FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-9792
Cavalier Homes, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 63-0949734
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Highway 41 North & Cavalier Road, Addison, Alabama 35540
(Address of principal executive offices)
(Zip Code)
(205) 747-1575
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the latest practicable date.
Class Outstanding at May 12, 1995
Common Stock $.10 Par Value 4,698,352 Shares
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<PAGE>
CAVALIER HOMES, INC.
AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information (Unaudited)
Consolidated Condensed Balance Sheets -
March 31, 1995 and December 31, 1994 3
Consolidated Condensed Statements of
Income - Thirteen Weeks ended March 31, 1995
and April 1, 1994 4
Consolidated Condensed Statements of
Cash Flows - Thirteen Weeks ended March 31, 1995
and April 1, 1994 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits 10
Signatures 11
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<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1995 1994
ASSETS (Unaudited) (Audited)
CURRENT ASSETS: ------------ ------------
Cash $ 4,452,270 $ 16,034,922
Investment Securities:
Debt Securities held to maturity 2,201,698 1,956,301
Equity Securities available for sale 2,665,291 1,680,072
Accounts Receivable, less allowance for
losses of $650,000 (1995 and 1994) 15,622,909 2,856,661
Installment contracts receivable - current 310,546 281,310
Inventories 11,372,569 9,734,314
Deferred Income Taxes 2,755,467 2,648,844
Other Current Assets 987,690 602,355
------------ ------------
TOTAL CURRENT ASSETS 40,368,440 35,794,779
PROPERTY, PLANT AND EQUIPMENT (Net) 13,799,246 13,194,655
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit loss of $371,569 (1995)
and $350,000 (1994) 11,426,887 9,193,858
GOODWILL, less accumulated amortization of
$199,000 (1995) and $104,000 (1994) 2,273,894 2,368,552
MARKETABLE SECURITIES HELD TO MATURITY 2,175,206 2,427,526
OTHER ASSETS 859,789 783,265
------------ ------------
$ 70,903,462 $ 63,762,635
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 623,244 $ 378,802
Accounts Payable 9,161,328 6,090,552
Amounts Payable Under Dealer Incentive Program 3,055,412 4,400,717
Accrued wages and related withholdings 2,233,727 1,463,558
Accrued Incentive Compensation 1,245,128 2,181,301
Estimated Warranties 4,600,000 4,200,000
Accrued Insurance 2,621,070 2,018,357
Other Accrued Expenses 2,517,104 2,201,286
Accrued Income Taxes 1,274,358 284,657
------------ ------------
Total Current Liabilities 27,331,371 23,219,230
DEFERRED INCOME TAXES 924,731 875,868
LONG-TERM DEBT 4,815,653 3,207,168
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 Par Value; Authorized
500,000 shares, none issued
Common Stock, $.10 Par Value; Authorized
15,000,000 shares; issued 4,718,803 (1995)
and 4,715,678 (1994) shares 471,880 471,568
Additional Paid-In Capital 22,047,924 22,053,641
Retained Earnings 15,361,748 13,985,005
Treasury Stock, at cost (20,451 shares) (49,845) (49,845)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 37,831,707 36,460,369
------------ ------------
$ 70,903,462 $ 63,762,635
============ ============
See Notes to Consolidated Condensed Financial Statements
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<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Thirteen Weeks Ended
March 31, April 1,
1995 1994
------------ ------------
REVEUNES:
Net sales $ 57,813,549 $ 46,673,930
Financial services 333,638 108,707
------------ ------------
58,147,187 46,782,637
------------ ------------
COST OF SALES 48,842,637 39,731,046
SELLING, GENERAL AND ADMINISTRATIVE:
Manufacturing 6,680,576 5,286,681
Financial Services 189,277 92,293
------------ ------------
55,712,490 45,110,020
------------ ------------
OPERATING PROFIT 2,434,697 1,672,617
------------ ------------
OTHER INCOME(EXPENSE):
Interest expense:
Manufacturing (1,406) (868)
Financial services (115,875) -
Other, net 209,184 43,743
------------ ------------
INCOME BEFORE INCOME TAXES 2,526,600 1,715,492
INCOME TAXES 1,009,000 686,000
------------ ------------
NET INCOME $ 1,517,600 $ 1,029,492
============ ============
NET INCOME PER SHARE $ 0.32 $ 0.28
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 4,770,433 3,618,026
============ ============
See Notes to Consolidated Condensed Financial Statements
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<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Thirteen Weeks Ended
March 31, April 1,
1995 1994
OPERATING ACTIVITIES: ------------ ------------
Net income $ 1,517,600 $ 1,029,492
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 580,917 294,537
Provision for credit losses, repurchase
commitments and other items 21,569 59,994
(Gain)loss on sale of property, plant
and equipment (9,711) 49,650
Equity in undistributed earnings of
partnership investment (46,159) (51,503)
Changes in assets and liabilities provided(used)
cash, net of effects of acquisition in 1993:
Accounts receivable (12,766,248) (8,953,057)
Inventories (1,638,255) (1,057,649)
Accounts payable 3,070,776 3,493,947
Amounts payable under dealer incentive
programs (1,345,306) (386,251)
Estimated warranties 400,000 200,000
Other assets and liabilities 1,236,913 1,378,076
------------ ------------
Net cash used in operating activities (8,977,904) (3,942,764)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from the sale of property, plant,
and equipment 25,700 1,143
Capital expenditures (1,200,389) (566,678)
Distribution from partnership investment 138,356 55,000
Purchases of investment securities (991,246) -
Purchases and originations of installment
contracts (2,471,098) (1,136,754)
Principal collected on installment contracts 187,264 29,882
------------ ------------
Net cash used in investing activities (4,311,413) (1,617,407)
------------ ------------
FINANCING ACTIVITIES:
Net borrowings under line of credit 2,000,000 -
Payments on long-term debt (147,073) -
Cash dividends (140,857) (68,568)
Net proceeds from issuance of common stock 3,999 38,698
Other (9,404) -
------------ ------------
Net cash provided by financing activities 1,706,665 (29,870)
------------ ------------
NET DECREASE IN CASH (11,582,652) (5,590,041)
CASH, BEGINNING OF PERIOD 16,034,922 10,325,137
------------ ------------
CASH, END OF PERIOD $ 4,452,270 $ 4,735,096
============ ============
See Notes to Consolidated Condensed Financial Statements
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<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 31, 1995
AND APRIL 1, 1994
1. BASIS OF PRESENTATION
* The accompanying consolidated condensed financial statements have been
prepared in compliance with Form 10-Q instructions and thus do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the Company, these statements contain all adjustments
necessary to present fairly the Company's financial position as of March
31, 1995, and the results of its operations for the thirteen week periods
ended March 31, 1995 and April 1, 1994 and its cash flows for the
thirteen week periods ended March 31, 1995 and April 1, 1994. All
adjustments are of a normal recurring nature.
* The results of operations for the thirteen weeks ended March 31, 1995,
are not necessarily indicative of the results to be expected for the full
year.
* Inventories consist primarily of raw materials and are stated at the
lower of cost (first-in, first-out method) or market.
* The Company accounts for its investment securities in accordance with the
provisions of Statement of Financial Accounting Standard No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Debt
securities to be held until maturity are recorded at original cost.
Equity securities available for sale are stated at fair value.
* Certain amounts from the 1994 period have been reclassified to conform to
the 1995 period presentation. These reclassifications had no effect on
results of operations or shareholders' equity.
* Primary and fully diluted net income per share are computed by dividing
net earnings by the weighted average number of shares of common stock
outstanding during the thirteen week periods after giving effect to the
equivalent shares which are issuable upon the exercise of stock options
determined by the treasury stock method.
2. SUPPLEMENTAL CASH FLOW DISCLOSURES Thirteen Weeks Ended
March 31, April 1,
1995 1994
-------------- -------------
Cash paid for: Interest $ 117,281 $ 868
Income taxes 72,258 76,852
3. CREDIT ARRANGEMENTS
* In February 1994, the Company executed a $13 million revolving, warehouse
and term-loan agreement (the "Credit Facility") with its primary lender.
The Credit Facility contains a revolving line of credit which provides
for borrowings (including letters of credit) of up to 80% and 50% of the
Company's eligible (as defined) accounts receivable and inventories,
respectively, up to a maximum of $5 million. Interest is payable under
the revolving line of credit at the bank's prime rate (9% at March 31,
1995).
The Credit Facility also provides for borrowings of up to 80% of eligible
(as defined) installment sale contracts held by Cavalier Acceptance
Corporation ("CAC"), the Company's wholly owned financing subsidiary, up
to a maximum of $8 million. Under the warehouse component of the Credit
Facility, interest is payable at the bank's prime rate plus 1%. Amounts
advanced under the warehouse facility may be converted to a series of $2
million notes with a term of seven years. Interest on term notes is fixed
for a period of five years from issuance at a rate based on the weekly
yield on treasury securities adjusted to a constant maturity of five
years, averaged over the preceding 13 weeks, plus 2.4%, and floats for
the remaining two years at a rate (subject to certain limits) equal to
the bank's prime rate plus 0.75%.
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<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 31, 1995
AND APRIL 1, 1994
3. CREDIT ARRANGEMENTS - Continued
The Credit Facility contains certain restrictive covenants which limit
the aggregate of dividend payments and purchases of treasury stock to 50%
of consolidated net income for the two most recent years. Amounts
outstanding under the Credit Facility are secured by the accounts
receivable and inventories of the Company, loans purchased and originated
by CAC and the capital stock of certain of the Company's consolidated
subsidiaries.
As of March 31, 1995, the Company had $5,438,897 borrowed under this
credit facility.
4. STOCKHOLDERS' EQUITY
* A dividend of $.03 per share was paid on February 15, 1995 and $.02 per
share was paid on November 15, 1994, August 15, 1994, May 16, 1994,
February 15, 1994, and November 15, 1993, to shareholders of record on
January 31, 1995, October 31, 1994, July 29, 1994, April 29, 1994,
January 29, 1994, and October 4, 1993, respectively.
5. COMMITMENTS AND CONTINGENCIES
* It is customary practice in the manufactured housing industry to enter
into repurchase and other recourse agreements with lending institutions
which have provided wholesale floor plan financing to dealers.
Substantially all of the Company's sales are made pursuant to these
agreements with dealers located primarily in the Southeastern portion of
the United States. These agreements generally provide for repurchase
of the Company's products from the lending institutions for the balance
due them in the event of repossession upon a dealer's default. Although
the Company is contingently liable for approximately $57 million under
these agreements as of March 31, 1995, such contingency is reduced by
the resale value of the homes which are required to be repurchased. In
addition to these repurchase commitments, the Company has also executed
limited guarantees associated with lines of credit utilized by certain
dealers to finance inventory purchases. The Company has provided an
allowance for losses of $650,000 at March 31, 1995, based on prior
experience and current market conditions. Management expects no material
loss in excess of the allowance.
* The Company's workmen's compensation, product liability and general
liability insurance coverages are provided under incurred loss,
retrospectively rated premium plans. Under these plans, the Company
incurs insurance expenses based upon various rates applied to current
payroll costs and sales. Annually, such insurance expenses is adjusted
by the carrier for loss experience factors subject to minimum and
maximum premium calculations. At March 31, 1995, the Company is
contingently liable for future retrospective premium adjustments up to a
maximum of $4,900,000 in the event that additional losses are reported
related to prior periods. The Company has recorded an estimated liability
of approximately $970,000 related to such incurred but not reported claims
at March 31, 1995. Management expects no material loss in excess of this
allowance.
* The Company and certain of its equity partners have jointly and severally
guaranteed certain short-term debt with a balance of $1,700,000 at March
31, 1995, of a partnership in which the Company owns a 33% interest.
* The Company is engaged in various litigation which is routine in nature
and in management's opinion, will have no material adverse effect on the
Company's financial statements.
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<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1995
GENERAL
The principal business of the Company since its inception has been the design
and production of manufactured homes. In early 1992, the Company, through its
wholly owned subsidiary Cavalier Acceptance Corporation("CAC"), commenced retail
installment sale financing operations. As of the end of 1993, the operations of
CAC became significant enough to require segment reporting by the Company.
The Company's business is cyclical and seasonal and is influenced by many of the
same national and regional demographic factors that affect the United States
housing market generally. According to industry statistics, after a ten year low
in shipments of homes in 1991, the industry has recovered significantly posting
increases in shipments of 24%, 21% and 20% for 1992, 1993 and 1994,
respectively, as compared to the prior year. Industry statistics for the first
quarter of 1995 indicate a continued trend in the increase of shipments. The
Company attributes the upturn in the manufactured housing industry to increased
consumer confidence, wider acceptance of manufactured housing, a reduction in
the availability of alternative housing, increased availability of consumer
financing and an improvement in the overall economy.
Accordingly, as business conditions have improved the Company has expanded
its manufacturing operations to increase and improve its capacity. During 1993
the Company acquired Homestead Homes, Inc. in February and opened an additional
manufacturing facility in Addison, Alabama in May. During 1994 the Company
opened a manufacturing facility in Winfield, Alabama in May, opened a
manufacturing facility in Fort Worth, Texas in July and acquired Astro Mfg. Co.,
Inc. in October.
RESULTS OF OPERATIONS
Net Sales. For the quarter ended March 31, 1995 net sales were $57.8 million,
representing a 24% increase compared to the first quarter of 1994 net sales of
$46.7 million. The Company believes that the significant increase in its sales
for the periods was primarily the result of the continuation of improving
industry trends, combined with aggressive marketing programs instituted by the
Company in prior periods and the increase in manufacturing capacity for the
period. Actual shipments of homes during the first quarter of 1995 increased
16.5% to 2,751 homes from 2,362 homes shipped in the first quarter of 1994.
Gross Profit on Sales. Gross profit (derived by deducting cost of sales from net
sales) increased to $9.0 million, or $15.5% of net sales for the first quarter
of 1995, as compared to $6.9 million, or 14.9% of net sales for the same period
last year. The increase in gross profit was primarily attributable to the
increased sales volume for the periods made possible by increased manufacturing
capability and a reduction of expenses associated with the start-up of
manufacturing facilities from the previous year.
Financial Services Revenue. Financial services revenue (derived primarily from
interest on installment contracts held by CAC) was approximately $334,000 for
the quarter ended March 31, 1995 as compared to approximately $109,000 for the
same period last year. The increase in financial services revenue was primarily
due to an increase in the Company's loan portfolio to approximately $12.1
million at the end of the first quarter of 1995, as compared to $4.2 million at
the end of the first quarter of 1994.
Selling, General, and Administrative. Selling, general and administrative
expense increased to approximately $6.9 million during the first quarter of
1995, or 11.8% of total revenues, as compared to approximately $5.4 million, or
11.5% of total revenues for the same period last year. The increase in selling,
general and administrative expense was primarily attributable to the increase in
sales, combined with increased expenses due to additional personnel, the opening
of additional manufacturing facilities and increased administrative expenses of
CAC consistent with its growth.
-8-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1995
Net Income. Net income for the first quarter of 1995 was approximately $1.5
million, an increase of approximately 47% over the same period in 1994 when net
income was approximately $1.0 million. The increase in net income was primarily
due to increased sales. Net income per share for the first quarter of 1995 was
$.32 per share compared to $.28 per share for the comparable period of 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995, the Company had working capital of $13.0 million, as
compared to $12.6 million as of December 31, 1994. The increase in working
capital for the period is primarily due to continued strength in earnings for
the period and long-term borrowings under the Credit Facility. The ratio of
current assets to current liabilities was 1.47:1 as of March 31, 1995, compared
to 1.54:1 as of December 31, 1994. The Company had long-term debt of $5,438,897
as of March 31, 1995 and $3,585,970 as of December 31, 1994 both of which
represented borrowings under the Company's Credit Facility.
The Company's primary business segment is the production and sale of
manufactured housing. In 1992, the Company began the operations of CAC to fund
installment sale contracts to the retail customers of the Company's Independent
Exclusive Dealers. As of March 31, 1995, the Company's portfolio of installment
sale contracts was approximately $12.1 million funded primarily with funds
derived from internally generated working capital, funds received from the
public offering of the Company's common stock during 1994 and borrowings under
the Credit Facility. Consistent with the current intention of the Company to
expand further the operations of CAC, the Company entered into a Credit Facility
with its primary lender (see footnote 3 to the Consolidated Condensed Financial
Statements included herein) to provide additional funds for CAC's growth.
On October 14, 1994 and January 31, 1995 the Company borrowed $3.7 million and
$2.0 million, respectively, under the Credit Facility in order to continue to
fund the operations of CAC and to minimize the interest rate risk of the
Company's loan portfolio. The Company expects to continue to borrow funds under
the Credit Facility to finance the continuing operations of CAC. As the
operations of CAC continue to expand the Company anticipates that it will be
able to increase its borrowing capacity under the Credit Facility. The term of
the Credit Facility, which is renewable annually, was due to expire in February
1995 but has been extended until June 30, 1995. Although the Company intends to
renew the Credit Facility and anticipates an increase in the credit available to
the Company thereunder, there can be no assurance that the Credit Facility will
be renewed or that such additional financing will be available on terms
acceptable to the Company.
The Company's capital expenditures were approximately $1.2 million for the
thirteen weeks ended March 31, 1995 as compared to $567,000 for the comparable
period of 1994. Capital expenditures during these periods included normal
property, plant and equipment additions and replacements and the expansion and
modernization of certain of the Company's manufacturing facilities.
The Company believes that existing cash and investment balances and funds
available under the Credit Facility, together with cash provided by operations,
will be adequate to fund the Company's operations and expansion plans for the
next twelve months. In order to provide additional funds that may be necessary
for continued pursuit of the Company's growth strategies and for operations over
the longer term, the Company may incur, from time to time, additional short and
long-term bank indebtedness and may issue, in public or private transactions,
its equity and debt securities, the availability and terms of which may depend
upon market and other conditions. There can be no assurance that such possible
additional financing will be available on terms acceptable to the Company.
-9-
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
OTHER INFORMATION
March 31, 1995
ITEM 6 EXHIBITS
The exhibits required to be filed with this report are listed below.
The Company will furnish upon request the exhibit listed upon the receipt
of $15.00 per exhibit, plus $.50 per page, to cover the cost to the
Company of providing the exhibit.
(a)(11) Computation of Net Income per Common Share.
(b) The Company did not file a Current Report on Form 8-K during
the quarter for which this report was filed.
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<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
OTHER INFORMATION
March 31, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cavalier Homes, Inc.
Registrant
Date: May 12, 1995 /s/ Jerry F. Wilson
------------------ ----------------------------
Jerry F. Wilson - President
Date: May 12, 1995 /s/ David A. Roberson
------------------ ----------------------------
David A. Roberson -
Chief Financial Officer
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<PAGE>
PART II. - EXHIBIT 11
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
Thirteen Weeks Ended
March 31, April 1,
1995 1994
------------ ------------
PRIMARY AND FULLY DILUTED
Net Income $ 1,517,600 $ 1,029,492
============ ============
SHARES:
Primary
Average common shares outstanding 4,697,276 3,429,141
Dilutive effect if stock options
were exercised 73,157 188,885
------------ ------------
Average common shares outstanding
as adjusted (primary) 4,770,433 3,618,026
============ ============
Fully Diluted
Average common shares outstanding 4,770,433 3,618,026
Additional dilutive effect if
stock options were excercised
(fully) - -
------------ ------------
Average common shares outstanding
as adjusted (fully diluted) 4,770,433 3,618,026
============ ============
Primary and Fully Diluted Net
Income per Common Share $ 0.32 $ 0.28
============ ============
-12-
