CAVALIER HOMES INC
10-Q, 1996-08-12
MOBILE HOMES
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                        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  June 28, 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 August 12, 1996
- ------------------------------                    ------------------------------
  Common Stock $.10 Par Value                             9,695,241 Shares





                                      -1-
<PAGE>


                      CAVALIER HOMES, INC. AND SUBSIDIARIES


                                      INDEX
                                                                   Page No.

Part I.  Financial Information (Unaudited)

         Consolidated Condensed Balance Sheets -
         June 28, 1996 and December 31, 1995                            3

         Consolidated Condensed Statements of Income -
         Thirteen and Twenty-Six Weeks ended June 28, 1996 and
         June 30, 1995                                                  4

         Consolidated Condensed Statements of Cash
         Flows - Twenty-Six Weeks ended June 28, 1996 and
         June 30, 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 4.  Submission of Matters to a Vote of Security Holders  12

         Item 5.  Other Matters                                        12

         Item 6.  Exhibits                                             13

         Signatures                                                    14








                                      -2-
<PAGE>
<TABLE>
<CAPTION>

                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
<S>                                                                 <C>            <C>

                                                                       June 28,    December 31,
                                                                         1996          1995
ASSETS                                                                (Unaudited)    (Audited)
CURRENT ASSETS:
     Cash and cash equivalents                                      $  11,910,000 $  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)              20,511,000     1,893,400
     Installment contracts receivable - current                           786,000       693,967
     Inventories                                                       12,828,000     9,540,491
     Deferred income taxes                                              3,911,000     3,647,984
     Income tax deposit                                                 2,307,000          -   
     Other current assets                                                 927,000     1,954,350
                                                                     ------------- -------------
            Total current assets                                       55,281,000    42,318,405
                                                                     ------------- -------------
PROPERTY, PLANT AND EQUIPMENT (Net)                                    23,503,000    18,893,497
                                                                     ------------- -------------
INSTALLMENT CONTRACTS RECEIVABLE, less
    allowance for credit loss of $634,426 (1996)
    and $551,188 (1995)                                                25,272,000    17,964,038
                                                                     ------------- -------------
GOODWILL, less accumulated amortization of
    $446,923 (1996) and $309,729 (1995)                                 3,781,000     2,213,000
                                                                     ------------- -------------
OTHER ASSETS                                                            1,881,000     1,236,958
                                                                     ------------- -------------
                                                                    $ 109,718,000 $  82,625,898
                                                                     ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Current portion of long-term debt                              $     882,000 $     666,467
     Accounts payable                                                  13,138,000     7,098,602
     Amounts payable under dealer incentive programs                    8,723,000     6,997,496
     Accrued wages and related withholdings                             3,078,000     1,219,891
     Accrued incentive compensation                                     2,774,000     2,018,702
     Estimated warranties                                               6,800,000     5,800,000
     Accrued insurance                                                  1,652,000     1,676,164
     Other accrued expenses                                             5,301,000     4,923,839
     Accrued income taxes                                                 476,000       795,861
                                                                     ------------- -------------
          Total current liabilities                                    42,824,000    31,197,022
                                                                     ------------- -------------
DEFERRED INCOME TAXES                                                   1,422,000     1,042,862
                                                                     ------------- -------------
LONG-TERM DEBT                                                          5,738,000     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 9,680,327 (1996)
        and 8,993,951 (1995) shares                                       968,000       899,395
     Additional paid-in capital                                        30,550,000    22,804,129
     Retained earnings                                                 28,216,000    22,368,171
                                                                     ------------- -------------
         Total stockholders' equity                                    59,734,000    46,071,695
                                                                     ------------- -------------
                                                                    $ 109,718,000 $  82,625,898
                                                                     ============= =============
            See Notes to Consolidated Condensed Financial Statements

                                      -3-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                     CAVALIER HOMES, INC. AND SUBSIDIARIES
                  CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                   (UNAUDITED)


<S>                                     <C>           <C>           <C>            <C>
                                         Thirteen Weeks Ended        Twenty-Six Weeks Ended
                                           June 28,      June 30,      June 28,      June 30,
                                             1996          1995          1996          1995
REVENUES:                                ------------- ------------- ------------- -------------
     Net sales                          $  90,838,000 $  70,754,688 $ 165,622,000 $ 128,568,237
     Financial services                       772,000       396,384     1,392,000       730,022
                                         ------------- ------------- ------------- -------------
                                           91,610,000    71,151,072   167,014,000   129,298,259
                                         ------------- ------------- ------------- -------------
COST OF SALES                              74,643,000    59,488,538   136,456,000   108,331,175

SELLING, GENERAL AND ADMINISTRATIVE:
    Manufacturing                          10,675,000     7,434,275    19,332,000    14,114,851
    Financial services                        508,000       240,606       867,000       429,883
                                         ------------- ------------- ------------- -------------
                                           85,826,000    67,163,419   156,655,000   122,875,909
                                         ------------- ------------- ------------- -------------
OPERATING PROFIT                            5,784,000     3,987,653    10,359,000     6,422,350
                                         ------------- ------------- ------------- -------------
OTHER INCOME(EXPENSE):
    Interest expense:
       Manufacturing                           (4,000)       (4,483)      (20,000)       (5,889)
       Financial services                    (127,000)     (133,250)     (243,000)     (249,125)
    Other, net                                229,000       177,624       564,000       386,808
                                         ------------- ------------- ------------- -------------
                                               98,000        39,891       301,000       131,794
                                         ------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES                  5,882,000     4,027,544    10,660,000     6,554,144

INCOME TAXES                                2,357,000     1,616,000     4,264,000     2,625,000
                                         ------------- ------------- ------------- -------------
NET INCOME                              $   3,525,000 $   2,411,544 $   6,396,000 $   3,929,144
                                         ============= ============= ============= =============
NET INCOME PER SHARE                    $        0.36 $        0.27 $        0.66 $        0.44
                                         ============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING         9,811,197     8,987,510     9,702,862     8,966,036
                                         ============= ============= ============= =============























            See Notes to Consolidated Condensed Financial Statements
                                      -4-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                     CAVALIER HOMES, INC. AND SUBSIDIARIES
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<S>                                                                 <C>           <C>
                                                                     Twenty-Six Weeks Ended
                                                                       June 28,      June 30,
                                                                         1996          1995
OPERATING ACTIVITIES:
  Net income                                                        $   6,396,000 $   3,929,144
  Adjustments to reconcile net income to net cash used in 
     operating activities:
       Depreciation and amortization                                    1,763,000     1,142,895
       Provision for credit losses, repurchase commitments and
          other                                                           133,000        65,467
       (Gain)loss on sale of property, plant and equipment                (12,000)      (10,340)
       Equity in undistributed earnings of investments                   (200,000)     (110,818)
       Compensation related to issuance of stock options                   55,000          -   
       Changes in assets and liabilities provided(used) cash, 
          net of effects of acquisitions in 1996:
            Accounts receivable                                       (17,954,000)  (14,631,867)
            Inventories                                                (2,357,000)       34,267
            Accounts payable                                            5,229,000     4,291,709
            Amounts payable under dealer incentive programs             1,617,000       609,957
            Estimated warranties                                          629,000       900,000
            Income tax deposit                                         (2,307,000)         -   
            Other assets and liabilities                                4,748,000     1,724,676
                                                                     ------------- -------------
       Net cash used in operating activities                           (2,260,000)   (2,054,910)
                                                                     ------------- -------------
INVESTING ACTIVITIES:
  Proceeds from the sale of property, plant and equipment                  54,000        33,000
  Net cash paid in connection with acquisition of subsidiaries           (370,000)         -   
  Capital expenditures                                                 (4,155,000)   (2,006,184)
  Distribution from partnership investment                                194,000       138,356
  Purchases of marketable securities                                         -         (991,246)
  Redemptions of marketable securities                                  1,475,000          -   
  Purchases and originations of installment contracts                  (8,825,000)   (5,020,514)
  Principal collected on installment contracts                          1,348,000       419,168
                                                                     ------------- -------------
       Net cash used in investing activities                          (10,279,000)   (7,427,420)
                                                                     ------------- -------------
FINANCING ACTIVITIES:
  Long-term borrowings                                                  1,005,000     2,000,000
  Payments on long-term debt                                             (465,000)     (295,586)
  Cash dividends                                                         (549,000)     (281,807)
  Net proceeds from exercise of stock options                           3,453,000         3,999
  Other                                                                      -           (9,404)
                                                                     ------------- -------------
       Net cash provided by financing activities                        3,444,000     1,417,202
                                                                     ------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS                              (9,095,000)   (8,065,128)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                         21,005,000    16,034,922
                                                                     ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                            $  11,910,000 $   7,969,794
                                                                     ============= =============








            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 Twenty-Six Week Periods Ended June 28, 1996
                                And June 30, 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 June 28, 1996,
                  and  the  results  of its  operations  for  the  thirteen  and
                  twenty-six  week periods ended June 28, 1996 and June 30, 1995
                  and its cash flows for the twenty-six  week periods ended June
                  28, 1996 and June 30, 1995.  All  adjustments  are of a normal
                  recurring nature.

                  * The results of  operations  for the thirteen and  twenty-six
                  weeks ended June 28, 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  twenty-six  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
                                                   Twenty-Six Weeks Ended
                                                 --------------------------
                                                  June 28,        June 30,
                                                    1996            1995
                                                 --------------------------
         Cash paid for:    Interest            $   284,000      $   255,014
                           Income taxes        $ 2,845,000      $ 1,836,337

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 June 28, 1996).

                  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.



                                      -6-
<PAGE>
                                     PART I.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
              Notes to Consolidated Condensed Financial Statements
        For the Thirteen and Twenty-Six Week Periods Ended June 28, 1996
                                And June 30, 1995

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.

                  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 June 28, 1996, the Company had $4,534,000 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

                  April 30, 1996            May 15, 1996      $      .03
                  January 31, 1996          February 15, 1996 $      .03
                  October 31, 1995          November 15, 1995 $      .02
                  July 31, 1995             August 15, 1995   $      .02

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  $75
                  million  under  these  agreements  as  of June 28, 1996,  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  $800,000 at June 28,
                  1996,   based   on   prior   experience   and  current  market
                  conditions. Management expects  no  material loss in excess of
                  the allowance.





                                      -7-
<PAGE>
                                     PART I.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
              Notes to Consolidated Condensed Financial Statements
        For the Thirteen and Twenty-Six Week Periods Ended June 28, 1996
                                And June 30, 1995

5.       COMMITMENTS AND CONTINGENCIES - Continued

         *        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 June  28,  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
                  $1.12 million related to such incurred but not reported claims
                  at June 28,  1996.  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 $1,800,000  at June 28, 1996,  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.


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.


                                      -8-
<PAGE>
                                     PART I.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                                  June 28, 1996

General

The  principal  business of the Company  since its inception has been the design
and production of  manufactured  homes.  Currently the Company  operates  eleven
facilities  engaged in the  manufacture  of homes and a component  manufacturing
facility engaged in the manufacture of laminated wallboards.  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
six months of 1996 show an increase of 9% and indicate a continued  trend in the
increase of shipments.  The Company  attributes  the upturn in the  manufactured
housing  industry  to  increased  consumer   confidence,   wider  acceptance  of
manufactured  housing,  a reduction in the availability of alternative  housing,
increased  availability of consumer  financing and an improvement in the overall
economy.

Accordingly,  as business  conditions have improved the Company has expanded its
manufacturing  operations  to increase and improve its  capacity to  manufacture
homes.  During the last three years the  Company  has opened or  acquired  three
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
                               ------------------------------------------------------------------------
                               June 28, 1996           June 30, 1995           Change over Prior Period
                               ------------------------------------------------------------------------
                                                          (dollars in thousands)

Net Sales                     $    90,838       100.0%  $    70,755       100.0%  $    20,083        28.4%
Cost of Sales                 $    74,643        82.2%  $    59,489        84.1%  $    15,154        25.5%
                               -----------     -------   -----------     -------   -----------     -------
Gross Profit on Sales         $    16,195        17.8%  $    11,266        15.9%  $     4,929        43.8%
                               ===========     =======   ===========     =======   ===========     =======
Net Sales                     $    90,838               $    70,755               $    20,083        28.4%
Financial Services            $       772               $       396               $       376        94.9%
                               -----------               -----------               -----------     -------
Total Revenue                 $    91,610       100.0%  $    71,151       100.0%  $    20,459        28.8%
                               ===========               ===========               ===========  
Selling, General and
 Administration               $    11,183        12.2%  $     7,675        10.8%  $     3,508        45.7%

Net Income                    $     3,525         3.8%  $     2,412         3.4%  $     1,113        46.1%

                                                          Twenty-Six Weeks Ended

                               June 28, 1996           June 30, 1995           Change over Prior Period

                                                           (dollars in thousands)

Net Sales                     $   165,622       100.0%  $   128,568       100.0%  $    37,054        28.8%
Cost of Sales                 $   136,456        82.4%  $   108,331        84.3%  $    28,125        26.0%
                               -----------     -------   -----------     -------   -----------     -------
Gross Profit on Sales         $    29,166        17.6%  $    20,237        15.7%  $     8,929        44.1%
                               ===========     =======   ===========     =======   ===========     =======
Net Sales                     $   165,622               $   128,568               $    37,054        28.8%
Financial Services            $     1,392               $       730               $       662        90.7%
                               -----------     -------   -----------     -------   -----------     -------
Total Revenue                 $   167,014       100.0%  $   129,298       100.0%  $    37,716        29.2%
                               ===========               ===========               ===========  
Selling, General and
 Administration               $    20,199        12.1%  $    14,545        11.2%  $     5,654        38.9%

Net Income                    $     6,396         3.8%  $     3,929         3.0%  $     2,467        62.8%

                                      -9-
</TABLE>
<PAGE>
                                     PART I.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
                                  June 28, 1996

<TABLE>
<CAPTION>
<S>                           <C>            <C>        <C>              <C>       <C>           <C>
OPERATING DATA
                                                           Thirteen Weeks Ended
                               ------------------------------------------------------------------------
                               June 28, 1996           June 30, 1995           Change over Prior Period
                               ------------------------------------------------------------------------
House Shipments                     3,826                     2,957                       869        29.4%

                                                          Twenty-Six Weeks Ended
                               ------------------------------------------------------------------------
                               June 28, 1996           June 30, 1995           Change over Prior Period
                               ------------------------------------------------------------------------
House Shipments                     6,965                     5,708                     1,257        22.0%


BALANCE SHEET DATA
                                                              Balances as of
                               ------------------------------------------------------------------------
                               June 28, 1996           June 30, 1995           Change over Prior Period
                               ------------------------------------------------------------------------
                                                          (dollars in thousands)

Installment Loan Portfolio    $    26,692               $    14,427               $    12,265        85.0%

</TABLE>

Net Sales.  The Company  believes the  increases in net sales of $20.1 and $37.1
million for the thirteen and twenty-six weeks ended June 28, 1996, respectively,
over the  comparable  periods from the previous year was 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 increase in homes sold during the  thirteen and  twenty-six
week  periods  ended June 28, 1996 over the  comparable  periods in the previous
year of 869 and 1,257 homes respectively,  or 29.4% and 22.0%,  respectively are
primarily  attributable  to  the  increase  in  production  capacity  previously
described. During the current twenty-six week period the Company has experienced
a shift in product mix from single-section  homes to multi-section homes. During
the  twenty-six  weeks ended June 28, 1996 42% of the Company's  homes sold were
multi-section homes as compared to 37% 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 $4.9 and $8.9  million  during the
current  thirteen and twenty-six  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 twenty-six week periods of $376,000 and $662,000,  or 94.9%
and 90.7%,  respectively,  over the comparable  periods in the previous year are
primarily  attributable  to the growth of the Company's  loan portfolio to $26.7
million, an increase of 85.0%.

Selling,  General  and  Administrative.  The  growth  in  selling,  general  and
administrative  expense during the current  thirteen and twenty-six week periods
of $3.5 and $5.7  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
twenty-six  week  periods  of  $1.1  and  $2.5  million,  or  46.1%  and  62.8%,
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 twenty-six  week periods was $.36 and $.66,  respectively,
compared to $.27 and $.44 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
                                  June 28, 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:

                                                      Balances as of
                                            ----------------------------------
                                             June 28,   December 31, Increase
                                               1996        1995     (Decrease)
                                            ----------------------------------
                                                   (dollars in thousands)

Working Capital                            $    12,457 $    11,121 $     1,336
Current Ratio                                   1.3:1       1.4:1       (.1:1)
Long-term Debt                             $     6,620 $     4,981 $     1,639
Ratio of Long-term Debt to Equity                 1:9         1:9           0
Installment Loan Portolio at end of period $    26,692 $    19,209 $     7,483


Although earnings for the period increased,  working capital increased primarily
due to exercise of stock options and long-term debt borrowings.  The increase in
long-term   debt  is   attributable   to  borrowings  by  CAC  to  finance  loan
origninations  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 June 28, 1996, the Company's  portfolio
of installment sale contracts had grown to  approximately  $26.7 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  $4.2 million for the
tweny-six  weeks  ended  June  28,  1996 as  compared  to $2.0  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.

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.


                                      -11-
<PAGE>
                                    PART II.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                                Other Information
                                  June 28,1996


ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  The Company's  Annual Meeting of Stockholders  was held on May
                  15, 1996.  Each person who was then serving as a member of the
                  Board of Directors was  re-elected for another year. The votes
                  for each nominee were cast as follows:


                                                            Shares Voting
                                                    ---------------------------
                                                       For    Against  Withheld
                                                    --------- -------- --------
                   Barry B. Donnell                 7,568,725    -0-    66,827
                   Jerry F. Wilson                  7,568,725    -0-    66,827
                   Thomas A. Broughton, III         7,568,725    -0-    66,827
                   John W Lowe                      7,568,725    -0-    66,827
                   Lee Roy Jordan                   7,568,725    -0-    66,827


                  The stockholders ratified the Board of Directors'  appointment
                  of  Deloitte  & Touche  LLP as  Independent  Certified  Public
                  Accountants for the Company. The appointment was ratified by a
                  vote of  7,474,648  shares  for and 5,287  shares  against  or
                  withheld, with 155,617 abstentions or broker nonvotes.

                  The stockholders  voted to approve the Cavalier Homes Employee
                  Stock  Purchase  Plan.  The  plan  was  approved  by a vote of
                  5,532,665  shares for and 38,777 shares  against,  with 49,723
                  abstentions and 2,003,441 broker nonvotes.

                  The  stockholders  voted to  approve  the  Cavalier  Homes Key
                  Employee Stock Incentive Plan. The plan was approved by a vote
                  of 4,373,980  shares for and 1,190,599  shares  against,  with
                  56,685 abstentions and 2,014,288 broker nonvotes.

                  The stockholders voted to approve the Cavalier Homes Executive
                  Incentive  Stock  Plan.  The  plan was  approved  by a vote of
                  7,147,164  shares for and 278,516 shares against,  with 75,312
                  abstentions and 134,560 broker nonvotes.

                  The  stockholders  voted  to  approve  the  amendments  to the
                  Cavalier  Homes,   Inc.   Amended  and  Restated   Nonemployee
                  Directors  Stock Option Plan.  The plan was approved by a vote
                  of 4,191,321  shares for and 1,352,264  shares  against,  with
                  78,838 abstentions and 2,013,129 broker nonvotes.

ITME 5            OTHER MATTERS

                  On July 16, 1996 the Board of Directors of the Company created
                  two  additional  positions on the Board and elected  Gerald W.
                  Moore (an independent  tax consultant in Birmingham,  Alabama)
                  and David A. Roberson  (currently  Chief Financial  Officer of
                  the  Company)  to fill the  positions  until  the next  annual
                  meeting of stockholders.

                  In  addition,  the Board of  Directors  declared  its  regular
                  quarterly  cash  dividend of $.03 per share  payable on August
                  15, 1996 to stockholders of record on July 31, 1996.



                                      -12-
<PAGE>
                                    PART II.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                                Other Information
                                  June 28, 1996


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.



                                      -13-
<PAGE>
                                    PART II.
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                                Other Information
                                  June 28, 1996



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: August 12, 1996                           /s/ Jerry F. Wilson
      ------------------                        -----------------------------
                                                Jerry F. Wilson - President



Date: August 12, 1996                           /s/ David A. Roberson
      ------------------                        -----------------------------
                                                David A. Roberson -
                                                Chief Financial Officer




                                      -14-
<PAGE>
<TABLE>
<CAPTION>

                              PART II. - EXHIBIT 11
                      CAVALIER HOMES, INC. AND SUBSIDIARIES
                   COMPUTATION OF NET INCOME PER COMMON SHARE

<S>                                     <C>           <C>           <C>           <C>
                                         Thirteen Weeks Ended        Twenty-Six Weeks Ended
                                           June 28,      June 30,      June 28,      June 30,
                                             1996          1995          1996          1995
                                         ------------- ------------- ------------- -------------
PRIMARY AND FULLY DILUTED
     Net Income                         $   3,525,000 $   2,411,544 $   6,396,000 $   3,929,144
                                         ============= ============= ============= =============
SHARES:

Primary
  Average common shares outstanding         9,385,176     8,809,410     9,230,247     8,808,401

  Dilutive effect if stock options
    were exercised                            426,021       178,100       472,615       157,635
                                         ------------- ------------- ------------- -------------
  Average common shares outstanding
    as adjusted (primary)                   9,811,197     8,987,510     9,702,862     8,966,036
                                         ============= ============= ============= =============
Fully Diluted
  Average common shares outstanding         9,811,197     8,987,510     9,702,862     8,966,036

  Additional dilutive effect if
    stock options were excercised
    (fully)                                    62,358          -           53,889          -   
                                         ------------- ------------- ------------- -------------
  Average common shares outstanding
    as adjusted (fully diluted)             9,873,555     8,987,510     9,756,751     8,966,036
                                         ============= ============= ============= =============

Primary and Fully Diluted Net
  Income per Common Share               $        0.36 $        0.27 $        0.66 $        0.44
                                         ============= ============= ============= =============



                                      -15-
</TABLE>

<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>                                                      MAR-30-1996
<PERIOD-END>                                                        JUN-28-1996
<EXCHANGE-RATE>                                                               1
<CASH>                                                               11,910,000
<SECURITIES>                                                          2,101,000
<RECEIVABLES>                                                        20,511,000
<ALLOWANCES>                                                            800,000
<INVENTORY>                                                          12,828,000
<CURRENT-ASSETS>                                                     55,281,000
<PP&E>                                                               23,503,000
<DEPRECIATION>                                                        8,016,000
<TOTAL-ASSETS>                                                      109,718,000
<CURRENT-LIABILITIES>                                                42,824,000
<BONDS>                                                                       0
                                                         0
                                                                   0
<COMMON>                                                                968,000
<OTHER-SE>                                                           58,766,000
<TOTAL-LIABILITY-AND-EQUITY>                                        109,718,000
<SALES>                                                              90,838,000
<TOTAL-REVENUES>                                                     91,610,000
<CGS>                                                                74,643,000
<TOTAL-COSTS>                                                        74,643,000
<OTHER-EXPENSES>                                                     11,183,000
<LOSS-PROVISION>                                                              0
<INTEREST-EXPENSE>                                                      131,000
<INCOME-PRETAX>                                                       5,882,000
<INCOME-TAX>                                                          2,357,000
<INCOME-CONTINUING>                                                   3,525,000
<DISCONTINUED>                                                                0
<EXTRAORDINARY>                                                               0
<CHANGES>                                                                     0
<NET-INCOME>                                                          3,525,000
<EPS-PRIMARY>                                                             0.360
<EPS-DILUTED>                                                             0.360
        

</TABLE>


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