Insurance operating expenses

Insurance operating expenses decreased 52% to $15.5 million during 2001 primarily as a result of favorable loss ratios and because a larger percentage of insurance revenues were derived from products with lower expense ratios.

Restructuring charges

During the fourth quarter of 2001 the Company recorded restructuring charges of approximately $17.8 million, primarily related to the closing of approximately 90 underperforming retail sales centers. Of the $4.9 million remaining in the restructuring reserve at September 30, 2001, $80,000 related to provisions established before the fourth quarter of 2001. Information regarding the Company’s restructuring activities is provided in “2002 Compared to 2001 – Restructuring charges.”

Provision for losses on credit sales

The provision for losses on credit sales increased from $3.0 million in 2000 to $20.7 million in 2001 principally as a results of expenses associated with the Company’s loan assumption program. Costs associated with the loan assumption program were $12.2 million in 2001.

Interest expense

Interest expense increased $4.8 million, or 10%, during 2001 primarily due to higher fees and higher interest rates than in 2000 associated with the Company’s short-term credit facilities. These increases were partially offset by lower average balances outstanding during the year. The Company also expensed approximately $3.1 million of costs associated with efforts to replace the Company’s revolving credit facility.

Income taxes

As previously described in “2002 Compared to 2001 – Income taxes,” under the provisions of FAS 109 management does not believe it is appropriate to record income tax benefits on current losses in excess of anticipated refunds of taxes previously paid. Consequently, the Company’s results for the year ended September 30, 2001 do not reflect a benefit from income taxes, notwithstanding the fact that the Company reported a loss for the period. At September 30, 2001 the Company had approximately $128 million of deferred tax assets against which a full valuation allowance was recorded. The valuation allowance may be reversed to income in future periods to the extent that the related deferred income tax assets are realized as a reduction of taxes otherwise payable on any future earnings or the valuation allowances are otherwise no longer required.

Cumulative effect of accounting changes

Effective October 1, 2000 the Company adopted Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements” (“SAB 101”) and recorded a charge of $14.6 million as the cumulative effect of an accounting change as of that date. The effect of this change on 2001 operations, excluding the cumulative effect, was $13.3 million. Under its previous accounting policy, the Company recognized revenue for the majority of retail sales upon closing, which included execution of loan documents and related paperwork and receipt of the customer’s down payment. In adopting the provisions of SAB 101, the Company changed its revenue recognition policy on these retail sales to a method based on delivery, installation and set up of the home at the customer’s site and completion of all contractual obligations. As required by SAB 101 the Company restated its quarterly financial results for 2001, which are shown in Note 23 to the Consolidated Financial Statements.

     In October 2000 the Emerging Issues Task Force of the Financial Accounting Standards Board (the “EITF”) issued EITF 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets,” which sets forth new accounting requirements for the recognition of impairment on REMIC interests arising from securitizations. Under the prior accounting rule, declines in the value of retained REMIC interests were recognized in earnings when the present value of estimated cash flows discounted at a risk-free rate using current assumptions was less than the carrying value of the retained interest. Under the new accounting rule, declines in value are recognized when the fair value of the retained interest is less than its carrying value and the timing and/or amount of cash expected to be received from the retained interest has changed adversely from the previous valuation which determined the carrying value of the retained interest. When both of these circumstances occur, the carrying value of the retained interest is reduced to its estimated fair value. The Company adopted EITF 99-20 as required on April 1, 2001 and accordingly recorded a charge for the cumulative effect of an accounting change of $2.3 million as of that date.

Liquidity and Capital Resources

For the years ended September 30, 2002, 2001 and 2000 the Company reported net losses of $193.1 million, $176.0 million and $120.9 million, respectively.

     These financial results reflect the difficult business conditions within the manufactured housing industry. The Company has been operating in a highly competitive environment caused principally by the industry’s aggressive expansion in the retail channel, excessive amounts of finished goods and repossession inventory and a significant reduction in the availability of financing at both the wholesale and retail levels. Further declines in overall economic conditions have also contributed to a difficult environment. The industry estimates that shipments of manufactured homes from production facilities declined by approximately 23% during calendar 2001 and by approximately 20% during the first ten months of calendar 2002, while annual repossessions have increased to an estimated 90,000 units in 2002, more than 50% of new home shipments.

     In addition to the industry and economic factors described above, the Company’s loans originated in 2000 and before continued to perform poorly during 2002 and the manufactured housing asset-backed securities market, into which the Company sells its loans, deteriorated further. The Company’s poor loan performance, coupled with declining recovery rates in the repossession market, has resulted in the Company’s loan servicing income being substantially eliminated. These factors have also increased the payments the Company will be required to make to the holders of subordinated REMIC bonds that it has guaranteed.

     Although the Company took substantial steps to lower inventory levels, reduce operating expenses and maximize cash flow, these improvements were not sufficient to offset the overall poor performance of the loan portfolio, the deterioration in the asset-backed securitization market, the general economic recession and the adverse market conditions present in the manufactured housing sector since 1999. As a result, on November 15, 2002 the Debtors filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in Wilmington, Delaware. The Company filed for reorganization under Chapter 11 in order to restructure its balance sheet and access new working capital while continuing to operate in the ordinary course of business.

     At this time, it is not possible to predict the effect of the Chapter 11 reorganization process on the Company’s business and results of operations or financial condition, various creditors and security holders, or when it may be possible to emerge from Chapter 11, although it is management's intention to emerge from Chapter 11 as quickly as possible. The Company’s future results are dependent upon the timely development, confirmation and implementation of a plan of reorganization. The Company believes, however, that under any reorganization plan, the Company’s common stock would likely be substantially if not completely diluted or cancelled as a result of the conversion of debt to equity or as a result of other compromises of interest. Further, it is also likely that the Company’s senior notes and REMIC guarantee obligations will be converted to equity. The Company’s ability to continue to operate as a going concern is subject to numerous risks and uncertainties, including those described in the “Forward Looking Statements” section below.

     On November 23, 2002 the Debtors reached an agreement in principle with Berkshire Hathaway Inc., Greenwich Capital Financial Products, Inc. and Ranch Capital LLC to provide debtor-in-possession (“DIP”) financing of up to $215 million during completion of the reorganization (the “DIP Facility”). The proposed DIP Facility includes an up to $140 million line of credit to be used for general corporate liquidity needs (the “Tranche A Revolving Loan”) and an up to $75 million loan servicing advance line (the “Tranche B Servicing Advance Loan”).

     On November 27, 2002 the Debtors entered into a Senior Secured, Super Priority Debtor-in-Possession Loan and Security Agreement (the “Interim DIP Agreement”) with Foothill Capital Corporation, Textron Financial Corporation and The CIT Group/Business Credit, Inc., pursuant to which such lenders agreed to provide the Company with up to $25 million in interim debtor-in-possession financing. Borrowings under the Interim DIP Agreement bore interest at prime plus 3.5% and were secured by a super priority lien on substantially all of the Company’s assets. The Interim DIP Agreement matured on December 31, 2002.

     On December 31, 2002 the Court approved the DIP Facility. The Debtors believe that documentation of the Tranche A Revolving Loan, which replaces the Company’s $65 million revolving credit facility and the Interim DIP Agreement, is substantially complete. The Debtors also believe that the Tranche B Servicing Advance Loan will be finalized by the end of January 2003. However, there can be no assurances that the DIP Facility will be finalized.

     The Company has also reached an agreement with a financial institution which provides for continued access to its loan purchase facility of up to $200 million under substantially the same terms. Continued borrowing under this facility is conditioned upon the finalization of the DIP Facility.

     The Company believes that borrowings under these facilities, (if and when they are finalized and subject to continued availability) coupled with continued access to the asset-backed securitization market and/or whole loan sales, as well as operating cash flow, will be sufficient to meet its obligations and to execute its business plan throughout the bankruptcy proceedings. In addition, the Company received in December 2002 an income tax refund for 2002 approximating $26 million.

     The Company anticipates continuing to generate liquidity through its securitization program. The retail financing of sales of the Company’s products is an integral part of the Company’s integration strategy. Such financing consumes substantial amounts of capital, which the Company has obtained principally by regularly securitizing such loans through the asset-backed securities market. Should the Company’s ability to access the asset-backed securities market become impaired, the Company would be required to seek additional sources of funding for its finance business. Such sources might include, but would not be limited to, the sale of whole loans to unrelated third parties and the increased utilization of FHA financing. The Company’s inability to find alternative sources of funding would have a materially adverse impact on the Company’s liquidity, operations and reorganization plan.

     The Company, from time to time, has retained certain subordinated securities from its securitizations. At September 30, 2002 the Company had retained such subordinated asset-backed securities having a carrying value of $12.8 million associated with the August 2002 securitization, as well as securities having a carrying value of $968,000 from securitization transactions prior to 1994. The Company considers any asset-backed securities retained to be available for sale and would consider opportunities to liquidate these securities based upon market conditions. A significant decrease in the demand for subordinated asset-backed securities at prices acceptable to the Company would likely require the Company to seek alternative sources of financing for the loans originated by the consumer finance business, or require the Company to seek alternative long-term financing for the subordinated asset-backed securities. There can be no assurance that such alternative financing can be obtained, and the inability of the Company to obtain such alternative financing could have a materially adverse impact the Company’s liquidity and operations.

     The Company operates its plants to support its captive retail sales centers and its independent retailer base. The Company has, and will continue to, adjust production capacity in line with demand, producing at a rate that will allow the Company to lower its inventories. At September 30, 2002 the Company was operating 19 plants, though many were operating at reduced production schedules. On October 4, 2002 the Company announced the closure of approximately 40 retail sales centers. As part of the Company’s operational restructuring plan announced November 15, 2002, five of the 19 plants were closed, along with the loan origination operations in Texas. In addition, the Company announced that it plans to close an additional 75 sales centers, located principally in the Deep South, Tennessee and Texas markets. Substantially all of these retail locations will be closed by March 31, 2003. Following these closures, the Company will operate approximately 120 retail sales centers.

     On November 15, 2002 the New York Stock Exchange, Inc. (“NYSE”) announced that it had determined that the Company’s common stock should be suspended from trading on the NYSE immediately. The NYSE submitted an application to the Securities and Exchange Commission to delist the Company’s common stock from the NYSE and such delisting became effective as of December 30, 2002.

     The Company estimates that in 2003 capital expenditures will approximate $6 million comprised principally of improvements at existing facilities, computer equipment and the replacement of certain computer information systems. However, this amount may be adjusted downward subject to the final terms of the DIP financing and the Company’s plan of reorganization when submitted and approved.

     During the year ended September 30, 2002 the Company decreased inventories by $40 million, net of inventory reserves, principally due to the closing of underperforming retail sales centers.

     The decrease in loans and investments from September 30, 2001 principally reflects a decrease in loans held for sale from $163 million at September 30, 2001 to $150 million at September 30, 2002, as well as a decrease in retained interests in REMIC securitizations from $37 million at September 30, 2001 to $28 million at September 30, 2002. The Company originates loans and warehouses them until sufficient receivables have been accumulated for a securitization. Changes in loan origination volume, which is significantly affected by retail sales, and the timing of loan securitization transactions affect the amount of loans held for sale at any point in time.

     On June 1, 2002 the Company redeemed $12.9 million of its reset debentures due 2007 pursuant to redemption provisions in the related trust indenture. The interest rate on the reset debentures changed on June 1, 2002 from 8% to 12.50%.

New Accounting Standards

The Financial Accounting Standard Board issued Statement No. 141, “Business Combinations,” (“FAS 141”) and Statement No. 142, “Goodwill and Other Intangible Assets,” (“FAS 142”). FAS 141 mandates the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and establishes specific criteria for the recognition of intangible assets separately from goodwill. FAS 142 addresses the accounting for goodwill and intangible assets subsequent to their acquisition. The most significant changes made by FAS 142 are that goodwill and indefinite lived intangible assets are no longer amortized and are tested for impairment at least annually. As previously discussed, the Company wrote off all its remaining goodwill and other intangibles as of September 30, 2002.

     The Board issued Statement No. 143, “Accounting for Asset Retirement Obligations,” (“FAS 143”). FAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. FAS 143 applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The Company is required to adopt FAS 143 at the beginning of 2003. As a result of its bankruptcy filing, the Company has not yet determined the impact that this statement could have on its financial position or results of operations.

     The Board has also issued Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (FAS 144). This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company is required to adopt FAS 144 at the beginning of 2003. As a result of its bankruptcy filing, the Company has not yet determined the impact that this statement could have on its financial position or results of operations.

Market risk

Certain of the Company’s financial instruments are subject to market risk, including interest rate risk. The Company’s financial instruments are not currently subject to foreign currency risk or commodity price risk. The Company has no financial instruments held for trading purposes.

     The Company originates loans, most of which are at fixed rates of interest, in the ordinary course of business and periodically securitizes them to obtain permanent financing for such loan originations. Accordingly, the Company’s loans held for sale are exposed to risk from changes in interest rates between the times loans are originated and the time at which the Company obtains permanent financing, generally at fixed rates of interest, in the asset-backed securities market. The Company attempts to manage this risk by minimizing the warehousing period of unsecuritized loans. Loans held for sale are excluded from the table below as they primarily represent recent originations which are intended for securitization in fiscal 2003.

     Loans held for investment act as collateral for certain of the Company’s debt obligations, which were repaid during 2001, and are subject to interest rate risk. The Company currently does not originate any loans with the intention of holding them for investment.

     Retained regular and residual REMIC interests are held as available for sale securities; the value of these securities may change in response to, among other things, changes in interest rates. Such interests in REMIC securitizations are valued as described in Notes 2, 5 and 6 to the Consolidated Financial Statements.

     The Company’s loan purchase facility provides for interest at a variable rate. Accordingly, an increase in short-term interest rates would adversely affect interest expense on such facility. In addition, certain of the Company’s notes and bonds payable bear interest at floating rates, and interest expense on such obligations would be adversely affected by an increase in short-term interest rates.

     The following table sets forth the Company’s financial instruments that are sensitive to changes in interest rates at September 30, 2002:

(1)		For REMIC residual interests represents the weighted average interest rate used to discount assumed cash flows.
(2)		Assumed cash flows represent contractual cash flows reduced by the effects of estimated prepayments.
(3)		Assumed cash flows reflect the assumed prepayment rates used in estimating the fair values of the related REMIC interests.

Forward Looking Statements

This Annual Report on Form 10-K contains certain forward-looking statements and information based on beliefs of the Company’s management as well as assumptions made by, and information currently available to, the Company’s management. These statements include, among others, statements relating to the Company’s expectation that future net credit losses will increase, particularly in the near-to-mid term; the Company’s belief that if adverse trends in new home sales and the sale of insurance policies with shorter terms continues, then its insurance revenues will continue to decline in future periods; management’s belief that the Company’s participation in incremental insurance commissions based on favorable loss experience will reduce the volatility of the Company’s earnings; the Company’s expectation that it will terminate approximately 150 employees as part of its fourth quarter 2002 plan; management’s belief that difficult competitive and economic conditions may continue for the foreseeable future, making it inappropriate to record income tax benefits on current losses in excess of anticipated refunds of taxes previously paid; the Company’s expectation that it will be able to access new working capital while in bankruptcy proceedings; the Company’s expectation that it will finalize the DIP Facility; the Company’s belief that the Tranche A Revolving Loan is substantially complete and that the Tranche B Servicing Advance Loan will be finalized in January 2003; the Company’s belief that it will successfully emerge from its Chapter 11 reorganization as a going concern; the Company’s expectation that it will continue to operate in the ordinary course of business during the Chapter 11 reorganization; the Company’s belief that the Company’s common stock will likely be substantially or completely diluted or cancelled under the reorganization plan and that the Company’s senior notes and REMIC guarantee obligations will be converted to equity; and the Company’s estimate that it may spend $6 million on capital expenditures in fiscal 2003.

     These forward-looking statements reflect the current views of the Company with respect to future events and are subject to a number of risks, including, among others, the following: competitive industry conditions could further adversely affect sales and profitability; the Company may be unable to access sufficient capital to fund its operations; it may recognize special charges or experience increased costs in connection with its securitization or other financing activities; the Company may recognize special charges or experience increased costs in connection with restructuring activities; the Company may not realize anticipated benefits associated with its restructuring activities (including the closing of underperforming sales centers); adverse changes in government regulations applicable to its business could negatively impact the Company; it could suffer losses resulting from litigation (including shareholder class actions or other class action suits); the Company could experience increased credit losses or higher delinquency rates on loans originated; negative changes in general economic conditions in market could adversely impact the Company; it could lose the services of key management personnel; and any other factors that generally affect companies in its lines of business could also adversely impact the Company.

     In addition, the views of the Company are subject to certain risks related to the Chapter 11 bankruptcy proceedings, including the Company may not be able to continue as a going concern; the Company’s debtor-in-possession and other financing activities may not be finalized, may be terminated or otherwise may not be available for borrowing; the Company may not be able to securitize the loans that it originates or otherwise finance its loan origination activities; the Company may be unable to complete the DIP Financing and such failure would constitute an event of default under the Company’s existing $200 million loan purchase facility; the Company may not be able to obtain the Court’s approval with respect to motions in the Chapter 11 proceeding prosecuted by it from time to time; the Company may not be able to develop, prosecute, confirm and consummate one of more plans of reorganization with respect to the Chapter 11 cases; third parties may seek and obtain court approval to terminate or shorten the exclusivity period that the Company has to propose and confirm one of more plans of reorganization, for the appointment of a Chapter 11 trustee or to convert the cases to Chapter 7 cases; the Company may not be able to obtain and maintain normal terms with vendors and service providers; the Company may not be able to maintain contracts that are critical to its operations and the Chapter 11 cases may have an adverse impact on the Company’s liquidity or results of operations.

     Should the Company’s underlying assumptions prove incorrect or should one or more of the risks and uncertainties materialize, actual events or results may vary materially and adversely from those described herein as anticipated, expected, believed or estimated.

Item 7A.     Quantitative and Qualitative Disclosure About Market Risk.

     The information required by this Item is included in Item 7 above under the caption “Market Risk.”

Item 8.  Financial Statements and Supplementary Data

Consolidated Statement of Operations

Oakwood Homes Corporation and Subsidiaries

(in thousands except per share data)