UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, DC 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 July 2, 1999
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)
(256) 747-0044
--------------------------------------------------
(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 13, 1999
- ----------------------------- --------------------------------
Common Stock, $.10 Par Value 17,995,888 Shares
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - dollars in thousands)
<S> <C> <C>
July 2, December 31,
ASSETS 1999 1998
CURRENT ASSETS: ----------------- ------------------
Cash and cash equivalents $ 29,455 $ 64,243
Accounts receivable, less allowance for losses 35,501 7,678
of $1,311 (1999) and $1,201 (1998)
Notes and installment contracts receivable - current 1,184 1,577
Inventories 56,307 38,803
Deferred income taxes 10,368 9,413
Other current assets 5,364 4,077
----------------- ------------------
Total current assets 138,179 125,791
----------------- ------------------
PROPERTY, PLANT AND EQUIPMENT (Net) 73,427 61,422
----------------- ------------------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $765 (1999) and $760 (1998) 8,665 24,512
----------------- ------------------
GOODWILL, less accumulated amortization of $4,755 (1999) 23,361 19,945
and $4,154 (1998) ----------------- ------------------
OTHER ASSETS 6,236 4,282
----------------- ------------------
TOTAL $ 249,868 $ 235,952
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 489 $ 405
Notes payable 14,322 4,163
Accounts payable 24,811 15,944
Amounts payable under dealer incentive programs 19,048 18,752
Accrued compensation and related withholdings 10,385 7,154
Estimated warranties 13,000 12,400
Other accrued expenses 22,224 25,266
----------------- ------------------
Total current liabilities 104,279 84,084
----------------- ------------------
DEFERRED INCOME TAXES - 390
----------------- ------------------
LONG-TERM DEBT 4,154 3,650
----------------- ------------------
OTHER LONG-TERM LIABILITIES 4,563 2,917
----------------- ------------------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; authorized 50,000,000 shares,
issued 20,322,093 (1999) shares and 20,282,782 (1998) shares 2,032 2,028
Additional paid-in capital 61,336 60,760
Treasury stock, at cost; 2,370,100 (1999) shares (22,721) (8,277)
and 852,600 (1998) shares
Retained earnings 96,225 90,400
----------------- ------------------
Total stockholders' equity 136,872 144,911
----------------- ------------------
TOTAL $ 249,868 $ 235,952
================= ==================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - dollars in thousands except per share data)
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------------------------- -----------------------------------
July 2, June 26, July 2, June 26,
1999 1998 1999 1998
----------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
REVENUE $ 167,359 $ 167,613 $ 330,775 $ 293,192
COST OF SALES 136,143 136,153 266,962 238,908
SELLING, GENERAL AND ADMINISTRATIVE 26,670 23,254 52,304 40,976
---------------- ---------------- ------------------ ----------------
OPERATING PROFIT 4,546 8,206 11,509 13,308
----------------- ---------------- ------------------ ----------------
OTHER INCOME (EXPENSE):
Interest expense (347) (129) (512) (554)
Other, net 462 492 1,105 884
----------------- ---------------- ------------------ ----------------
115 363 593 330
----------------- ---------------- ------------------ ----------------
INCOME BEFORE INCOME TAXES 4,661 8,569 12,102 13,638
INCOME TAXES 1,841 3,500 4,781 5,527
----------------- ---------------- ------------------ ----------------
NET INCOME $ 2,820 $ 5,069 $ 7,321 $ 8,111
================= ================ ================== ================
BASIC NET INCOME PER SHARE $ 0.16 $ 0.25 $ 0.40 $ 0.41
================= ================ ================== ================
DILUTED NET INCOME PER SHARE $ 0.16 $ 0.25 $ 0.40 $ 0.40
================= ================ ================== ================
WEIGHTED AVERAGE SHARES OUTSTANDING 17,974,834 20,044,585 18,356,435 20,006,292
================= ================ ================== ================
WEIGHTED AVERAGE SHARES OUTSTANDING, 18,070,859 20,427,558 18,456,404 20,294,047
ASSUMING DILUTION ================= ================ ================== ================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Twenty-six Weeks Ended
------------------------------------
July 2, June 26,
1999 1998
OPERATING ACTIVITIES: ----------------- ------------------
<S> <C> <C>
Net income $ 7,321 $ 8,111
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 4,867 4,005
Provision for credit losses and repurchase commitments 115 (469)
Gain on sale of installment contracts (1,292) (1,283)
Gain on sale of property, plant and equipment (18) (1)
Other, net 21 247
Changes in assets and liabilities provided (used) cash,
net of effects of acquisitions:
Accounts receivable (27,933) (26,731)
Inventories (11,114) (2,276)
Accounts payable 7,411 11,645
Other assets and liabilities 641 6,219
----------------- ------------------
Net cash used in operating activities (19,981) (533)
----------------- ------------------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisitions (4,439) (1,199)
Proceeds from sale of property, plant and equipment 249 32
Capital expenditures (15,514) (4,420)
Purchases of certificates of deposit - (6,044)
Maturities of certificates of deposit - 10,044
Proceeds from sale of installment contracts 45,049 29,662
Net change in notes and installment contracts (27,618) (4,344)
Other investing activities (1,037) 66
----------------- ------------------
Net cash provided by (used in) investing activities (3,310) 23,797
----------------- ------------------
FINANCING ACTIVITIES:
Net proceeds (payments) from notes payable 3,584 (408)
Payments on long-term debt (239) (14,806)
Proceeds from long-term borrowings 807 -
Cash dividends paid (1,496) (1,199)
Proceeds from exercise of stock options 284 165
Net proceeds from sales of common stock 7 1,164
Purchase of treasury stock (14,444) -
----------------- ------------------
Net cash used in financing activities (11,497) (15,084)
----------------- ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (34,788) 8,180
----------------- ------------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 64,243 37,276
----------------- ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,455 $ 45,456
================= ==================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 499 $ 553
Income taxes 9,302 4,576
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited - dollars in thousands except per share data)
1. BASIS OF PRESENTATION
o The accompanying consolidated 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 management, these statements contain all adjustments necessary to
present fairly the Company's financial position as of July 2, 1999, and
the results of its operations and its cash flows for the thirteen and
twenty-six week periods ended July 2, 1999 and June 26, 1998,
respectively. All such adjustments are of a normal, recurring nature.
o The results of operations for the thirteen and twenty-six weeks ended
July 2, 1999 are not necessarily indicative of the results to be
expected for the full year. The information included in this Form 10-Q
should be read in conjunction with Management's Discussion and Analysis
and financial statements and notes thereto included in the Company's
1998 Annual Report on Form 10-K.
o In accordance with SFAS 128, Earnings per Share, the Company reports
two separate net income per share numbers, basic and diluted. Both are
computed by dividing net income by the weighted average shares
outstanding (basic) or weighted average shares outstanding assuming
dilution (diluted) as detailed below:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------------- -------------------------------
July 2, June 26, July 2, June 26,
1999 1998 1999 1998
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted average common shares 17,974,834 20,044,585 18,356,435 20,006,292
outstanding (basic)
Dilutive effect if stock options 96,025 382,973 99,969 287,755
were exercised ------------- ------------ -------------- --------------
Weighted average common shares
outstanding, assuming dilution 18,070,859 20,427,558 18,456,404 20,294,047
(diluted) ============= ============ ============== ==============
</TABLE>
2. ACCOUNTING STANDARD NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This
statement is effective for financial statements issued for years beginning
after June 15, 2000. Cavalier is currently evaluating SFAS No. 133 and has
not yet determined its impact on the Company's consolidated financial
statements.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories at July 2, 1999, and December 31, 1998, were as
follows:
July 2, December 31,
1999 1998
---------------- ----------------
Raw materials $ 28,350 $ 25,563
Work-in process 3,982 3,841
Finished goods 23,975 9,399
---------------- ----------------
Total inventory $ 56,307 $ 38,803
================ ================
4. STOCKHOLDERS' EQUITY
o Cash dividends of $.04 per share were paid during the quarter ended
July 2, 1999.
o During the second quarter of 1999, the Company repurchased 58,500
shares of stock under its stock repurchase program. At July 2, 1999,
2,370,100 shares had been repurchased for $22,721 which is recorded as
treasury stock.
5. CONTINGENCIES
o The Company is contingently liable under terms of repurchase agreements
with financial institutions providing inventory financing for retailers
of its products. These arrangements, which are customary in the
industry, provide for the repurchase of products sold to retailers in
the event of default on payments by the retailer. The risk of loss
under these agreements is spread over numerous retailers. The price the
Company is obligated to pay generally declines over the period of the
agreement and is further reduced by the resale value of repurchased
homes. The estimated potential obligations under such agreements
approximated $300,000 at July 2, 1999. The Company has an allowance
for losses of $1,311 (1999) and $1,201 (1998) based on prior experience
and market conditions. Management expects no material loss in excess
of the allowance.*
* See Safe Harbor Statement on page 12.
o The Company's product liability and general liability insurance
coverages are provided under incurred loss, retrospectively rated
premium plans. The Company's workers' compensation coverage through
February 1999 was also covered under this type of plan. 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 July 2, 1999,
the Company was contingently liable for future retrospective premium
adjustments up to a maximum of $7,531 in the event that additional
losses are reported related to prior periods.
o The Company is engaged in various legal proceedings that are incidental
to and arise in the course of its business. Certain of the cases filed
against the Company and other companies engaged in businesses similar
to the Company allege, among other things, breach of contract and
warranty, product liability, personal injury and fraudulent, deceptive
or collusive practices in connection with their businesses. These kinds
of suits are typical of suits that have been filed in recent years, and
they sometimes seek certification as class actions, the imposition of
large amounts of compensatory and punitive damages and trials by jury.
In the opinion of management, the ultimate liability, if any, with
respect to the proceedings in which the Company is currently involved
is not presently expected to have a material adverse effect on the
Company. * However, the potential exists for unanticipated material
adverse judgments against the Company.
o The Company and certain of its equity partners have jointly and
severally guaranteed revolving notes for three companies, a term loan
for one company and a letter of credit for one company in which the
Company owns various equity interests. The guarantees are limited
to various percentages of the outstanding debt up to a maximum
guaranty of $3,219. At July 2, 1999, $8,047 was outstanding under
the various guarantees, of which the Company had guaranteed $2,387.
6. SEGMENT INFORMATION
On December 31, 1998, the Company adopted SFAS 131, Disclosure about
Segments of an Enterprise and Related Information, which established
standards for reporting information about segments in annual financial
statements and interim financial reports issued to stockholders. Segment
information relating to the thirteen and twenty-six week periods ended July
2, 1999 and June 26,1998 is presented below:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------------------- -----------------------------------
July 2, 1999 June 26, 1998 July 2, 1999 June 26, 1998
----------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Gross revenue:
Home manufacturing $ 163,199 $ 164,744 $ 324,884 $ 287,587
Financial services 2,026 1,015 3,481 3,441
Retail 6,004 1,854 8,482 1,854
Other 11,357 9,466 21,182 15,773
----------------- ------------------ ---------------- ------------------
Gross revenue $ 182,586 $ 177,079 $ 358,029 $ 308,655
================= ================== ================ ==================
Intersegment revenue:
Home manufacturing $ 5,113 $ 470 $ 8,315 $ 470
Financial services - - - -
Retail - - - -
Other 10,114 8,996 18,939 14,993
----------------- ------------------ ---------------- ------------------
Intersegment revenue $ 15,227 $ 9,466 $ 27,254 $ 15,463
================= ================== ================ ==================
Revenue from external customers:
Home manufacturing $ 158,086 $ 164,274 $ 316,569 $ 287,117
Financial services 2,026 1,015 3,481 3,441
Retail 6,004 1,854 8,482 1,854
Other 1,243 470 2,243 780
----------------- ------------------ ---------------- ------------------
Total revenue $ 167,359 $ 167,613 $ 330,775 $ 293,192
================= ================== ================ ==================
Operating profit:
Home manufacturing $ 4,758 $ 8,180 $ 11,974 $ 11,123
Financial services 557 227 736 1,698
Retail (345) 59 (612) 59
Other 365 731 742 1,176
Elimination (606) (609) (980) (639)
----------------- ------------------ ---------------- ------------------
Segment operating profit 4,729 8,588 11,860 13,417
General corporate (183) (382) (351) (109)
----------------- ------------------ ---------------- ------------------
Operating profit $ 4,546 $ 8,206 $ 11,509 $ 13,308
================= ================== ================ ==================
Identifiable assets:
Home manufacturing $ 165,783 $ 166,524 $ 165,783 $ 166,524
Financial services 33,569 28,155 33,569 28,155
Retail 22,458 4,374 22,458 4,374
Other 15,343 9,645 15,343 9,645
Elimination (4,487) (2,418) (4,487) (2,418)
----------------- ------------------ ---------------- ------------------
Segment assets 232,666 206,280 232,666 206,280
General corporate 17,202 21,023 17,202 21,023
----------------- ------------------ ---------------- ------------------
Total assets $ 249,868 $ 227,303 $ 249,868 $ 227,303
================= ================== ================ ==================
</TABLE>
* See Safe Harbor Statement on page 12.
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (See pages 2 through 6)
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations (dollars in thousands)
The following tables set forth, for the periods and dates indicated, certain
financial and operating data, including, as applicable, the percentage of total
revenue:
<TABLE>
<CAPTION>
INCOME STATEMENT DATA For the Thirteen Weeks Ended
---------------------------------------------------------------------
July 2, 1999 June 26, 1998 Difference
--------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Home manufacturing net sales $ 158,086 $ 164,274 $ (6,188) -3.8%
Financial services 2,026 1,015 1,011 99.6%
Retail 6,004 1,854 4,150 223.8%
Other 1,243 470 773 164.5%
------------- -------------- ------------- --------
Total revenue $ 167,359 100.0% $ 167,613 100.0% $ (254) -0.2%
============= ======= ============== ======= ============= ========
Total revenue $ 167,359 100.0% $ 167,613 100.0% $ (254) -0.2%
Cost of sales 136,143 81.3% 136,153 81.2% (10) 0.0%
------------- ------- ------------- ------- ------------- --------
Gross profit $ 31,216 18.7% $ 31,460 18.8% $ (244) -0.8%
============= ======= ============= ======= ============= ========
Selling, general and administrative$ 26,670 15.9% $ 23,254 13.9% $ 3,416 14.7%
============= ======= ============= ======= ============= ========
Operating profit $ 4,546 2.7% $ 8,206 4.9% $ (3,660) -44.6%
============= ======= ============= ======= ============= ========
Other income (expense), net $ 115 0.1% $ 363 0.2% $ (248) -68.3%
============= ======= ============= ======= ============= ========
Net income $ 2,820 1.7% $ 5,069 3.0% $ (2,249) -44.4%
============= ======= ============= ======= ============= ========
For the Twenty-Six Weeks Ended
---------------------------------------------------------------------
July 2, 1999 June 26, 1998 Difference
--------------------- ---------------------- ----------------------
Revenue:
Home manufacturing net sales $ 316,569 $ 287,117 $ 29,452 10.3%
Financial services 3,481 3,441 40 1.2%
Retail 8,482 1,854 6,628 357.5%
Other 2,243 780 1,463 187.6%
------------- -------------- ------------- --------
Total revenue $ 330,775 100.0% $ 293,192 100.0% $ 37,583 12.8%
============ ======== ============== ======= ============= ========
Total revenue $ 330,775 100.0% $ 293,192 100.0% $ 37,583 12.8%
Cost of sales 266,962 80.7% 238,908 81.5% 28,054 11.7%
------------ -------- -------------- ------- ------------- --------
Gross profit $ 63,813 19.3% $ 54,284 18.5% $ 9,529 17.6%
============ ======== ============= ======= ============= ========
Selling, general and administrative$ 52,304 15.8% $ 40,976 14.0% $ 11,328 27.6%
============ ======== ============= ======= ============= ========
Operating profit $ 11,509 3.5% $ 13,308 4.5% $ (1,799) -13.5%
============ ======== ============= ======= ============= ========
Other income (expense), net $ 593 0.2% $ 330 0.1% $ 263 79.7%
============ ======== ============= ======= ============= ========
Net income $ 7,321 2.2% $ 8,111 2.8% $ (790) -9.7%
============ ======== ============= ======= ============= ========
</TABLE>
<TABLE>
<CAPTION>
OPERATING DATA For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended
--------------------------------------------- -----------------------------------------------
July 2, 1999 June 26, 1998 July 2, 1999 June 26, 1998
-------------------- ---------------------- ---------------------- -----------------------
Manufacturing sales:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Floor shipments 9,732 10,000 19,317 17,544
Home shipments
Single section 3,087 48.3% 3,438 51.2% 6,117 48.2% 6,084 51.5%
Multi section 3,308 51.7% 3,281 48.8% 6,576 51.8% 5,730 48.5%
------------- ------- -------------- ------- ------------- -------- ------------ --------
Total shipments 6,395 100.0% 6,719 100.0% 12,693 100.0% 11,814 100.0%
Shipments to company owned stores (179) 2.8% (17) 0.3% (294) 2.3% (17) 0.1%
------------- ------- -------------- ------- ------------- -------- ------------ --------
Shipment to independent dealers 6,216 97.2% 6,702 99.7% 12,399 97.7% 11,797 99.9%
============= ======= ============== ======= ============= ======== ============ ========
Retail sales:
Single section 110 57.9% 19 40.4% 147 56.8% 19 40.4%
Multi section 80 42.1% 28 59.5% 112 43.2% 28 59.6%
------------- ------- -------------- ------- ------------- -------- ------------ --------
Total sales 190 100.0% 47 100.0% 259 100.0% 47 100.0%
============= ======= ============== ======= ============= ======== ============ ========
Cavalier produced homes sold 139 73.2% 25 53.2% 189 73.0% 25 53.2%
============= ======= ============== ======= ============= ======== ============ ========
Used homes sold 39 20.5% 3 6.4% 48 18.5% 3 6.4%
============= ======= ============== ======= ============= ======== ============ ========
Other Operating Data:
Installment loan purchases $ 14,029 $ 4,272 $ 29,391 $ 6,989
Capital expenditures $ 6,490 $ 2,863 $ 15,514 $ 4,420
Home manufacturing facilities 24 22 24 22
Independent exclusive dealer locations 262 187 262 187
Company owned stores 14 2 14 2
</TABLE>
General
The manufactured housing industry is cyclical and seasonal and is influenced by
many of the same economic and demographic factors which affect the housing
market as a whole. The manufactured housing industry has grown significantly in
recent years, which the Company attributes to, among other things, a reduction
in alternative housing, increased availability of retail financing, increased
consumer confidence and continuing strength in the national economy. As a
result, the number of retail dealerships, manufacturing capacity and wholesale
shipments have expanded, which the Company believes is currently resulting in
slower wholesale shipments and retail turnover, higher dealer inventories and
increased price competition. In addition, financial institutions have recently
tightened credit standards. These factors impacted the Company's financial
results significantly during the second quarter of 1999. The Company is
uncertain at this time as to the extent and duration of these developments and
as to what effect these factors will have on the Company's future sales and
earnings. * The Company currently believes these conditions will continue to
adversely affect the Company's financial performance at least through the
balance of 1999. * The Company also believes that, due to these industry
conditions, the possibility exists for some retail dealer failures, which could
have a material adverse effect on the Company. * In response to these current
industry and market conditions, Cavalier is considering several possible cost
reduction options, including, without limitation, curtailing capital
expenditures, implementing plant consolidations, idlings and/or closings, which
may be either temporary or permanent, and cutting other costs identified through
a best practices review of each of the Company's manufacturing plants. The
Company can give no assurance as to which one or more of these options, if any,
it may ultimately adopt.
Thirteen weeks ended July 2, 1999 compared to June 26, 1998
Revenue
Total revenue for the second quarter of 1999 was $167,359 compared to $167,613
for the second quarter of 1998.
Home manufacturing net sales for the second quarter of 1999 compared to the
second quarter of 1998 decreased 3.8%, or $6,188, to $158,086, net of
intercompany eliminations of $5,113. Home shipments decreased 4.8%, with floor
shipments decreasing by 2.7%. The percentage of multi-section home shipments
continued to increase, from 48.8% in 1998 to 51.7% in 1999. Actual shipments of
homes for the second quarter were 6,395 versus 6,719 in 1998. The Company
attributes the decrease in sales and shipments to the increasingly competitive
conditions in the industry described above. Approximately 87% of the Company's
shipments were to its core market of 11 states, where shipments for the second
quarter of 1999 declined 7.1% as compared to the second quarter of 1998. Through
May 1999, the Manufactured Housing Institute reported a 5.1% decline in
shipments in these 11 states. Additionally, the Company's inventory on its
dealers lots increased from 151 to 158 days during the quarter. During the first
quarter of 1999, Cavalier launched its first national advertising campaign
promoting a home concept called the PowerHouse. This home included a special
package of options such as a home computer, satellite dish and entertainment
center with television/VCR combination. This promotion was concluded in the
second quarter of 1999. The Company believes its exclusive dealer program
continues to gain acceptance, increasing by 87 locations since June 26, 1998,
bringing the total to 276 at July 2, 1999, including 14 company-owned stores. *
Sales to exclusive dealers represented 54.6% in the second quarter of 1999
versus 34.2% in the same period of 1998.
Revenue from the financial services segment increased 99.6%, or $1,011 from
1998. The increase in the second quarter of 1999 is due to the gain recorded
from the sale of approximately $16,000 of the Company's loan portfolio under its
retail finance agreement, in addition to the increased volume of installment
loans that are periodically resold under this agreement. During the second
quarter of 1999, CAC purchased contracts of $14,029 and sold $30,022 of
installment contracts. In the second quarter of 1998, CAC purchased contracts of
$4,272 and sold installment contracts totaling $3,353. During 1998, the focus of
CAC's business changed from building, holding and servicing a portfolio of loans
to purchasing loans from its dealers, which are then resold to another financial
institution. CAC does not retain the servicing function and does not earn the
interest income on these resold loans.
Revenues from the retail segment were $6,004 for the second quarter of 1999, of
which 73.2% of the units sold were Cavalier product. The second quarter of 1998
produced revenue of $1,854, of which 53.2% of the units sold were Cavalier
product. During the second quarter, the Company acquired six retail dealerships
and opened one retail location, bringing the total company-owned retail
locations to 14.
Other revenue consists mainly of revenue from the wholesale supply and component
manufacturing businesses. Revenues from external customers increased 164.5%, or
$773, for the second quarter of 1999 compared to the second quarter of 1998.
This increase is due primarily to the addition of a supply company.
Gross Profit
Gross profit was $31,216, or 18.7% of total revenue, for the second quarter of
1999, versus $31,460, or 18.8%, in 1998. As discussed in the Company's Annual
Report on Form 10-K, the Company is still experiencing tightened supply from its
traditional vendors of certain types of raw materials, including sheetrock and
insulation and, more recently, lumber, required for production of its homes. The
Company is attempting to obtain these products from other vendors and to
purchase substitute products, which has and may continue to result in higher
than normal costs. Due to the competitive industry conditions, some of these
costs have not been recoverable through price increases. The possibility exists
that the Company may continue to be unable to recover some of these additional
costs through price increases or that these and substitute products may become
scarce or unavailable.* The Company is uncertain at this time as to the extent
and duration of these developments and as to what effect these factors may have
on the Company's future sales and earnings. *
*See Safe Harbor Statement on page 12.
Selling, General and Administrative
Selling, general and administrative expenses during the second quarter of 1999
were $26,670, or 15.9% of total revenue, versus $23,254 or 13.9% in 1998, an
increase of $3,416. Of this increase, $680 is related to expanded sales and
marketing efforts, including the PowerHouse promotion, and recruiting, set-up
and maintenance of the exclusive dealer network. Additionally, selling, general
and administrative expenses increased $299 due to higher costs for employee
benefits, primarily health insurance, $363 for increased warranty service
activities and $749 for the start-up costs associated with implementing an
enterprise-wide management information system. Other factors contributing to the
increase in selling, general and administrative expenses are costs of $1,072
associated with acquiring and operating new retail locations and the continued
development of a retail infrastructure, and the costs associated with the
expansion of the supply distribution business of $290. These costs were
partially offset by a reduction in incentive compensation of $928.
Operating Profit
Operating profit for the quarter was $4,546 or 2.7% of sales, versus $8,206 or
4.9% of sales in the second quarter of 1998. Home manufacturing operating profit
declined $3,422, before intercompany eliminations, due to lower sales, increased
raw material prices and increased selling, general and administrative expenses.
Financial services operating profit increased $330 due primarily to the gain on
the sale of approximately $16,000 of CAC's loan portfolio. The retail segment's
operating profit declined due to the acquisition of new retail locations, the
continued development of a retail infrastructure and the competitive conditions
currently prevailing in the industry. Other operating profit declined $366,
before intercompany eliminations, due mainly to the costs associated with the
start-up of a new supply company.
Other Income (Expense)
Interest expense for the second quarter of 1999 increased $217 due primarily to
the increased floor plan notes payable.
Net Income
Net income declined 44.4% to $2,820 in the second quarter of 1999 from $5,069 in
1998,which the Company attributes to flat total revenue, increased raw materials
prices and selling, general and administrative expenses, and the other industry
factors discussed above. Net income per share declined to $.16 for the second
quarter of 1999, compared to $.25 in 1998, a 36% decrease. Net income per share
declined at a lower rate than net income due to the lower number of weighted
average shares outstanding during the second quarter of 1999.
Twenty-six weeks ended July 2, 1999 compared to June 26, 1998
Revenue
Total revenue for the twenty-six weeks ending July 2, 1999 was $330,775, up
12.8% from 1998's year-to-date revenue of $293,192.
Home manufacturing net sales for 1999 year-to-date compared to 1998 increased
10.3%, or $29,452, to $316,569 net of intercompany eliminations of $8,315. Home
shipments increased 7.4%, with floor shipments increasing by 10.1%. The
percentage of multi-section home shipments continued to increase, from 48.5% in
1998 to 51.8% in 1999. Actual shipments of homes for 1999 was 12,693 versus
11,814 in 1998. The Company attributes the increase in sales and shipments
during the beginning of the year to a special promotional program and additional
production days, as well as to the success of the Company's sales and marketing
efforts, including its exclusive dealer program. During the first quarter of
1999, Cavalier launched its first national advertising campaign promoting a home
concept called the PowerHouse. However, during the second quarter, home
manufacturing revenue declined due to increased competitive conditions as
further discussed above. The Company believes that its exclusive dealer program
continues to gain acceptance, increasing by 87 locations since June 26, 1998,
bringing the total to 276, including 14 company-owned stores at July 2, 1999. *
Sales to exclusive dealers represented 55.9% year-to-date in 1999 versus 34.3%
in 1998. In addition, the year-to-date ending July 2, 1999 included five
additional production days compared to the year-to-date ending June 26, 1998.
Revenue from the financial services segment in 1999 increased 1.2%, or $40, from
1998. During 1999, CAC purchased contracts of $29,391 and sold $43,757 of loans.
In 1998, CAC had purchased contracts of $6,989 and sales of installment
contracts totaling $28,379.
Revenues from the retail segment were $8,482 for 1999, and $1,854 for 1998. The
increase in sales is due to an increased number of company-owned stores, from
two in 1998 to 14 at July 2, 1999, of which seven were added during the second
quarter of 1999. In 1999, Cavalier product constituted 73.0% of year-to-date
sales, while in 1998, 53.2% of the product sold was Cavalier product.
Other revenue increased 187.6%, or $1,463, during 1999 compared to 1998, due
primarily to the addition of a supply company.
Gross Profit
Gross profit was $63,813, or 19.3% of total revenue, for year-to-date 1999,
versus $54,284, or 18.5%, in 1998. An increase in total revenue, as well as cost
savings due to increased purchasing and other efficiencies after the Belmont
merger, is responsible for a significant portion of this increase. As discussed
in the Company's Annual Report on Form 10-K, the Company is still experiencing
tightened supply from its traditional vendors of certain types of raw materials,
including sheetrock and insulation and, more recently, lumber, required for
production of its homes. The Company is attempting to obtain these products from
other vendors and to purchase substitute products, which has and may continue to
result in higher than normal costs. During the second quarter of 1999, the
Company was unable to pass through some of these costs in the form of increased
sales prices to customers. The possibility exists that the Company may continue
to be unable to recover some of these additional costs through price increases
or that these and substitute products may become scarce or unavailable.* The
Company is uncertain at this time as to the extent and duration of these
developments and as to what effect these factors may have on the Company's
future sales and earnings. *
* See Safe Harbor Statement on page 12.
<PAGE>
Selling, General and Administrative
Selling, general and administrative expenses during the twenty-six weeks ended
July 2,1999 were $52,304, or 15.8% of total revenue, versus $40,976 or 14.0% for
the same period in 1998, an increase of $11,328. Of this increase, $2,789 is
related to broadened sales and marketing efforts, including the PowerHouse
promotion, and recruiting, set-up and maintenance of the exclusive dealer
network. Additionally, selling, general and administrative expenses increased
$934 due to higher costs for employee benefits, primarily health insurance, $724
for increased warranty service activities and $1,162 for the start-up costs
associated with implementing an enterprise-wide management information system.
Other factors contributing to the increase in selling, general and
administrative expenses are (1) the costs of $1,574 associated with acquiring
and operating new retail locations, as well as the continued development of a
retail infrastructure, (2) $324 in costs of opening an additional home
manufacturing facility and (3) the costs associated with the expansion of the
supply distribution business of $529. These costs were partially offset by a
reduction in incentive compensation of $343.
Operating Profit
Operating profit year-to-date 1999 was $11,509 or 3.5% of sales, versus $13,308
or 4.5% of sales in 1998. Home manufacturing operating profit increased $851,
before intercompany eliminations, due to increased sales and cost savings from
increased purchasing and other efficiencies after the Belmont merger, offset by
the increase in raw material prices and the inability to pass along some of
these costs to the consumer as well as increased selling, general and
administrative expenses. Financial services operating profit declined $962 due
mainly to increased selling, general and administrative expenses, consisting
primarily of $452 of prepayment and repossession costs and $171 of payroll costs
due to the addition of area sales personnel. The retail segment's operating
profit declined due to the acquisition of new retail locations, the continued
development of a retail infrastructure and the competitive conditions currently
prevailing in the industry. Other operating profit declined $434, before
intercompany eliminations, due mainly to the costs associated with the start-up
of a new supply company.
Other Income (Expense)
Interest expense decreased $42 due primarily to reduced long-term debt, offset
somewhat by increased floor plan notes payable. Other, net increased $221 due
primarily to increased earnings from a company in which Cavalier owns a minority
interest.
Net Income
Net income declined 9.7% to $7,321 in 1999 from $8,111 in 1998 due to a
combination of increased industry competition and increased raw materials prices
and selling, general and administrative expenses as further discussed above. Net
income per share remained static at $.40 for 1999 and 1998. The stability of net
income per share notwithstanding a decline in net income is due to the lower
number of weighted average shares outstanding during 1999.
<TABLE>
<CAPTION>
Liquidity and Capital Resources (dollars in thousands)
BALANCE SHEET DATA Balances as of
------------------------------------------
July 2, 1999 December 31, 1998
----------------- -------------------
<S> <C> <C>
Cash and cash equivalents $ 29,455 $ 64,243
Accounts receivable $ 35,501 $ 7,678
Working capital $ 33,900 $ 41,707
Current ratio 1.3 to 1 1.5 to 1
Long-term debt $ 4,154 $ 3,650
Ratio of long-term debt to equity 1 to 33 1 to 40
Installment loan portfolio $ 9,588 $ 26,117
</TABLE>
Operating activities during the first six months of 1999 used net cash of
$19,981. The increase in accounts receivable and the corresponding reduction in
cash and cash equivalents from December 31, 1998 to July 2, 1999, is a normal
seasonal occurrence. As is customary for the Company, most of its manufacturing
operations are idle during the final two weeks of the year for vacations,
holidays and reduced product demand, during which time the Company collects the
majority of its outstanding receivables. Inventory at July 2, 1999 increased
from year-end primarily due to the expansion of the retail segment from five
company-owned stores at the end of 1998 to 14 at the end of the quarter.
Net cash totaling approximately $4,439 was paid during the first six months of
1999 in connection with acquisitions of six retail dealerships, an insurance
agency, a premium finance company and a supply company.
The Company's total capital expenditures were approximately $15,514 for the
twenty-six weeks ended July 2, 1999, as compared to $4,420 for the comparable
period of 1998. 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. Additionally, during 1999, the Company purchased, for a total of
$3,400, two Alabama manufacturing facilities that were previously leased, and
renovated a Georgia manufacturing facility at a cost of $1,693 that was placed
in operation at the end of the first quarter. Approximately $1,270 of the cost
of implementing a new enterprise-wide management information system has been
capitalized. Due to current market conditions, planned construction of an
additional manufacturing facility in Georgia has been temporarily halted.
In addition to the periodic resale of loans, the Company's finance subsidiary,
CAC, sold approximately $16 million of its existing installment contract
portfolio to another financial institution.
The increase in long-term debt of $504 is primarily due to the assumption of an
industrial development revenue bond in the amount of $728 related to the Alabama
facilities acquired. Notes payable increased $10,159 due to the increase in
retail floor plan financing as a result of the acquisition of retail locations.
The Company has purchased 1,517,500 shares of treasury stock during 1999 for
$14,444.
Year 2000 Compliance
Many of the Company's computer systems and software products, as well as the
systems and products of third parties doing business with the Company, are
subject to the "Year 2000" issue, which is the inability of a computer to
correctly process dates after December 31, 1999. This inability could
potentially cause affected computers to shut down or perform incorrect
calculations, ultimately resulting in a system failure, disruption of
operations, and the inability to engage in normal business activities. This
issue also affects products or systems which contain embedded computer chips
with date sensitive programming such as security systems, telephone equipment
and office equipment. As a result, many companies' software and computer systems
need to be upgraded or replaced in order to address the Year 2000 issue.
The Company has implemented a program to evaluate and address the risks and
problems associated with the Year 2000 issue. This program identifies four
stages as follows:
1) The preliminary assessment of each computer system and microprocessor
the Company utilizes for Year 2000 compliance is complete, and the
testing of these systems and microprocessors is approximately
88% complete. As a result of this assessment, the Company believes
most of the significant systems and microprocessors it utilizes are
currently Year 2000 compliant or will be with the installation of
available upgrades, except for an accounting system used by two of
the Company's subsidiaries.*
2) The identification of Year 2000 compliance by significant or critical
third parties has been completed, and the scheduled completion date to
replace all non-compliant third parties is October 1999.
3) The completion of any Company system conversions and verification that
all Company systems are Year 2000 compliant are expected to be
completed by December 1999.*
4) The development of a contingency plan is the last phase and is expected
to be completed by October 1999. The Company currently expects its
contingency plan to include installation of certain Year 2000 compliant
software, currently in use at most of its operations, for the two
subsidiaries with non-compliant accounting software.*
The costs incurred to date to address the Year 2000 issue have not been
material; however, the Company expects to incur between $800 and $1,200 as an
expense, in addition to between $300 and $400 of capital expenditures, during
1999 in order to complete the assessment and implementation, and to fund such
cost from operations.* This anticipated cost is required to replace
non-compliant microprocessors and to purchase and implement accounting software
for two of the Company's subsidiaries. These activities are being performed in
conjunction with a larger multi-year migration from the Company's current
systems to an enterprise-wide management information system. This estimate
assumes that third parties have correctly assessed and communicated to the
Company the status of their Year 2000 compliance, and that material Year 2000
compliance issues with respect to third parties who have not communicated with
the Company will not arise in the future.* Because of this reliance and the
subjective nature of the Year 2000 compliance issue, the actual costs to address
and resolve any non-compliance issues may differ materially from those
anticipated. The Company could be affected if the Year 2000 issue affects
suppliers' abilities to provide raw materials needed in the manufacturing
process. The Company is also dependent on third parties or government agencies
to 1) supply sufficient electrical power, utilities, transportation and other
services to sustain the manufacturing process and CAC's operations, 2) process,
pay and maintain records of certain employee benefits, 3) supply funds in a
timely fashion for its dealers and retail customers to purchase homes, and 4)
fund sales of portions of CAC's loan portfolio. Any failure on the part of these
third parties could have a material adverse effect on the business operations
and financial performance of the Company. *
If the Company's efforts to resolve the Year 2000 issue are not adequate or
implemented in a timely manner, the Company could experience a disruption in its
normal business activities.* Management of the Company believes the most
reasonably likely worst case scenario would be the delay in collections from
third party financing agents which could result in liquidity issues for the
Company, as well as the delay of financial reporting due to any accounting
processes which may need to be performed manually until all Year 2000 issues are
resolved.* However, the potential consequences of the Year 2000 issue are
inherently uncertain, and consequently, no assurance can be given that this will
be the reasonably likely worst case scenario.
Market Risk
Market risk is the risk of loss arising from adverse changes in market prices
and interest rates. The Company is exposed to interest rate risk inherent in its
financial instruments, but is not currently subject to foreign currency or
commodity price risk. The Company manages its exposure to these market risks
through its regular operating and financing activities.
The Company is exposed to market risk related to investments held in a
non-qualified trust used to fund benefits under its deferred compensation plan.
These investments totaled $2,683 at July 2, 1999. Due to the long-term nature of
the benefit liabilities that these assets fund, the Company believes its
exposure to market risk is low. The Company does not believe that a decline in
market value of these investments would result in a material near term funding
of the trust or exposure to the benefit liabilities funded. *
The Company purchases retail installment contracts from its exclusive dealers,
at fixed interest rates, in the ordinary course of business, and periodically
resells certain of these loans to a financial institution under the terms of a
retail finance agreement. The periodic resale of installment contracts reduces
the Company's exposure to interest rate fluctuations, as the majority of
contracts are held for a short period of time. The Company's portfolio consists
of fixed rate contracts with interest rates ranging from 8.29% to 13.76% and an
average original term of 262 months at July 2, 1999. The Company estimated the
fair value of its installment contracts receivable, which approximated carrying
value, using discounted cash flows and interest rates offered by CAC on similar
contracts at July 2, 1999.
The Company has notes payable under retail floor plan agreements and an
Industrial Development Revenue Bond issue that are exposed to changes in
interest rates. Although these borrowings are floating rate debt, the Company
believes the interest rate risk posed by these borrowings currently is low
because the amount of debt has historically been small in relation to annual
cash flow. * Additionally, the Company has three Industrial Development Revenue
Bond issues at fixed interest rates. The estimated fair value of outstanding
borrowings approximated carrying value at July 2, 1999, using rates at which the
Company believes it could have obtained similar borrowings at that time. The
Company also has the ability to incur debt under its credit facility which
provides for interest at the bank's prime rate for the revolving and warehouse
line of credit and at fixed rates for a certain period of time for the term
notes.
*See Safe Harbor Statement on page 12.
PART II. OTHER INFORMATION
Item 3: Legal Proceedings
Reference is made to the legal proceedings previously reported in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 under the
heading "Item 3 - Legal Proceedings." The description of legal proceedings in
the Company's Form 10-K remains unchanged, except that with respect to the suit
against Belmont Homes, Inc. and certain other defendants referenced therein, the
Alabama Supreme Court recently upheld the transfer upon motion of the defendant
of the Madison County action to the Circuit Court of Franklin County, Alabama.
The plaintiffs have filed a motion for rehearing of the Alabama Supreme Court's
decision. In addition, during the second quarter of 1999, the Commonwealth of
Kentucky Pendleton Circuit Court granted the defendants' motion to dismiss the
case referred to in the last paragraph of the legal proceedings section in the
Company's 10-K, and the plaintiffs have appealed that decision to the Kentucky
Court of Appeals.
Item 4: Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 19, 1999. 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
Thomas A. Broughton, III 15,188,844 -0- 432,372
Barry B. Donnell 15,180,135 -0- 441,081
Lee Roy Jordan 15,176,597 -0- 444,619
A. Douglas Jumper, Sr. 15,187,446 -0- 433,770
Mike Kennedy 15,179,975 -0- 441,241
John W. Lowe 15,179,764 -0- 441,452
Gerald W. Moore 15,246,050 -0- 375,166
Michael R. Murphy 15,178,136 -0- 443,080
David A. Roberson 15,242,852 -0- 378,364
The stockholders ratified the Board of Director's appointment of Deloitte &
Touche LLP as Independent Certified Public Accountants for the Company. The
appointment was ratified by a vote of 15,540,612 shares for, 20,301 shares
against, and 60,304 abstentions.
Item 5: Other Matters
The Board of Directors has declared its regular quarterly cash dividend of $.04
per share payable on August 16, 1999 to stockholders of record on July 30, 1999.
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 exhibits listed upon the receipt of $15.00 per
exhibit, plus $.50 per page, to cover the cost to the Company of providing the
exhibit.
(a) (3) Articles of Incorporation and By-laws.
(a) The Composite Amended and Restated Certificate of
Incorporation of the Company, filed as Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998, is incorporated herein by reference.
(b) The Certificate of Designation of Series A Junior
Participating Preferred Stock of Cavalier Homes, Inc. as
filed with the Office of the Delaware Secretary of State
on October 24, 1996 and filed as Exhibit A to Exhibit 4 to
the Company's Registration Statement on form 8-A filed on
October 30, 1996, is incorporated herein by reference.
(c) The Amended and Restated By-laws of the Company, filed as
Exhibit 3(d) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 27, 1997, and the
amendments thereto filed as Exhibit 3(e) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 26, 1997, and as Exhibit 3(c) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 25, 1998, are incorporated herein by reference.
(4) Instruments Defining the Rights of Security Holders.
(a) Articles four, six, seven, eight and nine of the Company's
Amended and Restated Certificate of Incorporation, as
amended, referenced in Exhibit 3(a) above.
(b) Article II, Sections 2.1 through 2.18; Article III,
Sections 3.1 and 3.2; Article IV, Sections 4.1 and 4.3;
Article VI, Sections 6.1 through 6.5; Article VIII,
Sections 8.1 and 8.2; and Article IX of the Company's
Amended and Restated By-laws, referenced in Exhibit 3(c)
above.
(c) Rights Agreement between Cavalier Homes, Inc. and
ChaseMellon Shareholder Services, LLC, filed as Exhibit 4
to the Company's Current Report on Form 8-K dated October
30, 1996, is incorporated herein by reference.
(10) Material Contracts.
(a) Manufactured Home Loan Purchase Agreement dated as of June
30, 1999, by and between Cavalier Acceptance Corporation
and Green Tree Financial Corporation and certain of its
affiliates.
(b) Lease Agreement with Option to Purchase between John H.
Beard and Alexander P. Beard, Trustees under the Will of
Bryce Parker Beard, and BRC Components, Inc. dated March
4, 1999.
(11) Statement re: Computation of Net Income per Common Share.
(27) Article 5 - Financial Data Schedule and Restated Financial
Data Schedule for Form 10-Q submitted as Exhibit 27 as an
EDGAR filing only.
(b) Current Report on Form 8-K.
None
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
Our disclosure and analysis in this Quarterly Report on Form 10-Q contain some
forward-looking statements. Forward looking statements give our current
expectations or forecasts of future events, including statements regarding
trends in the industry and the business and growth and financing strategies of
Cavalier. You can identify these statements by the fact that they do not relate
strictly +to historical or current facts. They generally are designated with an
asterisk (*) and use words such as "estimates," "projects," "intends,"
"believes," "anticipates," "expects," "plans," and other words and terms of
similar meaning in connection with any discussion of future operating or
financial performance. From time to time, we may also provide oral or written
forward-looking statements in other materials we release to the public. These
forward-looking statements include statements involving known and unknown
assumptions, risks, uncertainties and other factors which may cause our actual
results, performance or achievements to differ from any future results,
performance, or achievements expressed or implied by such forward-looking
statements or words. In particular, such assumptions, risks, uncertainties and
factors include those associated with the following:
o integrating the business operations and achieving the benefits of
the Belmont merger and other acquisitions;
o the cyclical and seasonal nature of the manufactured housing
industry and the economy generally;
o litigation;
o competition;
o regulatory constraints;
o changes and volatility in interest rates and the availability of
capital and consumer and dealer financing;
o changes in demographic trends, consumer preferences and
Cavalier's business strategy;
o the ability to attract and retain quality independent dealers,
executive officers and other personnel;
o the potential unavailability and price increases for raw
materials;
o contingent repurchase and guaranty obligations; and
o unanticipated delays or difficulties in implementing our Year 2000
plans.
Any or all of our forward-looking statements in this report, in the 1998 Annual
Report to Stockholders and in any other public statements we make may turn out
to be wrong. These statements may be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Many factors listed above
will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual future results may vary
materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related subjects
in our future filings with the Securities and Exchange Commission or in any of
our press releases. Also note that, in our Annual Report on Form 10-K for the
period ending December 31, 1998, under the heading "Risk Factors," we have
provided a discussion of factors that we think could cause our actual results to
differ materially from expected and historical results. Other factors besides
those listed could also adversely affect Cavalier. This discussion is provided
as permitted by the Private Securities Litigation Reform Act of 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cavalier Homes, Inc.
------------------------------
Registrant
Date: August 16, 1999 /s/ David A. Roberson
-------------------------------------
David A. Roberson - President
and Chief Executive Officer
Date: August 16, 1999 /s/ Michael R. Murphy
-------------------------------------
Michael R. Murphy -
Chief Financial Officer (Principal
Financial and Accounting Officer)
MANUFACTURED HOME LOAN PURCHASE AGREEMENT
This MANUFACTURED HOME LOAN PURCHASE AGREEMENT, dated as of
June 30, 1999 (this "Agreement"), is made by and between Green Tree Financial
Servicing Corporation, a Delaware corporation ("GTFSC"), Green Tree Financial
Corporation, a Delaware corporation ("GTFC"), Green Tree Consumer Discount
Company, a Pennsylvania corporation ("GTCDC"), Green Tree Credit Corp., a New
York corporation ("GTCC"), Green Tree Financial Corp.-Alabama, an Alabama
corporation ("GTFCA"), and Green Tree Financial Loan Company, a Minnesota
corporation ("GTFLC", together with GTFSC, GTFC, GTCDC, GTCC and GTFCA sometimes
referred to herein collectively as "Green Tree"), and Cavalier Acceptance
Corporation, an Alabama corporation ("CAC").
R E C I T A L S:
Green Tree and CAC, together with certain affiliated companies
of Cavalier, are parties to that certain Amended and Restated Finance Agreement
dated as of February 17, 1998 and amended and restated on May 1, 1998 (the
"Finance Agreement"), pursuant to which the parties have made arrangements with
respect to, among other things, the purchase or origination and sale by CAC of
certain Manufactured Housing Retail Finance Contracts to Green Tree (as used in
this Agreement, capitalized terms that are used but not otherwise defined
herein, shall be used with the same meaning as given to them in the Finance
Agreement).
Pursuant to Article 5 of the Finance Agreement, on March 10,
1998, CAC sold approximately $25 million of Manufactured Housing Retail Finance
Contracts then held by CAC to Green Tree.
Pursuant to the Finance Agreement, Green Tree has agreed to
acquire, and CAC has agreed to sell, certain additional Manufactured Housing
Retail Finance Contracts held by CAC, and this Agreement shall further evidence
and confirm the agreements between Green Tree and CAC with respect to the
purchase and sale of such additional Manufactured Housing Retail Finance
Contracts.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual promises contained herein, the parties hereto, intending to be
legally bound, do hereby agree as follows:
Section 1. Purchase and Sale of Contracts.
Subject to the terms and conditions set forth herein, CAC
hereby agrees to sell, and Green Tree hereby agrees to purchase from CAC, all of
the Manufactured Housing Retail Finance Contracts (including all related lien
perfection instruments, guaranties, dealer agreements and related loan
documents) presently held by CAC set forth on Schedule 1 hereto (the "Contracts
Sold Hereunder"), except that Green Tree does not agree hereby to purchase any
of the Carved-Out CAC Loans. The conveyance of the Contracts Sold Hereunder
shall be consummated effective as of June 30, 1999; provided that all conditions
precedent specified in Exhibit X hereto are satisfied (the
<PAGE>
"Consummation Date"). The Parties hereto agree that, unless otherwise designated
by Green Tree, the purchaser of Contracts Sold Hereunder which were originated
in Nevada shall be GTFC, the purchaser of Contracts Sold Hereunder which were
originated in Pennsylvania shall be GTCDC, the purchaser of Contracts Sold
Hereunder which were originated in New York shall be GTCC, the purchaser of
Contracts Sold Hereunder which were originated in Alabama shall be GTFCA and the
purchaser of Contracts Sold Hereunder which were originated in Minnesota shall
be GTFLC.
Section 2. Price to be Paid.
(a) The Purchase Price for each of the Contracts Sold
Hereunder (individually, a "Contract") to Green Tree by CAC shall be, for each
such Contract, an amount equal to the sum of (i) the then-outstanding principal
balance owing on such Contract and (ii) any accrued but unpaid interest at the
applicable rate of interest on such Contract to and including the effective date
on which the Contracts Sold Hereunder are transferred to Green Tree and (iii) an
acquisition premium equal to the amount specified on Exhibit X hereto. The
Acquisition Premium shall be deemed fully earned by CAC upon conveyance of the
related Manufactured Housing Retail Finance Contract by CAC to Green Tree.
(b) Not later than thirty (30) days after the Consummation
Date, Green Tree shall recalculate the accrued interest for those Contracts Sold
Hereunder which are set forth on Exhibit A to Schedule 1 (the "Adjusted
Contracts") in order to recalculate the accrued interest on each of such
Contracts, and the resultant outstanding principal balance (the "Adjusted
Balance") for such Contracts, effective as of June 30, 1999, under the
assumption that each payment received on such Contracts should be applied
effective as of the scheduled date such payment was due. The Purchase Price for
each of the Adjusted Contracts shall be reduced by the difference, if any,
between the Adjusted Balance and the principal balance originally specified by
CAC for such Contract as of June 30, 1999 (the aggregate amount of reduction to
the Purchase Price is herein referred to as the "Adjustment Amount"). Cavalier
shall be furnished with the supporting data and calculations upon which Green
Tree has based its determination of the Adjustment Amount, and CAC shall have a
reasonable opportunity, of not more than ten (10) days, to audit and verify such
data. CAC and Green Tree shall thereupon agree upon a final determination as to
the Adjustment Amount, and CAC shall remit payment to Green Tree for such
Adjustment Amount within forty-eight (48) hours from agreement as to such
amount. Upon receipt from CAC of the Adjustment Amount, Green Tree shall modify
its records for the Adjusted Contracts to reflect the Adjusted Balance, and
should provide such notice thereof to the applicable obligors as may be deemed
appropriate under the circumstances. If for any reason Green Tree and CAC are
unable to agree upon the final Adjustment Amount for the Adjusted Contracts,
then such dispute shall be resolved, at either party's request, by arbitration
pursuant to the terms provided for in Section 7.13 of the Finance Agreement.
Section 3. Designation of Loans.
The CAC Loans evidenced by the Contracts Sold Hereunder shall
be designated on Schedule 1 to this Agreement.
Section 4. Conveyance of Contracts.
<PAGE>
Subject to the terms and conditions hereof, and subject to a
customary bill of sale and portfolio assignment with terms consistent with this
Agreement, CAC will sell and assign to Green Tree, and Green Tree will acquire
from CAC, on a servicing-released basis and without recourse or warranty other
than as specifically provided for or incorporated herein, the following:
(a) all right, title and interest of CAC in and
to the Contracts Sold Hereunder which are listed on Schedule 1 hereto,
including all agreements, instruments and certificates relating thereto
(including all related guaranties and all related Dealer Agreements);
(b) all right, title and interest of CAC in the
lien on and/or the security interest in the manufactured home (including
the related lien perfection instruments) granted pursuant to the applicable
Contracts Sold Hereunder;
(c) the interest of CAC in any proceeds of any
insurance policies to the extend that they relate to the Contracts Sold
Hereunder or the related manufactured home or obligors;
(d) the right to realize on any property
(including the right to receive future liquidation proceeds) that secured a
Contracts Sold Hereunder and has been repossessed by or on behalf of CAC or
Green Tree (without in any way obligating GreenTree to purchase any
contracts sold hereunder where the underlying collateral has been repossessed);
(e) rights and remedies under all dealer
agreements or other similar agreements with respect to the Contracts Sold
Hereunder; and
(f) all proceeds of the foregoing.
At the reasonable request of Green Tree, CAC will take or
cause to be taken such further action as necessary or appropriate to effect or
perfect the sale and conveyance made hereby, including the execution of such
instruments and documents as may be reasonably necessary or appropriate to
facilitate the sale and conveyance of the Contracts Sold Hereunder from CAC to
Green Tree, including UCC-1s in favor of Green Tree as secured party and obtain
releases of all other liens.
Section 5. Terms of Payment.
On the Consummation Date, Green Tree shall pay to CAC, by wire
transfer of immediately available funds to any account specified by CAC, an
amount equal to the aggregate Purchase Price for the Contracts Sold Hereunder.
Section 6. Documents to be Provided.
With respect to the conveyance by CAC of the Contracts Sold
Hereunder, CAC agrees to endorse and deliver such Contracts Sold Hereunder to
Green Tree on the Consummation Date by overnight mail (next business day)
addressed to Green Tree, 500 Landmark Towers, 345 St. Peter Street, St. Paul,
Minnesota 55102 (Attn: Dave Liebgott), and to provide and execute such
<PAGE>
additional documents and instruments as may reasonably be requested by Green
Tree and which are customarily provided in connection with similar transactions,
including but not limited to limited powers of attorney in such forms as Green
Tree may reasonably request from time to time. CAC agrees to provide such notice
to borrowers under Contracts Sold Hereunder as Green Tree may reasonably
request. From and after the consummation of the transactions contemplated
hereby, CAC shall hold any and all payments received by it with respect to a
Contract Sold Hereunder in trust for the benefit of Green Tree and shall
promptly remit such payment to Green Tree in accordance with such customary
procedures as the parties may establish.
Section 7. Representations and Warranties.
With respect to each of the Contracts Sold Hereunder, and the
applicable CAC Loan evidenced thereby, CAC represents and warrants as of the
date hereof to Green Tree that:
(a) each CAC Loan evidenced thereby meets and
satisfies each of the representations and warranties made by CAC in Section
3.10 of the Finance Agreement with respect to each Available CAC Loan, except
that (i) with respect to the representations and warranties made in Sections
3.10(e), (g) and (h) of the Finance Agreement; and (ii) in substitution for
the representations and warranties made in Sections 3.10(e), (g) and (h),
CAC instead represents and warrants solely that none of the Contracts Sold
Hereunder evidence Carved-Out CAC Loans;
(b) each CAC Loan has been originated in
conformity in all material respects with the underwriting guidelines
incorporated as Exhibit A to the Finance Agreement;
(c) to the knowledge of CAC, each Contract has
been fully and properly executed by the parties thereto;
(d) the forms of Contract and related
documentation relating to each CAC Loan shall be similar in all material
respects to those previously provided to Green Tree;
(e) each CAC Loan purchased by Green Tree
constitutes the legal, valid and binding payment obligation of the related
borrower, is enforceable by the holder thereof in accordance with its terms,
subject to applicable bankruptcy and similar laws, equitable principles and
public policy considerations;
(f) as of the Consummation Date, CAC has taken
no action such that the CAC Loan has been amended, waived, altered or modified
in any respect, except pursuant to a document, instrument or writing included
in the related file;
(g) to the knowledge of CAC, the CAC Loan is not
subject to any right of rescission, set off, counterclaim or defense, including
the defense of usury;
(h) CAC has good title to the Contracts Sold
Hereunder, free and clear of all liens except that in favor of First
Commercial Bank (the "Warehouse Lender"), which lien shall be released
in full contemporaneously with the consummation of the transaction contemplated
<PAGE>
hereby, and subject to the Warehouse Lender's consent, CAC has the right
to transfer the Contracts Sold Hereunder;
(i) CAC has a first priority perfected security
interest in the manufactured home which secures each Contract Sold
Hereunder and there are no other nonconsensual liens of record on such
collateral, including liens for work, labor, materials or unpaid state or
federal taxes;
(j) all documents, including the Contracts Sold
Hereunder and the information contained therein, submitted or to be submitted
to Green Tree are true, complete, accurate, correct and genuine in all material
respects to CAC's best knowledge;
(k) all representations of the borrowers with
respect to the loans are true and correct to CAC's knowledge and all information
contained in the Contracts Sold Hereunder and the related documents is true,
accurate, correct, and genuine to CAC's knowledge;
(l) the proceeds of the Contracts Sold Hereunder
have not been used to acquire an interest in real estate and except as disclosed
to Green Tree, the obligations thereunder are not secured by an interest in real
estate;
(m) to the knowledge of CAC, the parties to
Contracts Sold Hereunder are not minors and have the legal capacity to contract;
(n) to the knowledge of CAC, the down
payment shown on each Contracts Sold Hereunder was paid in cash (and was not
paid by the Dealer), unless otherwise shown on the Contracts Sold
Hereunder or the related credit application and does not include any rebates;
(o) to the knowledge of CAC, the related credit
application for each Contracts Sold Hereunder is true and correct;
(p) the manufactured homes which are the subject
of the Contracts Sold Hereunder are each insured by individual or blanket
policies of insurance protecting against loss of or damage to the collateral
in such amounts as may be permitted by law, not to exceed the approximate
principal balance of the related Contract;
(q) any insurance premium or charges included in
the Contracts Sold Hereunder have been or will be paid to the applicable
insurance carrier, net of any lawful commissions that may be retained;
(r) where insurance coverages are included in
any Contracts Sold Hereunder, CAC will notify the applicable insurance carrier
of the assignment of the Contracts Sold Hereunder to Green Tree and request that
Green Tree be named as beneficiary or loss payee, as applicable;
(s) to the knowledge of CAC, no borrower or
guarantor under any Contracts Sold Hereunder has any defense, counterclaim or
right of set-off with respect thereto;
<PAGE>
(t) the terms of the Contracts Sold Hereunder
have not been impaired, waived, altered or modified in any material respect by
CAC except by written instruments contained in the Contract file;
(u) to the knowledge of CAC, the Contracts Sold
Hereunder are not subject to any right of rescission;
(v) the Contracts Sold Hereunder are not Carved-
Out Loans;
(w) in connection with the purchase or
origination of each Contract, all applicable State, local and Federal laws and
regulations were observed and all necessary disclosures required by applicable
statutes and regulations were made by Originator or CAC, as the case may be,
including, but not limited to, the Truth-in-Lending Act (including right of
rescission requirements), the Real Estate Settlement Procedures Act, the
Federal Trade Commission Home Solicitation Rule, the Alabama Mini-Code, the
Fair Housing Act, the Fair Credit Reporting Act, the Home Mortgage Disclosure
Act, and the Equal Credit Opportunity Act, except for such matters that would
not, as of the Consummation Date, affect the validity and existence of the
CAC Loans or give rise to any valid defense to payment of the related Contract
or to foreclose on any lien securing such CAC Loan and each Contract complies
with the applicable state, local and federal laws;
(x) Representations and warranties shall survive
execution of this Agreement; and
(y) All Contracts Sold Hereunder, as listed on
Schedule I attached hereto, including all agreements, instruments,
certificates, guaranties, and rights under dealer agreements related thereto,
have been conveyed to Green Tree as of the Consummation Date or within thirty
(30) days thereafter.
Section 8. Repurchase Rights.
CAC agrees to repurchase any Contract Sold Hereunder which is
in breach of any representation or warranty made by CAC under Section 7 at a
price equal to the sum of the outstanding principal balance, acquisition premium
under this Agreement (to the extent such premium has been paid by Green Tree and
received by CAC), accrued but unpaid interest, and any other relevant fee, of
such Contract (the "Repurchase Price"); provided that CAC shall have thirty (30)
days during which it may cure such breach, if possible under the law, and to the
reasonable satisfaction of Green Tree. Green Tree and CAC agree that the sole
remedy of Green Tree with respect to a breach of any representation or warranty
by CAC under Section 7 is the repurchase of the related Consumer Loan by CAC at
the Repurchase Price; provided further that after receipt by CAC of a written
request for repurchase from Green Tree stating in reasonable detail the basis
for such request and after the expiration of the thirty (30) day period within
which CAC may cure such breach (if possible to be cured), then if CAC does not
repurchase the related Contract within ten (10) business days thereafter, CAC
shall be liable for any reasonable attorneys fees and related costs incurred by
Green Tree in connection with the related Contract from and after the date of
the related repurchase request by Green Tree.
<PAGE>
Section 9. Additional Representations and Warranties.
The representations, warranties and agreements of the parties
made in Sections 4.6 and 4.7 of the Finance Agreement are hereby restated herein
by the respective parties. CAC represents and warrants that it had in effect, at
the time a related Contract was acquired by CAC, all necessary and appropriate
federal, state and local licenses or permits required to purchase the Contracts
Sold Hereunder and, as of the date hereof, all such licenses and permits
necessary to sell the Contracts Sold Hereunder. Each party represents to the
other that the execution, delivery and performance of this Agreement does not
and will not result in a breach or constitute a default under any material
agreement or instrument to which it is a party or by which it may be bound or
affected, in the case of CAC subject to the consent of the Warehouse Lender.
Section 10. Covenants.
CAC and Green Tree agree that the covenants and promises
provided for in Section 4.10 and 4.11 of the Finance Agreement, pertaining to
Transferred CAC Loans, shall apply similarly to the Contracts Sold Hereunder.
CAC agrees to take such actions as may reasonably be necessary under applicable
law, in consultation with Green Tree or as is otherwise requested by Green Tree,
to correct, at CAC's expense, any inadvertent errors that may have occurred in
the computation of interest or disclosure of APR under certain Contracts Sold
Hereunder.
Section 11. Miscellaneous.
Notices between the parties shall be in writing and will be
deemed given upon the terms and circumstances provided for the Finance
Agreement. The parties agree that Article 7 of the Finance Agreement shall apply
to this Agreement just as if expressly set forth herein, including the agreement
to arbitrate disputes provided for at Section 7.13 of the Finance Agreement.
IN WITNESS WHEREOF, the parties have caused their respective
duly authorized representatives to sign below as of the date first above
written.
CAVALIER ACCEPTANCE CORPORATION
By: /s/ Belinda J. Lovett
-----------------------------------------------
Its: Secretary / Treasurer
----------------------------------------------
Name: Belinda J. Lovett
---------------------------------------------
GREEN TREE FINANCIAL SERVICING
CORPORATION
By: /s/ Joel H. Gottesman
-----------------------------------------------
Its: President
----------------------------------------------
Name: Joel H. Gottesman
---------------------------------------------
<PAGE>
GREEN TREE FINANCIAL CORPORATION
By: /s/ Joel H. Gottesman
-----------------------------------------------
Name: Joel H. Gottesman
---------------------------------------------
Its: Sr. Vice President, General Counsel & Sec.
----------------------------------------------
GREEN TREE CONSUMER
DISCOUNT COMPANY
By: /s/ Joel H. Gottesman
-----------------------------------------------
Name: Joel H. Gottesman
---------------------------------------------
Its: Senior Vice President & Secretary
----------------------------------------------
GREEN TREE CREDIT CORP.
By: /s/ Joel H. Gottesman
-----------------------------------------------
Name: Joel H. Gottesman
---------------------------------------------
Its: Senior Vice President & Secretary
----------------------------------------------
GREEN TREE FINANCIAL CORP.-ALABAMA
By: /s/ Joel H. Gottesman
-----------------------------------------------
Name: Joel H. Gottesman
---------------------------------------------
Its: Senior Vice President & Secretary
----------------------------------------------
GREEN TREE FINANCIAL LOAN COMPANY
By: /s/ Joel H. Gottesman
-----------------------------------------------
Name: Joel H. Gottesman
---------------------------------------------
Its: Senior Vice President & Secretary
----------------------------------------------
LEASE AGREEMENT
WITH OPTION TO PURCHASE
STATE OF NORTH CAROLINA )
)
COUNTY OF ROWAN )
Recitals
A. John H. Beard and Alexander P. Beard, Trustees under the Will of
Bryce Parker Beard, ("Landlord"), owns that certain real property in the City of
Salisbury, Rowan County, North Carolina more fully described as follows:
See Attached Exhibit "A"
Said real property plus the buildings and improvements thereon shall hereinafter
be referred to as the "Leased Premises."
B. BRC Components, Inc. ("Tenant"), an Alabama corporation, desires to
lease the Leased Premises from Landlord upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS:
That, for value received, Landlord and Tenant have agreed:
1. Leased Premises.
1.1: Lease. Pursuant to the terms of this Lease Agreement
("Lease"), and subject to the provisions of Section 1.2 below, Landlord hereby
leases and lets unto Tenant and Tenant does hereby take from Landlord the Leased
Premises.
1.2: Modifications and Repairs by Landlord. Landlord agrees,
at its sole expense, to make the following modifications and repairs to the
Leased Premises, prior to occupancy by Tenant, to make the Leased Premises
suitable to Tenant's needs and uses:
1. Remove all steel I beams and mezzanine from inside
warehouse that are not part of building structure.
2. All plumbing and electric fixtures and wiring must be
in good working order and meet all local and state codes.
3. Install 18' wide door on front of warehouse next to
offices. Must allow for van truck entry and cushion tire
forklift passage.
4. Alarm system must be in good working order and offer
security for offices and warehouse.
5. Minimum of 4 gas (2 @ warehouse section) heaters
must be in good operating order.
6. Provide Tenant with a current survey of property lines with
boundaries and corners marked.
2. Term.
2.1: Initial Term. The initial term of this Lease is for a
period of 5 years commencing as of April 1, 1999 ("Commencement Date") and
ending on March 31, 2004. Notwithstanding the foregoing, if the Leased Premises
are occupied by Tenant after the Commencement Date, the initial term of this
Lease shall be deemed to have commenced on the date of Tenant's occupancy and
the termination date of the initial term shall remain the same as stated above.
(a) Termination. After the first thirty-six (36) months of the
original term of this lease, Tenant shall have the right during the remainder of
the original term or any renewal term of this lease to terminate this lease
without penalty, at any time by giving Landlord ninety (90) days prior written
notice of termination.
2.2: Renewal Term. Tenant shall have the option to renew this
Lease for three (3) additional terms of five (5) years each, by written notice
of such renewal delivered to Landlord, before or after expiration of this Lease,
under the same terms, conditions and covenants set forth herein, except that the
rents payable hereunder shall be adjusted as set forth in Section 3.2.
3. Rents.
3.1: Initial Term. As rent for the Leased Premises during the
initial term, Tenant shall pay the rent at Landlord's real estate agent's
offices, Fowler Agency, Inc., 503 Faith Road, P. O. Box 157, Salisbury, N.C.
27145-0157 payable in 60 equal monthly installments of Six Thousand and No/100
($6,000.00) Dollars each; the first of such installment shall be due and payable
on or before the Commencement Date, Landlord further agrees to abate and waive
the rent after the first payment until thirty (30) days after the building is
ready for occupancy by Tenant and occupied by Tenant, and thereafter a similar
payment shall be due and payable on or before the first day of each successive
calendar month thereafter until all of such monthly installments have been so
paid. In the event that the Leased Premises are occupied by Tenant on a day
other than the first day of a month, rent for such partial month shall be
calculated and paid on a prorated basis according to the number of days in such
month the Leased Premises are occupied by Tenant.
3.2: Renewal Term. In the event Tenant exercises its right to
renew this lease for any of the three (3) additional five (5) year terms, as set
forth above, the rent payable hereunder shall be adjusted effective as of the
first day of the renewal term in accordance with this Section 3.2. Effective
March 1, 2004, the monthly rent payment due pursuant to this Lease shall be
adjusted to an amount equal to the product obtained by multiplying Six Thousand
and No/100 ($6,000.00) Dollars by a fraction, the numerator of which is the
Consumer Price Index For All Urban Consumers, U.S. City Average, For All Items,
as published by the U.S. Bureau of Labor Statistics (the "CPI Index") for
February 1, 2004, and the denominator of which is the CPI Index for March, 1999.
The monthly rent payment calculated pursuant to the preceding sentence shall
then remain constant during the remainder of that renewal term. The rent
adjustment for any other renewal terms shall be calculated in the same manner by
moving the dates forward for each five year term.
4. Insurance.
4.1: Required Coverage. Landlord, at its sole cost and
expense, will obtain and maintain, with insurance carriers duly licensed to do
business in North Carolina, the following insurance coverages with respect to
the Leased Premises:
(a) Fire and extended coverage insurance in an
amount not less the full replacement cost or $1,000,000.00, whichever is
greater, of the Leased Premises.
(b) At Tenant's option and expense, fire and extended
coverage insurance in an amount to be determined by Tenant insuring Tenant's
contents in the Leased Premises.
4.2 Tenant, at its sole expense, shall maintain general
liability insurance in an amount not less than $1,000,000 per person and
$1,000,000 per occurrence for bodily injury and $1,000,000 for property damage.
Each such insurance policy shall name Landlord and Tenant as insured parties and
shall include Landlord's mortgage lender, if any, as a loss payee as its
interest may appear. Landlord and Tenant shall each furnish to the other
certificates or other evidence of the required insurance coverage prior to
Tenant's occupancy of the Leased Premises. Prior to the expiration of any such
coverage, Landlord and Tenant shall furnish to the other evidence of the
continuation of such coverage.
4.3 Waiver of Subrogation Rights. Landlord and Tenant hereby
waive their respective rights of subrogation against the other for all claims
and causes whatsoever arising out of any injury upon or loss or damage to the
Leased Premises or any part thereof resulting from a risk or peril included
within the insurance policies herein required and/or purchased by either party.
5. Taxes. Landlord and Tenant shall each pay one half (1/2) before they
become delinquent, all ad valorem taxes lawfully levied or assessed against the
Leased Premises during the term of this Lease. The 1999 taxes shall be pro-rated
as of the occupancy date by Tenant. Landlord shall be responsible for the
payment of all such taxes for any period prior to the Commencement Date.
Landlord and Tenant shall each pay such taxes directly to the taxing authority
entitled to receive such payment; provided, however, Landlord and/or Tenant
reserves the right to contest any such tax. In the event of any such contest by
Tenant, Tenant does not have to pay the contested tax so long as Tenant
diligently pursues such contest in accordance with the applicable administrative
procedures and applicable law. Notwithstanding the foregoing, however, during
the course of any such contest, Tenant shall at all times protect and preserve
Landlord's title to the Leased Premises, and, if necessary to protect and
preserve Landlord's title thereto, Tenant shall pay the contested tax or post
appropriate bond therefor prior to allowing the taxing authority to take any
action to enforce its tax lien against the Leased Premises.
Tenant shall pay, before they become delinquent, all taxes on Tenant's
inventory, contents, and equipment placed on the Leased Premises by Tenant.
Tenant may contest as provided above.
6. Repairs and Maintenance. After execution of this lease and prior to
occupancy by Tenant, Landlord shall cause the building and its plumbing,
electrical, lighting, heating and air conditioning, and the roof of the building
to be placed in good condition and repair, including, if necessary, the
replacement of any such items worn out or obsolete; and thereafter Tenant will
maintain the interior of the building, plumbing, electrical, heating and air
conditioning units for minor repairs, normal wear and tear excepted, during the
original terms of this lease or any renewal.
However, should any item wear out, become obsolete, or need
replacement, during the original term of this lease or any renewal, then and in
that event, Landlord shall replace such item including but not limited to the
heating and air conditioning units which Tenant will maintain thereafter for
minor repairs. Landlord, at its expense, shall be responsible for the
maintenance and replacement of the roof on the building and the exterior of the
building.
Tenant shall repair any damage to the interior of the building caused
by its negligence, normal wear and tear excepted. In the event Landlord should
fail to maintain or replace the items of its responsibility the Leased Premises,
and such failure should continue for a period of 30 days after Tenant's written
notice to Landlord thereof, or if such failure cannot be reasonably be cured
within the said 30 days and Landlord shall not have commenced to cure such
failure within said 30 days and shall not thereafter with reasonable diligence
and good faith proceed to cure such failure, Tenant shall have the right (but
not the obligation) to cause repairs or corrections to be made, and the costs
thereof shall be deducted by Tenant on the next rental installments until Tenant
is paid in full.
7. Inspection. Landlord and Landlord's authorized agents shall have the
right to enter the Leased Premises during Tenant's normal business hours of
operation for the purpose of inspecting the general condition and state of
repair of the Leased Premises.
8. Use. Tenant may occupy and use the Leased Premises for the general
office and/or supply and warehouse facilities in connection with Tenant's
business and/or for any other lawful purpose.
9. Utilities. As of the Commencement Date, Landlord shall provide the
normal and customary utility connections that are currently in use into the
Leased Premises. Tenant shall pay the cost of all utility services, including
but not limited to, all charges for gas, water and electricity used on the
Leased Premises and all costs of garbage and trash removal and sewer services.
10. Fire and Casualty Damage.
10.1: Total. If the Leased Premises should be totally
destroyed by fire, tornado or other casualty, or if they should be so damaged
that rebuilding or repairs cannot reasonably be completed within 90 working days
from the date of the occurrence of the damage, this Lease may terminate at the
option of Tenant, otherwise, repairs will be completed and the Lease continue
with an abatement of rent for the time the building is unusable by Tenant.
10.2: Partial.
(a) If the Leased Premises should be damaged by fire, tornado
or other casualty but not to such an extent that rebuilding or repairs cannot
reasonably be completed within 90 working days from the date of the occurrence
of the damage, this Lease shall not terminate, but Landlord shall, if the
casualty has occurred prior to the final 180 days of the Lease term, or any
renewal, at its sole cost and risk, proceed forthwith to rebuild or repair the
Leased Premises to substantially the condition existing prior to such damage. If
the casualty occurs during the final 180 days of the Lease term, Landlord shall
not be required to rebuild or repair such damage unless Tenant notifies Landlord
in writing within 60 days following the date of such damage that Tenant is
exercising its right to renew this Lease or is exercising its option to purchase
the Leased Premises, as the case may be. If Tenant does not exercise its right
to renew this Lease or its option to purchase the Leased Premises and if
Landlord does not elect to rebuild or repair such damage, then this Lease shall
terminate, effective as of the date of said damage. If the Leased Premises are
to be rebuilt or repaired and are untenantable in whole or in part following
such damage, the rents payable hereunder during the period in which it is
untenantable shall be abated and/or adjusted equitably.
11. Hold Harmless.
11.1: By Tenant. Tenant shall indemnify, defend and save and
hold Landlord harmless from and against any and all liabilities, losses,
damages, claims, causes of action, attorney's fees and court costs, due to
death, personal injury, property damage or financial loss arising out of or
attributable to:
(a) Tenant's operations and the conduct of its
business upon the Leased Premises; or
(b) Any liability to any taxing authority resulting
from or in any way relating to any tax abatements, deductions or exemptions
relating to Tenant's occupancy and its contents in the Leased Premises.
If Landlord is made a party to any suit or action for damages arising from the
negligence or actions of Tenant, its employees, invitees and/or agents, Tenant
shall assume all of the burden, cost and expense of the defense or settlement of
such cause or action, including reasonable attorney's fees in connection
therewith, and Tenant shall promptly pay any judgment which may be obtained
therein against Landlord.
11.2. Landlord shall indemnify, defend, save, and hold Tenant harmless
from and against any and all liabilities, losses, damages claims, causes of
actions, attorney fees, and court costs due to death, personal injury, property
damage or financial loss arising out of or attributed to Landlord's, its agents
and employees, negligence and/or failure to properly maintain the Leased
Premises, including the building and the roof thereon.
12. Condemnation.
12.1: Total. If, during the term of this Lease, all or a
substantial part of the Leased Premises should be taken for any public or
quasi-public use under any governmental law, ordinance or regulation or by right
of eminent domain or should be sold to the condemning authority under threat of
condemnation, this Lease shall terminate and the rents payable hereunder shall
be abated during the unexpired portion of this Lease or any renewal effective as
of the date of taking by the condemning authority.
12.2: Partial. If less than a substantial part of the Leased
Premises shall be so taken or sold, this Lease shall not terminate but Landlord
shall forthwith, at its sole expense, restore and reconstruct the Leased
Premises, provided such restoration and reconstruction shall make the same
tenantable and suitable for the uses for which the same are hereby leased by
Tenant, in Tenant's sole determination. If the use of the Leased Premises shall
be impaired by such taking or sale, the rents payable hereunder during the
unexpired portion of this Lease shall be adjusted equitably. If, in the opinion
of Landlord and Tenant, such restoration and reconstruction cannot be completed
within 90 days following the date of such taking or sale, Landlord or Tenant may
elect to terminate this Lease by giving prior written notice thereof to the
other party.
12.3: Condemnation Awards. Landlord and Tenant shall each be
entitled to pursue, receive and retain separate condemnation awards, and
portions of the lump sum awards, as may be allocated to their respective
interests in any condemnation proceedings. The termination of this Lease shall
not affect the rights of Landlord and Tenant to such awards.
13. Holding Over. Should Tenant hold over the Leased Premises, or any
part thereof, after the expiration of the term of this Lease, unless otherwise
agreed in writing, such holding over shall constitute and be construed as a
tenancy from month to month only, at a monthly rental equal to the rents paid
for the last month of the term of this Lease. Nothing herein shall be deemed to
be Landlord's consent to such holding over.
14. Default by Tenant.
14.1: Events. The following events shall be deemed to be
events of default by Tenant under this Lease:
(a) If Tenant shall fail to make any of the
payments required hereunder and such failure shall continue for a period of
15 days after receipt of written notice thereof by Tenant;
(b) If Tenant shall fail to comply with any term,
condition or covenant of this Lease, other than the payments set forth above,
and shall not cure such failure within 30 days after receipt of written notice
thereof by Tenant, or if such failure cannot reasonably be cured within the said
30 days and Tenant shall not have commenced to cure such failure within said 30
days and thereafter proceeded with reasonable diligence and good faith to cure
such failure.
14.2: Remedies. Upon the occurrence of any such event of
default, Landlord shall have the option to pursue any one or more of the
following remedies:
(a) Terminate this Lease, in which event Tenant
shall immediately surrender the Leased Premises to Landlord, and if Tenant fails
so to do, Landlord may, without prejudice to any other remedy which Landlord may
have for possession or arrearages in rents, enter upon and take possession of
the Leased Premises and expel or remove any agent, representative or employees
of Tenant or any other person who may be occupying the Leased Premises or any
part thereof;
14.3: No Waiver. Pursuit of any of the foregoing remedies
shall not preclude pursuit of any of the other remedies herein provided or any
other remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of the terms,
conditions and covenants herein contained.
15. Assignment and Subleasing.
15.1: By Tenant. Tenant may not assign this Lease, or sublet
the Leased Premises or any portion thereof, without obtaining the prior written
consent of Landlord which consent will not be withheld unreasonably; provided,
however, no consent shall be required for an assignment or sublease to a
corporation, affiliate, or other business entity owned or controlled by, or
under common control with, Tenant; provided further, however, no such permitted
assignment or sublease shall relieve Tenant of its obligations hereunder unless
Landlord otherwise consents in writing.
15.2: By Landlord. Landlord may assign or transfer all or
any part of its interest in this Lease, subject to the terms and conditions of
this Lease.
16. Alterations, Additions and Improvements.
16.1: In General. Except as otherwise set forth in this Lease,
Tenant shall not make any alterations, additions or improvements (collectively
hereinafter referred to as "Improvements") to the Leased Premises without the
prior written consent of Landlord. Consent for Improvements shall not be
unreasonably withheld by Landlord.
16.2: Warehousing Housing. Notwithstanding the foregoing,
Landlord acknowledges that Tenant is occupying the Leased Premises initially for
the purpose of supply and warehouse and general office facilities relating to
Tenant's business, and Tenant intends to make improvements to the Leased
Premises to accommodate its intended use thereof. Landlord hereby consents to
the remodeling and construction of improvements contemplated by Tenant to
prepare the Leased Premises for the Tenant's intended use thereof.
16.3: Machinery and Equipment. Tenant may, at any time and at
its sole expense, erect or install machinery and equipment in or on the Leased
Premises. Tenant shall have the right to remove all such machinery and equipment
upon the termination of this Lease; provided, however, Tenant shall repair any
damage done to the Leased Premises by such removal. Tenant shall have a period
of up to 30 days after the termination of this Lease to remove all such items,
and Tenant shall continue to pay rent at the monthly rental rate then in effect
until Tenant has completed such removal process or notified Landlord that Tenant
has abandoned any remaining items. All such items remaining on the Leased
Premises after the expiration of such 30 day period shall become the property of
Landlord, or Landlord may require Tenant to remove such items. All permanent
improvements erected or installed on the Leased Premises shall become the
property of Landlord and shall not be removed.
16.4: Signs. Tenant may erect and install such signs on or
attached to the Leased Premises as Tenant desires, provided that Tenant shall at
all times comply with all applicable laws, ordinances and regulations relating
thereto, and Tenant shall remove all such signs at the termination of this Lease
and repair any damage resulting from such removal.
16.5: Mechanics' Liens. Notwithstanding anything herein which
might be deemed to be to the contrary, Tenant shall at all times protect and
preserve the Leased Premises from and against any mechanic's lien created in
connection with, or resulting from, any improvements to the Leased Premises by
Tenant. Tenant reserves the right to contest any claim by any person who might
be entitled to a mechanic's lien against the Leased Premises, at Tenant's sole
risk and expense. In the event of any such contest, Tenant does not have to pay
the contested amount so long as Tenant diligently pursues such contest in
accordance with applicable law; provided, however, in the event any mechanic's
lien is filed against the Leased Premises, Tenant shall file a bond to indemnify
Landlord and the Leased Premises against the lien in accordance with the
applicable provisions of the North Carolina Property Code prior to the time that
any action to enforce the mechanic's lien may be taken by the claimant.
17. Compliance with Law. During the term hereof, Tenant and Landlord
shall comply with all governmental laws, ordinances and regulations applicable
to the use of the Leased Premises and shall promptly comply with all
governmental orders and directives for the correction, prevention and abatement
of nuisances in or upon, or connected with the Leased Premises caused by Tenant,
and if caused by Tenant, at Tenant's sole expense.
18. Quiet Enjoyment.
18.1: Landlord's Warranty. Landlord and its individual
Trustees warrant that it owns the Leased Premises, free and clear of all
encumbrances, and that it has the full right and power to execute and perform
this Lease, with option to purchase and that Tenant, on payment of the rents and
performance of the covenants herein contained, shall peaceably and quietly have,
hold and enjoy the Leased Premises during the full term of this Lease. Landlord
and its Trustees further agree to warrant and defend the title to the Leased
Premises to Tenant and will be liable to Tenant for all damages, including
attorney fees and expenses, regarding any defect in title or challenge to title
by any other individual or entity.
19. Exclusive Option to Purchase. At any time during the term of this
Lease, or any renewal, Tenant shall have the exclusive option to purchase the
Leased Premises on the terms and conditions set forth herein. Tenant may
exercise this option by giving Landlord written notice of its election to do so
in accordance with the notice requirements set forth in Section 23. In such
event, the purchase price for the Leased Premises shall be $550,000, less any
rental payment made in the first eighteen (18) months of the original lease
term. Within 15 days after receipt of Tenant's notice exercising this option,
Landlord shall cause Lawyers Title Insurance Corporation (or other title
insurance company approved by Tenant) to furnish a commitment for title
insurance reflecting the status of title to the Leased Premises. If Tenant
objects to any of the matters affecting title to the Leased Premises, Tenant
shall notify Landlord in writing within 15 days after Tenant's receipt of the
title insurance commitment, and Landlord shall attempt to cure such objections.
If Landlord is unable to cure any such objections within 15 days after receipt
of Tenant's objections, Tenant may terminate its election to purchase the Leased
Premises (in which event, Tenant may then exercise its right to renew this Lease
pursuant to Section 2.2) or Tenant may waive such uncured objections and proceed
to purchase the Leased Premises. Unless Landlord and Tenant otherwise agree, the
closing of the sale of the Leased Premises shall occur at the title company
within 30 days after the termination of this Lease. At the closing: (i) Tenant
shall pay the full purchase price in cash or by certified or cashier's check,
and (ii) Landlord shall execute and deliver a general warranty deed conveying
title to the Leased Premises to Tenant free and clear of any liens created or
caused by Landlord and shall cause the title company to deliver to Tenant, at
Landlord's sole cost and expense, a title insurance policy issued by Lawyers
Title Insurance Corporation (or another title insurance company approved by
Tenant) insuring title to such property for the amount of the purchase price,
subject only to the matters reflected on the title insurance commitment which
remain in effect after the title curative process described above. Tenant shall
pay rent at the rate then in effect with respect to the Leased Premises through
the closing date. Each party shall be responsible for the normal and customary
closing costs paid by a buyer and seller at a closing of this type; provided,
however, Tenant shall be responsible for all ad valorem taxes as provided in
this Lease. If Tenant does not exercise this option to purchase the Leased
Premises during the initial term of this Lease, but does renew this Lease for
any of the renewal terms, Tenant shall have the option to purchase the Leased
Premises at any time during the renewal term on the same terms and conditions as
set forth above, except that the purchase price shall be equal to the product
obtained by multiplying $550,000 by a fraction, the numerator of which is the
CPI Index for February, 2004 and the denominator is the CPI Index for March,
1999.
20. Landlord's Environmental Warranty. Landlord warrants and represents
that any use, storage, treatment, or transportation of hazardous substances
which has occurred in or on the Premises before the date hereof has been in
compliance with all applicable federal, state and local laws, regulations, and
ordinances. Landlord additionally warrants and represents that no release, leak,
discharge, spill, disposal, or emission of hazardous substances has occurred in,
on, or under the Leased Premises and that the Leased Premises are free of
hazardous substances as of the date hereof.
Landlord agrees to indemnify and hold harmless the Tenant from any and
all claims, damages, fines, judgments, penalties, costs, liabilities, or losses
(including, without limitation, any and all sums paid for settlement of claims,
attorneys, consultant, and expert fees) arising during or after the Lease from
or in connection with the presence or suspected presence of hazardous substances
in or on the Leased Premises unless the hazardous substances are present as a
result of acts of Tenant, Tenant's agents, employees, contractors, or invitees.
Without limitation of the foregoing, this indemnification shall include any and
all costs incurred because of any investigation of the site or any cleanup,
removal or restoration mandated by a federal, state, or local agency or
political subdivision, unless the hazardous substances are present as a result
of acts of Tenant, Tenant's agents, employees, contractors, or invitees. This
indemnification shall specifically include any and all costs due to hazardous
substances which flow, diffuse, migrate, or percolate into, onto, or under the
Leased Premises after the Lease Term commences.
21. Waiver of Default. No waiver by the parties hereto of any default
or breach of any term, condition or covenant of this Lease shall be deemed to be
a waiver of any subsequent default or breach of the same or any other term,
condition or covenant contained herein.
22. Successors. The terms, conditions and covenants contained in this
Lease shall apply to, inure to the benefit of, and be binding upon the parties
hereto and their respective successors in interest.
23. Notices. Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered when delivered personally or
(whether actually received or not) when deposited in the United States mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed to the parties hereto at the respective addresses set out opposite
their names below, or at such other address as they have theretofore specified
by written notice delivered in accordance herewith:
(a) If to Landlord:
Fowler Agency, Inc.
P. O. Box 157
Salisbury, N.C. 27145-0157
John H. Beard
P. O. Box 1967
Salisbury, N.C. 28145
(b) If to Tenant:
BRC Components, Inc.
P.O. Box 758
Phil Campbell, Alabama 35581
(c) with a copy concurrently sent by either party in a like
manner to:
Lowe, Mobley & Lowe
ATTN: John W Lowe, Esq.
P.O. Box 576
Haleyville, Alabama 35565
24. Severability. If any term or provision of this Lease or the
application thereof to any person or circumstance shall to any extent be invalid
and unenforceable, the remainder of the Lease, or the application of such term
or provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and shall be enforceable to the extent
permitted by law.
25. Amendment. This Lease may not be amended except in a writing
executed by both Landlord and Tenant.
26. Entire Agreement. This Lease constitutes the sole agreement of
Landlord and Tenant and supersedes any prior understanding or written or oral
agreements respecting the subject matter.
27. Memorandum of Lease Agreement. A duplicate original copy hereof may
be recorded in the appropriate records of Rowan County, North Carolina, or
instead Landlord and Tenant may execute, record and/or file a Memorandum of
Lease Agreement which may by reference incorporate all of the terms hereof.
THUS EXECUTED on the dates set forth below, and EFFECTIVE
for all purposes as of the last such date.
LANDLORD:
Date: March 8, 1999. /s/ John h. Beard
____________________________
John H. Beard, Trustee under
the Will of Bryce Parker
Beard
/s/ Alexander P. Beard
----------------------------
Alexander P. Beard, Trustee
under the Will of Bryce
Parker Beard
TENANT:
BRC COMPONENTS, INC.,
Date: March 4, 1999. By /s/ Bob R. Sampson
------------------------
Its President
STATE OF NORTH CAROLINA
COUNTY OF ____________
I, the undersigned authority, a Notary Public in and for said County,
in said State, hereby certify that John H. Beard and Alexander P. Beard,
Trustees under the Will of Bryce Parker Beard, whose names are signed to the
forgoing conveyance, and who are known to me, acknowledged before me on this
day, that, being informed of the contents of the conveyance, they executed the
same voluntarily as of the date of this acknowledgement.
Given under my hand and official seal, this the 8th day of March,
1999.
/s/
---------------------------------------
Notary Public
My Commission Expires:
March 10, 2001
---------------------------------------
(SEAL)
STATE OF ALABAMA
COUNTY OF WINSTON
I, the undersigned authority, a Notary Public in and for said County,
in said State, hereby certify that Bob R. Sampson, whose name as President of
BRC Components, Inc., an Alabama corporation, is signed to the foregoing
conveyance, and who is known to me, acknowledged before me on this day that,
being informed of the contents of the conveyance, he, as such office and with
full authority, executed the same voluntarily for and as the act of said
corporation as of the date of this acknowledgement.
Given under my hand and official seal, this the 4th day of March,
1999.
/s/ Michelle Jones
---------------------------------------
Notary Public
My Commission Expires:
May 8, 2000
---------------------------------------
(SEAL)
EXHIBIT A
TRACT I: BEGINNING at an iron bolt on the northern margin of North
Long Street, corner of Lot No. 5; thence with the northern margin of
North Long Street North 62 deg. 30 min. East 600 feet to an "x" mark
in a concrete drive; thence North 27 deg. 28 min. West passing an
iron rod, 281.0 feet; thence South 58 deg. 18 min. West 601.62 feet
to the corner of Lot No. 5; thence with the line of Lot No. 5 South 27
deg. 28 min. East 236.85 feet to the BEGINNING, as shown on plat of
Taylor Manufacturing Company property by Hudson & Almond, dated
November 3, 1975, and being Lots 6, 7, 8, 9 10, 11 and the western
half of Lot No. 12, as shown on a map of the John Beard farm by C.M.
Miller, recorded in the Office of the Register of Deeds for Rowan
County, North Carolina in Map Book 10.
The conveyance is made subject to right-of-way of Southern Railway
Company and water pipeline, storm and sanitary sewer right-of-way of
the City of Salisbury.
TRACT II: BEGINNING at an existing iron post, the southeastern corner
of Mary B. Thompson, said existing iron post being North 24 deg. 08
min. West 6.3 feet from the north margin of the pavement of Long
Street, SR #2100; thence with Mary B. Thompson North 24 deg. 08 min.
West 230.13 feet to an existing iron post, said existing iron post
being South 24 deg. 08 min. East 39.91 feet from the southernmost track
of The Southern Railway; thence North 64 deg. 44 min. East 100.13 feet
to a new iron post, corner of Ruth A. Grier, said iron post being South
64 deg. 44 min. West 2.67 feet from an existing ironpost and North 24
deg. 08 min. West 45.2 feet from the southernmost track of The Southern
Railway; thence with Ruth A. Grier, South 24 deg. 08 min. East 232.37
feet to an existing iron post located North 24 deg. 08 min. West 6 feet
from the north margin of the pavement of Long Street; thence more or
less parallel with the north margin of the pavement of Long Street
South 66 deg. 00 min. West 100.11 feet to the point of BEGINNING, as
shown on a map of the property of Taylor Manufacturing Company by W.
Howard Dorris, RLS, dated November 15, 1978 and being Lot #13 of the
John Beard Property as shown on map recorded in the Rowan County
Register of Deeds Office in Map Book Page 10.
TRACT III: BEGINNING at a stake, the center of Lot No. 12, Dan
Beasley's corner and running thence with Beasley's line North 27
deg. 30 min. West 281 feet,more or less, to a stake on line of Southern
Railway Company; thence with the line of Southern Railway Company,
North 57 deg. 30 min. East 50 feet to a stake, corner of Lot No. 13;
thence with line of Lot No. 13, South 27 deg. 30 min. East 285 feet
to a stake on Long Street; thence with line of Long Street, South 62
deg. 30 min. West 50 feet to a stake, the BEGINNING corner, being the
northern one-half of Lot No. 12 as shown on the map of the Beard and
Feanster property in the East Ward of the City of Salisbury.
Being the same property conveyed from Taylor Manufacturing Company,
Inc. to Beard Family Partnership by deed recorded in Book 605 at Page
983 of the Rowan County Public Registry; and from the Beard Family
Partnership by deed recorded in Book 0846 at Page 0017 of the Rowan
County Public Registry on March 3, 1999.
<TABLE>
<CAPTION>
PART II. - EXHIBIT 11
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------------- -------------------------------
July 2, June 26, July 2, June 26,
1999 1998 1999 1998
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Income $ 2,820,000 $ 5,069,000 $ 7,321,000 $ 8,111,000
============= ============ ============== ==============
SHARES:
Weighted average common shares 17,974,834 20,044,585 18,356,435 20,006,292
outstanding (basic)
Dilutive effect if stock options 96,025 382,973 99,969 287,755
were exercised ------------- ------------ -------------- --------------
Weighted average common shares
outstanding, assuming dilution 18,070,859 20,427,558 18,456,404 20,294,047
(diluted) ============= ============ ============== ==============
Basic net income per share $ 0.16 $ 0.25 $ 0.40 $ 0.41
============= ============ ============== ==============
Diluted net income per share $ 0.16 $ 0.25 $ 0.40 $ 0.40
============= ============ ============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income of Cavalier
Homes, Inc. and subsidiaries appearing in this Quarterly Report on Form 10-Q and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jul-2-1999
<CASH> 29,455
<SECURITIES> 0
<RECEIVABLES> 35,501
<ALLOWANCES> 1,311
<INVENTORY> 56,307
<CURRENT-ASSETS> 138,179
<PP&E> 101,999
<DEPRECIATION> 28,572
<TOTAL-ASSETS> 249,868
<CURRENT-LIABILITIES> 104,279
<BONDS> 0
0
0
<COMMON> 2,032
<OTHER-SE> 134,840
<TOTAL-LIABILITY-AND-EQUITY> 249,868
<SALES> 330,775
<TOTAL-REVENUES> 330,775
<CGS> 266,962
<TOTAL-COSTS> 266,962
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 115
<INTEREST-EXPENSE> 512
<INCOME-PRETAX> 12,102
<INCOME-TAX> 4,781
<INCOME-CONTINUING> 7,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,321
<EPS-BASIC> 0.40
<EPS-DILUTED> 0.40
</TABLE>
