<PAGE> 1
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
--------------
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 (IRS Employer
of incorporation or organization) Identification Number)
HIGHWAY 41 NORTH & 32 WILSON BOULEVARD, ADDISON, ALABAMA 35540
--------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(256) 747-9800
----------------------------------------------------
(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 11, 2000
---------------------------- ------------------------------
COMMON STOCK, $.10 PAR VALUE 17,769,396 SHARES
<PAGE> 2
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED - DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 36,713 $ 39,635
Accounts receivable, less allowance for doubtful accounts $178 (2000) and $134 (1999) 19,757 10,022
Notes and installment contracts receivable - current 627 939
Inventories 33,936 50,120
Deferred income taxes 15,837 15,166
Income tax receivable 9,989 2,133
Other current assets 5,446 3,109
---------- ----------
Total current assets 122,305 121,124
---------- ----------
PROPERTY, PLANT AND EQUIPMENT (Net) 68,951 74,495
---------- ----------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $1,088 (2000) and $1,656 (1999) 5,937 7,651
---------- ----------
GOODWILL, less accumulated amortization of $6,096 (2000) and $5,432 (1999) 19,007 22,684
---------- ----------
OTHER ASSETS 7,667 9,083
---------- ----------
TOTAL $ 223,867 $ 235,037
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,139 $ 1,119
Notes payable under retail floor plan agreements 9,001 15,562
Accounts payable 13,006 12,303
Amounts payable under dealer incentive programs 23,234 25,442
Accrued compensation and related withholdings 6,498 5,312
Estimated warranties 12,410 13,000
Reserve for repurchase commitments 6,357 3,330
Accrued insurance 5,874 6,027
Other accrued expenses 8,923 6,377
---------- ----------
Total current liabilities 86,442 88,472
---------- ----------
DEFERRED INCOME TAXES 891 1,459
---------- ----------
LONG-TERM DEBT 24,363 10,218
---------- ----------
OTHER LONG-TERM LIABILITIES 5,893 5,497
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; authorized 50,000,000 shares,
issued 18,274,496 (2000) shares and 18,271,433 (1999) shares 1,827 1,827
Additional paid-in capital 55,235 55,181
Treasury stock, at cost; 505,100 (2000) shares and 480,100 (1999) shares (3,309) (3,210)
Retained earnings 52,525 75,593
---------- ----------
Total stockholders' equity 106,278 129,391
---------- ----------
TOTAL $ 223,867 $ 235,037
========== ==========
</TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Thirteen Weeks Ending Twenty-six Weeks Ending
June 30, July 2, June 30, July 2,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE $ 97,884 $ 167,359 $ 187,577 $ 330,775
COST OF SALES 86,335 136,256 164,796 266,831
SELLING, GENERAL AND ADMINISTRATIVE 26,945 26,557 51,237 52,435
IMPAIRMENT CHARGE 4,397 -- 4,745 --
------------- ------------- ------------- -------------
OPERATING PROFIT (LOSS) (19,793) 4,546 (33,201) 11,509
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (631) (347) (1,239) (512)
Other, net 436 462 677 1,105
------------- ------------- ------------- -------------
(195) 115 (562) 593
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) (19,988) 4,661 (33,763) 12,102
INCOME TAXES (BENEFIT) (6,979) 1,841 (12,117) 4,781
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (13,009) $ 2,820 $ (21,646) $ 7,321
============= ============= ============= =============
BASIC NET INCOME (LOSS) PER SHARE $ (0.73) $ 0.16 $ (1.22) $ 0.40
============= ============= ============= =============
DILUTED NET INCOME (LOSS) PER SHARE $ (0.73) $ 0.16 $ (1.22) $ 0.40
============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 17,768,472 17,974,834 17,769,640 18,356,435
============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING
ASSUMING DILUTION 17,768,472 18,070,859 17,769,640 18,456,404
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ending
June 30, July 2,
2000 1999
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (21,646) $ 7,321
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 5,160 4,867
Change in provision for credit losses and repurchase commitments 2,503 115
Gain on sale of installment contracts (1,124) (1,292)
Gain on sale of property, plant and equipment (222) (18)
Impairment charge 4,745 --
Other, net 215 21
Changes in assets and liabilities provided (used) cash, net of effects
of acquisitions:
Accounts receivable (9,779) (27,933)
Inventories 16,184 (11,114)
Accounts payable 703 7,411
Other assets and liabilities (9,205) 641
--------- --------
Net cash used in operating activities (12,466) (19,981)
--------- --------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisitions -- (4,439)
Proceeds from disposition of property, plant and equipment 2,164 249
Capital expenditures (2,352) (15,514)
Proceeds from sale of installment contracts 35,085 45,049
Net change in notes and installment contracts (30,903) (27,618)
Other investing activities (541) (1,037)
--------- --------
Net cash provided by (used in) investing activities 3,453 (3,310)
--------- --------
FINANCING ACTIVITIES:
Net borrowings (payments) on notes payable (6,561) 3,584
Payments on long-term debt (835) (239)
Proceeds from long-term borrowings 15,000 807
Cash dividends paid (1,422) (1,496)
Proceeds from exercise of stock options -- 284
Net proceeds from sales of common stock 8 7
Purchase of treasury stock (99) (14,444)
--------- --------
Net cash provided by (used in) financing activities 6,091 (11,497)
--------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,922) (34,788)
--------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 39,635 64,243
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 36,713 $ 29,455
========= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (received) for:
Interest $ 1,219 $ 499
Income taxes (2,957) 9,302
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited - dollars in thousands except per share data)
1. BASIS OF PRESENTATION
- 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 June 30, 2000 and July
2, 1999, and the results of its operations and its cash flows
for the thirteen and twenty-six week periods ended June 30,
2000 and July 2, 1999, respectively. All such adjustments are
of a normal, recurring nature.
- The results of operations for the thirteen and twenty-six
weeks ended June 30, 2000 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 1999 Annual Report
on Form 10-K.
- 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
-------------------------- --------------------------
June 30, July 2, June 30, July 2,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding (basic) 17,768,472 17,974,834 17,769,640 18,356,435
Dilutive effect if stock options and warrants were exercised -- 96,025 -- 99,969
----------- ----------- ----------- -----------
Weighted average common shares
outstanding, assuming dilution (diluted) 17,768,472 18,070,859 17,769,640 18,456,404
=========== =========== =========== ===========
</TABLE>
The diluted share base for the thirteen and twenty-six weeks ended June
30, 2000 excludes incremental shares of 26,865 and 32,727,
respectively, related to employee stock options. These shares are
excluded due to their anti-dilutive effect as a result of the Company's
loss from operations.
- Certain amounts from the prior periods have been reclassified
to conform to the current presentation.
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, as amended, 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.
- In December 1999, the Securities and Exchange Commission
released Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, related to selected
revenue recognition issues. This release, as amended, is
effective no later than the fourth quarter of this fiscal
year. Cavalier is currently assessing the effect, if any, on
the Company's revenue recognition practices.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Work-in-process and finished goods inventories
include an allocation for labor and overhead costs. Inventories at June
30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Raw materials $ 20,801 $ 27,363
Work-in-process 2,088 3,513
Finished goods 11,047 19,244
---------- ----------
Total inventory $ 33,936 $ 50,120
========== ==========
</TABLE>
4
<PAGE> 5
4. IMPAIRMENT CHARGE
The Company periodically evaluates the carrying value of long-lived
assets to be held and used, including goodwill and other intangible
assets, when events and circumstances warrant such a review. The
carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is less than its
carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined
in a similar manner, except that the fair market values are primarily
based on independent appraisals and preliminary or definitive
contractual arrangements less cost to dispose.
Due to deteriorating market conditions, during the six months ended
June 30, 2000, the Company recorded non-cash impairment charges of
$4,745 ($3,778 or $0.21 per diluted share after tax) in connection with
the closing of four home manufacturing facilities, closing, sale or
plans to close or sell 10 Company-owned retail sales centers and the
expected sale (which sale was completed subsequent to quarter end) of a
portion of the Company's insurance and premium finance business. The
impairment charge for assets to be held and used includes write-downs
of $92 for property, plant and equipment (home manufacturing segment).
The impairment charge for assets to be disposed of includes write-downs
of $1, 412 for property, plant and equipment ($981 home manufacturing
segment and $431 retail segment), $3,013 for goodwill ($1,541 retail
segment and $1,472 financial services segment), $179 for
non-competition agreements (retail segment) and $49 for lease
obligations (retail segment). After recording the impairment charges,
the carrying value of the assets to be disposed of was $3,468. The
Company developed plans to market the facilities to be disposed of and
expects disposition to occur within one year. Before recording the
impairment charges, the results of operations for the first half of
2000 included a $2,067 after-tax loss from the retail segment and $100
after-tax income from the financial services segment for assets to be
disposed of. The results of operations for the home manufacturing
segment related to assets to be disposed of are not separately
identifiable as these closed facilities were not accounted for
separately.
5. STOCKHOLDERS' EQUITY
- The Company paid cash dividends of $.04 per share during the
quarter ended June 30, 2000.
- During the first half of 2000, the Company repurchased 25,000
shares of stock under its stock repurchase program. At June
30, 2000, a total of 2,656,600 shares had been repurchased for
$24,050. The Company retired 2,151,500 of these shares at
December 31, 1999, with the remaining shares being recorded as
treasury stock. Continuing authorization remains under this
program for the repurchase of 1,343,400 additional shares.
6. CONTINGENCIES
- 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 obligation
under such agreements approximated $237,000 at June 30, 2000.
The Company has a reserve for repurchase commitments of $6,357
(at June 30, 2000) and $3,330 (at December 31, 1999) based on
prior experience and market conditions.
- The Company's product liability and general liability
insurance coverages (with the exception of two subsidiaries
whose insurance is provided under fully insured policies) are
provided under incurred loss, retrospectively rated premium
plans. The Company's workers' compensation coverage prior to
February 1, 1999 was also covered under this type plan, but
was converted on that date to a fully insured policy. Under
these plans, the Company incurs insurance expenses based upon
various rates applied to current payroll costs and sales.
Annually, such insurance expense is adjusted by the carrier
for loss experience factors subject to minimum and maximum
premium calculations. Refunds or additional premiums are
estimated and recorded when sufficiently reliable data is
available. At June 30, 2000, the Company was contingently
liable for future retrospective premium adjustments up to a
maximum of $14,456 in the event that additional losses are
reported related to prior periods.
- 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.
---------------------------------------
* See Safe Harbor Statement on page 13.
5
<PAGE> 6
- The Company and certain of its equity partners have guaranteed
certain debt for companies 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 $6,085. At June 30, 2000, $8,886 was outstanding under the
various guarantees, of which the Company had guaranteed
$3,517.
7. SEGMENT INFORMATION
Segment information relating to the thirteen and twenty-six weeks
ending June 30, 2000 and July 2, 1999 is presented below:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------------ -------------------------------
June 30, 2000 July 2, 1999 June 30, 2000 July 2, 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Gross revenue:
Home manufacturing $ 88,276 $ 163,199 $ 173,807 $ 324,884
Financial services 1,590 2,026 3,037 3,481
Retail 7,865 6,004 10,806 8,482
Other 8,571 11,357 16,701 21,182
----------- ----------- ----------- -----------
Gross revenue $ 106,302 $ 182,586 $ 204,351 $ 358,029
=========== =========== =========== ===========
Intersegment revenue:
Home manufacturing $ 1,528 $ 5,113 $ 3,221 $ 8,315
Financial services -- -- -- --
Retail -- -- -- --
Other 6,890 10,114 13,553 18,939
----------- ----------- ----------- -----------
Intersegment revenue $ 8,418 $ 15,227 $ 16,774 $ 27,254
=========== =========== =========== ===========
Revenue from external customers:
Home manufacturing $ 86,748 $ 158,086 $ 170,586 $ 316,569
Financial services 1,590 2,026 3,037 3,481
Retail 7,865 6,004 10,806 8,482
Other 1,681 1,243 3,148 2,243
----------- ----------- ----------- -----------
Total revenue $ 97,884 $ 167,359 $ 187,577 $ 330,775
=========== =========== =========== ===========
Operating profit (loss):
Home manufacturing $ (11,551) $ 7,078 $ (19,538) $ 16,659
Financial services (1,373) 557 (1,200) 736
Retail (4,399) (345) (6,280) (612)
Other (528) 433 (866) 871
Elimination 877 (606) 1,039 (980)
----------- ----------- ----------- -----------
Segment operating profit (loss) (16,974) 7,117 (26,845) 16,674
General corporate (2,819) (2,571) (6,356) (5,165)
----------- ----------- ----------- -----------
Operating profit (loss) $ (19,793) $ 4,546 $ (33,201) $ 11,509
=========== =========== =========== ===========
Identifiable assets:
Home manufacturing $ 159,002 $ 175,478 $ 159,002 $ 175,478
Financial services 15,346 36,239 15,346 36,239
Retail 16,880 22,481 16,880 22,481
Other 15,132 16,679 15,132 16,679
Elimination (49,109) (38,314) (49,109) (38,314)
----------- ----------- ----------- -----------
Segment assets 157,251 212,563 157,251 212,563
General corporate 66,616 38,575 66,616 38,575
----------- ----------- ----------- -----------
Total assets $ 223,867 $ 251,138 $ 223,867 $ 251,138
=========== =========== =========== ===========
</TABLE>
6
<PAGE> 7
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
INDUSTRY AND COMPANY OUTLOOK
Cavalier Homes, Inc. and its subsidiaries are engaged in the production, sale,
financing, and insuring of manufactured housing. The manufactured housing
industry is cyclical and seasonal and is influenced by many of the same economic
and demographic factors that affect the housing market as a whole. As a result
of the growth in the industry during much of the 1990s, the number of retail
dealerships, manufacturing capacity and wholesale shipments expanded
significantly, which ultimately created slower retail turnover, higher retail
inventory levels and increased price competition. Inventory oversupply at the
retail level continues to have a significant impact on wholesale shipments as it
did during much of 1999. The Manufactured Housing Institute ("MHI") reported
that wholesale floor shipments declined 22.3% through June 2000 as compared to
the same period of 1999. The industry has also been impacted by an increase in
dealer failures, higher interest rates, a reduction in available consumer credit
and wholesale financing for manufactured housing, more restrictive credit
standards and increased home repossessions which re-enter home distribution
channels. In response to deteriorating market conditions, manufacturers have
closed or idled some of their manufacturing facilities and retail dealers have
closed some locations. The Company also believes that the possibility exists for
additional retail dealer failures, as well as for the loss of additional lenders
from the industry, further tightening of credit standards and a further
reduction in the availability of wholesale and retail financing.*
Industry conditions significantly impacted Cavalier's financial results during
the first half of 2000. 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 its financial performance at
least through the next several quarters and perhaps through the end of 2001.*
The Company's wholesale shipments during the third quarter to date are over 52%
behind the prior year, and the Company currently expects to record a significant
loss in the third quarter of 2000.*
Due to deteriorating market conditions, during the six months ended June 30,
2000, the Company recorded non-cash impairment charges of $4,745 ($3,778 or
$0.21 per diluted share after tax) in connection with the idling of four home
manufacturing facilities, closing, sale or plans to close or sell 10
Company-owned retail sales centers and the expected sale (which sale has been
completed) of a portion of the Company's insurance and premium finance business.
The manufacturing facilities built primarily single section homes, and
production has been consolidated into other plants. Since the fall of 1999,
Cavalier has idled a total of nine home manufacturing plants. Another plant was
destroyed by fire in June 2000 (a previously idled facility is being restarted
to replace that capacity). Consequently, Cavalier today operates a total of 15
manufacturing facilities, reflecting a 31% reduction in manufacturing capacity
over the last year. Despite this consolidation of its manufacturing facilities,
the Company does not believe it has reduced the breadth of its product offering
or the price points reached by its product line. On the retail side, the Company
has closed, sold or has plans to close or sell 10 of its 16 retail sales
centers. In terms of operating costs, Cavalier has made cost reductions in
virtually all areas of the Company, including its exclusive dealer and marketing
programs and its administrative personnel and associated costs. Altogether, the
Company has reduced its production and administrative workforce by approximately
2,200 employees or more than 38% since December 31, 1998. While management
believes these actions are prudent, these steps do not immediately reduce the
Company's cost structure in all cases. The Company is continuing to evaluate
capacity, cost and overhead issues and the need for further plant, retail and
other consolidations, reductions, idlings and closings in light of developing
market conditions.* The Company can give no assurance as to which one or more
of these options, if any, it may ultimately adopt.
------------------------
* See Safe Harbor Statement on page 13.
7
<PAGE> 8
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
------------------------------------------------------------------
June 30, 2000 July 2, 1999 Difference
------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Home manufacturing net sales $ 86,748 $158,086 $(71,338)
Financial services 1,590 2,026 (436)
Retail 7,865 6,004 1,861
Other 1,681 1,243 438
-------- -------- --------
Total revenue $ 97,884 100.0% $167,359 100.0% $(69,475) -41.5%
Cost of sales 86,335 88.2% 136,256 81.4% (49,921) -36.6%
-------- ------- -------- ------- -------- -------
Gross profit $ 11,549 11.8% $ 31,103 18.6% $(19,554) -62.9%
======== ======= ======== ======= ======== =======
Selling, general and administrative $ 26,945 27.5% $ 26,557 15.9% $ 388 1.5%
======== ======= ======== ======= ======== =======
Impairment charge $ 4,397 4.5% $ -- 0.0% $ 4,397 0.0%
======== ======= ======== ======= ======== =======
Operating profit (loss) $(19,793) -20.2% $ 4,546 2.7% $(24,339) -535.4%
======== ======= ======== ======= ======== =======
Other income (expense), net $ (195) -0.2% $ 115 0.1% $ (310) -269.6%
======== ======= ======== ======= ======== =======
Net income (loss) $(13,009) -13.3% $ 2,820 1.7% $(15,829) -561.3%
======== ======= ======== ======= ======== =======
<CAPTION>
INCOME STATEMENT DATA For the Twenty-Six Weeks Ended
------------------------------------------------------------------
June 30, 2000 July 2, 1999 Difference
------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Home manufacturing net sales $170,586 $316,569 $(145,983)
Financial services 3,037 3,481 (444)
Retail 10,806 8,482 2,324
Other 3,148 2,243 905
-------- -------- ---------
Total revenue $187,577 100.0% $330,775 100.0% $(143,198) -43.3%
Cost of sales 164,796 87.9% 266,831 80.7% (102,035) -38.2%
-------- ------- -------- ------- --------- -------
Gross profit $ 22,781 12.1% $ 63,944 19.3% $ (41,163) -64.4%
======== ======= ======== ======= ===+===== =======
Selling, general and administrative $ 51,237 27.3% $ 52,435 15.9% $ (1,198) -2.3%
======== ======= ======== ======= ========= =======
Impairment charge $ 4,745 2.5% $ -- 0.0% $ 4,745 0.0%
======== ======= ======== ======= ========= =======
Operating profit (loss) $(33,201) -17.7% $ 11,509 3.5% $ (44,710) -388.5%
======== ======= ======== ======= ========= =======
Other income (expense), net $ (562) -0.3% $ 593 0.2% $ (1,155) -194.8%
======== ======= ======== ======= ========= =======
Net income (loss) $(21,646) -11.5% $ 7,321 2.2% $ (28,967) -395.7%
======== ======= ======== ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
OPERATING DATA For the Thirteen Weeks Ended For the Twenty-six Weeks Ended
------------------------------------------- -------------------------------------------
June 30, 2000 July 2, 1999 June 30, 2000 July 2, 1999
-------------------- -------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Home manufacturing sales:
Floor shipments 5,470 9,732 10,760 19,317
Home shipments Single section 1,358 39.9% 3,087 48.3% 2,913 42.7% 6,117 48.2%
Multi section 2,048 60.1% 3,308 51.7% 3,909 57.3% 6,576 51.8%
-------- --------- -------- --------- ------- --------- -------- ---------
Total shipments 3,406 100.0% 6,395 100.0% 6,822 100.0% 12,693 100.0%
Shipments to company owned stores (56) 1.6% (179) 2.8% (118) 1.7% (294) 2.3%
-------- --------- -------- --------- ------- --------- -------- ---------
Shipment to independent dealers 3,350 98.4% 6,216 97.2% 6,704 98.3% 12,399 97.7%
======== ========= ======== ========= ======= ========= ======== =========
Retail sales:
Single section 166 52.0% 110 57.9% 223 53.6% 147 56.8%
Multi section 153 48.0% 80 42.1% 193 46.4% 112 43.2%
-------- --------- -------- --------- ------- --------- -------- ---------
Total sales 319 100.0% 190 100.0% 416 100.0% 259 100.0%
======== ========= ======== ========= ======= ========= ======== =========
Cavalier produced homes sold 267 83.7% 139 73.2% 341 82.0% 189 73.0%
======== ========= ======== ========= ======= ========= ======== =========
Used homes sold 45 14.1% 39 20.5% 66 15.9% 48 18.5%
======== ========= ======== ========= ======= ========= ======== =========
Other Operating Data:
Installment loan purchases $ 18,635 $ 14,029 $32,124 $ 29,391
Capital expenditures $ 1,404 $ 6,490 $ 2,352 $ 15,514
Home manufacturing facilities - operating 15 24 15 24
Independent exclusive dealer locations 241 262 241 262
Company owned stores 6 14 6 14
</TABLE>
8
<PAGE> 9
THIRTEEN WEEKS ENDED JUNE 30, 2000 AND JULY 2, 1999
REVENUE
Revenue for the second quarter of 2000 totaled $97,884 down 42% from 1999 second
quarter revenue of $167,359. The Company's revenues and profits were adversely
affected by intense competitive market conditions, including, among other
things, excess inventory in retail channels, an increase in dealer failures,
higher interest rates, a reduction in available consumer and wholesale financing
for manufactured housing, more restrictive credit standards and increased home
repossessions which re-enter home distribution channels.
Home manufacturing net sales accounted for virtually the entire decline against
the comparable 1999 period, falling 45% to $86,748, net of intercompany
eliminations of $1,528. Net sales for the second quarter of 1999 were $158,086,
net of intercompany eliminations of $5,113. Home shipments decreased 46.7%, with
floor shipments decreasing by 43.8%. Multi-section home shipments, as a
percentage of total shipments, continued to increase, from 51.7% of shipments in
the second quarter of 1999 to 60.1% of shipments in 2000. The expansion of the
Company's multi-section product base is in response to increasing consumer
demand for multi-section homes as compared to single section homes. Actual
shipments of homes for the second quarter were 3,406 versus 6,395 in 1999.
Cavalier attributes the decrease in sales and shipments primarily to the
unfavorable industry conditions described above. Approximately 86% of Cavalier's
shipments was to its core market of 11 states, where the Company's floor
shipments declined 44% compared to the second quarter of 1999. The Company has
pursued a strategy of working closely with its dealers to assist them in
reducing retail inventories in light of difficult market conditions, which the
Company believes has contributed to its disproportionate decline in
manufacturing sales volume in relation to the industry's decline.* The
Company's exclusive dealer program included 247 dealers, including six
company-owned stores, at June 30, 2000. At July 2, 1999, the exclusive dealer
program included 276 dealers, including 14 company-owned stores. Sales to
exclusive dealers represented 59.5% in the second quarter of 2000 versus 54.6%
in the same period of 1999.
Revenue from the financial services segment decreased 21.5% to $1,590 for the
second quarter of 2000 compared to $2,026 in 1999, due primarily to a lower
volume of installment contracts sold. During the second quarter of 2000,
Cavalier Acceptance Corporation ("CAC"), the Company's wholly-owned finance
subsidiary, purchased contracts of $18,635 and resold installment contracts
totaling $20,146. In the second quarter of 1999, CAC purchased contracts of
$14,029 and resold installment contracts totaling $30,022, including $16,000
previously held in its portfolio. CAC does not retain the servicing function and
does not earn the interest income on these resold loans.
Revenue from the retail segment was $7,865 for the second quarter of 2000, of
which 83.7% of the units sold were Cavalier product, compared to $6,004 for
1999. In addition to the three retail closings recorded in the first quarter of
2000, the Company closed, sold or planned to close or sell an additional seven
under-performing retail locations, and recorded impairment charges and
inventory valuation charges as discussed below, bringing the number of
company-owned retail locations to six.
Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing businesses. Revenues from external customers increased
35.2% to $1,681 for the second quarter of 2000 compared to $1,243 during the
second quarter of 1999. The increase is due primarily to the expansion of a
supply company into new geographic areas.
GROSS PROFIT
Gross profit was $11,549, or 11.8% of total revenue, for the second quarter of
2000, versus $31,103, or 18.6% of total revenue, in 1999. Of the $19,554
decrease, the Company attributes approximately $12,900 to volume decrease and
$6,700 to margin erosion. The margin erosion includes approximately $2,000 of
additional sales discounts at the manufacturing level to help encourage
sell-through of inventory, $2,200 for inefficiencies related to low volume and
plant closings, and $2,500 due to company-owned retail locations margin
decrease, which included $783 of inventory valuation charges.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses during the second quarter of 2000
were $26,945, or 27.5% of total revenue, versus $26,557 or 15.9% of total
revenue in 1999, an increase of $388. The overall increase is due to a $4,796
increase in repurchase charges and $586 of costs related to new supply company
locations, which were offset by a $2,469 reduction in salaries, wages and
incentive compensation, a $471 reduction in delivery cost, an $883 reduction in
employee benefits cost (primarily health insurance), a $598 reduction in
advertising and promotion cost and an $86 reduction in management information
system and internet strategy costs.
IMPAIRMENT CHARGE
Impairment charges totaling $4,397 ($3,465 or $0.19 per diluted share after tax)
were recorded in the second quarter of 2000. These charges included $1,944
relating to the closing or sale or plans to close or sell seven retail sales
centers and $1,472 associated with the expected sale (which sale has now been
completed) of a portion of the Company's insurance and premium finance business
- a step related to the scaling back of the Company's retail operations.
Impairment charges of $981 were also recorded relating to the idling of two
additional manufacturing plants, which follows the idling of seven other
facilities since the fall of 1999. In addition, one previously closed facility
has been reopened to replace the production capacity of another facility that
was destroyed by fire in June 2000. These closed manufacturing facilities built
primarily single section homes, and production has been consolidated into other
plants. There were no comparable charges recorded in the same period of 1999.
--------------------------------------
* See Safe Harbor Statement on page 13.
9
<PAGE> 10
OPERATING PROFIT (LOSS)
Operating loss for the quarter was $19,793, compared to an operating profit of
$4,546 in the second quarter of 1999. Home manufacturing operating profit
declined primarily due to the decrease in sales, repurchase charges, impairment
charges, and the industry and business conditions cited above. Financial
services operating profit decreased $1,930 from 1999 due primarily to the
decrease in sales and impairment charges noted above. The retail segment's
operating loss increased $4,054 due to costs of additional locations and retail
infrastructure over the prior year, low sales volume, inventory valuation
charges, impairment charges and the competitive conditions currently prevalent
in the marketplace. The other segment operating loss increase is due mainly to
the cost associated with the start-up cost of a new supply company. In addition,
general corporate operating expense, which is not identifiable to a specific
segment, increased $248.
OTHER INCOME (EXPENSE)
Interest expense increased $284 due primarily to the increase in notes payable
under retail floor plan agreements, amounts outstanding under industrial
development revenue bond issues and borrowings under the Company's credit
facility. Other, net decreased $26 due primarily to lower income from supply
related equity partnerships offset by gains on the sale of property, plant and
equipment during the second quarter of 2000.
NET INCOME (LOSS)
Before impairment charges related to the closures discussed above, the Company's
net loss in the second quarter was $9,544 or $0.54 per diluted share compared
with net income of $2,820 or $0.16 per diluted share in the second quarter of
1999. The Company's net loss for the second quarter of 2000, after impairment
charges, was $13,009 or $0.73 per diluted share, primarily due to the factors
noted above.
TWENTY-SIX WEEKS ENDED JUNE 30, 2000 AND JULY 2, 1999
REVENUE
Revenue for the twenty-six weeks ending June 30, 2000 totaled $187,577 down 43%
from 1999 year-to-date revenue of $330,775. The Company's revenues and profits
were adversely affected by challenging market conditions, including, among other
things, intense competition, the ongoing contraction of dealer locations,
reduced lending availability and tightened credit standards, higher interest
rates, inventory over-supply at the retail level and increased home
repossessions which re-enter home distribution channels.
Home manufacturing net sales accounted for virtually the entire decline against
the comparable 1999 period, falling 46% to $170,586 net of intercompany
eliminations of $3,221. Net sales for the first half of 1999 were $316,569, net
of intercompany eliminations of $8,315. Home shipments decreased 46.3%, with
floor shipments decreasing by 44.3%. Multi-section home shipments, as a
percentage of total shipments, continued to increase, from 51.8% of shipments in
the second quarter of 1999 to 57.3% of shipments in 2000. The expansion of the
Company's multi-section product base is in response to increasing consumer
demand for multi-section homes as compared to single section homes. Actual
shipments of homes for the twenty-six weeks ending June 30, 2000 were 6,822
versus 12,693 in 1999.
Cavalier attributes the decrease in sales and shipments primarily to the
unfavorable industry conditions described above. Approximately 88% of Cavalier's
shipments were to its core market of 11 states, where the Company's floor
shipments declined 44% compared to the first half of 1999. The Company has
pursued a strategy of working closely with its dealers to assist them in
reducing retail inventories in light of difficult market conditions, which the
Company believes has contributed to its disproportionate decline in
manufacturing sales volume in relation to the industry's decline.* The
Company's exclusive dealer program included 247 dealers, including six
company-owned stores, at June 30, 2000. At July 2, 1999, the exclusive dealer
program included 276 dealers, including 14 company-owned stores. Sales to
exclusive dealers represented 56.6% in the first six months of 2000 versus 55.9%
in the same period of 1999.
Revenue from the financial services segment decreased 12.8% to $3,037 for the
first twenty-six weeks of 2000 compared to $3,481 in 1999, due primarily to a
lower volume of installment contracts sold. For 2000, CAC has purchased
contracts of $32,124 and resold installment contracts totaling $33,961. In 1999,
CAC purchased contracts of $29,391 and resold installment contracts totaling
$43,757, including $16,000 previously held in its portfolio. CAC does not retain
the servicing function and does not earn the interest income on these resold
loans.
Revenue from the retail segment was $10,806 for 2000, of which 82% of the units
sold were Cavalier product, compared to $8,482 for 1999. As of June 30, 2000,
the Company has closed, sold or plans to close or sell ten under-performing
retail locations, and has recorded impairment charges and inventory valuation
charges as discussed below, bringing the number of company-owned retail
locations to six.
Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing businesses. Revenues from external customers increased
40.3% to $3,148 for 2000 compared to $2,243 during 1999. The increase is due
primarily to the expansion of a supply company into new geographic areas.
--------------------------------------
* See Safe Harbor Statement on page 13.
10
<PAGE> 11
GROSS PROFIT
Gross profit was $22,781, or 12.1% of total revenue, for the first half of 2000,
versus $63,944, or 19.3%, in 1999. Of the $41,163 decrease, the Company
attributes approximately $27,600 to volume decrease and $13,500 to margin
erosion. The margin erosion includes approximately $3,100 of additional sales
discounts at the manufacturing level to help encourage sell-through of
inventory, $7,300 for inefficiencies related to low volume and plant closings,
and $3,100 due to company-owned retail locations margin decrease, which included
$1,209 inventory valuation charges.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses during the first half of 2000 were
$51,237, or 27.3% of total revenue, versus $52,435 or 15.9% in 1999, a decrease
of $1,198. The overall decrease includes a $4,582 reduction in salaries, wages
and incentive compensation, a $1,214 reduction in delivery costs, a $1,316
reduction in employee benefits cost (primarily health insurance), a $942
reduction in advertising and promotion cost, a $273 reduction in service and
warranty cost and a $482 decrease in losses on installment contracts. These
decreases were partially offset by the $6,231 increase in repurchase charges, a
$1,438 increase due to new supply and retail business locations, and a $511
increase in management information system and internet strategy costs.
IMPAIRMENT CHARGE
Impairment charges totaling $4,745 ($3,778 or $0.21 per diluted share after tax)
were recorded in the first half of 2000. These charges were recorded in
connection with the closings, sale or plans to close or sell four manufacturing
facilities ($1,073) and ten company-owned retail locations ($2,200) and the
expected sale (which sale has now been completed) of a portion of the insurance
and premium finance business ($1,472) - a step related to the scaling back of
the Company's retail operations. One previously closed home manufacturing
facility has been reopened to replace the production capacity of another
facility that was destroyed by fire in June 2000. These manufacturing facilities
built primarily single section homes, and production has been consolidated into
other plants. There were no comparable charges recorded in the first half of
1999.
OPERATING PROFIT (LOSS)
Operating loss year-to-date was $33,201, compared to an operating profit of
$11,509 in 1999. Home manufacturing operating profit declined primarily due to
the decrease in sales, repurchase charges, impairment charges and the industry
and business conditions cited above. Financial services operating profit
decreased $1,936 from the same period in 1999 due primarily to the decrease in
sales and impairment charges noted above. The retail segment's operating loss
increased $5,668 due to costs of additional locations and retail infrastructure
over the prior year, inventory valuation charges, impairment charges, low sales
volume and the competitive conditions currently prevalent in the marketplace.
The other segment operating loss increase of $1,737 is due mainly to the cost
associated with the start-up cost of a new supply company. In addition, general
corporate operating expense, which is not identifiable to a specific segment,
increased $1,191 primarily due to an increase in costs associated with a new
management information system and internet strategy.
OTHER INCOME (EXPENSE)
Interest expense increased $727 due primarily to the increase in notes payable
under retail floor plan agreements, amounts outstanding under industrial
development revenue bond issues and borrowings under the Company's credit
facility. Other, net decreased $428 due primarily to lower income from supply
related equity partnerships offset by gains on sale of property, plant and
equipment during the first half of 2000.
NET INCOME (LOSS)
Before impairment charges related to the closures discussed above, the Company's
net loss in the first half of 2000 was $17,868 or $1.01 per diluted share
compared with net income of $7,321 or $0.40 per diluted share in the first half
of 1999. The Company's net loss for the first half of 2000, after impairment
charges, was $21,646 or $1.22 per diluted share, primarily due to the factors
noted above.
LIQUIDITY AND CAPITAL RESOURCES (DOLLARS IN THOUSANDS)
BALANCE SHEET DATA
<TABLE>
<CAPTION>
Balances as of
-----------------------------------
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 36,713 $ 39,635
Accounts receivable $ 19,757 $ 10,022
Working capital $ 35,863 $ 32,652
Current ratio 1.4 to 1 1.4 to 1
Long-term debt $ 24,363 $ 10,218
Ratio of long-term debt to equity 1 to 4 1 to 13
Installment loan portfolio $ 7,079 $ 9,450
</TABLE>
Operating activities during the first half of 2000 used net cash of $12,466.
The increase in accounts receivable and reduction in cash and cash equivalents
from December 31, 1999 to June 30, 2000, 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
11
<PAGE> 12
receivables.
Inventory decreased $16,184 from December 31, 1999 to June 30, 2000 as the
Company emphasized conservative cash management and a build-for-sale philosophy.
Of this decrease, $6,559 related to retail inventories that resulted in a
corresponding reduction in notes payable under retail floor plan agreements.
The Company's capital expenditures were approximately $2,352 for the twenty-six
weeks ended June 30, 2000, as compared to $15,514 for the comparable period of
1999. Capital expenditures during these periods included normal property, plant
and equipment additions and replacements and the expansion and modernization of
certain of the Company's manufacturing facilities. Additionally, during the
first half of 1999, the Company purchased, for a total of $3,400, two Alabama
manufacturing facilities that were previously leased, renovated a Georgia
manufacturing facility at a cost of $1,693 and capitalized $1,270 costs of
implementing an enterprise-wide management information system.
The increase in long-term debt of $14,145 is primarily due to a $15,000
borrowing under the Company's credit facility.
The Company purchased 25,000 shares of treasury stock during the first half of
2000 for $99. The Company has authorization to acquire up to 1.3 million
additional shares under the current program.
In addition to its normal purchasing and selling of loans to another finance
company, during the second quarter of 2000, the Company received proceeds of
approximately $1,400 from the sale of loans that were previously held in its
installment loan portfolio.
On March 31, 2000, the Company renewed its Credit Facility with its primary
lender through April 2002. The Credit Facility presently consists of a $35,000
revolving and term loan agreement. The Credit Facility contains a revolving line
of credit that provides for borrowings (including letters of credit) up to a
maximum of $35,000. Interest is payable under the revolving line of credit at
the bank's prime rate less 0.5%, or, if elected by the Company, the 90-day LIBOR
Rate plus 2.0%. The Credit Facility provides the option for amounts drawn down
for CAC's benefit to be converted to a term loan with respect to borrowings of
up to 80% of the Company's eligible (as defined) installment sales contracts, up
to a maximum of $35,000. Interest under the term notes is fixed for a period of
five years from issuance at a rate based on the weekly average yield on
five-year treasury securities averaged over the preceding 13 weeks, plus 1.95%,
with a floating rate for the remaining two years (subject to certain limits)
equal to the bank's prime rate plus 0.75%. However, in no event may the
aggregate outstanding borrowings under the revolving line of credit and
term-loan agreement exceed $35,000. At June 30, 2000, $15,000 was outstanding
under the revolving line of credit. At July 2, 1999, no amounts were outstanding
under the Credit Facility.
The credit facility contains certain restrictive covenants which limit, among
other things, the Company's ability to (i) make dividend payments and purchases
of treasury stock in an aggregate amount which exceeds 50% of consolidated net
income for the two most recent years, (ii) mortgage or pledge assets which
exceed, in the aggregate, $1,000, (iii) incur additional indebtedness, including
lease obligations, which exceed in the aggregate $18,000, excluding floor plan
notes payable which cannot exceed $25,000, and (iv) make annual capital
expenditures in excess of $15,000. In addition, the Credit Facility contains
certain financial covenants requiring the Company to maintain on a consolidated
basis certain defined levels of net working capital (at least $15,000), debt to
tangible net worth ratio (not to exceed 2 to 1) and cash flow to debt service
ratio (not less than 1.75 to 1), and to maintain a current ratio of at least
1.17 to 1 and the sum of consolidated tangible net worth plus treasury stock
purchases must be at least $90,000. The Credit Facility also requires CAC to
comply with certain specified restrictions and financial covenants. The Company
has obtained waiver letters to the extent it was in violation of certain
covenants at June 30, 2000.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
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 $3,291 at June 30, 2000. Due to the long-term nature
of the benefit liabilities that these assets fund, the Company currently
considers its exposure to market risk to be 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 financial institutions under the terms of
retail finance agreements. 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 generally ranging from 9.0% to 16.0%
and an average original term of 298 months at June 30, 2000. 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 June 30, 2000.
--------------------------------------
* See Safe Harbor Statement on page 13.
12
<PAGE> 13
The Company has notes payable under retail floor plan agreements, an industrial
development revenue bond issue and a revolving line of credit that are exposed
to interest rate changes. Since these borrowings are floating rate debt, an
increase in short-term interest rates would adversely affect interest expense.
Additionally, Cavalier has five industrial development revenue bond issues at
fixed interest rates. The estimated fair value of outstanding borrowings
approximated carrying value at June 30, 2000. The Company estimated the fair
value of its debt instruments using rates at which the Company believes it could
have obtained similar borrowings at that time.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
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, financing and other 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:
- the cyclical and seasonal nature of the manufactured housing
industry and the economy generally;
- limitations in Cavalier's ability to pursue its business
strategy;
- changes in demographic trends, consumer preferences and
Cavalier's business strategy;
- changes and volatility in interest rates and the availability
of capital and consumer and dealer financing;
- the ability to attract and retain quality independent dealers,
executive officers and other personnel;
- competition;
- contingent repurchase and guaranty obligations;
- uncertainties regarding Cavalier's retail financing
activities;
- integrating the business operations and achieving the benefits
of the 1997 merger with Belmont Homes, Inc. and other
acquisitions;
- the potential unavailability and price increases for raw
materials;
- the potential unavailability of manufactured housing sites;
- regulatory constraints;
- the potential for additional warranty claims;
- litigation; and
- the potential volatility in our stock price.
Any or all of our forward-looking statements in this report, in the 1999 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, 1999, 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.
PART II. OTHER INFORMATION
Item 1: 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, 1999 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
Court of Civil Appeals has affirmed the Circuit Court's grant of summary
judgment in favor of the defendants on all counts asserted in the plaintiffs'
complaint. The time for further appeal of the Court of Civil Appeals'
affirmation has expired.
13
<PAGE> 14
Item 4: Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held May 16, 2000. 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:
<TABLE>
<CAPTION>
Shares Voting
For Against Withheld
<S> <C> <C> <C>
Thomas A. Broughton, III 15,062,944 -0- 407,462
Barry B. Donnell 15,062,944 -0- 407,462
Lee Roy Jordan 15,066,044 -0- 404,362
A. Douglas Jumper, Sr. 15,056,869 -0- 413,537
Mike Kennedy 15,062,334 -0- 408,072
John W Lowe 15,061,608 -0- 408,798
Gerald W. Moore 15,141,405 -0- 329,001
Michael R. Murphy 15,058,221 -0- 412,185
David A. Roberson 15,057,436 -0- 412,970
</TABLE>
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 15,225,846 shares for, 90,784 shares
against and 153,931 abstentions.
Item 5: Other Matters
The Board of Directors has declared its regular quarterly cash dividend of $0.01
per share payable on August 15, 2000 to stockholders of record on July 31, 2000.
Previously, the Company had paid quarterly dividends at a rate of $0.04 per
share. The Company has announced that its Board of Directors may take further
action in the future to eliminate dividend payments if it believes circumstances
warrant.
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, included 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, included in
Exhibit 3(c) above.
(c) Rights Agreement between Cavalier Homes, Inc. and
ChaseMellon Shareholder Services, LLC, filed as
Exhibit 4 to the Registration Statement on Form 8-A
dated October 30, 1996, is incorporated herein by
reference.
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