CAVALIER HOMES INC
10-Q, 1995-11-13
MOBILE HOMES
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                                   FORM 10-Q

                        SECURITIES & EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
 
 (Mark One)

[X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended  September 29, 1995                             
                               ------------------------------------------------
                                       OR
 
[ ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                        to                       
                               ----------------------    ----------------------

Commission File Number   1-9792                                                
                       --------------------------------------------------------

                             Cavalier Homes, Inc. 
                            ---------------------
             (Exact name of Registrant as specified in its charter)


          Delaware                                          63-0949734         
- -------------------------------                 -------------------------------
(State or other jurisdiction of                            (IRS Employer
 incorporation or organization)                         Identification Number)


           Highway 41 North & Cavalier Road, Addison, Alabama 35540 
          ----------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)
 

                                (205) 747-1575 
                               ----------------
              (Registrant's telephone number, including area code)
 

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

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the close of the latest practicable date.

            Class                              Outstanding at November 13, 1995 
- ------------------------------                ---------------------------------
 Common Stock $.10 Par Value                             5,978,767 Shares









                                      -1-
 
<PAGE>
                              CAVALIER HOMES, INC.
                                AND SUBSIDIARIES
 



                                                                        INDEX
  
                                                                       Page No.
 
Part I.    Financial Information (Unaudited)

           Consolidated Condensed Balance Sheets -
           September 29, 1995 and December 31, 1994                          3

           Consolidated Condensed Statements of Income -
           Thirteen and Thirty-Nine Weeks ended September 29, 1995
           and September 30, 1994                                            4
                
           Consolidated Condensed Statements of Cash
           Flows - Thirty-Nine Weeks ended September 29, 1995
           and September 30, 1994                                            5
 
           Notes to Consolidated Condensed Financial Statements              6
 
           Management's Discussion and Analysis of  
           Financial Condition and Results of Operations                     8
 
Part II.   Other Information    

           Item 6.   Exhibits                                               11
 
           Signatures                                                       12
 



































                                      -2-
 

<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS

                                                                   September 29,  December 31,
                                                                       1995           1994
                                                                   (Unaudited)     (Audited)
<S>                                                              <C>            <C>
ASSETS
CURRENT ASSETS:
     Cash                                                        $  10,330,210  $  16,034,922
     Marketable Securities:
            Debt Securities held to maturity                         1,415,557      1,956,301
            Equity Securities available for sale                     2,665,291      1,680,072
     Accounts Receivable, less allowance for
            losses of $650,000 (1995 and 1994)                      20,835,500      2,856,661
     Installment contracts receivable - current                        575,442        281,310
     Inventories                                                    10,921,677      9,734,314
     Deferred Income Taxes                                           3,119,052      2,648,844
     Other Current Assets                                            1,349,685        602,355
                                                                   ------------   ------------
            TOTAL CURRENT ASSETS                                    51,212,414     35,794,779

PROPERTY, PLANT AND EQUIPMENT (Net)                                 14,873,103     13,194,655

INSTALLMENT CONTRACTS RECEIVABLE, less
    allowance for credit loss of $448,715 (1995)
    and $350,000 (1994)                                             15,559,367      9,193,858

GOODWILL, less accumulated amortization of
    $276,000 (1995) and $104,000 (1994)                              2,196,667      2,368,552

MARKETABLE SECURITIES HELD TO MATURITY                                    -         2,427,526

OTHER ASSETS                                                           957,464        783,265
                                                                   ------------   ------------
                                                                 $  84,799,015  $  63,762,635
                                                                   ============   ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
     Current portion of long-term debt                           $     650,472  $     378,802
     Accounts Payable                                               12,064,790      6,090,552
     Amounts Payable Under Dealer Incentive Programs                 6,516,769      4,400,717
     Accrued wages and related withholdings                          2,726,805      1,463,558
     Accrued Incentive Compensation                                  2,169,519      2,181,301
     Estimated Warranties                                            5,500,000      4,200,000
     Accrued Insurance                                               1,964,969      2,018,357
     Other Accrued Expenses                                          3,660,973      2,201,286
     Accrued Income Taxes                                            1,086,273        284,657
                                                                   ------------   ------------
          Total Current Liabilities                                 36,340,570     23,219,230

DEFERRED INCOME TAXES                                                  999,221        875,868
                                                                   ------------   ------------
LONG-TERM DEBT                                                       4,487,682      3,207,168
                                                                   ------------   ------------
SHAREHOLDERS' EQUITY:
     Preferred Stock, $.01 Par Value; Authorized
        500,000 shares, none issued
     Common Stock, $.10 Par Value; Authorized
        15,000,000 shares; issued 5,942,205 (1995)
        and 4,715,678 (1994) shares                                    594,221        471,568
     Additional Paid-In Capital                                     22,442,298     22,053,641
     Retained Earnings                                              19,935,023     13,985,005
     Treasury Stock, at cost (20,451 shares)                              -           (49,845)
                                                                   ------------   ------------
         TOTAL SHAREHOLDERS' EQUITY                                 42,971,542     36,460,369
                                                                   ------------   ------------
                                                                 $  84,799,015  $  63,762,635
                                                                   ============   ============
See Notes to Consolidated Condensed Financial Statements

               -3-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)


                                                    
                                     Thirteen Weeks Ended          Thirty-Nine Weeks Ended
                                     September 29,  September 30,  September 29,  September 30,
                                         1995           1994           1995           1994
<S>                                <C>            <C>            <C>            <C>
REVENUES:
     Net sales                     $  70,899,435  $  49,453,380  $ 199,467,672  $ 145,768,484
     Financial services                  484,287        196,766      1,214,309        447,422
                                     ------------   ------------   ------------   ------------
                                      71,383,722     49,650,146    200,681,981    146,215,906
                                     ------------   ------------   ------------   ------------
COST OF SALES                         58,618,426     42,075,837    166,949,601    124,524,940

SELLING, GENERAL AND ADMINISTRATIVE:
    Manufacturing                      8,461,532      5,457,496     22,576,383     15,661,122
    Financial Services                   252,524        145,318        682,407        358,301
                                     ------------   ------------   ------------   ------------
                                      67,332,482     47,678,651    190,208,391    140,544,363

OPERATING PROFIT                       4,051,240      1,971,495     10,473,590      5,671,543

OTHER INCOME(EXPENSE):
    Interest expense:
       Manufacturing                      (1,589)          (300)        (7,478)        (1,168)
       Financial services               (127,313)        (1,441)      (376,438)        (1,560)
    Other, net                           268,844        176,602        655,652        332,207
                                     ------------   ------------   ------------   ------------
INCOME BEFORE INCOME TAXES             4,191,182      2,146,356     10,745,326      6,001,022

INCOME TAXES                           1,712,000        806,330      4,337,000      2,430,000
                                     ------------   ------------   ------------   ------------
NET INCOME                         $   2,479,182  $   1,340,026  $   6,408,326  $   3,571,022
                                     ============   ============   ============   ============
NET INCOME PER SHARE               $        0.40  $        0.23  $        1.06  $        0.71

WEIGHTED AVERAGE SHARES OUTSTANDING    6,205,468      5,818,659      6,053,394      5,020,609
                                                    























See Notes to Consolidated Condensed Financial Statements

               -4-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

                                                                   Thirty-Nine Weeks Ended
                                                                   September 29,  September 30,
                                                                       1995           1994
<S>                                                              <C>            <C>
OPERATING ACTIVITIES:
  Net income                                                     $   6,408,326  $   3,571,022
  Adjustments to reconcile net income to net
    cash used in operating activities:
       Depreciation and amortization                                 1,738,895      1,027,046
       Provision for credit losses, repurchase
          commitments and other items                                   98,715        320,348
       (Gain)loss on sale of property, plant
          and equipment                                                 (3,548)       (18,128)
       Equity in undistributed earnings of
          partnership investment                                      (110,818)      (171,667)
       Changes in assets and liabilities provided(used)
         cash, net of effects of acquisition in 1993:
         Accounts receivable                                       (17,978,839)   (13,959,495)
         Inventories                                                (1,187,363)    (3,108,003)
         Accounts payable                                            5,974,238      5,086,267
         Amounts payable under dealer incentive
          programs                                                   2,116,052      1,215,635
         Estimated warranties                                        1,300,000        600,000
         Other assets and liabilities                                2,469,760      2,715,762
                                                                   ------------   ------------
             Net cash used in operating activities                     825,418     (2,721,213)
                                                                   ------------   ------------
INVESTING ACTIVITIES:
  Proceeds from the sale of property, plant,
    and equipment                                                      153,994         26,586
  Capital expenditures                                              (3,213,846)    (4,856,734)
  Distribution from partnership investment                             138,356         55,000
  Purchases of investment securities                                  (991,246)    (5,665,479)
  Redemption of debt investment securities                           2,950,000           -   
  Purchases and originations of installment
    contracts                                                       (7,767,638)    (4,754,090)
  Principal collected on installment contracts                       1,009,282        347,114
                                                                   ------------   ------------
       Net cash used in investing activities                        (7,721,098)   (14,847,603)
                                                                   ------------   ------------
FINANCING ACTIVITIES:
  Net borrowings under line of credit                                2,000,000           -   
  Payments on long-term debt                                          (447,816)          -   
  Cash dividends                                                      (458,308)      (228,027)
  Net proceeds from issuance of common stock                           259,495     12,980,076
  Other                                                               (162,403)          -   
                                                                   ------------   ------------
       Net cash provided by financing activities                     1,190,968     12,752,049
                                                                   ------------   ------------
NET DECREASE IN CASH                                                (5,704,712)    (4,816,767)

CASH, BEGINNING OF PERIOD                                           16,034,922     10,325,137
                                                                   ------------   ------------
CASH, END OF PERIOD                                              $  10,330,210  $   5,508,370
                                                                   ============   ============



See Notes to Consolidated Condensed Financial Statements

               -5-
</TABLE>
<PAGE>
                                    PART I.
                     CAVALIER HOMES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
     FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 29, 1995
                             AND SEPTEMBER 30, 1994
 
 1.   BASIS OF PRESENTATION
     * The accompanying  consolidated  condensed financial  statements have been
prepared in compliance with Form 10-Q  instructions  and thus do not include all
of the  information  and  footnotes  required by generally  accepted  accounting
principles  for complete  financial  statements.  In the opinion of the Company,
these  statements  contain  all  adjustments  necessary  to  present  fairly the
Company's  financial  position as of September 29, 1995,  and the results of its
operations  for the thirteen and  thirty-nine  week periods ended  September 29,
1995 and September 30, 1994 and its cash flows for the thirteen and  thirty-nine
week periods ended  September 29, 1995 and September 30, 1994.  All  adjustments
are of a normal recurring nature.

     * The results of operations  for the thirteen and  thirty-nine  weeks ended
September 29, 1995, are not necessarily indicative of the results to be expected
for the full year.
 
     *  Inventories  consist  primarily of raw  materials  and are stated at the
lower of cost (first-in, first-out method) or market.
 
     *  The  Company  accounts  for  its  marketable  investment  securities  in
accordance with the provisions of Statement of Financial Accounting Standard No.
115,   Accounting  for  Certain  Investments  in  Debt  and  Equity  Securities.
Marketable  debt  securities to be held until maturity are recorded at amortized
cost. Equity securities available for sale are stated at fair value.
 
     * Certain amounts from the 1994 period have been reclassified to conform to
the 1995 period presentation.  These  reclassifications had no effect on results
of operations or shareholders' equity.
 
     * Net income per share is computed by dividing net earnings by the weighted
average  number of shares of common stock  outstanding  during the thirteen week
periods after giving effect to the equivalent shares which are issuable upon the
exercise of stock options determined by the treasury stock method.
 

2.    SUPPLEMENTAL CASH FLOW DISCLOSURES            Thirty-Nine Weeks Ended   
                                                  September 29,  September 30,
                                                       1995          1994     
                Cash paid for:  Interest         $   383,916   $     2,728 
                                Income taxes     $ 3,536,337   $ 1,308,552 

3.  CREDIT ARRANGEMENTS
     * In February 1994, the Company executed a $13 million revolving, warehouse
and term-loan  agreement (the "Credit  Facility") with its primary  lender.  The
Credit  Facility  contains  a  revolving  line  of  credit  which  provides  for
borrowings  (including  letters of credit) of up to 80% and 50% of the Company's
eligible (as defined) accounts receivable and inventories, respectively, up to a
maximum of $5 million. Interest is payable under the revolving line of credit at
the bank's prime rate (8.75% at September 29, 1995).
 
     The Credit  Facility also provides for  borrowings of up to 80% of eligible
(as defined) installment sale contracts held by Cavalier Acceptance  Corporation
("CAC"), the Company's wholly owned financing subsidiary,  up to a maximum of $8
million.  Under the  warehouse  component  of the Credit  Facility,  interest is
payable at the bank's prime rate plus 1%.  Amounts  advanced under the warehouse
facility may be  converted to a series of $2 million  notes with a term of seven
years.  Interest on term notes is fixed for a period of five years from issuance
at a rate  based  on the  weekly  yield on  treasury  securities  adjusted  to a
constant  maturity of five years,  averaged  over the  preceding 13 weeks,  plus
2.4%,  and  floats for the  remaining  two years at a rate  (subject  to certain
limits) equal to the bank's prime rate plus 0.75%.
 
                                                              -6-
 

<PAGE>
                                    PART I.
                     CAVALIER HOMES, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
     FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 29, 1995
                             AND SEPTEMBER 30, 1994

 3.   CREDIT ARRANGEMENTS - Continued
     The Credit Facility contains certain restrictive  covenants which limit the
aggregate  of  dividend  payments  and  purchases  of  treasury  stock to 50% of
consolidated net income for the two most recent years. Amounts outstanding under
the Credit  Facility are secured by the accounts  receivable and  inventories of
the Company,  loans  purchased  and  originated  by CAC and the capital stock of
certain of the Company's consolidated subsidiaries.
 
     As of September 29, 1995,  the Company had  $5,138,154  borrowed under this
credit facility.
 
4.    STOCKHOLDERS' EQUITY
     * A  five-for-four  stock  split of the  Company's  common  stock which was
effected in the form of a 25% stock dividend was  distributed on August 15, 1995
to  shareholders  of record  on July 31,  1995.  All  historical  dividends  and
earnings per share amounts have been adjusted for the stock split.
 
     * A cash  dividend  of $.030 per share was paid on August  15,  1995 and of
$.024 per share was paid on May 15, 1995 and February 15, 1995, and of $.016 per
share was paid on November 15,  1994,  August 15,  1994,  and May 16,  1994,  to
shareholders  of record on July 31,  1995,  April 30,  1995,  January 31,  1995,
October 31, 1994, July 29, 1994, and April 28, 1994, respectively.
 
5.    COMMITMENTS AND CONTINGENCIES
     * It is customary  practice in the  manufactured  housing industry to enter
into repurchase and other recourse  agreements with lending  institutions  which
have provided  wholesale floor plan financing to dealers.  Substantially  all of
the Company's  sales are made pursuant to these  agreements with dealers located
primarily in the  Southeastern  portion of the United States.  These  agreements
generally  provide for  repurchase  of the  Company's  products from the lending
institutions  for the  balance  due  them in the  event of  repossession  upon a
dealer's default.  Although the Company is contingently liable for approximately
$64 million under these agreements as of September 29, 1995, such contingency is
reduced by the resale value of the homes which are  required to be  repurchased.
The Company has  provided an allowance  for losses of $650,000 at September  29,
1995,  based on prior  experience  and  current  market  conditions.  Management
expects no material loss in excess of the allowance.
 
     * The  Company's  workmen's  compensation,  product  liability  and general
liability insurance coverages are provided under incurred loss,  retrospectively
rated premium plans.  Under these plans, the Company incurs  insurance  expenses
based upon various rates applied to current  payroll costs and sales.  Annually,
such insurance  expenses is adjusted by the carrier for loss experience  factors
subject to minimum and maximum premium calculations.  At September 29, 1995, the
Company is contingently liable for future  retrospective  premium adjustments up
to a maximum of  $4,900,000  in the event that  additional  losses are  reported
related to prior  periods.  The Company has recorded an  estimated  liability of
approximately  $975,000  related to such  incurred  but not  reported  claims at
September  29,  1995.  Management  expects  no  material  loss in excess of this
allowance.
 
     * The Company and certain of its equity partners have jointly and severally
guaranteed certain short-term debt with a balance of $1,300,000 at September 29,
1995, of a partnership in which the Company owns a 33% interest.
 
     * The Company is engaged in various  litigation  which is routine in nature
and in  management's  opinion,  will  have no  material  adverse  effect  on the
Company's financial statements.
 


                                      -7-
 

<PAGE>
                                    PART I.
                     CAVALIER HOMES, INC. AND SUBSIDIARIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                               September 29, 1995
 
GENERAL

The  principal  business of the Company  since its inception has been the design
and production of manufactured  homes.  In early 1992, the Company,  through its
wholly owned subsidiary Cavalier Acceptance Corporation("CAC"), commenced retail
installment  sale financing  operations.  The operations of CAC are  significant
enough to require segment reporting by the Company.

The Company's business is cyclical and seasonal and is influenced by many of the
same national and regional  demographic  factors that affect the general  United
States housing market. According to industry statistics, after a ten year low in
shipments of homes in 1991,  the industry has  recovered  significantly  posting
increases  in  shipments  of  24%,  21%  and  20%  for  1992,   1993  and  1994,
respectively,  as compared to the prior year. Industry statistics for the first,
second and third quarters of 1995 indicate a continued  trend in the increase of
shipments,  although at slower pace than previous years. The Company  attributes
the  upturn  in  the  manufactured   housing  industry  to  increased   consumer
confidence,  wider  acceptance  of  manufactured  housing,  a  reduction  in the
availability  of  alternative  housing,   increased   availability  of  consumer
financing and an improvement in the overall economy.

Accordingly,  as business  conditions have improved the Company has expanded its
manufacturing  operations to increase and improve its capacity.  During 1993 the
Company  acquired  Homestead  Homes,  Inc. in February and opened an  additional
manufacturing  facility  in  Addison,  Alabama in May.  During  1994 the Company
opened  a  manufacturing  facility  in  Winfield,   Alabama  in  May,  opened  a
manufacturing facility in Fort Worth, Texas in July and acquired Astro Mfg. Co.,
Inc. in October.

RESULTS OF OPERATIONS

Net  Sales.  For the  quarter  ended  September  29,  1995 net sales  were $70.9
million, representing a 43% increase compared to the third quarter of 1994's net
sales of $49.5 million.  Net sales for the current  quarter were the highest for
any quarter in the Company's history.  For the thirty-nine weeks ended September
29, 1995 net sales were $199.5  million,  representing  a 37% increase  over the
comparable  thirty-nine  weeks  period in 1994 of $145.8  million.  The  Company
believes  that  the  significant  increase  in its  sales  for the  periods  was
primarily the result of the continuation of improving industry trends,  combined
with aggressive  marketing  programs  instituted by the Company in prior periods
and the  increase in  manufacturing  capacity  during the current  year  period.
Actual  shipments of homes in the third  quarter of 1995  increased 28% to 3,061
homes from 2,385 homes shipped in the third quarter of 1994.  Shipments of homes
in the  thirty-nine  weeks ended September 29, 1995 increased 22% to 8,769 homes
as compared to 7,185 for the comparable period of 1994.

Gross Profit on Sales. Gross profit (derived by deducting cost of sales from net
sales)  increased to $12.3 million,  or 17.3% of net sales for the third quarter
of 1995,  compared  to $7.4  million,  or 14.9% of net sales for the same period
last year.  Gross  profit for the  thirty-nine  weeks ended  September  29, 1995
increased to $32.5  million  compared to $21.2  million for the same period last
year. The gross profit for the  thirty-nine  weeks ended  September 29, 1995 and
September  30,  1994  represented  16.3% and 14.4% of sales,  respectively.  The
increase in gross  profit was  primarily  attributable  to the  increased  sales
volume for the periods made possible by increased manufacturing capability and a
reduction of expenses  associated with the start-up of manufacturing  facilities
from the previous  year,  combined with a decline in certain raw material  costs
during the third quarter of 1995.









                                      -8-
 

<PAGE>
                                    PART I.
                     CAVALIER HOMES, INC. AND SUBSIDIARIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                               September 29, 1995
 

Financial  Services Revenue.  Financial services revenue (derived primarily from
interest on installment  contracts held by CAC) was  approximately  $484,000 for
the quarter ended September 29, 1995 as compared to  approximately  $197,000 for
the same period last year.  Financial services revenue for the thirty-nine weeks
ended September 29, 1995 was approximately  $1,214,000 compared to approximately
$447,000  for the same period last year.  The  increase  in  financial  services
revenue was primarily due to an increase in the Company's loan portfolio (net of
allowance for credit  losses) to  approximately  $16.1 million at the end of the
third quarter of 1995,  compared to $7.2 million at the end of the third quarter
of 1994.

Selling,  General,  and  Administrative.  Selling,  general  and  administrative
expense  increased to approximately  $8.7 million for the third quarter of 1995,
or 12.2% of total revenues,  compared to approximately $5.6 million, or 11.3% of
total  revenues,   for  the  same  period  last  year.   Selling,   general  and
administrative   expense  increased  to  approximately  $23.3  million  for  the
thirty-nine  weeks  ended  September  29,  1995 or 11.6% of total  revenues,  as
compared to approximately $16.0 million, or 11.0% of total revenues for the same
period last year. The increase in selling,  general and  administrative  expense
was primarily  attributable  to the increase in sales,  combined with  increased
expenses due to additional  personnel,  the opening of additional  manufacturing
facilities  and increased  administrative  expenses of CAC  consistent  with its
growth.

Net Income.  Net income for the third  quarter of 1995 was  approximately  $2.48
million,  an  increase  of 85% over the same  period in 1994 when net income was
approximately  $1.34  million.  Net  income  for  the  thirty-nine  weeks  ended
September 30, 1995 was approximately $6.41 million, an increase of approximately
79% over the same period in 1994 when net income was $3.57 million. The increase
in net income was primarily due to increased sales. Net income per share for the
third  quarter of 1995 and the  thirty-nine  weeks ended  September 29, 1995 was
$.40 per share and $1.06 per share respectively,  compared to $.23 per share and
$.71 per share (adjusted for the five-for-four stock split distributed in August
of 1995) for the respective comparable periods of 1994.

LIQUIDITY AND CAPITAL RESOURCES

As of September 29, 1995, the Company had working  capital of $14.9 million,  as
compared  to $13.9  million as of December  31,  1994.  The  increase in working
capital is  primarily  due to  continued  strength in  earnings  for the period,
combined with long-term  borrowings  under the Credit Facility and the reporting
of  certain  investment   securities  as  current  assets  as  their  respective
maturities  become  one year or less.  The ratio of  current  assets to  current
liabilities  was 1.4:1 as of September  29,  1995,  and 1.5:1 as of December 31,
1994.  The Company had long-term debt of $4,487,682 as of September 29, 1995 and
$3,207,168 as of December 31, 1994 as a result of borrowings under the Company's
Credit Facility.  The Company had a long-term debt to equity ratio of 1:10 as of
September 29, 1995 as compared to 1:9 as of December 31, 1994.

The  Company's   primary   business  segment  is  the  production  and  sale  of
manufactured  housing.  In 1992, the Company began the operations of CAC to fund
installment sale contracts to the retail customers of the Company's  Independent
Exclusive  Dealers.  Consistent  with the  intention  of the  Company  to expand
further the operations of CAC, the Company  entered into a Credit  Facility with
its  primary  lender (see  footnote 3 to the  Consolidated  Condensed  Financial
Statements  included herein) to provide additional funds for CAC's growth. As of
September 29, 1995, the Company's  portfolio of  installment  sale contracts had
grown to  approximately  $16 million and had been funded primarily from proceeds
received  from the public  offering of the  Company's  common  stock during 1994
together with  internally  generated  working  capital and borrowings  under the
Credit Facility.






                                      -9-
 

<PAGE>
                                    PART I.
                     CAVALIER HOMES, INC. AND SUBSIDIARIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                               September 29, 1995
 

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 and growth 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  December 31, 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  additional  financing will be available
on terms acceptable to the Company.

The  Company's  capital  expenditures  were  approximately  $3.2 million for the
thirty-nine  weeks ended  September 29, 1995 as compared to $4.9 million for the
comparable period of 1994.  Capital  expenditures  during these periods included
normal  property,  plant  and  equipment  additions  and  replacements  and  the
expansion  and   modernization   of  certain  of  the  Company's   manufacturing
facilities.

The Company  believes  that  existing  cash and  investment  balances  and funds
available under the Credit Facility,  together with cash provided by operations,
should be adequate to fund the Company's  operations and expansion plans for the
next twelve months;  however, in order to provide additional funds for continued
pursuit of the Company's growth  strategies and for operations,  the Company may
incur,  from time to time,  additional short and long-term bank indebtedness and
may issue, in public or private  transactions,  its equity and debt  securities,
the availability and terms of which may depend upon market and other conditions.
There  can be no  assurance  that such  possible  additional  financing  will be
available on terms acceptable to the Company.
































                                      -10-


<PAGE>
                                    PART II.
                     CAVALIER HOMES, INC. AND SUBSIDIARIES
                               OTHER INFORMATION
                               September 29, 1995
 


ITEM 6     EXHIBITS

           The exhibits  required to be filed with this report are listed below.
           The Company  will  furnish  upon  request the exhibit listed upon the
           receipt of $15.00 per exhibit,   plus  $.50  per  page,  to cover the
           cost to the Company of providing the exhibit.
 

                 (a)  (11) Computation of Net Income per Common Share.
 
                      (27) Article 5 - Financial  Data  Schedule   for Form 10-Q
                           submitted as Exhibit 27 as an EDGAR filing only.
 
                 (b)       The Company did not file a Current Report on Form 8-K
                           during the quarter for which this report was filed.
 














































                                      -11-
 

<PAGE>
                                    PART II.
                     CAVALIER HOMES, INC. AND SUBSIDIARIES
                               OTHER INFORMATION
                               September 29, 1995
 


SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                          Cavalier Homes, Inc.                
                                          Registrant




Date: November 13, 1995               /s/ Jerry F. Wilson                 
                                      Jerry F. Wilson - President



Date: November 13, 1995               /s/ David A. Roberson               
                                      David A. Roberson - 
                                       Chief Financial Officer
            








































                                      -12-
<PAGE>
<TABLE>
<CAPTION>
PART II. - EXHIBIT 11
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE


                                     Thirteen Weeks Ended          Thirty-Nine Weeks Ended
                                     September 29,  September 30,  September 29,  September 30,
                                         1995           1994           1995           1994
<S>                                <C>            <C>            <C>            <C>
PRIMARY AND FULLY DILUTED
     Net Income                    $   2,479,182  $   1,340,026  $   6,408,326  $   3,571,022
                                     ============   ============   ============   ============
SHARES:

Primary
  Average common shares outstanding    5,905,725      5,653,589      5,883,420      4,820,730

  Dilutive effect if stock options
    were exercised                       219,627        165,070        135,467        199,879
                                     ------------   ------------   ------------   ------------
  Average common shares outstanding
    as adjusted (primary)              6,125,352      5,818,659      6,018,887      5,020,609
                                     ============   ============   ============   ============
Fully Diluted
  Average common shares outstanding    6,125,352      5,818,659      6,018,887      5,020,609

  Additional dilutive effect if
    stock options were excercised
    (fully)                               80,116           -            34,507           -   
                                     ------------   ------------   ------------   ------------
  Average common shares outstanding
    as adjusted (fully diluted)        6,205,468      5,818,659      6,053,394      5,020,609
                                     ============   ============   ============   ============

Primary and Fully Diluted Net
  Income per Common Share          $        0.40  $        0.23  $        1.06  $        0.71
                                     ============   ============   ============   ============























                                      -13-
<PAGE>
</TABLE>

<TABLE> <S> <C>

<ARTICLE>                                                                     5
<CIK>                                                                    789863
<NAME>                                                      CAVALIER HOMES, INC.
<MULTIPLIER>                                                                  1
<CURRENCY>                                                         U.S. DOLLARS
       
<S>                                                                <C>
<PERIOD-TYPE>                                                             9-MOS
<FISCAL-YEAR-END>                                                   DEC-31-1995
<PERIOD-START>                                                      JUL-01-1995
<PERIOD-END>                                                        SEP-29-1995
<EXCHANGE-RATE>                                                               1
<CASH>                                                               10,330,210
<SECURITIES>                                                          4,080,848
<RECEIVABLES>                                                        21,485,500
<ALLOWANCES>                                                            650,000
<INVENTORY>                                                          10,921,677
<CURRENT-ASSETS>                                                     51,212,414
<PP&E>                                                               20,932,469
<DEPRECIATION>                                                        6,059,366
<TOTAL-ASSETS>                                                       84,799,015
<CURRENT-LIABILITIES>                                                36,340,570
<BONDS>                                                                       0
<COMMON>                                                                594,221
                                                         0
                                                                   0
<OTHER-SE>                                                           42,377,321
<TOTAL-LIABILITY-AND-EQUITY>                                         84,799,015
<SALES>                                                              70,899,435
<TOTAL-REVENUES>                                                     71,383,722
<CGS>                                                                58,618,426
<TOTAL-COSTS>                                                        58,618,426
<OTHER-EXPENSES>                                                      8,714,056
<LOSS-PROVISION>                                                              0
<INTEREST-EXPENSE>                                                      128,902
<INCOME-PRETAX>                                                       4,191,182
<INCOME-TAX>                                                          1,712,000
<INCOME-CONTINUING>                                                   2,479,182
<DISCONTINUED>                                                                0
<EXTRAORDINARY>                                                               0
<CHANGES>                                                                     0
<NET-INCOME>                                                          2,479,182
<EPS-PRIMARY>                                                             0.400
<EPS-DILUTED>                                                             0.400
        

</TABLE>


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