SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December
31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) 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 (I.R.S. Employer
incorporation or organization) Identification Number)
Highway 41 N. and Cavalier Road,
Addison, Alabama 35540
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (205) 747-1575
Securities registered pursuant to Section 12(b) of the Act:
Name of
Each Exchange
on Which
Title of Each class Registered
Common Stock, par value $.10 New York Stock Exchange
Securities registered pursuant to Section 12(g) of
the Act:
None
Indicate by check mark whether the Registrant ( I ) 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 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 Registrant'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. X
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, computed by reference to the closing price of such stock on
the New York Stock Exchange as of March 24, 1995, was $48,824,786.
Indicate the number of shares outstanding of each of
the Registrant's classes of common stock, as
of March 24, 1995.
4,698,352
Common, $0.10 par value
Documents Incorporated by Reference
PartIII of this report incorporates by reference certain portions
of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held May 10, 1995.
<PAGE>
CAVALIER HOMES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1994
PART I
ITEM 1. BUSINESS
General
Cavalier Homes, Inc. is a Delaware corporation incorporated in 1985,
with its executive offices located at Highway 41 North and Cavalier Road,
Addison, Alabama. Unless otherwise indicated by the context, references in this
report to the "Company" or to "Cavalier" include the Company, its subsidiaries
and their respective predecessors, if any.
The Company designs and manufactures a wide range of high quality
manufactured homes and markets its homes primarily in the southeastern United
States, with a focus on serving the low- to medium-priced manufactured housing
market. During 1994, approximately 78% of the Company's revenues were generated
from sales in its core markets of Alabama, North Carolina, Mississippi, South
Carolina, Texas, Georgia, Louisiana and Tennessee. The Company currently
operates nine manufacturing facilities, four of which are located in Alabama,
two in North Carolina, one in Georgia, one in Texas and one in Pennsylvania.
The Company's homes are sold under the Cavalier, Pacesetter, Brigadier,
Knox, Buccaneer, Challenger, Parkwood, Mansion, Olympic, Plantation, Town and
Country, Astro and various other brand names. As of December 31, 1994, the
Company's homes were sold through approximately 500 independent dealers
(including 73 independent exclusive dealers) operating approximately 625 retail
sales centers located in 32 states. The Company's homes normally include
furniture and appliances and are comprised of one or more floor sections. The
Company's single-section homes range in size from 546 to 1,216 square feet and
are sold at retail prices ranging from approximately $13,000 to $30,000.
Multi-section homes range in size from 880 to 2,394 square feet and are sold at
retail prices ranging from approximately $20,000 to $60,000.
In 1991, the Company implemented an exclusive dealer program under
which participating independent dealers sell only the Company's homes. The
Company makes installment sale financing available to the retail customers of
its exclusive dealers and provides such dealers with other services and support.
The Company believes that its exclusive dealer program has helped to increase
the Company's sales.
The Company began offering retail installment sale financing in March
1992 through Cavalier Acceptance Corporation ("CAC"), the Company's wholly owned
finance subsidiary, for homes sold to qualifying retail customers of the
Company's independent exclusive dealers. The Company believes that it is the one
of the few major manufactured home producers in the United States offering
retail consumer financing through independent dealers. The Company intends to
continue CAC's financing activities as a means of increasing revenues, providing
additional services to its independent exclusive dealers and establishing an
additional profit center. For information relating to revenues, operating profit
and indentifiable assets attributable to each industry segment of the Company,
see Note 11 of "Notes to Consolidated Financial Statements" which are included
herein.
Manufacturing Operations
The Company, through seven wholly owned subsidiaries, operates nine
manufacturing facilities engaged in the production of manufactured homes located
in Alabama, North Carolina, Georgia, Texas and Pennsylvania. Each of the
Company's manufacturing subsidiaries is managed by its own supervisory
personnel, who participate in an incentive compensation system based upon each
subsidiary's profitability. The management of the Company's facilities typically
1
<PAGE>
consists of a general manager, a production manager, a sales manager, a
controller, a service manager, a material manager and a quality control manager.
These mid-level managers control the operations of the respective operating
subsidiaries, with assistance and guidance from the Company's executive
officers.
In 1992, while operating four manufacturing facilities, the Company's
production levels increased significantly from production levels in 1991. In
1993, the Company acquired Homestead Homes, Inc. ("Homestead"), opened an
additional facility in Addison, Alabama and completed a renovation and expansion
of its Hamilton, Alabama plant. During 1994 the Company opened additional
manufacturing facilities in Winfield, Alabama and Fort Worth, Texas, expanded
and renovated its manufacturing facilities in Cordele, Georgia and Nashville,
North Carolina, as well as acquiring Astro Mfg. Co., Inc. located in
Shippenville, Pennsylvania ("Astro"). These additions and expansions enabled the
Company to continue increasing production in 1993 and 1994. The Company
currently operates nine manufacturing facilities, ranging in size from 67,000 to
137,000 square feet. The Company's nine manufacturing facilities normally
operate on a single shift basis, usually for a five-day week, each with the
capacity to produce between 1,500 and 3,500 floor sections per year with an
aggregate capacity to produce approximately 22,000 floor sections per year. The
following table sets forth certain production information during 1992, 1993 and
1994:
Year Ended December 31,
----------------------------------------------
1992 1993 1994
----------------------------------------------
Number of homes sold:
Single section homes 4099 65.1% 5250 62.8% 6309 62.8%
Multi-section homes 2202 34.9% 3104 37.2% 3733 37.2%
------- ------ ------- ------ ------ ------
Total homes 6301 100.0% 8354 100.0% 10042 100.0%
Number of floors sold 8506 11491 13799
Construction of a home begins by welding steel frame members together.
The frame is then moved through the plant, stopping at a number of work stations
where various components and sub-assemblies are attached. Certain
sub-assemblies, such as plumbing, cabinets, ceilings and wall systems, are
assembled at off- line work stations. The completed product contains carpeting,
cabinets, appliances, wall and window coverings, and heating and plumbing
systems, and is ready for connection to customer-supplied water, sewage and
electrical systems.
The principal raw materials purchased by the Company are steel, lumber,
plywood, aluminum, galvanized pipe, insulating materials, electrical supplies
and plastics. The Company purchases axles, wheels, tires, kitchen appliances,
plumbing fixtures, furniture, carpet, vinyl floor covering, windows and
decorator accessories. The Company's Alabama manufacturing facilities currently
purchase roof trusses and certain other wood products from a limited partnership
in which the Company owns a one-third interest. Prices obtained by the Company
for wood products from this entity are competitive with the Company's other
sources of supply. Currently, the Company maintains approximately two to three
weeks' inventory of raw materials. The Company is not dependent on any single
source of supply and believes that the materials and parts necessary for the
construction and assembly of its homes are readily available from other sources.
Because the cost of transporting a manufactured home is significant,
there is a limit to the distance between a manufacturing facility and the
dealers it can service. The Company believes that the location of its
manufacturing facilities in multiple states allows it to serve more dealers in
more markets. The Company generally arranges, at the dealer's expense, for the
transportation of finished homes to dealers using independent trucking
companies. Dealers or other independent installers are responsible for placing
the home on site, making utility connections and providing and installing
certain accessory items and appurtenances, such as decks, carports and
foundations.
During 1994 the Company, through its wholly owned subsidiary Quality
Housing Supply, Inc. ("Quality"), acquired a manufacturing facility in Winfield,
Alabama for the production of laminated wallboards and distribution of other
component products used in the manufactured housing industry. During 1994 the
majority of products sold by Quality were to subsidiaries of the Company. The
Company currently intends to expand the sales of Quality's products to
unaffiliated companies in the manufactured housing industry. For information
regarding backlog and seasonality, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Backlog".
2
<PAGE>
Products
The Company's homes include both single-section and multi-section
models, with the substantial majority of such products being "HUD Code Homes",
which are manufactured homes that meet the specifications of the U.S. Department
of Housing and Urban Development ("HUD"). The single-section homes are 14 to 16
feet wide, vary in length from 40 to 80 feet and contain between 546 and 1,216
square feet. The multi-section models are 24 to 42 feet wide, vary in length
from 40 to 80 feet and contain between 880 and 2,394 square feet. Multi-section
homes are built as two or three floors that are joined at the home site.
The Company currently produces over 300 different models of
manufactured homes with a variety of decors that are marketed under
approximately 30 brand names. The homes typically include a living room, dining
area, kitchen, one to four bedrooms and one or two bathrooms. Each home contains
a cooking range and oven, refrigerator, hot water heater and central heating.
Depending on the customer's preferences, most homes are furnished with complete
living room and bedroom furniture, dinette set, carpeting, vinyl flooring,
drapes, and window screens. Customers may also choose many available options,
including fireplaces, ceiling fans, dishwashers, garbage disposals, microwave
ovens, stereos, bay windows, composition shingle roofs, vinyl siding and sliding
glass patio doors.
Modular homes, which are homes designed to meet building codes
administered by states and local authorities, as opposed to the national HUD
guidelines, currently are not a significant part of the Company's product lines.
However, three of the Company's manufacturing facilities have the capability to
manufacture modular homes meeting applicable regulatory standards. Although the
Company has no present plans to increase its production of modular homes, the
Company's production facilities could accommodate the further expansion of its
product lines into the modular home market without a significant capital outlay.
The Company's product development and engineering personnel design
homes in consultation with operating management, sales representatives and
dealers. They also evaluate new materials and construction techniques and use
computer-aided and other design methods in a continuous program of product
development, design and enhancement. The Company's product development
activities do not require significant capital investments or expenditures.
Independent Dealer Network, Sales and Marketing
As of December 31, 1994, the Company's homes were sold through
approximately 500 independent dealers (including 73 independent exclusive
dealers) operating approximately 625 retail sales centers located in 32 states.
Approximately 78% of the Company's sales in 1994 were to dealers operating sales
centers in the Company's core markets. The Company's percentage of sales to
these core markets is as follows: Alabama - 20%, North Carolina - 17%,
Mississippi - 8%, South Carolina - 8%, Texas - 7%, Georgia - 6%, Louisiana - 6%
and Tennessee - 6%.
The Company has written agreements with most of its independent dealers
requiring each dealer to maintain qualified service staff to perform day-to-day
repair work on the Company's homes sold by the dealer and requiring prompt
payment by the dealer for homes purchased. The agreements provide that they may
be terminated at any time by either party, with or without cause, after a short
notice period, generally 30 days. The Company does not have any control over the
operations of, or financial interests in, any of its independent dealers,
including any of its independent exclusive dealers; however, the Company owned
and operated retail sales centers in Alexandria, Alabama and Douglasville,
Georgia. During January 1995, the Company sold its retail sales center in
Alexandria, Alabama.The Company is not dependent on any single dealer, and in
1994, the Company's largest dealer accounted for approximately 2.8% of net
sales.
3
<PAGE>
The Company believes that its independent dealer network enables the
Company to achieve broader distribution of its products than if the Company
operated its own retail sales centers. To enable dealers to maximize retail
market penetration and enhance customer service, and to promote dealer loyalty,
typically only one dealer within a given market area distributes a particular
product line of the Company. Selling through independent dealers also allows the
Company to avoid the substantial investment in management and overhead
associated with the operation of company-owned sales centers. In addition, the
Company's strategy of selling its homes through independent dealers helps to
ensure that the Company's homes are competitive with those of other
manufacturers in terms of consumer acceptability, product design, quality and
price. Accordingly, a component of the Company's business strategy is to
continually strengthen its dealer relations. The Company believes its relations
with its independent dealers, including its independent exclusive dealers, are
good.
Since 1991, the Company has been developing an independent exclusive
dealer network. The Company's independent exclusive dealers market and sell only
homes manufactured by the Company, while the Company's independent non-exclusive
dealers typically will choose to offer the products of two to three
manufacturers in addition to those of the Company. Historically, sales of the
Company's homes to independent dealers operating a single sales center have
accounted for a significant portion of the Company's revenues, and the Company
has focused its efforts to develop an exclusive dealer network consisting of
these operators, as well as certain dealers operating multiple sales centers.
The Company makes installment sale financing through CAC available to the retail
customers of its exclusive dealers and provides these dealers with other
services and support. Beginning with 20 exclusive dealers in 1991, the Company's
independent exclusive dealer network grew to 51 in 1992, increased to 60
exclusive dealers in 1993, and as of December 31, 1994, the Company had 73
independent exclusive dealers operating retail sales centers located in 13
states. Sales to the Company's independent exclusive dealers in 1992, 1993 and
1994 represented approximately 28%, 36% and 37%, respectively, of the Company's
sales for these periods.
Each of the Company's plants typically employs a sales manager and from
two to eight sales representatives who are compensated on a commission basis.
The plant-level sales representatives are charged with the day-to-day servicing
of the needs of the Company's independent dealers, including its independent
exclusive dealers. The Company provides sales training to its dealers and has
instituted a program of bringing more dealers to the plants to view new product
designs as they are developed. The Company markets its homes through product
promotions, participation in regional manufactured housing shows and
advertisements in local media. As of December 31, 1994, the Company maintained a
sales force of 43 full-time salesmen and 7 full-time sales managers.
Cavalier Acceptance Corporation; Retail Financing Activities
The Company believes that the introduction of retail financing as an
additional segment of the Company's operations can facilitate increased sales
and earnings. In addition, the Company's goal is for CAC's activities to provide
the Company with a source of consistent earnings which may, to a certain extent,
be insulated from fluctuating manufactured home sales volumes.
CAC seeks to provide highly competitive financing terms to customers of
the Company's 73 independent exclusive dealers. CAC currently offers four
conventional loan programs which require a down-payment ranging from 0% to 20%
of the purchase price, in cash, trade-in value of a previously-owned
manufactured home and/or appraised value of equity in any real property pledged
as collateral. Repayment terms range from 84 to 240 months, depending upon the
amount financed, the amount of the down payment and the customer's
creditworthiness. CAC's loans are secured by a purchase money security interest
in the manufactured home and, in certain instances, a mortgage on real property
pledged as additional collateral. Loans purchased and originated by CAC normally
provide a fixed rate of interest with equal monthly payments and are non-
recourse to the original dealer. Currently, CAC operates in 13 states and serves
all of the Company's exclusive dealers.
For those retail customers who meet CAC's lending standards, CAC
provides prompt credit approvals and funding of loans. CAC has established a
standardized credit scoring system to facilitate such prompt decision-making on
loan applications. The most important criteria in the scoring system are the
income, employment stability and credit worthiness of the borrower. The system
requires a minimum score before CAC will consider funding the installment sale
contract.
4
<PAGE>
Certain operating data relating to CAC are set forth in the following
table:
December 31,
1993 1994
Total loans Receivable $ 3,058,000 $ 9,825,000
Allowance for credit losses $ 104,000 $ 350,000
Number of loans outstanding 144 415
Number of delinquencies 1 2
Loss ratio .3% .2%
Average annual percentage rate 10.9% 11.4%
CAC presently has 2 part-time and 5 full-time employees, including its
president, Jerry F. Wilson, Jr., the son of the Company's President and Chief
Executive Officer. Upon graduation from the University of Alabama in 1988 with a
degree in finance, Mr. Wilson was employed by Security Pacific Housing Services,
Inc., a leading retail lending institution for the manufactured housing
industry. After one year of service, Mr. Wilson was promoted to region credit
manager in Tampa, Florida, where he was responsible for credit decisions and
loan originations for manufactured home retail installment sale contracts in
excess of $2 million per month. Mr. Wilson joined the Company in 1990 and served
as director of New Business Development for the Company until CAC was
incorporated.
Although the level of CAC's future activities cannot presently be
determined, the Company expects CAC to utilize internally generated working
capital, proceeds from the Company's 1994 stock offering and borrowings under
the Company's revolving, warehouse, and term loan agreement with its primary
lender (described below under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations, Liquidity and Capital
Resources"), to fund retail installment sale contracts on homes sold by the
Company's independent exclusive dealers, and to develop a portfolio of such
installment sale contracts. The Company believes that its relationships with its
exclusive dealers will assist the development of this portfolio.
CAC intends in the short-term to act principally as a permanent lender
on its conventional loans and to hold such loans as long-term receivables. The
Company believes that the term loan component of its revolving, warehouse, and
term loan agreement will facilitate the Company's attempts to match liabilities
and assets of CAC both as to term and rate, which should reduce loss exposure
from interest rate fluctuations. In the future, CAC may "pool" certain of the
installment sale contracts in its portfolio for sale to institutional or other
investors, either on a full-, partial- or non-recourse basis.
Wholesale Dealer Financing and Repurchase Obligations
In accordance with manufactured housing industry practice,
substantially all of the Company's dealers finance their purchases of
manufactured homes through wholesale "floor plan" financing arrangements. Under
a typical floor plan financing arrangement, a financial institution provides the
dealer with a loan for the purchase price of the home and maintains a security
interest in the home as collateral. The financial institution which provides
financing to the dealer customarily requires the Company to enter into a
separate repurchase agreement with the financial institution under which the
Company is obligated, upon default by the dealer and under certain
circumstances, to repurchase the financed homes at a declining price based upon
the Company's original invoice price plus, in specific cases, certain
administrative expenses. A portion of purchases by dealers are pre-sold to
retail customers and are paid through firm retail financing commitments.
5
<PAGE>
The risk of loss under such repurchase agreements is mitigated by the
fact that (i) sales of the Company's manufactured homes are spread over a
relatively large number of independent dealers, the largest of which accounted
for approximately 2.8% of the Company's net sales in 1994, (ii) the repurchase
obligation expires on individual homes after a reasonable period of time
(generally 12 to 18 months from invoice date) and also declines during such
period based on predetermined amounts and (iii) the Company is in many cases
able to sell homes repurchased from credit sources in the ordinary course of
business without incurring significant losses. As of December 31, 1994, the
Company's contingent liability under these repurchase and other similar recourse
agreements was an amount estimated to be approximately $54 million. The Company
has provided a reserve for possible repurchase losses of $650,000 as of December
3l, 1994, based on prior experience and current market conditions. Management
believes its reserve is sufficient to cover any repuchase losses.
Quality Control, Warranties and Service
The Company believes the quality in materials and workmanship, in
addition to price and other market factors, is an important element in the
market acceptance of manufactured homes. The Company maintains a rigorous
quality control inspection program at all production stages at each of its
manufacturing facilities. The Company's manufacturing facilities and the plans
and specifications of its manufactured homes have been approved by a
HUD-designated inspection agency. An independent, HUD-approved third-party
inspector checks each of the Company's manufactured homes for compliance during
construction. The Company believes that adherence to strict quality standards
and continuously refining design and production procedures enhances consumer
satisfaction and reduces warranty claims.
The Company provides the initial home buyer with a HUD-mandated,
one-year limited warranty against manufacturing defects in the home's
construction. Warranty services after sale are performed, at the expense of the
Company, by local plant personnel, by independent dealers or, in certain cases,
local independent contractors. In addition to the warranty by the Company,
direct warranties often are provided by the manufacturers of specific components
and appliances.
The Company maintains a full-time service manager at most of its
manufacturing facilities. In addition, the Company has 50 full-time service
personnel to provide on-site service and correct production deficiencies that
are attributable to the manufacturing process. Warranty service constitutes a
significant cost to the Company, and management of the Company has placed
emphasis on diagnosing potential problem areas to help minimize costly field
repairs. The Company also has focused on reducing response time to customer
service requests. At December 31, 1994, the Company had established a reserve
for future warranty costs of $4.2 million.
Competition
The manufactured housing industry is highly competitive, characterized
by low barriers to entry and severe price competition. Competition is based on
price, product features and quality, reputation for service and quality, depth
of field inventory, delivery capabilities, warranty repair service, dealer
promotions, merchandising and terms of dealer and retail consumer financing. The
Company also competes with other manufacturers, some of which maintain their own
retail sales centers, for quality independent dealers. In addition, the
Company's manufactured homes compete with other forms of low-cost housing,
including site- built, prefabricated, modular homes, apartments, townhouses and
condominiums. The selection by retail buyers of a manufactured home rather than
an apartment or other alternative is significantly affected by their ability to
obtain satisfactory financing. The Company faces direct competition from
numerous manufacturers, many of which possess greater financial, manufacturing,
distribution and marketing resources.
Although the Company intends to increase substantially the level of retail
financing provided through CAC; due to strong competition in the retail finance
segment of the industry from companies much larger than CAC combined with the
limited operating history of CAC, there can be no assurance that providing this
financing will have a positive impact on the Company's ability to compete.
6
<PAGE>
Regulation
The Company's business is subject to a number of federal, state and
local laws, regulations and codes. Construction of manufactured housing is
governed by the National Manufactured Home Construction and Safety Standards Act
of 1974 and regulations issued thereunder by HUD, which have established
comprehensive national construction standards. The HUD regulations cover all
aspects of manufactured home construction, including structural integrity, fire
safety, wind loads, thermal protection and ventilation. Such regulations preempt
state and local regulations on such matters. The National Commission on
Manufactured Housing has held hearings to develop recommendations relating to
the regulation of the manufactured housing industry. This commission is has
issued an interim report to Congress which contains a number of recommendations
relating to various aspects of manufactured housing regulation, including
inspection, warranty and enforcement. The Company cannot presently determine
what, if any, legislation may be adopted by Congress or the effect any such
legislation may have on the Company or the manufactured housing industry.
The Company's manufacturing facilities and the plans and specifications
of its manufactured homes have been approved by a HUD-designed inspection
agency. Furthermore, an independent, HUD-approved third- party inspector
regularly checks the Company's manufactured homes for compliance during
construction. Failure to comply with the HUD regulations could expose the
Company to a wide variety of sanctions, including closing the Company's plants.
The Company believes its manufactured homes meet or surpass all present HUD
requirements.
Certain recently promulgated HUD regulations with respect to structural
design relating to wind load capacities of manufactured homes became effective
in July 1994. These regulations generally require that homes sold in
hurricane-prone areas be designed to withstand wind speeds of up to 110 miles
per hour. Such regulations result in an increase in the costs associated with
the manufacture of homes sold in the regions affected thereby, particularly
hurricane-prone areas. The Company does not believe that the increased costs
associated with these rules and regulations will have a material effect on the
Company's operations. HUD is also currently reviewing the existing wind load
capacity regulations for all other areas of the country, and the Company cannot
presently determine if additional regulations will be adopted or the effect any
such regulations would have on the Company or the manufactured housing industry
as a whole.
HUD also has adopted energy conservation rules and regulations which
became effective in October 1994. The Company does not believe that the
increased costs associated with these rules and regulations will have a material
effect on the Company's operations. The Federal Trade Commission regulations
also require disclosure of a manufactured home's insulation specification.
Certain components of manufactured and modular homes are subject to
regulation by the U.S. Consumer Product Safety Commission ("CPSC"), which is
empowered to ban the use of component materials believed to be hazardous to
health and to require the repair of defective components. The CPSC, the
Environmental Protection Agency and other governmental agencies are evaluating
the effects of formaldehyde. Manufactured, modular and site-built homes are all
built with particle board, paneling and other products that contain formaldehyde
resins. Since February 1985, HUD has regulated the allowable concentration of
formaldehyde in certain products used in manufactured homes and required
manufacturers to warn purchasers concerning formaldehyde associated risks. The
Company currently uses materials in its manufactured homes that meet HUD
standards for formaldehyde emissions and otherwise comply with HUD regulations
in this regard.
The Company's manufactured homes are subject to local zoning and
housing regulations. A number of states require manufactured home producers to
post bonds to ensure the satisfaction of consumer warranty claims. A number of
states have adopted procedures governing the installation of manufactured homes.
Utility connections are subject to state and local regulation.
The Company is subject to the Magnuson-Moss Warranty Federal Trade
Commission Improvement Act, which regulates the descriptions of warranties on
products. The description and substance of the Company's warranties are also
subject to a variety of state laws and regulations.
7
<PAGE>
The Company's operations are subject to federal, state and local laws
and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Governmental
authorities have the power to enforce compliance with their regulations, and
violations may result in the payment of fines or the entry of injunctions, or
both. The Company currently does not believe it will be required under existing
environmental laws and enforcement policies to expend amounts which will have a
material adverse effect on its results of operations or financial condition.
However, the requirements of such laws and enforcement policies have generally
become more strict in recent years. Accordingly, the Company is unable to
presently determine the ultimate cost of compliance with environmental laws and
enforcement policies.
A variety of federal laws affect the financing of manufactured homes,
including the financing activities conducted by CAC. The Consumer Credit
Protection Act (Truth-in-Lending) and Regulation Z promulgated thereunder
require substantial disclosures to be made in writing to a consumer with regard
to various aspects of the particular transaction, including the amount financed,
the annual percentage rate, the total finance charge, itemization of the amount
financed and other matters and also sets forth certain substantive limitations
on permissible contract terms. The Equal Credit Opportunity Act and Regulation B
promulgated thereunder prohibit credit discrimination against any credit
applicant based on certain prohibited bases, and also require that certain
specified notices be sent to credit applicants whose applications are denied.
The Federal Trade Commission has adopted or proposed various trade regulation
rules to specify and prohibit certain unfair credit and collection practices and
also to preserve consumers' claims and defenses. The Government National
Mortgage Association ("GNMA") specifies certain credit underwriting requirements
in order for installment manufactured home sale contracts to be eligible for
inclusion in a GNMA program. HUD also has promulgated substantial disclosure and
substantive regulations and requirements in order for a manufactured home
installment sale contract to qualify for insurance under the Federal Housing
Authority ("FHA") program, and the failure to comply with such requirements and
procedures can result in loss of the FHA guaranty protection. In addition, the
financing activities of CAC may also become subject to the disclosure
requirements of the Home Mortgage Disclosure Act. In addition to the extensive
federal regulation of consumer credit matters, many states have also adopted
consumer credit protection requirements that may impose significant requirements
for consumer credit lenders. For example, many states require that a consumer
credit finance company such as CAC obtain certain regulatory licenses or permits
in order to engage in such business in that state, and many states also set
forth a number of substantive contractual limitations regarding provisions that
permissibly may be included in a consumer contract, as well as limitations upon
the permissible interest rates, fees and other charges that may be imposed upon
a consumer. Failure by the Company or CAC to comply with the requirements of
federal or state law pertaining to consumer credit could result in the
unenforceability of the particular contract for the affected consumer, civil
liability to the affected customers, criminal liability and other adverse
results.
Employees
As of December 31, 1994, the Company had 2,259 employees, of whom 2,016
were engaged in manufacturing, 50 in sales, 50 in warranty and service, 136 in
general administration and 7 in financial services. At year end only Astro's
employees engaged in manufacturing (118 employees) were covered by a collective
bargaining agreement. Management considers its relations with its employees to
be good.
ITEM 2. PROPERTIES
The following table sets forth information concerning the Company's facilities
as of December 31, 1994:
Date
Expiration Approximate
Leased or of Lease Square
Location Acquired Description Term Feet
Addison,
Alabama 1984 Corporate headquarters 1996 11,500
8
<PAGE>
Addison,
Alabama 1984 Manufacturing facility, 1996 137,000
warehouse and mill building
Addison,
Alabama 1993 Manufacturing facility 1997 108,000
Hamilton,
Alabama 1987 Manufacturing facility, (1) 113,500
warehouse and administrative
offices
Winfield,
Alabama 1994 Manufacturing facility 1999 71,000
Winfield,
Alabama 1994 Component manufacturing facility 1999 48,000
Cordele,
Georgia 1993 Manufacturing facility and (1) 67,000
administrative offices
Nashville,
North Carolina 1987 Manufacturing facility, (1) 95,000
warehouse and administrative
offices
Robbins,
North Carolina 1987 Manufacturing facility and 1998 89,000
administrative offices
Shippenville,
Pennsylvania 1993 Manufacturing facility and (1) 133,000
administrative offices
Fort Worth,
Texas 1994 Manufacturing facility and 1999 91,000
administrative offices
Wichita Falls,
Texas 1986 Administrative headquarters 1998 1,210
( 1 ) Company-owned facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are, from time to time, involved in
litigation arising in the ordinary course of its business. In the opinion of the
Company, none of such litigation is currently expected to have a material
adverse effect on the Company's consolidated results of operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK
HOLDER MATTERS
On December 5, 1994 the Company's Common Stock began trading on the New
York Stock Exchange under the symbol "CAV". Previously the Company's Common
Stock was traded on the American Stock Exchange under the symbol of "CXV". The
following table sets forth, for each of the periods indicated, the reported high
and low sale prices per share on each of the respective exchanges referred to
above for the Company's Common Stock and the cash dividends paid per share in
such periods. The amounts have been adjusted, as appropriate, to reflect a
five-for-four stock split which was paid on November 15, 1993:
Selling Price
High Low Dividends
Fiscal year ended December 31, 1993:
First Quarter $ 14 1/4 $ 9 3/4 $ 0.016
Second Quarter 13 1/2 9 3/4 0.016
Third Quarter 12 1/4 8 3/4 0.016
Fourth Quarter 16 10 1/8 0.020
Fiscal year ended December 31, 1994:
First Quarter 17 12 0.020
Second Quarter 15 1/2 12 1/8 0.020
Third Quarter 14 1/8 12 3/8 0.020
Fourth Quarter 13 1/2 9 3/4 0.020
As of March 15, 1995, the Company had approximately 2,400 record and
beneficial holders of its Common Stock, based upon information in securities
position listings by registered clearing agencies upon request of the Company's
transfer agent.
The Company intends to continue to pay regular quarterly dividends.
However, the payment of dividends on the Company's Common Stock is determined by
the Board of Directors of the Company in light of conditions then existing,
including the earnings of the Company and its subsidiaries, their funding
requirements and financial conditions, certain loan restrictions and applicable
laws and governmental regulations. The Company's present loan agreement contains
restrictive covenants which, among other things, limit the aggregate dividend
payments and purchases of treasury stock to 50% of the Company's aggregate net
income for the two most recent fiscal years.
10
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
regarding the Company for the periods indicated. The statement of income data,
the balance sheet data, and other data of the Company for each of the five years
ended December 31, 1994, have been derived from the consolidated financial
statements of the Company. The Company's audited financial statements as of
December 31, 1994 and 1993, and for each of the years in the three-year period
ended December 31, 1994, including the notes thereto and the related report of
Deloitte & Touche LLP, independent auditors, are included elsewhere in this
report. The selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements (including the Notes thereto) and the
other financial information contained elsewhere in this report, and with the
Company's consolidated financial statements and the notes thereto appearing in
the Company's previously filed Annual Reports on Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
1990 1991 1992 1993 1994
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Net sales $ 68,894 $ 67,621 $ 106,405 $ 155,595 $ 206,442
Financial services - - 60 230 703
-------- --------- --------- --------- ---------
Total revenues 68,894 67,621 106,465 155,825 207,145
-------- --------- --------- --------- ---------
Cost of sales 58,943 58,577 91,863 133,423 176,041
Selling, general and administrative 9,195 8,830 11,258 17,049 22,975
-------- --------- --------- --------- ---------
Operating profit 756 214 3,344 5,353 8,129
Other income(expense) - net 100 19 (20) 201 450
-------- --------- --------- --------- ---------
Income before income taxes $ 856 $ 233 $ 3,324 $ 5,554 $ 8,579
======== ========= ========= ========= =========
Net income $ 502 $ 117 $ 2,014 $ 3,333 $ 5,079
======== ========= ========= ========= =========
Net income per share (1) $ 0.17 $ 0.04 $ 0.65 $ 0.97 $ 1.21
======== ========= ========= ========= =========
Cash dividends per share (1) $ 0.05 $ 0.05 $ 0.06 $ 0.07 $ 0.08
======== ========= ========= ========= =========
Weighted average number of shares
outstanding (1) 2,973 2,922 3,106 3,453 4,196
======== ========= ========= ========= =========
Other Data:
Capital Expenditures $ 255 $ 338 $ 1,124 $ 2,933 $ 6,330
======== ========= ========= ========= =========
December 31,
1990 1991 1992 1993 1994
Balance Sheet Data:
Working capital $ 4,080 $ 3,831 $ 5,328 $ 5,483 $ 12,576
Total assets 14,835 14,581 19,966 31,182 63,763
Long-term debt 522 160 - - 3,207
Stockholders' equity 7,321 7,168 9,835 16,632 36,460
</TABLE>
(1) As adjusted for two five-for-four stock splits paid in November 1992 and
November 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The principal business of the Company since its inception has been the
design and production of manufactured homes. In the first quarter of 1992, the
Company, through its wholly owned subsidiary 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 economic and demographic factors that
affect the United States housing market generally. According to the Manufactured
Housing Institute ("MHI"), domestic shipments of manufactured homes reached a
ten-year low of 170,713 homes in 1991. However, the industry experienced a
turnaround during 1992, 1993 and 1994, with shipments increasing approximately
24%, 21% and 20%, respectively, compared to the prior year. The industry
recovery has been most heavily concentrated in the southeastern United States,
where the Company conducts a substantial portion of its business. According to
MHI, shipments of manufactured homes in the Southeast (which MHI designates as
the south Atlantic and south central regions) increased approximately 34% in
1992, 25% in 1993 and 21% in 1994, compared to the prior year. The Company
attributes the upturn in the manufactured housing industry to increased consumer
confidence, a reduction in the availability of alternative housing, increased
availability of consumer financing and an improvement in the overall economy.
11
<PAGE>
Although the Company's operations were adversely affected by the
overall conditions in the industry through the first quarter of 1991, the
Company has enjoyed significant and continued growth in both sales and earnings
since that time. The Company believes that the industry turnaround, combined
with marketing and other programs instituted by the Company in 1991, including
its exclusive dealer program and the retail finance operations of CAC, are the
principal reasons for the improvement in the Company's results of operations.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net Sales. For the year ended December 31, 1994, net sales were $206.4
million, representing a 33% increase compared to 1993 net sales of $155.6
million. Net sales for 1994 were the highest in the Company's history. The
Company believes that the significant increase in its sales for the year was
primarily the result of the continuation of improving industry trends and
Company programs discussed above, an escalation in the average selling price of
the Company's homes, the acquisition of an additional facility in Pennsylvania,
through the Company's acquisition of Astro and the opening a new production
facility in each of Winfield, Alabama and Fort Worth, Texas.
Actual shipments of homes during 1994 increased 20% to 10,042 homes, as
compared to 8,354 homes in 1993. Differences between the percentage increase in
net sales and the percentage increase in shipments are due to differences in
selling prices of individual homes sold or product mix in any given year. The
average selling price of homes rose from approximately $18,600 to $20,600,
primarily due to a change in construction standards mandated by the Deparment of
Housing and Urban Development combined with price increases instituted by the
Company associated with rising prices in lumber and other raw materials. From
October 28, 1994, the date of the acquisition of Astro, through December 31,
1994, Astro had shipments of 140 homes and sales of approximately $3.1 million.
Although the acquisition of Astro contributed to the growth in the Company's
sales and shipments in 1994, the Company shipped 9,902 homes in 1994, exclusive
of shipments by Astro, or an increase of 19% compared to 1993. Sales for 1994,
exclusive of Astro, were approximately $203.3 million, or an increase of 31%
over 1993.
Gross Profit on Sales. Gross profit on sales is derived by deducting
cost of sales from net sales. Gross profit on sales in 1994 increased to $30.4
million, or 14.7% of net sales, as compared to $22.2 million, or 14.2% of net
sales, in 1993. The increase in gross profit was primarily attributable to
increased sales volume, efficiencies achieved as a result of production level
increases and price increases instituted by the Company.
Financial Services Revenue. Financial services revenue is derived
primarily from interest on installment sale contracts held by CAC. Financial
services revenue was approximately $703,000 for 1994, as compared to
approximately $230,000 for 1993. The increase in financial services revenue was
primarily due to an increase in the Company's loan portfolio to approximately
$9.8 million at the end of 1994, up from $3.1 million at the end of 1993.
Selling, General and Administrative. Selling, general and
administrative expenses increased to $23.0 million in 1994 from $17.0 million in
1993. The increase in selling, general and administrative expenses was
consistent with the increase in sales and was primarily due to the acquisition
of Astro, the opening of a manufacturing facility in each of Winfield, Alabama,
and Fort Worth, Texas, the addition of personnel related to the Company's
continued growth, an increase in operating expenses of CAC consistent with its
growth, increased sales commissions, increased expenses for performance
compensation based on profits and other employment-related expenses due to the
hiring of additional personnel. As a percentage of total revenues, selling,
general and administrative expenses were 11.1% for 1994, compared to 10.9% for
1993.
Operating Profit. Operating profit is derived by deducting cost of
sales and selling, general and administrative expenses from total revenues.
Operating profit increased to $8.1 million in 1994, compared to $5.4 million in
1993, consistent with the increase in total revenues. As a percentage of total
revenues, operating profit was 3.9% for 1994, compared to 3.4% for 1993.
12
<PAGE>
Other Income (Expense):
Interest expense. The Company incurred approximately $76,000
in interest expense in 1994, compared to approximately $35,000 in 1993.
Interest expense increased in 1994 primarily due to borrowings by CAC.
Other, net. Other income or expense is comprised of gain or
loss upon sales of assets, interest income (unrelated to financial
services) and other investment income, and income or loss on
investments recorded under the equity method. Other income was
approximately $526,000 for 1994, compared to other income of
approximately $237,000 for 1993. The change in the reported item of
other income or expense in 1994 was primarily attributable to increased
income from an investment recorded under the equity method and an
increase in earnings from the investment of proceeds from the Company's
1994 stock offering. (For a further discussion of the 1994 stock
offering, see "Liquidity and Capital Resources".)
Net Income. Net income for 1994 increased by $1.8 million to $5.1
million, compared to $3.3 million in 1993. The increase in net income was due
primarily to increased sales for the period. As a percentage of total revenues,
net income was 2.5% for 1994, compared to 2.1% for 1993.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
Net Sales. For the year ended December 31, 1993, net sales were $155.6
million, representing a 46% increase compared to 1992 net sales of $106.4
million. The Company believes that the significant increase in its sales for the
year was primarily the result of the improving industry trends and Company
programs discussed above, an escalation in the average selling price of the
Company's homes, the acquisition of an additional facility in Georgia, through
the Company's acquisition of Homestead, and the opening of a new production
facility in Addison, Alabama.
Actual shipments of homes during 1993 increased 33% to 8,354 homes, as
compared to 6,301 homes in 1992. The average selling price of homes rose from
approximately $16,900 to $18,600, primarily due to a slight shift in product mix
toward multi-section homes combined with rising material costs. From February
26, 1993, the date of the acquisition of Homestead, through December 31, 1993,
Homestead had shipments of 723 homes and sales of approximately $17.6 million.
Although the acquisition of Homestead contributed to the growth in the Company's
sales and shipments in 1993, the Company shipped 7,631 homes in 1993, exclusive
of shipments by Homestead, or an increase of 21% compared to 1992. Sales for
1993, exclusive of Homestead, were approximately $138.0 million, or an increase
of 30% over 1992.
Gross Profit on Sales. Gross profit on sales in 1993 increased to $22.2
million, or 14.2% of net sales, as compared to $14.5 million, or 13.7% of net
sales, in 1992. The increase in gross profit was primarily attributable to
increased sales volume, efficiencies achieved as a result of production level
increases and price increases made possible by a slight decrease in competitive
pressure due to improved industry conditions.
Financial Services Revenue. Financial services revenue was
approximately $230,000 for 1993, as compared to approximately $60,000 for 1992.
The increase in financial services revenue was primarily due to an increase in
the Company's loan portfolio to approximately $3.1 million at the end of 1993,
up from $600,000 at the end of 1992.
Selling, General and Administrative. Selling, general and
administrative expenses increased to $17.0 million in 1993 from $11.3 million in
1992. The increase in selling, general and administrative expenses was
consistent with the increase in sales and was primarily due to the acquisition
of Homestead, the opening of a new manufacturing facility in Addison, Alabama,
the addition of personnel related to the acquisition and new facility, an
increase in operating expenses of CAC consistent with its growth, increased
sales commissions, increased expenses for performance compensation based on
profits and other employment-related expenses due to the hiring of additional
personnel. As a percentage of total revenues, selling, general and
administrative expenses were 10.9% for 1993, compared to 10.6% for 1992.
Operating Profit. Operating profit increased to $5.4 million in 1993,
compared to $3.3 million in 1992, consistent with the increase in total
revenues. As a percentage of total revenues, operating profit was 3.4% for 1993,
compared to 3.1% for 1992.
13
<PAGE>
Other Income (Expense):
Interest expense. The Company incurred approximately $35,000
in interest expense in 1993, compared to approximately $20,000 in 1992.
Interest expense increased in 1993 primarily due to long-term debt
acquired in the acquisition of Homestead and short-term borrowings of
CAC.
Other, net. Other income was approximately $236,000 for 1993,
compared to other expense of approximately $500 for 1992. The change in
the reported item of other income or expense in 1993 was primarily
attributable to income from an investment recorded under the equity
method, as opposed to a loss for such investment in 1992.
Net Income. Net income for 1993 increased by $1.3 million to $3.3
million, compared to $2.0 million in 1992. The increase in net income was due
primarily to increased sales for the period. As a percentage of total revenues,
net income was 2.1% for 1993, compared to 1.9% for 1992.
Cavalier Acceptance Corporation
During 1992, the Company began the operations of CAC, which was formed
to offer retail installment sale financing for manufactured homes sold through
the Company's independent exclusive dealer network. In 1992, the Company
purchased and originated approximately $600,000 in installment sale contracts
and collected principal amounts under such contracts of approximately $22,000,
while establishing an allowance for credit losses of approximately $22,000 at
December 31, 1992. During 1993, the Company purchased and originated
approximately $2.6 million in installment sale contracts, collected
approximately $145,000 in principal amounts under such contracts and had
established an allowance for credit losses of $104,000 at December 31, 1993.
During 1994, the Company purchased and originated approximately $7.3 million in
installment sale contracts, collected approximately $542,000 in principal
amounts under such contracts and had established an allowance for credit losses
of $350,000 at December 31, 1994. The Company expects to continue to expand the
operations of CAC during 1995. The Company's current goal is to purchase and
originate approximately $10 million to $12 million in retail installment sale
contracts during 1995. The Company intends to purchase and originate loans
utilizing internally generated working capital, proceeds from its 1994 stock
offering, and borrowings under a $13 million revolving, warehouse, and term loan
agreement (the "Credit Facility") entered into in February 1994 with the
Company's primary lender. (For a further discussion of the Credit Facility, see
"Liquidity and Capital Resources".) Due to strong competition in the retail
finance segment of the industry from companies much larger than CAC combined
with the limited operating history of CAC, there can be no assurance that the
Company will be able to achieve these purchase and origination goals. Numerous
factors could affect the availability of various sources of funds, which in turn
may change the mix of funds used to purchase and originate loans. As CAC
expands, the Company expects that the operations of CAC will have a greater
effect upon the Company's consolidated results of operations and financial
condition.
Liquidity and Capital Resources
As of December 31, 1994, the Company had working capital of $12.6
million, as compared to $5.5 million and $5.3 million at December 31, 1993 and
1992, respectively. Working capital increased in 1994 primarily due to strong
earnings during the period combined with proceeds from the 1994 offering of the
Company's Common Stock. Working capital increased marginally in 1993 compared to
1992 despite strong 1993 earnings primarily due to working capital expended for
the origination of $2.6 million in installment sales contracts and $2.9 million
in capital expenditures during the year combined with costs associated with the
acquisition of Homestead.
The ratio of current assets to current liabilities was 1.5:1 at
December 31, 1994, as compared to 1.4:1 and 1.5:1 at December 31, 1993 and 1992
respectively. Annualized inventory turnover was 22.5 in 1994, compared to 26.5
in 1993 and 24.4 in 1992.
14
<PAGE>
The Company began the operations of CAC in March 1992 and purchased and
originated approximately $10.5 million in retail installment sale contracts from
inception through December 31, 1994, with funds derived from internally
generated working capital of the Company, proceeds from the Company's stock
offering and borrowings under its Credit Facility. Consistent with the current
intention of the Company to expand further the operations of CAC, the Company
entered into the Credit Facility to provide additional funds for CAC's growth.
As discussed above under the heading "Cavalier Acceptance Corporation," the
Company expects to expand the operations of CAC during 1995.
In February 1994, the Company entered into the Credit Facility,
consisting of a $13 million revolving warehouse and term loan agreement 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. The warehouse and term loan
agreements contained in the Credit Facility provide for borrowings of up to 80%
of the Company's eligible (as defined) installment sales contracts, up to a
maximum of $8 million. Interest on term notes is fixed for a period of five
years from issuance at a rate based on the weekly average yield on five-year
treasury securities 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 .75%. The warehouse component of the Credit Facility
provides for borrowings of up to $2 million with interest payable at the bank's
prime rate plus 1%. However in no event may the aggregate borrowings under the
warehouse and term loan agreement exceed $8 million.
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.
On June 14, 1994, the Company completed the sale of 1,000,000 shares of
its common stock in an underwritten public offering. The underwriters exercised
their option to purchase an additional 90,000 shares of the over-allotment which
closed on July 8, 1994. The net proceeds from the aforementioned sales of the
Company's stock was $12,843,619 which the Company has used and intends to
continue to use to fund the expansion of the financing operations of CAC, the
opening of the Fort Worth and Winfield manufacturing facilities, the expansion
and modernization of certain manufacturing facilities of the Company and for
other general corporate purposes.
Capital expenditures were approximately $6.3 million, $2.9 million and
$1.1 million for the years ended December 31, 1994, 1993 and 1992, respectively.
During 1994 the Company incurred capital expenditures of $6.3 million which
included $3.8 million in capital expenditures financed through a portion of the
proceeds of the Company's 1994 stock offering. The proceeds were utilized in the
opening of two additional manufacturing facilities and the expansion and
modernization of certain other manufacturing facilities. The balance of capital
expenditures during these periods included normal property, plant and equipment
additions and replacements.
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 neccessary for the 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 will depend upon market and other conditions. There can be no assurance
that such additional financing will be available on terms acceptable to the
Company.
15
<PAGE>
Impact of Inflation
Although increases, and particularly sudden increases, in the cost of
certain materials can adversely affect the Company's operations, the Company
generally has been able to increase its selling prices to offset increased
costs, including the costs of raw materials. Price competition, however, can
affect the ability of the Company to increase its selling prices to reflect
increased costs. In general, the Company believes that the relatively moderate
rate of inflation over the past several years has not had a significant impact
on its sales or profitability, but can give no assurance that this trend will
continue in the future.
Backlog
The Company typically builds a home after receipt of an order from an
independent dealer, and accordingly does not generally maintain an inventory of
unsold homes. In accordance with industry practice, dealers can cancel orders
prior to production without penalty. The Company's backlog of orders for
manufactured homes was approximately $16.6 million as of December 31, 1994,
compared to approximately $17.2 million as of December 31, 1993. The Company
believes that substantially all of its unfilled orders as of December 31, 1994
will be produced by the Company by the end of the Company's first quarter ending
March 31, 1995. Backlog volume generally indicates the production levels at
which the Company will operate at any given time, but is not indicative of sales
for a full year. Historically, sales in the manufactured housing industry have
been seasonal in nature, with sales of homes being weaker during the winter
months.
Impact of Accounting Statements
The Company has not yet adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 107 regarding disclosures of the
fair value of financial instruments. Adoption of this statement is expected in
1995 and will result in only increased disclosure regarding the affected
instruments.
The Financial Accounting Standards Board has also issued SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, which provides guidance on
recognition of impairment of a loan as well as methods for measurement of
impairment. The statement is effective for fiscal years beginning after December
15, 1994, and management believes its impact would be immaterial to the
Company's consolidated financial statements if adopted currently.
The Company has adopted SFAS No. 115, Accounting for Certain Investment
in Debt and Equity Securities, which provides guidance on classification and
accounting treatment of investment in certain markketable securities. SFAS No.
115 was adopted during 1994 when the Company first acquired marketable
securities subject to its provisions.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Selected Quarterly Financial Data (Unaudited)
The following table sets forth certain unaudited quarterly financial
data for the two years ended December 31, 1994 and 1993. The Company believes
that the following quarterly financial data includes all adjustments necessary
for a fair presentation, in accordance with generally accepted accounting
principles. The following quarterly financial data should be read in conjunction
with the other financial information contained elsewhere in this report. The
operating results for any interim period are not necessarily indicative of
results for a complete year or for any future period. The sum of the quarterly
amounts may not equal the annual amounts due to rounding.
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands except per share amounts)
1994
Revenues:
Net sales $ 46,674 $ 49,641 $ 49,453 $ 60,674
Financial services 109 142 197 255
Total revenues 46,783 49,783 49,650 60,929
Gross profit on sales 6,943 6,921 7,378 9,158
Net income 1,029 1,202 1,340 1,508
Net income per share (1) .28 .32 .29 .32
1993
Revenues:
Net sales $ 30,683 $ 41,320 $ 40,122 $ 43,470
Financial services 30 51 66 83
Total revenues 30,713 41,371 40,188 43,553
Gross profit on sales 4,110 5,782 5,851 6,429
Net income 478 901 958 996
Net income per share (1) .14 .26 .28 .28
(1) Adjusted for the five-for-four split paid in November 1993.
17
<PAGE>
CAVALIER HOMES, INC AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Schedule
Independent Auditor's Report 19
Consolidated Balance Sheets 20 - 21
Consolidated Statements of Income 22
Consolidated Statements of Stockholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25 - 35
Schedule -
II - Valuation and Qualifying Accounts 36
Schedules I, III, IV, and V have been omitted because they are either not
required or are inapplicable.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Cavalier Homes, Inc.:
We have audited the accompanying consolidated balance sheets of Cavalier Homes,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1994. Our audits also
included the financial statement schedule listed in the index at Item 8. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Cavalier Homes, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
March 3, 1995
19
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<S> <C> <C>
1994 1993
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,034,922 $ 10,325,137
Marketable securities held to maturity (Note 3) 1,956,301
Marketable securities available for sale (Note 3) 1,680,072
Accounts receivable, less allowance for losses
of $650,000 (1994) and $560,000 (1993) (Notes 5 and 10) 2,856,661 1,510,328
Installment contracts receivable - current 281,310
Inventories (Note 5) 9,734,314 5,900,933
Deferred income taxes (Note 8) 2,648,844 1,847,793
Other current assets 602,355 157,275
------------- --------------
Total current assets 35,794,779 19,741,466
------------- --------------
PROPERTY, PLANT AND EQUIPMENT:
Land 453,373 381,053
Buildings and improvements 7,305,101 4,213,254
Machinery and equipment 10,018,660 5,492,874
------------- --------------
17,777,134 10,087,181
------------- --------------
Less accumulated depreciation and amortization 4,582,479 3,494,023
------------- --------------
Total property, plant and equipment 13,194,655 6,593,158
------------- --------------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses (Notes 4 and 5) 9,193,858 2,954,744
------------- --------------
GOODWILL, less accumulated amortization
of $140,476 (1994) and $47,405 (1993) (Note 2) 2,368,552 1,079,000
------------- --------------
MARKETABLE SECURITIES HELD TO MATURITY (Note 3) 2,427,526
------------- --------------
OTHER ASSETS 783,265 813,270
------------- --------------
TOTAL $ 63,762,635 $ 31,181,638
============= ==============
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<S> <C> <C>
1994 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 5) $ 378,802
Accounts payable 6,090,552 $ 3,751,746
Amounts payable under dealer incentive programs 4,400,717 2,906,953
Accrued wages and related withholdings 1,463,558 1,004,234
Accrued incentive compensation 2,181,301 879,062
Estimated warranties 4,200,000 3,100,000
Accrued insurance (Note 10) 2,018,357 1,244,238
Other accrued expenses 2,201,286 1,310,531
Income taxes 284,657 61,220
------------- --------------
Total current liabilities 23,219,230 14,257,984
DEFERRED INCOME TAXES (Note 8) 875,868 292,043
------------- --------------
LONG-TERM DEBT (Note 5) 3,207,168
-------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Notes 2, 5, 6 and 7):
Preferred stock, $.01 par value; 500,000 shares authorized,
none issued
Common stock, $.10 par value; authorized 15,000,000 shares,
issued 4,715,678 shares (1994) and 3,606,679 shares (199 471,568 360,668
Additional paid-in capital 22,053,641 7,486,111
Retained earnings 13,985,005 9,228,358
Treasury stock at average cost (20,451 and 181,137
shares in 1994 and 1993, respectively) (49,845) (443,526)
------------- --------------
Total stockholders' equity 36,460,369 16,631,611
------------- --------------
TOTAL $ 63,762,635 $ 31,181,638
============= ==============
See notes to consolidated financial statements.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<S> <C> <C> <C>
1994 1993 1992
REVENUES:
Net sales $ 206,441,436 $ 155,594,809 $ 106,404,856
Financial services 703,326 229,812 60,451
207,144,762 155,824,621 106,465,307
------------- -------------- --------------
COST OF SALES (Note 10) 176,041,402 133,422,978 91,863,301
------------- -------------- --------------
SELLING, GENERAL AND
ADMINISTRATIVE (Notes 7 and 9):
Manufacturing 22,429,655 16,841,880 11,224,762
Financial services 545,226 207,248 33,102
199,016,283 150,472,106 103,121,165
------------- -------------- --------------
OPERATING PROFIT 8,128,479 5,352,515 3,344,142
------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest expense:
Manufacturing (1,168) (30,243) (19,903)
Financial services (75,014) (5,012)
Other, net 526,282 236,564 (501)
450,100 201,309 (20,404)
------------- -------------- --------------
INCOME BEFORE INCOME TAXES 8,578,579 5,553,824 3,323,738
------------- -------------- --------------
INCOME TAXES (Note 8) 3,500,000 2,221,000 1,310,000
------------- -------------- --------------
NET INCOME $ 5,078,579 $ 3,332,824 $ 2,013,738
============= ============== ==============
NET INCOME PER SHARE (Note 6) $ 1.21 $ 0.97 $ 0.65
============= ============== ==============
WEIGHTED AVERAGE SHARES
OUTSTANDING (Note 6) 4,196,490 3,452,744 3,105,780
============= ============== ==============
See notes to consolidated financial statements.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<S> <C> <C> <C> <C>
Treasury
Additional Stock - At
Common Paid-in Retained Average
Stock Capital Earnings Cost
BALANCE, JANUARY 1, 1992 $ 206,250 $ 3,706,433 $ 4,266,697 $ (1,011,872)
Stock options exercised (Note 7) 17,664 369,985
Income tax benefits attributable to
exercise of stock options (Note 7) 411,337
Five-for-four stock split effected in
the form of a dividend (Note 6) 55,233 (55,233)
Cash dividends paid ($.06 per share) (157,503)
Net income 2,013,738
Other (Note 7) 12,665
----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1992 279,147 4,445,187 6,122,932 (1,011,872)
Treasury stock reissued in
connection with acquisition (Note 2) 2,459,728 568,346
Stock options exercised (Note 7) 9,511 168,481
Income tax benefits attributable to
exercise of stock options (Note 7) 430,851
Five-for-four stock split effected in
the form of a dividend (Note 6) 72,010 (72,010)
Cash dividends paid ($.07 per share) (227,398)
Net income 3,332,824
Other (Note 7) 53,874
----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1993 360,668 7,486,111 9,228,358 (443,526)
Sales of common stock, net of
offering costs (Note 6) 109,000 12,734,619
Treasury stock reissued in
connection with acquisition (Note 2) 1,695,237 393,681
Stock options exercised (Note 7) 1,900 51,799
Income tax benefits attributable to
exercise of stock options (Note 7) 85,875
Cash dividends paid ($.08 per share) (321,932)
Net income 5,078,579
----------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1994 $ 471,568 $ 22,053,641 $ 13,985,005 $ (49,845)
=========== ============ ============ ============
See notes to consolidated financial statements
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<S> <C> <C> <C>
1994 1993 1992
OPERATING ACTIVITIES:
Net Income $ 5,078,579 $ 3,332,824 $ 2,013,738
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,745,800 973,467 571,711
Provision for credit losses and repurchase commitments 286,070 434,903 161,776
(Gain) loss on sale of property, plant and equipment (19,604) 4,210 25,136
Equity in undistributed (earnings) loss of partnership
investment (304,493) (138,618) 20,328
Compensation related to issuance of stock options 53,874 12,665
Changes is assets and liabilities provided (used) cash,
net of effects of acquisitions:
Accounts receivable (409,130) 3,376,185 (1,228,167)
Inventories (2,371,652) (990,495) (761,736)
Amounts payable under dealer incentive programs 778,690 820,753 727,487
Accrued wages and related withholdings 83,688 (47,657) 686,158
Estimated warranties 750,000 486,350 552,700
Other assets and liabilities 4,128,727 1,444,482 1,795,924
------------- -------------- --------------
Net cash provided by operating activities 9,746,675 9,750,278 4,577,720
------------- -------------- --------------
INVESTING ACTIVITIES:
Net cash received (paid) in connection with acquisitions (1,117,759) 567,406
Proceeds from sale of property, plant and equipment 36,908 37,800 351,593
Capital expenditures (6,330,075) (2,933,258) (1,124,044)
Purchases of investments (6,075,826) (300,000)
Purchases and originations of installment contracts (7,309,001) (2,625,294) (600,244)
Principal collected on installment contracts 542,507 145,270 21,594
Other 55,000 75,000
------------- -------------- --------------
Net cash used in investing activities (20,198,246) (4,808,076) (1,576,101)
------------- -------------- --------------
FINANCING ACTIVITIES:
Net proceeds from sales of common stock 12,843,619
Net payments under lines of credit (189,017) (465,648)
Proceeds from long-term borrowings 3,700,000
Payments on long-term debt (114,030) (288,290) (331,250)
Proceeds from exercise of stock options 53,699 177,992 387,649
Cash dividends paid (321,932) (227,398) (157,503)
------------- -------------- --------------
Net cash provided by (used in) financing activitie 16,161,356 (526,713) (566,752)
------------- -------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,709,785 4,415,489 2,434,867
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,325,137 5,909,648 3,474,781
------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 16,034,922 $ 10,325,137 $ 5,909,648
============= ============== ==============
See notes to consolidated financial statements.
</TABLE>
24
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Cavalier Homes, Inc and its wholly owned
subsidiaries, (hereinafter collectively referred to as the "Company").
The Company's 33% ownership interest in a limited partnership is
accounted for using the equity method and is included in other assets
in the accompanying consolidated balance sheets. Intercompany profits,
transactions and balances have been eliminated in consolidation.
Cash Equivalents - The Company considers all highly liquid investments
with original maturities of less than 90 days to be cash equivalents.
Marketable Securities - The Company accounts for its marketable
securities in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt
and Equity Securities, which requires that marketable securities be
classified into three categories - held to maturity, available for
sale, and trading, each having a specified accounting method as to
carrying value and recognition of unrealized gains and losses. SFAS No.
115 was adopted in 1994 when the Company first acquired marketable
securities subject to its provisions.
Held to maturity securities are those which the Company has the
positive intent and ability to hold to maturity and are reported at
cost, adjusted for any premiums and discounts that are recognized as
adjustments to interest income using a method which approximates the
interest method.
Securities available for sale are recorded at their fair value with any
unrealized gains and losses, net of deferred income taxes, recorded as
a net amount in a separate component of stockholders' equity until
realized. Gains and losses on the sale of available for sale securities
are determined using the specific identification method. Premiums and
discounts are recognized in interest income using a method which
approximates the interest method.
Trading securities are carried at fair value with unrealized gains and
losses recognized in the statement of income. The Company has no
trading securities and does not plan to engage in such transactions.
Inventories - Inventories consist primarily of raw materials and are
stated at the lower of cost (first-in, first-out method) or market.
During 1994, 1993 and 1992, the Company purchased raw materials of
approximately $7,360,000, $4,960,000, and $2,000,000 respectively, from
the partnership referred to above.
Property, Plant and Equipment - Property, plant and equipment is stated
at cost and depreciated primarily over the estimated useful lives of
the related assets using the straight-line method.
Maintenance and repairs are expensed as incurred.
Goodwill - Goodwill is being amortized over 15 years using the
straight-line method.
Revenue Recognition - Sales of manufactured homes to independent
dealers are recorded as of the date the home is shipped to the dealer.
All sales are final and without recourse except for the contingency
described in Note 10.
25
<PAGE>
Interest income on installment contracts receivable is recognized using
the interest method. Loan origination fees and related costs are not
material and are recognized in the period earned or incurred. Product
Warranties - The Company provides a one-year limited warranty covering
defects in material or workmanship in home structure, plumbing and
electrical systems. A liability is provided for estimated future
warranty costs relating to homes sold, based upon management's
assessment of historical experience factors and current industry
trends.
Allowance for Losses on Installment Contracts -The Company has provided
an allowance for estimated future losses resulting from retail
financing activities of its financial services subsidiary, Cavalier
Acceptance Corporation ("CAC"), primarily based upon management's
current assessment of individual loans in the portfolio and
repossession experience in the industry. CAC does not exclusively
finance sales for any dealer; all dealers have other financing sources
available to offer to their retail customers. Homes financed are
subject to repossession by CAC upon default by the borrower.
Insurance - 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 expense based upon various rates applied to current
payroll costs and sales. Annually, such insurance expense is adjusted
by the carrier for loss experience factors subject to minimum and
maximum premium calculations. Since the Company had previously
estimated refunds or additional premiums when sufficiently reliable
data was available, the application of the consensus in Emerging Issues
Task Force Issue No. 93-14, Accounting for Multiple-Year
Retrospectively Rated Insurance Contracts by Insurance Enterprises and
Other Enterprises, had no impact on the Company's consolidated
financial statements.
Income Taxes - Effective January 1, 1993, the Company adopted SFAS No.
109, Accounting for Income Taxes. SFAS No. 109 requires that deferred
income taxes be determined under an asset and liability method. Under
this method, deferred tax assets and liabilities are based on the
expected future tax consequences of temporary differences between the
book and tax bases of assets and liabilities. Previously, deferred
income taxes were determined under Accounting Principles Board Opinion
No. 11, Accounting for Income Taxes ("APB No. 11 "). Under APB No. 11,
deferred income taxes were based on the historical tax effects of
timing differences between book and taxable income. The impact of
adopting SFAS No. 109 in 1993 was immaterial to the Company's
consolidated financial statements.
Net Income Per Share - Net income per share is based on the weighted
average number of shares outstanding during each period including the
dilutive effect of stock options.
Accounting Standards Yet to be Adopted - The Company has not yet
adopted the provisions of SFAS No. 107 regarding disclosures of the
fair value of financial instruments. Adoption of this statement is
expected in 1995 and will result in only increased disclosure regarding
the affected instruments.
The Financial Accounting Standards Board has also issued SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, which provides
guidance on recognition of impairment of a loan as well as methods for
measurement of impairment. This statement is effective for fiscal years
beginning after December 15, 1994 and management believes its impact
would be immaterial to the Company's consolidated financial statements
if adopted currently.
2. ACQUISITIONS
On October 28, 1994, the Company acquired all of the outstanding stock
of Astro Mfg. Co., Inc. ("Astro") for $2,923,121 in cash and 160,686
shares of the Company's common stock previously held in treasury. On
February 26, 1993, the Company acquired all of the outstanding common
stock of Homestead Homes, Inc. ("Homestead") in exchange for 186,340
shares of the Company's common stock previously held in treasury.
These acquisitions were accounted for using the purchase method and,
accordingly, the purchase price was allocated to the assets acquired
and liabilities assumed based on their estimated fair values at the
acquisition dates. The excess of consideration paid over the estimated
fair value of the net assets acquired was recorded as goodwill.
Deferred income taxes were established for the difference in bases
between financial and tax reporting of these assets and liabilities at
the acquisition dates. The consolidated statements of income include
the results of operations of each company acquired from its respective
acquisition date forward.
26
<PAGE>
The estimated fair value of assets acquired and liabilities assumed in
these acquisitions is summarized as follows:
1994 1993
Astro Homestead
Cash $ 1,959,572 $ 653,477
Other current assets 2,938,886 2,186,504
Property, plant and equipment 1,871,063 900,775
Goodwill 1,382,624 1,126,405
Other assets 84,580 435,986
Current liabilities (2,388,757) (1,824,930)
Deferred income taxes (473,337) (206,000)
Other liabilities (201,382) (158,072)
------------ ------------
$ 5,173,249 $ 3,114,145
============ ============
Consideration consisting of:
Cash $ 2,923,121
Fair value of treasury stock
reissued 2,088,918 $ 3,028,074
Amounts paid or accrued for
acquisition costs 161,210 86,071
------------ ------------
Total purchase price $ 5,173,249 $ 3,114,145
============ ============
The following unaudited pro forma consolidated results of operations
for the years ended December 31, 1994 and 1993 have been prepared as
though both acquisitions occurred as of January 1, 1993. The pro forma
results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations that would have
been achieved had the acquisitions taken place as of January 1, 1993 or
in the future.
1994 1993
Net sales $ 217,212,893 $ 172,657,641
Net income 5,056,124 3,360,782
Net income per share 1.17 .92
27
<PAGE>
3. MARKETABLE SECURITIES
Marketable securities have been classified in the consolidated balance
sheet at December 31, 1994 according to management's intent. At
December 31, 1994, the carrying amount of marketable securities, which
approximates fair values, was as follows:
Marketable securities held to maturity:
Due in one year or less:
Corporate bonds $ 1,461,569
United States Treasury Notes 494,732
-----------
1,956,301
-----------
Due in one year to five years:
Corporate bonds 1,427,526
United States Treasury Notes 1,000,000
-----------
2,427,526
-----------
Total held to maturity $ 4,383,827
===========
Marketable securites available for sale -
Closed end funds $ 1,680,072
===========
4. ALLOWANCE FOR LOSSES ON INSTALLMENT CONTRACTS
In 1992 CAC began purchasing and originating installment sale contracts
made to customers of the Company's exclusive independent dealers. At
December 31, 1994, the average term of CAC's loan portfolio was
approximately 175 months and the weighted average interest rate was
11.44%.
Activity in the allowance for losses on installment contracts was as
follows:
1994 1993 1992
Balance, beginning of year $ 104,000 $ 22,000
Provision for losses 265,000 90,000 $ 22,000
Charge-offs, net (19,000) (8,000)
---------- ----------- -----------
Balance, end of year $ 350,000 $ 104,000 $ 22,000
========== =========== ===========
5. CREDIT ARRANGEMENTS
In February 1994 the Company executed a $ 13 million revolving,
warehouse and term loan agreement (the "Credit Facility") with its
primary bank, whose president is a director of the Company. 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 (8.5% at December
31, 1994).
28
<PAGE>
The warehouse and term loan agreements contained in the Credit Facility
provide for borrowings of up to 80% of the Company's eligible (as
defined) installment sale contracts, up to a maximum of $8 million.
Interest on term notes is fixed for a period of five years from
issuance at a rate based on the weekly average yield on five year
treasury securities 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 .75%. The warehouse
component of the Credit Facility provides for borrowings of up to $2
million with interest payable at the bank's prime rate plus 1 %.
However, in no event may the aggregate outstanding borrowings under the
warehouse and term loan agreement exceed $8 million.
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.
At December 31, 1994, the Company's long-term debt consists of a term
loan which bears interest at a fixed rate of 9.4% for the first five
years, and floats for the remaining two years as described above.
Principal repayment requirements are as follows:
Year Ending
December 31, Amount
1995 $ 378,802
1996 418,578
1997 462,531
1998 511,099
1999 564,768
Thereafter 1,250,192
------------
Total $ 3,585,970
============
Cash paid for interest during the years ended December 31, 1994, 1993
and 1992 was $61,832, $35,255 and $43,589, respectively.
6. STOCKHOLDERS' EQUITY
In June 1994 the Company completed a secondary public offering of
1,000,000 shares of its common stock at $13 per share.In July 1994, the
Company sold an additional 90,000 shares at the same price per share.
The Company received net proceeds of $12,843,619 (after offering costs)
from these sales.
On October 13, 1992 and again on September 7, 1993, the Company's Board
of Directors declared five-for-four stock splits on the Company's
common stock, which were effected in the form of a 25% stock dividend,
distributed on November 16, 1992 and November 15, 1993 to stockholders
of record on October 30, 1992 and October 4, 1993, respectively. All
applicable share and per share data were restated to give effect to
these stock splits.
29
<PAGE>
7. STOCK OPTION PLANS
a. During 1993, the Company's Board of Directors adopted the
Cavalier Homes, Inc. 1993 Amended and Restated Nonqualified
Stock Option Plan (the " 1993 Nonqualified Plan") and the
Cavalier Homes, Inc. 1993 Amended and Restated Nonemployee
Directors Stock Option Plan (the "1993 Nonemployee Directors
Plan"). These plans provide for the issuance of stock options
to key employees and nonemployee directors to acquire up to
412,500 and 150,000 shares, respectively, of common stock.
Under the 1993 Nonqualified Plan and the 1993 Nonemployee
Directors Plan, options generally may be granted at an
exercise price of not less than 60% and 100%, respectively, of
the fair market value of the underlying shares at the date of
grant. Options granted are generally exercisable within six
months from the date of grant and must be exercised within ten
years from such date, except under certain conditions.
b. The Company has also adopted the 1988 Nonqualified Stock
Option Plan (the " 1988 Plan") under which the Company may
grant nonqualified stock options to directors, officers, or
key employees with respect to an aggregate of 227,518 of its
common shares . Options may be granted at an exercise price of
not less than 60% of the fair market value of the underlying
shares on the date of grant. Options generally are exercisable
after six months from the date of grant and must be exercised
within ten years, except under certain conditions.
c. The Company adopted in 1986 the Long Term Incentive
Compensation Plan (the " 1986 Plan") under which it may grant
restricted stock awards, stock appreciation rights, and
qualified or nonqualified stock options to key employees
with respect to an aggregate of 127,460 of its common
shares. Qualilified stock options may be granted at an
exercise price of not less than 100% of the fair market value
of the underlying shares on the date of grant. Nonqualified
options may be granted at an exercise price determined by
the Compensation Committee of the Board of Directors.
Options generally are exercisable at a cumulative rate of
20% annually after one year and must be exercised within
ten years from the date of grant, except under certain
conditions.
As of December 31, 1994, substantially all available options under the
1988 Plan and the 1986 Plan had been granted.
The Company recognized compensation expense of $53,874 (1993) and
$12,665 (1992) with respect to options granted at less than fair market
value at date of grant under these plans. With respect to options
exercised, the income tax benefits resulting from compensation expense
allowable under federal income tax regulations in excess of the expense
reflected in the Company's financial statements have been credited to
additional paid-in-capital. These benefits, which totaled $85,875
(1994), $430,851 (1993), and $411,337 (1992), represent a noncash
financing transaction for purposes of the consolidated statements of
cash flows.
30
<PAGE>
Information regarding these stock option plans is summarized below:
Price Range
Shares Per Option
Shares under option:
Outstanding at January 1, 1992 266,600
Options granted 38,950 $1.28 - 1.60
Options exercised (174,925) 1.28 - 1.60
Options terminated (8,500)
---------
Outstanding at December 31, 1992 122,125
Options granted 463,078 8.00 - 11.20
Options exercised (95,112) 1.28 - 2.00
---------
Outstanding at December 31, 1993 490,091
Options granted 48,250 10.00 - 16.63
Options exercised (18,999) 1.28 - 8.00
Options terminated (4,375)
---------
Outstanding at December 31, 1994 514,967
=========
Stock options exercisable and shares available for future grants at
December 31, 1994 were 479,593 and 109,250, respectively, under these
plans.
8. INCOME TAXES
Provision for income taxes consist of:
1994 1993 1992
Current:
Federal $ 3,313,000 $ 2,208,000 $ 1,297,000
State 581,000 390,000 199,000
----------- ------------ ------------
3,894,000 2,598,000 1,496,000
----------- ------------ ------------
Deferred:
Federal (333,000) (320,000) (161,000)
State (61,000) (57,000) (25,000)
----------- ------------ ------------
(394,000) (377,000) (186,000)
----------- ------------ ------------
Total $ 3,500,000 $ 2,221,000 $ 1,310,000
=========== ============ ============
31
<PAGE>
Total income tax expense for 1994, 1993, and 1992 is different from the
amount that would be computed by applying the expected federal income
tax rates of 35% for 1994 and 1993 and 34% for 1992, to income before
income taxes. The reasons for this difference are as follows:
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
Income tax at expected federal income tax rate $ 3,003,000 $ 1,944,000 $ 1,130,000
State income taxes, net of federal tax effect 343,000 220,000 115,000
Non-deductible operating expenses 110,000 52,000 26,000
Effect of graduated tax rates (86,000) (56,000)
Other 130,000 61,000 39,000
---------- ----------- -----------
$ 3,500,000 $ 2,221,000 $ 1,310,000
========== =========== ===========
</TABLE>
Components of the provision for deferred income taxes for the year
ended December 31, 1992 were as follows:
Depreciation $ (6,000)
Warranty expense (170,000)
Employee benefits (42,000)
Inventory capitalization (3,000)
Allowance for losses on receivables (27,000)
Accrued expenses 42,000
Other 20,000
----------
$ (186,000)
==========
The approximate tax effects of temporary differences at December 31,
1994 and 1993 were as follows:
1994 1993
ASSETS (LIABILITIES)
Current differences:
Warranty expense $ 1,309,000 $ 1,013,000
Inventory capitalization 159,000 98,000
Allowance for losses on receivables 390,000 258,000
Accrued expenses 759,000 479,000
Other 32,000
------------ ------------
$ 2,649,000 $ 1,848,000
============ ============
Noncurrent differences:
Depreciation and basis differential
of acquired assets $ (950,000)$ (292,000)
Other 74,000
------------ ------------
$ (876,000)$ (292,000)
============ ============
Cash paid for income taxes for the years ended December 31, 1994, 1993
and 1992 was $3,519,401, $2,022,253 and $ 1,301,837, respectively.
32
<PAGE>
9. EMPLOYEE BENEFIT PLAN
The Company sponsors an Employee 401 (k) Retirement Plan covering all
employees who meet participation requirements. Employee contributions
are limited to a percentage of their basic compensation as defined in
the Plan. The amount of the Company's matching contribution is
discretionary as determined by the Board of Directors. Company
contributions amounted to $175,000, $141,000 and $64,000 for the years
ended December 31, 1994, 1993 and 1992, respectively.
10. COMMITMENTS AND CONTINGENCIES
Operating leases:
Four of the Company' s manufacturing facilities are leased under
separate operating lease agreements (the "Related Leases") with
partnerships or companies whose owners are certain officers, directors
or stockholders of the Company. The Related Leases require monthly
payments ranging from $6,000 to $25,000 and provide for lease terms
ending from August 1996 to April 1999 as well as renewal option
periods. The Related Leases also contain purchase options whereby the
Company can purchase the respective manufacturing facility for amounts
ranging from $850,000 to $1,750,000 at any time during the lease terms.
The Company also leases two other manufacturing facilities under
operating leases with unrelated parties. These leases currently require
monthly payments of $8,000 and $13,500 through January 1998 and March
1999, respectively, and include renewal option periods. The Company has
the option under one of these leases to (i) cancel the lease with a one
year notice and (ii) purchase the manufacturing facility for $995,000
at any time during the lease term.
Future minimum rents payable under operating leases that have initial
or remaining noncancelable lease terms in excess of one year as of
December 31, 1994 are as follows:
Year Ending
December 31, Amount
1995 $ 981,000
1996 881,000
1997 521,000
1998 353,000
1999 102,000
-----------
Total $ 2,838,000
===========
Total rent expense was $832,000, $641,000 and $444,000 for the years
ended December 31, 1994, 1993 and 1992, respectively, including rents
paid to related parties of $662,000 (1994), $460,000 (1993) and
$300,000 (1992).
33
<PAGE>
Contingent Liabilities and Other:
a. It is customary practice for companies 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 repurchase
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 was
contingently liable for an amount estimated to be $54 million
under these agreements as of December 31, 1994, such
contingency is reduced by the resale value of the homes which
are required to be repurchased. The Company has an allowance
for losses of $650,000 (1994) and $560,000 (1993) based on
prior experience and current market conditions. Management
expects no material loss in excess of the allowance.
b. Under the insurance plans described in Note 1, the Company
is contingently liable at December 31, 1994 for future
retrospective premium adjustments up to a maximum of
approximately $4,900,000 in the event that additional losses
are reported related to prior years. The Company recorded an
estimated liability of approximately $970,000 (1994) and
$590,000 (1993) related to such incurred but not reported
claims. Management expects no material loss in excess of the
allowance.
c. The Company and certain of its equity partners have jointly
and severally guaranteed certain short-term debt, with a
balance of $1,500,000 at December 31, 1994, of the partnership
in which the Company owns a 33% interest.
d. 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.
e. During 1994, the Company entered into split-dollar life
insurance agreements with two of its executive officers which
provide for payment of the related insurance premiums by the
Company and also for reimbursement to the Company of such
premiums upon payment of death benefits under the policies.
11. INDUSTRY SEGMENT INFORMATION
The Company's primary activities are the design, production and
wholesale sale of manufactured homes to a system of independent
dealers. The Company also offers retail financing of its homes through
its exclusive independent dealer network. For purposes of segment
reporting, corporate assets consist primarily of cash, certain property
and equipment and other investments. Operating profit is considered to
be income before general corporate expenses, interest and income taxes.
34
<PAGE>
Financial information for these segments is summarized in the following
table:
<TABLE>
<S> <C> <C> <C> <C>
General
Financial Corporate
Manufacturing Services (Unallocated) Total
Year ended December 31, 1994:
Revenues $ 206,441,436 $ 703,326 $ 207,144,762
Operating profit 8,927,547 158,100 $ (957,168) 8,128,479
Identifiable assets 45,747,771 14,178,925 3,835,939 63,762,635
Depreciation and amortization 1,722,401 13,426 9,973 1,745,800
Capital expenditures 6,330,075 - - 6,330,075
Year ended December 31, 1993:
Revenues $ 155,594,042 $ 229,812 $ 767 $ 155,824,621
Operating profit 6,640,453 22,564 (1,310,502) 5,352,515
Identifiable assets 27,143,220 3,449,685 588,733 31,181,638
Depreciation and amortization 965,215 6,844 1,408 973,467
Capital expenditures 2,851,429 81,829 - 2,933,258
Year ended December 31, 1992:
Revenues $ 106,403,562 $ 60,451 $ 1,294 $ 106,465,307
Operating profit 4,032,259 27,349 (715,466) 3,344,142
Identifiable assets 17,774,898 1,293,200 897,845 19,965,943
Depreciation and amortization 565,365 1,794 4,552 571,711
Capital expenditures 1,121,834 2,210 - 1,124,044
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1994, 1993 and 1992
<S> <C> <C> <C> <C> <C>
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and to Other End of
of Period Expenses Accounts Deductions Period
Allowance for Losses on Accounts
Receivable:
Year Ended December 31, 1994 $ 560,000 62,860 50,000 (22,860)$ 650,000
========== ========== ========== ========== ==========
Year Ended December 31, 1993 $ 450,000 353,377 - (243,377)$ 560,000
========== ========== ========== ========== ==========
Year Ended December 31, 1992 $ 399,845 139,372 - (89,217)$ 450,000
========== ========== ========== ========== ==========
Allowance for Credit Losses:
Year Ended December 31, 1994 $ 103,930 265,048 (18,978)$ 350,000
========== ========== ========== ========== ==========
Year Ended December 31, 1993 $ 22,404 89,526 - (8,000)$ 103,930
========== ========== ========== ========== ==========
Year Ended December 31, 1992 $ - 22,404 - - $ 22,404
========== ========== ========== ========== ==========
Accumulated Amortization of Goodwill:
Year Ended December 31, 1994 $ 47,405 93,071 - - $ 140,476
========== ========== ========== ========== ==========
Year Ended December 31, 1993 $ - 47,405 - - $ 47,405
========== ========== ========== ========== ==========
Accumulated Amortization of Non-Compete
Agreement:
Year Ended December 31, 1994 $ 55,560 66,672 - - $ 122,232
========== ========== ========== ========== ==========
Year Ended December 31, 1993 $ - 55,560 - - $ 55,560
========== ========== ========== ========== ==========
Warranty Reserve:
Year Ended December 31, 1994 $ 3,100,000 7,740,813 350,000 (6,990,813)$ 4,200,000
========== ========== ========== ========== ==========
Year Ended December 31, 1993 $ 2,383,500 4,940,758 230,150 (4,454,408)$ 3,100,000
========== ========== ========== ========== ==========
Year Ended December 31, 1992 $ 1,830,800 3,188,758 - (2,636,058)$ 2,383,500
========== ========== ========== ========== ==========
</TABLE>
36
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
37
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
For a description of the Directors and Executive Officers of the Company, see
"Election of Directors", "Executive Officers and Principal Stockholders" and
"Compliance with Section 16(a) of the Exchange Act" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 10, 1995,
which are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For a description of the Company's Executive Compensation, see "Election of
Directors," "Executive Officers and Principal Stockholders", "Executive
Compensation" (other than the "Report of the Compensation Committee" and the
"Performance Graph"), "Compensation Committee Interlocks and Insider
Participation" and "Certain Relationships and Related Transactions" of the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
May 10, 1995, which sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
For a description of the Security Ownership of Management and Certain Beneficial
Owners, see "Election of Directors," and "Executive Officers and Principal
Stockholders" of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 10, 1995, which are incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of Certain Relationships and Related Transactions of the
Company, see "Election of Directors," "Executive Officers and Principal
Stockholders," "Compensation Committee Interlocks and Insider Participation,"
and "Certain Relationships And Related Transactions" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 10, 1995,
which are incorporated herein by reference.
38
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The financial statements contained in this report and the
page on which they may be found are as follows:
Financial Statement Description Form 10-K Page No.
Independent Auditors' Report 19
Consolidated Balance Sheets as of December 31, 1994
and 1993 20 - 21
Consolidated Statements of Income for the years
ended December 31, 1994, 1993 and 1992 22
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1994, 1993 and 1992 23
Consolidated Statements of Cash Flows for the years
ended December 31, 1994, 1993 and 1992 24
Notes to Consolidated Financial Statements 25 - 35
2. The financial statement schedule required to be filed with this
report and the page on which it may be found is as follows:
Schedule Schedule Description Form 10-K Page No.
II Valuation and Qualifying Accounts 36
3. The exhibits required to be filed with this report are listed below.
The Company will furnish upon request any of the exhibits listed upon the
receipt of $15.00 per exhibit, plus $.50 per page, to cover the cost to the
Company of providing the exhibit.
(2)
* (a) Stock Purchase Agreement, as amended, by and
among Astro Mfg. Co., Inc., Shareholders of Astro
Mfg. Co., Inc. and Cavalier Homes, Inc. dated
as of October 14, 1994, filed as Exhibit 2(a) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994, is incorporated
herein by reference.
* (b) Holdback agreement between avalier Homes, Inc.
and Raymond A. Peltcs, dated October 28, 1994, filed
as Exhibit 2(b) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994,
is incorporated herein by reference.
(3) Articles of Incorporation and By-laws.
* (a) The Restated Certificate of Incorporation of
the Company, as amended, filed as Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by
reference.
* (b) The By-laws of the Company, as amended, filed
as Exhibit (b) to the Company's Annual Report on Form
10-K for the year ended December 31, 1993, is
incorporated herein by reference.
(4) * (a) Articles four, six, seven, nine and ten of
the Company's Restated Certificate of Incorporation,
as amended, included in Exhibit 3(a) above. * (b)
Article II, Sections 1 through 11; Articles III,
Sections 1 and 2; Article IV, Sections 1 and 2;
Article VI, Sections 1 through 6; Article VIII,
Sections 1 through 3; Article IX, Section 1 of the
Company's By-laws, included in Exhibit 3(b) above.
39
<PAGE>
(10) Material contracts
* ** (a) Cavalier Homes, Inc. 1988 Nonqualified Stock
Option Plan, as amended, filed as Exhibit 10(a) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by
reference.
* (b) Lease between Cavalier Homes of Alabama, Inc.
and Robert L. Burdick, John W Lowe, and Jerry F.
Wilson, as tenants in common dated September 1, 1988,
as amended, filed as Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by
reference.
* (c) Commercial Sub-Lease between Winston County
Industrial Development Association and Cavalier
Homes of Alabama, Inc., dated March 5, 1993 filed as
Exhibit 10(d) to the Company's Registration Statement
on Form S-2 (Registration No. 33-59452), is
incorporated herein by reference.
* (d) Agreement and Plan of Merger, dated February
26, 1993, among Homestead Homes, Inc., the
Stockholders of Homestead Homes, Inc., Cavalier
Acquisition Corporation and Cavalier Homes, Inc.
filed as Exhibit 2 to the Company's Current Report on
Form 8-K dated February 26, 1993, as amended on Form
8, dated March 12, 1993, is incorporated herein by
reference.
* (e) Revolving, Warehouse and Term Loan Agreement
among the Company and First Commercial Bank
(Birmingham, Alabama) dated February 17, 1994, filed
as Exhibit 10(e) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
* (f) Lease Agreement between Leonard Properties and
Cavalier Homes of Texas dated February 17, 1994,
filed as Exhibit 10(f) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
* ** (g) Cavalier Homes, Inc. 1993 Amended and Restated
Nonqualified Stock Option Plan, filed as Exhibit
10(g) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, is
incorporated herein by reference.
* ** (h) Cavalier Homes, Inc. 1993 Amended and
Restated Nonemployee Directors Stock Option Plan,
filed as Exhibit 10(h) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
* (i) Guaranty Agreement between SouthTrust Bank of
Marion County and Cavalier Homes, Inc. dated February
18, 1993, relating to guaranty of payments by
Woodperfect, Ltd., filed as Exhibit 10(i) to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by
reference.
40
<PAGE>
* (j) Sub-lease Agreement with Option to Purchase
between Winfield Industrial Developement Association,
Inc and Buccaneer Homes of Alabama, Inc. dated May 9,
1994 filed as Exhibit 10(k) to Amendment No. 1 to
the Company's Registration Statement on Form S-2
(Registration No, 33-78644), is incorporated herein
by reference.
* (k) Lease Agreement with Option to Purchase between
Marion County Industrial Developement Association,
Inc and Quality Housing Supply, Inc. dated May 9,
1994 filed as Exhibit 10(l) to Amendment No. 1 to the
Company's Registration Statement on Form S-2
(Registration No, 33-78644), is incorporated herein
by reference.
(11) Statement Re Computation of Per Share Earnings.
(21) Subsidiaries of the Registrant.
(23) Consents of Deloitte & Touche LLP.
* Incorporated by Reference as indicated.
** Management contract or compensatory plan or arrangement.
(b) The Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994, which was filed with the
Commission on November 10, 1994, contained information
otherwise reportable on Form 8-K relating to the Company's
acquisition of Astro Mfg. Co., Inc. ("Astro"). Also included
in such report were financial statements of Astro for the year
ended December 31, 1993 and for the nine months ended
September 30, 1994, and certain proforma financial information
relating to the Company for the same time periods.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By:/s/ JERRY F. WILSON
-----------------------------
Date: March 31, 1995
Pursuant to the requirements of Section 13 or 15(d) 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.
Signature Title Date
/s/ JERRY F. WILSON Director and Principal Executive March 31, 1995
- - ----------------------------- Officer
/s/ DAVID A. ROBERSON Principal Financial and Accounting March 31, 1995
- - ----------------------------- Officer
/s/ BARRY DONNELL Chairman of the Board and Director March 31, 1995
- - -----------------------------
/s/ THOMAS A. BROUGHTON, III Director March 31, 1995
- - -----------------------------
/s/ JOHN W LOWE Director March 31, 1995
- - -----------------------------
/s/ LEE ROY JORDAN Director March 31, 1995
- - -----------------------------
42
<PAGE>
INDEX
Page in
Sequential
Exhibit Numbered
Number Filing
(11) Statement Re Computation of Per Share Earnings. 44
(21) Subsidiaries of the Registrant. 45
(23) Consents of Deloitte & Touche LLP. 46 - 47
43
<PAGE>
PART IV
Exhibit 11
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
For the Years Ended December 31,
1994 1993 1992
PRIMARY AND FULLY DILUTED
Net Income $ 5,078,579 $ 3,332,824 $ 2,013,738
========== =========== ===========
Shares*
Primary
Average common shares outstanding 4,106,314 3,363,916 2,884,554
Dilutive effect if stock options were
exercised 90,176 88,828 221,226
---------- ----------- -----------
Average common shares outstanding as
adjusted (primary) 4,196,490 3,452,744 3,105,780
========== =========== ===========
Fully diluted
Average common shares outstanding as
adjusted (primary) 4,196,490 3,452,744 3,105,780
Addditional dilutive effect if stock
options were exercised (fully) - 12,606 19,934
---------- ----------- -----------
Average common shares outstanding as
adjusted (fully diluted) 4,196,490 3,465,350 3,125,714
========== =========== ===========
Primary and Fully Diluted Net Income
per common share $ 1.21 $ .97 $ .65
========== =========== ===========
* Adjusted for the five-for-four stock split paid in November 1993.
44
<PAGE>
PART IV
Exhibit 21
CAVALIER HOMES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Subsidiary Name
Astro Mfg. Co., Inc.
Cavalier Acceptance Corporation
Cavalier Insurance Agency, Inc.
Cavalier Town & Country Homes of Texas, Inc.
Cavalier Homes of Alabama, Inc.
Homestead Homes, Inc.
Quality Housing Supply, Inc.
Star Industries, Inc.
Buccaneer Homes of Alabama, Inc.
Valley Homes, Inc.
Brigadier Homes of North Carolina, Inc.
Mansion Homes, Inc.
45
<PAGE>
PART IV
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-63060 and No. 33-86348 of Cavalier Homes, Inc. on Form S-3 of our report
dated March 3, 1995, appearing in this Annual Report on Form 10-K of Cavalier
Homes, Inc for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
March 28, 1995
46
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
(Form S-8) and related Prospectuses pertaining to the Cavalier Homes, Inc. 1993
Amended and Restated Nonqualified Stock Option Plan; 1993 Amended and Restated
Nonemployee Directors Stock Option Plan; 1986 Long-Term Incentive Compensation
Plan; and the 1988 Nonqualified Stock Plan, of our report dated March 3, 1995,
appearing in this Annual Report on Form 1 0-K of Cavalier Homes, Inc. for the
year ended December 31, 1994.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
March 28, 1995
47
