SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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 27, 1996
--------------------
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 11, 1996
- --------------------------- ---------------------------
Common Stock $.10 Par Value 9,715,496 Shares
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<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information (Unaudited)
Consolidated Condensed Balance Sheets -
September 27, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Income -
Thirteen and Thirty-Nine Weeks ended September 27, 1996
and September 29, 1995 4
Consolidated Condensed Statements of Cash
Flows - Thirty-Nine Weeks ended September 27, 1996 and
September 29, 1995 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 5. Other Matters 13
Item 6. Exhibits 13
Signatures 14
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<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
September 27, December 31,
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 10,242,000 $ 21,005,084
Marketable securities available for sale 2,101,000 3,583,129
Accounts receivable, less allowance for
losses of $800,000 (1996) and $750,000 (1995) 23,006,000 1,893,400
Installment contracts receivable - current 968,000 693,967
Inventories 13,699,000 9,540,491
Deferred income taxes 3,997,000 3,647,984
Income tax deposit 946,000 -
Other current assets 499,000 1,954,350
------------- -------------
Total current assets 55,458,000 42,318,405
------------- -------------
PROPERTY, PLANT AND EQUIPMENT (Net) 24,367,000 18,893,497
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit loss of $768,000 (1996)
and $551,188 (1995) 29,121,000 17,964,038
GOODWILL, less accumulated amortization of
$518,000 (1996) and $309,729 (1995) 3,710,000 2,213,000
OTHER ASSETS 4,006,000 1,236,958
------------- -------------
$ 116,662,000 $ 82,625,898
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 920,000 $ 666,467
Accounts payable 14,142,000 7,098,602
Amounts payable under dealer incentive programs 10,592,000 6,997,496
Accrued wages and related withholdings 3,421,000 1,219,891
Accrued incentive compensation 2,552,000 2,018,702
Estimated warranties 6,900,000 5,800,000
Accrued insurance 1,017,000 1,676,164
Other accrued expenses 6,323,000 4,923,839
Accrued income taxes 660,000 795,861
------------- -------------
Total current liabilities 46,527,000 31,197,022
DEFERRED INCOME TAXES 1,529,000 1,042,862
------------- -------------
LONG-TERM DEBT 5,340,000 4,314,319
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
500,000 shares, none issued
Common stock, $.10 par value; authorized
15,000,000 shares; issued 9,698,346 (1996)
and 8,993,951 (1995) shares 970,000 899,395
Additional paid-in capital 30,762,000 22,804,129
Retained earnings 31,534,000 22,368,171
------------- -------------
Total stockholders' equity 63,266,000 46,071,695
------------- -------------
$ 116,662,000 $ 82,625,898
============= =============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
-3-
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 27, September 29, September 27, September 29,
REVENUES: 1996 1995 1996 1995
Net sales $ 88,976,000 $ 70,899,435 $ 254,598,000 $ 199,467,672
Financial services 867,000 484,287 2,259,000 1,214,309
------------ ------------ ------------ ------------
89,843,000 71,383,722 256,857,000 200,681,981
------------ ------------ ------------ ------------
COST OF SALES 73,226,000 58,618,426 209,682,000 166,949,601
SELLING, GENERAL AND ADMINISTRATIVE:
Manufacturing 10,643,000 8,461,532 29,975,000 22,576,383
Financial services 550,000 252,524 1,417,000 682,407
------------ ------------ ------------ ------------
84,419,000 67,332,482 241,074,000 190,208,391
------------ ------------ ------------ ------------
OPERATING PROFIT 5,424,000 4,051,240 15,783,000 10,473,590
------------ ------------ ------------ ------------
OTHER INCOME(EXPENSE):
Interest expense:
Manufacturing (36,000) (1,589) (56,000) (7,478)
Financial services (126,000) (127,313) (369,000) (376,438)
Other, net 750,000 268,844 1,314,000 655,652
------------ ------------ ------------ ------------
588,000 139,942 889,000 271,736
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 6,012,000 4,191,182 16,672,000 10,745,326
INCOME TAXES 2,403,000 1,712,000 6,667,000 4,337,000
------------ ------------ ------------ ------------
NET INCOME $ 3,609,000 $ 2,479,182 $ 10,005,000 $ 6,408,326
============ ============ ============ ============
NET INCOME PER SHARE $ .36 $ .27 $ 1.02 $ .71
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 9,930,368 9,308,202 9,778,697 9,080,091
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
-4-
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Thirty-Nine Weeks Ended
September 27, September 29,
1996 1995
OPERATING ACTIVITIES:
Net income $ 10,005,000 $ 6,408,326
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 2,741,000 1,738,895
Provision for credit losses, repurchase commitments
and other items 216,000 98,715
(Gain)loss on sale of property, plant and equipment (12,000) (3,548)
Equity in undistributed earnings of investments (492,000) (110,818)
Compensation related to issuance of stock options 169,000 -
Changes in assets and liabilities provided(used)
cash, net of effects of acquisitions in 1996:
Accounts receivable (20,449,000) (17,978,839)
Inventories (4,852,000) (1,187,363)
Accounts payable 6,233,000 5,974,238
Amounts payable under dealer incentive programs 3,486,000 2,116,052
Estimated warranties 729,000 1,300,000
Income tax deposit (946,000) -
Other assets and liabilities 5,700,000 2,469,760
------------ ------------
Net cash provided by operating activities 2,528,000 825,418
------------ ------------
INVESTING ACTIVITIES:
Proceeds from the sale of property, plant and equipment 54,000 153,994
Net cash paid in connection with acquisition of subsidiaries (370,000) -
Capital expenditures (6,473,000) (3,213,846)
Distribution from equity investments 779,000 138,356
Purchases of marketable securities - (991,246)
Redemptions of marketable securities 1,475,000 2,950,000
Purchases and originations of installment contracts (13,745,000) (7,767,638)
Principal collected on installment contracts 2,097,000 1,009,282
------------ ------------
Net cash used in investing activities (16,183,000) (7,721,098)
------------ ------------
FINANCING ACTIVITIES:
Long-term borrowings 1,005,000 2,000,000
Payments on long-term debt (826,000) (447,816)
Cash dividends (840,000) (458,308)
Net proceeds from exercise of stock options 3,553,000 259,495
Other - (162,403)
------------ ------------
Net cash provided by financing activities 2,892,000 1,190,968
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (10,763,000) (5,704,712)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,005,000 16,034,922
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,242,000 $ 10,330,210
============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
-5-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Thirteen and Thirty-Nine Week Periods Ended September 27, 1996
And September 29, 1995
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 27,
1996 and December 31, 1995, and the results of its operations
for the thirteen and thirty-nine week periods ended September
27, 1996 and September 29, 1995 and its cash flows for the
thirty-nine week periods ended September 27, 1996 and
September 29, 1995. All adjustments are of a normal recurring
nature.
* The results of operations for the thirteen and thirty-nine
weeks ended September 27, 1996 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 securities in
accordance with Statement of Financial Accounting Standard 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
treatment as to carrying value and recognition of unrealized
gains and losses.
* Certain amounts from the 1995 periods have been reclassified
to conform to the 1996 period presentation. These
reclassifications had no effect on results of operations or
stockholders' 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 and thirty-nine 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 27, September 29,
1996 1995
Cash paid for: Interest $ 432,000 $ 383,916
Income taxes $ 3,545,000 $ 3,536,337
During the thirty-nine week period ended September 27, 1996, the
Company made a non-cash contribution of the following assets as an
equity investment in a limited liability company:
Inventory $ 1,623,000
Property, plant and equipment (net) 554,000
Investment in a door manufacturer 219,000
-------------
Total assets contributed $ 2,396,000
=============
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 (8.25% at September 27, 1996).
-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 27, 1996
And September 29, 1995
3. CREDIT ARRANGEMENTS - Continued
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.
On March 14, 1996, the Company executed an amendment to the
Credit Facility which increased the maximum available
borrowings under the warehouse and term-loan agreements
contained in the Credit Facility to $18 million from the
previous limit of $8 million. The amendment increased the
total amount of available borrowings under the Credit Facility
(including the revolving line of credit) to $23 million from
$13 million. In addition to the increase in available
borrowings under the Credit Facility, the interest rate on
prospective borrowings under the term-loan portion of the
agreement was reduced by .40%. The bank's commitment under the
Credit Facility will expire in April of 1998. All other major
terms and commitments remain unchanged.
As of September 27 1996, the Company had $4,214,000 borrowed
under the Credit Facility.
4. STOCKHOLDERS' EQUITY
* A three-for-two stock split of the Company's common stock
which was effected in the form of a 50% stock dividend was
distributed on February 15, 1996 to stockholders of record on
January 31, 1996 and a five-for-four stock split effected in
the form of a 25% stock dividend was distributed on August 15,
1995 to stockholders of record on July 31, 1995. All
historical dividends and earnings per share amounts have been
adjusted for the stock splits.
* Cash dividends were paid during this quarter and the previous
three quarters as follows (all amounts are per share):
Split Adjusted
Record Date Payment Date Dividend Paid
July 31, 1996 August 15, 1996 $ .03
April 30, 1996 May 15, 1996 $ .03
January 31, 1996 February 15, 1996 $ .03
October 31, 1995 November 15, 1995 $ .02
-7-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Thirteen and Thirty-Nine Week Periods Ended September 27, 1996
And September 29, 1995
5. COMMITMENTS AND CONTINGENCIES
* It is a 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. 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 $78 million
at September 27, 1996, such contingency is reduced by the
resale value of the homes which may be required to be
repurchased. Losses under these agreements have not been
significant in the past and management expects no material
loss in excess of the allowance provided of $800,000.
* 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 are adjusted by the carrier
for loss experience factors subject to minimum and maximum
premium calculations. At September 27, 1996, the Company was
contingently liable for future retrospective premium
adjustments up to a maximum of $6.3 million in the event that
additional losses are reported related to prior periods. The
Company has recorded an estimated liability of approximately
$1.1 million related to such incurred but not reported claims
at September 27, 1996. Management expects no material loss in
excess of this allowance.
* The Company is engaged in various legal proceedings incidental
to its business. In management's opinion, the ultimate
liability, if any, with respect to these proceedings is not
presently expected to have a material adverse effect on the
Company's financial condition or results of operations;
however, the ultimate resolution of these matters could result
in losses in excess of current estimates.
6. ACQUISITIONS
In August of 1995, the Company acquired an option to purchase the
balance (73.5%) of the outstanding shares of common stock of Wheel
House Structures, Inc. ("Wheel House") not already owned by the Company
through the reissuance of treasury stock and the issuance of common
stock with a total value of $464,063. In January of 1996, the Company
exercised the option and acquired the remaining common stock of Wheel
House through the issuance of common stock valued at $690,937. The
total purchase price of the acquisition was $1,155,000 and has been
accounted for under the purchase method. The Company acquired the
manufacturing facility operated by Wheel House for $550,000 cash and an
assumption of long-term debt of $1,100,000, a total consideration of
$1,650,000. The acquisition was immaterial to the Company's
consolidated financial statements.
In April of 1996, Company acquired all of the outstanding shares of an
insurance agency in exchange for common stock with a total value of
$200,000. The acquisition was immaterial to the Company's consolidated
financial statements.
In August of 1996, the Company and another manufactured housing company
formed Quality Housing Supply, LLC, a limited liability company, to
manufacture and sell laminated wallboard and doors, and to distribute
other products, to each member company and others in the manufactured
housing industry. The limited liability company was formed by the
Company contributing substantially all of the assets of a wholly owned
subsidiary, and the other member contributing an equal amount of cash.
The acquisition was immaterial to the Company's consolidated financial
statements.
-8-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 27, 1996
General
The principal business of the Company since its inception has been the design
and production of manufactured homes. Currently the Company operates thirteen
facilities engaged in the manufacture of homes. In early 1992, the Company,
through its wholly owned subsidiary Cavalier Acceptance Corporation ("CAC"),
commenced retail installment sale financing operations. During 1994, the Company
formed Cavalier Insurance Agency, Inc. ("CIA") to sell various insurance
products. The operations of CAC and CIA are reported under the financial
services business segment in the Company's annual report.
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%, 20% and 12% for 1992, 1993 , 1994 and 1995,
respectively, as compared to the prior year. Industry statistics for the first
nine months of 1996 show an increase of 9%. 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 to manufacture
homes. During the last three years the Company has opened or acquired five
facilities in Alabama, two facilities in Texas and one facility each in Georgia
and Pennsylvania.
Results of Operations
The following tables set forth, for the periods and dates indicated, certain
financial, operating, and balance sheet data including, as applicable, the
percentage of net sales or total revenue:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA Thirteen Weeks Ended
September 27, 1996 September 29, 1995 Change over Prior Period
(dollars in thousands)
Net Sales $ 88,976 100.0%$ 70,900 100.0%$ 18,076 25.5%
Cost of Sales $ 73,226 82.3%$ 58,618 82.7%$ 14,608 24.9%
------------- --------- ------------- --------- ------------- ---------
Gross Profits on Sales $ 15,750 17.7%$ 12,282 17.3%$ 3,468 28.2%
============= ========= ============= ========= ============= =========
Net Sales $ 88,976 $ 70,900 $ 18,076 25.5%
Financial Services $ 867 $ 484 $ 383 79.1%
------------- --------- ------------- --------- ------------- ---------
Total Revenue $ 89,843 100.0%$ 71,384 100.0%$ 18,459 25.9%
============= ========= ============= ========= ============= =========
Selling, General and Administrative $ 11,193 12.5%$ 8,714 12.2%$ 2,479 28.4%
Net Income $ 3,609 4.0%$ 2,479 3.5%$ 1,130 45.6%
Thirty-Nine Weeks
September 27, 1996 September 29, 1995 Change over Prior Period
(dollars in thousands)
Net Sales $ 254,598 100.0%$ 199,468 100.0%$ 55,130 27.6%
Cost of Sales $ 209,682 82.4%$ 166,950 83.7%$ 42,732 25.6%
------------- --------- ------------- --------- ------------- ---------
Gross Profits on Sales $ 44,916 17.6%$ 32,518 16.3%$ 12,398 38.1%
============= ========= ============= ========= ============= =========
Net Sales $ 254,598 $ 199,468 $ 55,130 27.6%
Financial Services $ 2,259 $ 1,214 $ 1,045 86.1%
------------- --------- ------------- --------- ------------- ---------
Total Revenue $ 256,857 100.0%$ 200,682 100.0%$ 56,175 28.0%
============= ========= ============= ========= ============= =========
Selling, General and Administrative $ 31,392 12.2%$ 23,259 11.6%$ 8,133 35.0%
Net Income $ 10,005 3.9%$ 6,408 3.2%$ 3,597 56.1%
</TABLE>
-9-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 27, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
OPERATING DATA Thirteen Weeks Ended
September 27, 1996 September 29, 1995 Change over Prior Period
Home Shipments 3,763 3,061 702 22.9%
Thirty-Nine Weeks
September 27, 1996 September 29, 1995 Change over Prior Period
Home Shipments 10,728 8,769 1,959 22.3%
BALANCE SHEET DATA Thirty-Nine Weeks
September 27, 1996 September 29, 1995 Change over Prior Period
(dollars in thousands)
Installment Loan Portfolio 30,857 16,584 14,273 86.1%
</TABLE>
Net Sales. The Company believes the increases in net sales of $18.1 and $55.1
million for the thirteen and thirty-nine weeks ended September 27, 1996,
respectively, over the comparable periods from the previous year were primarily
the result of the continuation of improving industry trends, combined with new
and aggressive marketing programs instituted by the Company during the current
and prior periods, including the exclusive dealer program and dealer stock
option plan and the increase in manufacturing capacity during the current period
and the previous year. The Company believes the increases in the homes sold
during the thirteen and thirty-nine week periods ended September 27, 1996 over
the comparable periods in the previous year of 702 and 1,959 homes respectively,
or 22.9% and 22.3%, respectively are primarily attributable to the same factors
previously described. During the current thirty-nine week period the Company has
experienced a shift in product mix from single-section homes to multi-section
homes. During the thirty-nine weeks ended September 27, 1996 42% of the
Company's homes sold were multi-section homes as compared to 38% for the
comparable period in the previous year.
Gross Profit on Sales. The increases in gross profit on sales (derived by
deducting cost of sales from net sales) of $3.5 and $12.4 million during the
current thirteen and thirty-nine week periods over the comparable periods from
the previous year are primarily attributable to the increase in sales and
improved efficiency in manufacturing operations.
Financial Services Revenue. The increases in current period financial services
revenue (primarily interest income on retail installment contracts) during the
current thirteen and thirty-nine week periods of $383,000 and $1,045,000, or
79.1% and 86.1%, respectively, over the comparable periods in the previous year
are primarily attributable to the growth of the Company's loan portfolio to
$30.9 million, an increase of 86.1%.
Selling, General and Administrative. The growth in selling, general and
administrative expense during the current thirteen and thirty-nine week periods
of $2.5 and $8.1 million, respectively, over the previous year's comparable
periods is primarily attributable to the increase in sales combined with
increased expenses due to the addition of personnel, the opening or expansion of
manufacturing facilities and increased administrative expenses of CAC and CIA
consistent with their growth.
Net Income. The increases in net income during the current thirteen and
thirty-nine week periods of $1.1 and $3.6 million, or 45.6% and 56.1%,
respectively, over the previous year's comparable periods are primarily
attributable to the increase in sales volume. Net income per share during the
current thirteen and thirty-nine week periods was $.36 and $1.02, respectively,
compared to $.27 and $.71 from the previous year's comparable periods. (Net
income per share has been adjusted for all previous stock splits.)
-10-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 27, 1996
Liquidity and Capital Resources
The following table sets forth certain items relating to the measurement of
liquidity and capital resources from the Company's consolidated condensed
financial statements for the dates indicated:
<TABLE>
<CAPTION>
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Balances as of
September 27, December 31, Increase
1996 1995 (Decrease)
Working Capital 8,931 11,121 (2,190)
Current Ratio 1.2:1 1.4:1
Long-Term Debt 6,260 4,981 1,279
Ratio of Long-Term Debt to Equity 1:10 1:9
Installment Loan Portfolio at End of Period 30,857 19,209 11,648
</TABLE>
Although earnings for the period increased, working capital decreased primarily
due to capital expenditures and originations of installment contracts by CAC.
The increase in long-term debt is attributable to borrowings by CAC to finance
loan originations and to the purchase of a manufacturing facility in Haleyville,
Alabama (for further information relating to the purchase of this manufacturing
facility, see footnote 6 in the consolidated condensed financial statements
included herein).
The Company's primary business segment is the production and sale of
manufactured housing. In 1992, the Company began the operations of CAC to fund
installment sale contracts to the retail customers of the Company's Independent
Exclusive Dealers. As the operations of CAC expanded, in February 1994 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 27, 1996, the Company's
portfolio of installment sale contracts had grown to approximately $30.9 million
and had been funded primarily with internally generated working capital,
borrowings under the Credit Facility and a portion of the net proceeds from an
offering of the Company's common stock during 1994.
Since entering into the Credit Facility, the Company has had aggregate
borrowings of $5.7 million 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. On March 14, 1996, the Company
executed an amendment to the Credit Facility which increased the maximum
available borrowings under the warehouse and term-loan agreements contained in
the Credit Facility to $18 million from the previous limit of $8 million. The
amendment increased the total amount of available borrowings under the Credit
Facility (including the revolving line of credit) to $23 million from $13
million. In addition to the increase in available borrowings under the Credit
Facility, the interest rate on prospective borrowings under the term-loan
portion of the agreement was reduced by .40%. As the operations of CAC continue
to expand, the Company anticipates that it will be able to increase its
borrowing capacity.
The Company's capital expenditures were approximately $6.5 million for the
thirty-nine weeks ended September 27, 1996 as compared to $3.2 million for the
comparable period of 1995. Capital expenditures during these periods included
normal property, plant and equipment additions and replacements and the
continued expansion and modernization of certain of the Company's manufacturing
facilities.
-11-
<PAGE>
PART I.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 27, 1996
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. In order to provide additional funds for continued pursuit
of the Company's growth strategies and for operations over the longer term, the
Company may incur, from time to time, additional short and long-term bank
indebtedness and may issue, in public or private transactions, its equity and
debt securities, the availability and terms of which may depend upon market and
other conditions. There can be no assurance that such possible additional
financing will be available on terms acceptable to the Company.
-12-
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
September 27,1996
ITEM 5 OTHER MATTERS
On October 16, 1996, the Board of Directors of the Company
announced a five-for-four stock split in the form of a 25%
stock dividend payable November 15, 1996 to stockholders of
record as of October 31, 1996. In addition, the Board of
Directors declared its regular quarterly cash dividend of $.03
per share payable on November 15, 1996 to stockholders of
record on October 31, 1996.
On October 23, 1996 the Board of Directors of the Company
adopted a Stockholder Rights Plan in which rights will be
distributed on November 6, 1996, as a dividend at the rate of
one Right for each share of common stock, par value $0.10 per
share, held by stockholders of record as of the close of
business on November 6, 1996. The Rights Plan is designed to
deter abusive takeover tactics by making them unacceptably
expensive to a prospective acquiror and to encourage such
prospective acquiror to negotiate with the Company's Board of
Directors rather than to attempt a hostile takeover. The
Company filed a Current Report on Form 8-K covering the Rights
Plan on October 30, 1996.
On October 29, 1996, Jerry F. Wilson, the President, Chief
Executive Officer and a director of the Company, passed away.
On October 31, 1996, the Board of Directors elected David A.
Roberson, who previously served as Chief Financial Officer, to
serve as the Company's Chief Executive Officer and Michael R.
Murphy, who previously served as Corporate Controller, was
elected to serve as the Company's Chief Financial Officer.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
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 ended September
27, 1996.
-13-
<PAGE>
PART II.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Other Information
September 27, 1996
"Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995:
With the exception of historical factual information, the matters and statements
discussed, made or incorporated by reference in this Quarterly Report on Form
10-Q (including statements regarding trends in the industry and the business and
growth and financing strategies of the Company) constitute forward-looking
statements, contain the words "believes," "anticipates," "expects," and words of
similar import based upon current expectations and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements and words involve known and unknown assumptions,
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements or words. Such assumptions, risks, uncertainties and
factors include those associated with general economic and business conditions;
manufactured housing and retail consumer financing industry trends, cyclicality
and seasonality; availability of consumer and dealer financing; changes and
volatility in interest rates; the sufficiency of reserves established for
installment contract receivables; warranty, product liability and other
litigation arising in the course of the Company's manufacturing and financial
services business; contingent repurchase and guaranty obligations; dependence on
key personnel; demographic changes; competition; raw material and labor costs
and availability; import protection and regulation; relationships with and
dependence on customers, distributors or dealers; changes in the business
strategy or development plans of the Company; the availability, terms and
deployment of capital; changes in or the failure to comply with government
regulations; and the inability or failure to identify or consummate successful
acquisitions or to assimilate the operations of any acquired businesses with
those of the Company. The Company expressly disclaims any obligation to update
any forward-looking statements as a result of developments occurring after the
filing of this report.
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 11, 1996 /s/ David A. Roberson
----------------------- ---------------------
David A. Roberson - President
and Chief Executive Officer
Date: November 11, 1996 /s/ Michael R. Murphy
----------------------- ---------------------
Michael R. Murphy -
Chief Financial Officer (Principal
Financial and Accounting Officer)
-14-
<PAGE>
PART II. - EXHIBIT 11
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 27, September 29, September 27, September 29,
1996 1995 1996 1995
PRIMARY AND FULLY DILUTED
Net Income $ 3,609,000 $ 2,479,182 $ 10,005,000 $ 6,408,326
============ ============ ============ ============
SHARES:
Primary
Average common shares outstanding 9,694,183 8,858,588 9,384,892 8,825,130
Dilutive effect if stock options
were exercised 236,185 449,614 393,805 254,961
------------ ------------ ------------ ------------
Average common shares outstanding
as adjusted (primary) 9,930,368 9,308,202 9,778,697 9,080,091
============ ============ ============ ============
Fully Diluted
Average common shares outstanding 9,930,368 9,308,202 9,778,697 9,080,091
Additional dilutive effect if
stock options were excercised
(fully) - - - -
------------ ------------ ------------ ------------
Average common shares outstanding
as adjusted (fully diluted) 9,930,368 9,308,202 9,778,697 9,080,091
============ ============ ============ ============
Primary and Fully Diluted Net
Income per Common Share $ .36 $ .27 $ 1.02 $ .71
============ ============ ============ ============
</TABLE>
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000789863
<NAME> CAVALIER HOMES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-29-1996
<PERIOD-END> SEP-27-1996
<EXCHANGE-RATE> 1
<CASH> 10,242,000
<SECURITIES> 2,101,000
<RECEIVABLES> 23,006,000
<ALLOWANCES> 800,000
<INVENTORY> 13,699,000
<CURRENT-ASSETS> 55,458,000
<PP&E> 24,367,000
<DEPRECIATION> 8,893,000
<TOTAL-ASSETS> 116,662,000
<CURRENT-LIABILITIES> 46,527,000
<BONDS> 0
0
0
<COMMON> 970,000
<OTHER-SE> 62,296,000
<TOTAL-LIABILITY-AND-EQUITY> 116,662,000
<SALES> 88,976,000
<TOTAL-REVENUES> 89,843,000
<CGS> 73,226,000
<TOTAL-COSTS> 73,226,000
<OTHER-EXPENSES> 11,193,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162,000
<INCOME-PRETAX> 6,012,000
<INCOME-TAX> 2,403,000
<INCOME-CONTINUING> 3,609,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,609,000
<EPS-PRIMARY> 0.360
<EPS-DILUTED> 0.360
</TABLE>