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 September 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-9792
Cavalier Homes, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 63-0949734
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Highway 41 North & 32 Wilson Boulevard, Addison, Alabama 35540
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(Address of principal executive offices)
(Zip Code)
(256) 747-9800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at November 10, 2000
---------------------------- --------------------------------
Common Stock, $.10 Par Value 17,860,041 Shares
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - dollars in thousands)
September 30, December 31,
ASSETS 2000 1999
--------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 23,805 $ 39,635
Marketable securities held to maturity 5,996 -
Accounts receivable, less allowance for doubtful accounts $178 (2000) and $134 (1999) 17,463 10,022
Notes and installment contracts receivable - current 604 939
Inventories 31,187 50,120
Deferred income taxes 16,172 15,166
Income tax receivable 12,997 2,133
Other current assets 4,984 3,109
--------------- --------------
Total current assets 113,208 121,124
--------------- --------------
PROPERTY, PLANT AND EQUIPMENT (Net) 67,668 74,495
--------------- --------------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $1,138 (2000) and $1,656 (1999) 6,325 7,651
--------------- --------------
GOODWILL, less accumulated amortization of $6,369 (2000) and $5,432 (1999) 17,756 22,684
--------------- --------------
OTHER ASSETS 7,258 9,083
--------------- --------------
TOTAL $ 212,215 $ 235,037
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,142 $ 1,119
Notes payable under retail floor plan agreements 7,111 15,562
Accounts payable 11,700 12,303
Amounts payable under dealer incentive programs 22,914 25,442
Accrued compensation and related withholdings 6,108 5,312
Estimated warranties 12,300 13,000
Reserve for repurchase commitments 4,525 3,330
Accrued insurance 5,963 6,027
Other accrued expenses 9,123 6,377
--------------- --------------
Total current liabilities 80,886 88,472
--------------- --------------
DEFERRED INCOME TAXES 1,043 1,459
--------------- --------------
LONG-TERM DEBT 24,329 10,218
--------------- --------------
OTHER LONG-TERM LIABILITIES 5,900 5,497
--------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; authorized 50,000,000 shares,
issued 18,365,141 (2000) shares and 18,271,433 (1999) shares 1,837 1,827
Additional paid-in capital 55,375 55,181
Treasury stock, at cost; 505,100 (2000) shares and 480,100 (1999) shares (3,309) (3,210)
Retained earnings 46,154 75,593
--------------- --------------
Total stockholders' equity 100,057 129,391
--------------- --------------
TOTAL $ 212,215 $ 235,037
=============== ==============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - dollars in thousands except per share amounts)
Thirteen Weeks Ending Thirty-nine Weeks Ending
September 30, October 1, September 30, October 1,
2000 1999 2000 1999
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
REVENUE $ 69,860 $ 135,835 $ 257,437 $ 466,610
COST OF SALES 61,095 110,883 225,886 377,666
SELLING, GENERAL AND ADMINISTRATIVE 18,002 26,031 69,244 78,514
IMPAIRMENT CHARGE 103 1,453 4,848 1,453
-------------- --------------- --------------- --------------
OPERATING PROFIT (LOSS) (9,340) (2,532) (42,541) 8,977
-------------- --------------- --------------- --------------
OTHER INCOME (EXPENSE):
Interest expense (774) (537) (2,013) (1,049)
Other, net 284 388 961 1,493
-------------- --------------- --------------- --------------
(490) (149) (1,052) 444
-------------- --------------- --------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) (9,830) (2,681) (43,593) 9,421
INCOME TAXES (BENEFIT) (3,638) (1,060) (15,755) 3,721
-------------- --------------- --------------- --------------
NET INCOME (LOSS) $ (6,192) $ (1,621) $ (27,838) $ 5,700
============== =============== =============== ==============
BASIC NET INCOME (LOSS) PER SHARE $ (0.35) $ (0.09) $ (1.56) $ 0.31
============== =============== =============== ==============
DILUTED NET INCOME (LOSS) PER SHARE $ (0.35) $ (0.09) $ (1.56) $ 0.31
============== =============== =============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 17,836,486 17,949,080 17,791,922 18,221,146
============== =============== =============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 17,836,486 17,949,080 17,791,922 18,304,173
============== =============== =============== ==============
ASSUMING DILUTION
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Thirty-nine Weeks Ending
September 30, October 1,
2000 1999
--------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (27,838) $ 5,700
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 7,508 7,443
Change in provision for credit losses and repurchase commitments 721 647
Gain on sale of installment contracts (1,671) (1,848)
Gain on sale of property, plant and equipment (154) (42)
Impairment charge 4,848 1,453
Other, net 322 (7)
Changes in assets and liabilities provided (used) cash, net of effects of acquisitions:
Accounts receivable (7,485) (24,947)
Inventories 18,933 (16,689)
Income tax receivable (10,864) (5,640)
Accounts payable (603) 5,431
Other assets and liabilities (500) 3,829
--------------- --------------
Net cash used in operating activities (16,783) (24,670)
--------------- --------------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisitions - (4,439)
Proceeds from disposition of property, plant and equipment 2,327 300
Capital expenditures (3,521) (20,667)
Purchase of marketable securities (5,996) -
Proceeds from sale of installment contracts 52,112 52,701
Net change in notes and installment contracts (47,568) (33,854)
Other investing activities (511) (1,196)
--------------- --------------
Net cash used in investing activities (3,157) (7,155)
--------------- --------------
FINANCING ACTIVITIES:
Net borrowings (payments) on notes payable (8,451) 3,650
Payments on long-term debt (866) (318)
Proceeds from long-term borrowings 15,000 3,145
Cash dividends paid (1,601) (2,214)
Proceeds from exercise of stock options 4 284
Net proceeds from sales of common stock 123 316
Purchase of treasury stock (99) (14,944)
--------------- --------------
Net cash provided by (used in) financing activities 4,110 (10,081)
--------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (15,830) (41,906)
--------------- --------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 39,635 64,243
--------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23,805 $ 22,337
=============== ==============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (received) for:
Interest $ 1,864 $ 861
Income taxes (3,472) 11,376
See notes to consolidated financial statements.
</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 September 30,
2000 and October 1, 1999, and the results of its operations and its
cash flows for the thirteen and thirty-nine week periods ended
September 30, 2000 and October 1, 1999, respectively. All such
adjustments are of a normal, recurring nature.
o The results of operations for the thirteen and thirty-nine weeks ended
September 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.
o 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 Thirty-nine Weeks Ended
-------------------------------- -------------------------------
September 30, October 1, September 30, October 1,
2000 1999 2000 1999
---------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding (basic) 17,836,486 17,949,080 17,791,922 18,221,146
Dilutive effect if stock options and warrants were - - - 83,027
exercised ---------------- ------------- ---------------- -------------
Weighted average common shares
outstanding, assuming dilution (diluted) 17,836,486 17,949,080 17,791,922 18,304,173
================ ============= ================ =============
</TABLE>
o The diluted share base for the thirteen weeks ended September 30, 2000
and October 1, 1999, and for the thirty-nine weeks ended September 30,
2000 excludes incremental shares of 9,808, 42,957, and 24,340
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.
o Certain amounts from the prior periods have been reclassified to
conform to the 2000 presentation.
2. ACCOUNTING STANDARD NOT YET ADOPTED
o In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities. In June
2000, the FASB issued SFAS 138, which amends certain provisions of SFAS
133 to clarify areas causing difficulties in implementation. The
Company has appointed a team to implement SFAS 133 and will adopt the
provisions of SFAS 133 and 138 on January 1, 2001. SFAS 133, as amended
by SFAS 138, is not expected to have a material impact on the Company's
consolidated financial statements.
o In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) 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. SAB 101 is not expected to have a material impact on
the Company's consolidated financial statements.
3. INVENTORIES
o 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
September 30, 2000 and December 31, 1999 were as follows:
September 30, December 31,
2000 1999
------------- ------------
Raw materials $ 18,102 $ 27,363
Work-in-process 2,295 3,513
Finished goods 10,790 19,244
------------- ------------
Total inventory $ 31,187 $ 50,120
============= ============
4. IMPAIRMENT CHARGE
o 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.
<PAGE>
o Due to deteriorating market conditions, during the thirty-nine weeks
ended September 30, 2000, the Company recorded non-cash impairment
charges of $4,848 ($3,843 after tax or $0.21 per diluted share) in
connection with the closing of four home manufacturing facilities, 11
retail sales center closings or dispositions and the sale 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 $43 for
property, plant and equipment (home manufacturing segment). The
impairment charge for assets to be disposed of includes write-downs of
$1,607 for property, plant and equipment ($981 home manufacturing
segment and $626 retail segment), $3,038 for goodwill ($1,541 retail
segment and $1,497 financial services segment), and $160 for non-
competition agreements and lease obligations ($228 retail segment and
a credit of $68 home manufacturing segment). After recording the
impairment charges, the carrying value of the assets to be disposed of
was $3,493. 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
thirty-nine weeks ended September 30, 2000 included a $2,444 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
o The Company paid cash dividends of $.01 per share during the quarter
ended September 30, 2000.
o During year-to-date 2000, the Company repurchased 25,000 shares of
stock under its stock repurchase program. At September 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
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 obligation under such agreements
approximated $194,000 at September 30, 2000. The Company has a reserve
for repurchase commitments of $4,525 (at September 30, 2000) and $3,330
(at December 31, 1999) based on prior experience and market conditions.
o 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 September 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.
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 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 $5,505. At September 30, 2000, $9,159
was outstanding under the various guarantees, of which the Company had
guaranteed $3,537.
* See Safe Harbor Statement on page 13.
<PAGE>
7. SEGMENT INFORMATION
Segment information relating to the thirteen and thirty-nine weeks ending
September 30, 2000 and October 1, 1999 is presented below:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
----------------------------------------------- -----------------------------------------------
September 30, 2000 October 1, 1999 September 30, 2000 October 1, 1999
------------------------ ------------------- ------------------------ --------------------
<S> <C> <C> <C> <C>
Gross revenue:
Home manufacturing $ 64,658 $ 130,646 $ 238,465 $ 455,530
Financial services 1,132 1,470 4,169 4,951
Retail 3,382 6,748 14,188 15,230
Other 6,624 10,912 23,325 32,094
------------------------ ------------------- ------------------------ --------------------
Gross revenue $ 75,796 $ 149,776 $ 280,147 $ 507,805
======================== =================== ======================== ====================
Intersegment revenue:
Home manufacturing $ 52 $ 4,563 $ 3,273 $ 12,878
Financial services - - - -
Retail - - - -
Other 5,884 9,378 19,437 28,317
------------------------ ------------------- ------------------------ --------------------
Intersegment revenue $ 5,936 $ 13,941 $ 22,710 $ 41,195
======================== =================== ======================== ====================
Revenue from external customers:
Home manufacturing $ 64,606 $ 126,083 $ 235,192 $ 442,652
Financial services 1,132 1,470 4,169 4,951
Retail 3,382 6,748 14,188 15,230
Other 740 1,534 3,888 3,777
------------------------ ------------------- ------------------------ --------------------
Total revenue $ 69,860 $ 135,835 $ 257,437 $ 466,610
======================== =================== ======================== ====================
Operating profit (loss):
Home manufacturing $ (6,664) $ 856 $ (26,202) $ 17,515
Financial services (47) (195) (1,247) 541
Retail (701) (621) (6,981) (1,233)
Other (44) 196 (910) 1,067
Elimination (27) (195) 1,012 (1,175)
------------------------ ------------------- ------------------------ --------------------
Segment operating profit (loss) (7,483) 41 (34,328) 16,715
General corporate (1,857) (2,573) (8,213) (7,738)
------------------------ ------------------- ------------------------ --------------------
Operating profit (loss) $ (9,340) $ (2,532) $ (42,541) $ 8,977
======================== =================== ======================== ====================
Identifiable assets:
Home manufacturing $ 155,204 $ 181,854 $ 155,204 $ 181,854
Financial services 12,784 17,377 12,784 17,377
Retail 14,719 23,072 14,719 23,072
Other 15,757 15,762 15,757 15,762
Elimination (55,567) (35,734) (55,567) (35,734)
------------------------ ------------------- ------------------------ --------------------
Segment assets 142,897 202,331 142,897 202,331
General corporate 69,318 47,104 69,318 47,104
------------------------ ------------------- ------------------------ --------------------
Total assets $ 212,215 $ 249,435 $ 212,215 $ 249,435
======================== =================== ======================== ====================
</TABLE>
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 industry wholesale shipments declined 24.6% through August 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 business and financial
results during the first nine months 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. *
* See Safe Harbor Statement on page 13.
<PAGE>
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 revenues during the fourth
quarter-to-date continue to be substantually below the prior year, and the
Company currently expects to record a significant loss in the fourth quarter of
2000 and first quarter of 2001.
Due to deteriorating market conditions, during the thirty-nine weeks ended
September 30, 2000, the Company recorded non-cash impairment charges of $4,848
($3,843 after tax or $0.21 per diluted share) in connection with the closing of
four home manufacturing facilities, 11 retail sales center closings or
dispositions and the sale 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 nine home manufacturing plants and disposed of the
operations of one other. Another plant was destroyed by fire in June 2000 (a
previously idled facility has been restarted to replace that capacity).
Consequently, Cavalier, at September 30, 2000, operated a total of 14
manufacturing facilities, reflecting a 34% 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 or disposed of 11 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 2,600
employees or more than 46% 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, the need for further plant, retail and other
consolidations, reductions, idlings and closings and methods designed to address
the Company's decline in revenue in light of developing market and business
conditions. * The Company can give no assurance as to which one or more of these
options, if any, it may ultimately adopt.
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
------------------------------------------------------------------------------------
September 30, 2000 October 1, 1999 Difference
------------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Home manufacturing net sales $ 64,606 $ 126,083 $ (61,477)
Financial services 1,132 1,470 (338)
Retail 3,382 6,748 (3,366)
Other 740 1,534 (794)
----------------- ------------- ------------
Total revenue $ 69,860 100.0% $ 135,835 100.0% $ (65,975) -48.6%
Cost of sales 61,095 87.5% 110,883 81.6% (49,788) -44.9%
----------------- ------ ------------- ------ ------------ ------------
Gross profit $ 8,765 12.5% $ 24,952 18.4% $ (16,187) -64.9%
================= ====== ============= ====== ============ ============
Selling, general and administrative $ 18,002 25.8% $ 26,031 19.2% $ (8,029) -30.8%
================= ====== ============= ====== ============ ============
Impairment charge $ 103 0.1% $ 1,453 1.1% $ (1,350) -92.9%
================= ====== ============= ====== ============ ============
Operating profit (loss) $ (9,340) -13.4% $ (2,532) -1.9% $ (6,808) 268.9%
================= ====== ============= ====== ============ ============
Other income (expense), net $ (490) -0.7% $ (149) -0.1% $ (341) 228.9%
================= ====== ============= ====== ============ ============
Net income (loss) $ (6,192) -8.9% $ (1,621) -1.2% $ (4,571) 282.0%
================= ====== ============= ====== ============ ============
For the Thirty-nine Weeks Ended
------------------------------------------------------------------------------------
September 30, 2000 October 1, 1999 Difference
------------------ --------------- ------------
Revenue:
Home manufacturing net sales $ 235,192 $ 442,652 $ (207,460)
Financial services 4,169 4,951 (782)
Retail 14,188 15,230 (1,042)
Other 3,888 3,777 111
----------------- ------------- ------------
Total revenue $ 257,437 100.0% $ 466,610 100.0% $ (209,173) -44.8%
Cost of sales 225,886 87.7% 377,666 80.9% (151,780) -40.2%
----------------- ------ ------------- ------ ------------ ------------
Gross profit $ 31,551 12.3% $ 88,944 19.1% $ (57,393) -64.5%
================= ====== ============= ====== ============ ============
Selling, general and administrative $ 69,244 26.9% $ 78,514 16.8% $ (9,270) -11.8%
================= ====== ============= ====== ============ ============
Impairment charge $ 4,848 1.9% $ 1,453 0.3% $ 3,395 233.7%
================= ====== ============= ====== ============ ============
Operating profit (loss) $ (42,541) -16.5% $ 8,977 1.9% $ (51,518) -573.9%
================= ====== ============= ====== ============ ============
Other income (expense), net $ (1,052) -0.4% $ 444 0.1% $ (1,496) -336.9%
================= ====== ============= ====== ============ ============
Net income (loss) $ (27,838) -10.8% $ 5,700 1.2% $ (33,538) -588.4%
================= ====== ============= ====== ============ ============
* See Safe Harbor Statement on page 13.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
OPERATING DATA For the Thirteen Weeks Ended For the Thirty-nine Weeks Ended
------------------------------------- -------------------------------------
September 30, 2000 October 1, 1999 September 30, 2000 October 1, 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Home manufacturing sales:
Floor shipments 4,029 7,867 14,789 27,184
Home shipments Single section 819 33.9% 2,313 45.6% 3,732 40.4% 8,430 47.4%
Multi section 1,600 66.1% 2,764 54.4% 5,509 59.6% 9,340 52.6%
------- ------- ------- ------- -------- ------ -------- ------
Total Shipments 2,419 100.0% 5,077 100.0% 9,241 100.0% 17,770 100.0%
Shipments to Company Owned Stores (47) 1.9% (169) 3.3% (165) 1.8% (463) 2.6%
------- ------- ------- ------- -------- ------ -------- ------
Shipments to independent dealers 2,372 98.1% 4,908 96.7% 9,076 98.2% 17,307 97.4%
======= ======= ======= ======= ======== ====== ======== ======
Retail sales:
Single section 60 51.3% 125 59.2% 283 53.1% 272 57.9%
Multi section 57 48.7% 86 40.8% 250 46.9% 198 42.1%
------- ------- ------- ------- -------- ------ -------- ------
Total sales 117 100.0% 211 100.0% 533 100.0% 470 100.0%
======= ======= ======= ======= ======== ====== ======== ======
Cavalier produced homes sold 90 76.9% 163 77.3% 431 80.9% 352 74.9%
======= ======= ======= ======= ======== ====== ======== ======
Used homes sold 25 21.4% 36 17.1% 91 17.1% 84 17.9%
======= ======= ======= ======= ======== ====== ======== ======
Other Operating Data:
Installment loan purchases $ 17,252 $ 6,400 $ 49,376 $ 35,791
Capital expenditures $ 1,169 $ 5,153 $ 3,521 $ 20,667
Home manufacturing facilities 14 22 14 22
(operating)
Independent exclusive dealer locations 204 277 204 277
Company owned stores 5 14 5 14
</TABLE>
Thirteen weeks ended September 30, 2000 and October 1, 1999
Revenue
Revenue for the third quarter of 2000 totaled $69,860 down 49% from 1999 third
quarter revenue of $135,835. 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 49% to $64,606, net of intercompany
eliminations of $52. Home manufacturing net sales for the third quarter of 1999
were $126,083, net of intercompany eliminations of $4,563. Home shipments
decreased 52.4% with floor shipments decreasing by 48.8%. Multi-section home
shipments, as a percentage of total shipments, continued to increase from 54.4%
of shipments in the third quarter of 1999 to 66.1% of shipments in the third
quarter of 2000 in response to increasing consumer demand for multi-section
homes as compared to single section homes. Actual shipments of homes for the
third quarter were 2,419 versus 5,077 in the third quarter of 1999.
Cavalier attributes the decrease in sales and shipments primarily to the
unfavorable industry conditions described above. Approximately 84% of Cavalier's
shipments were to its core market of 11 states, where the Company's shipments
declined 54% compared to the third quarter of 1999. The Company has pursued a
strategy of working closely with its dealers to assist them in reducing retail
inventories, which the Company believes has contributed to its disproportionate
decline in manufacturing sales volume in relation to the industry's decline. *
Additionally, industry sales in several states in Cavalier's core market have
declined at a worse rate than the industry overall, which the Company believes
has also had an impact on its sales. * The Company's exclusive dealer program
included 209 dealers, including five company-owned stores, at September 30,
2000. At October 1, 1999, the exclusive dealer program included 291 dealers,
including 14 company-owned stores. Sales to exclusive dealers represented 51% in
the third quarter of 2000 versus 55% in the same period of 1999.
Revenue from the financial services segment decreased 23% to $1,132 for the
third quarter of 2000 compared to $1,470 in 1999, due primarily to the sale of a
portion of the Company's insurance and premium finance business during the third
quarter of 2000 and competitive pressure on the rate earned on resold
installment contracts. During the third quarter of 2000, Cavalier Acceptance
Corporation ("CAC"), the Company's wholly-owned finance subsidiary, purchased
contracts of $17,252 and resold installment contracts totaling $16,481. In the
third quarter of 1999, CAC purchased contracts of $6,400 and resold installment
contracts totaling $7,096. CAC does not retain the servicing function and does
not earn the interest income on these resold loans.
Revenue from the retail segment was $3,382 for the third quarter of 2000
compared to $6,748 for 1999. In addition to the ten retail closings recorded in
the first half of 2000, during the third quarter the Company planned to close
one additional under- performing retail location, and recorded impairment
charges and inventory valuation charges as discussed below, bringing the number
of company-owned retail locations to five.
Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing businesses. Revenues from external customers decreased
52% to $740 for the third quarter of 2000 compared to $1,534 during the third
quarter of 1999. The decrease is due primarily to lower sales volume related to
competitive industry conditions.
* See Safe Harbor Statement on page 13.
<PAGE>
Gross Profit
Gross profit was $8,765, or 12.5% of total revenue, for the third quarter of
2000, versus $24,952, or 18.4% of total revenue in 1999. Of the $16,187
decrease, the Company attributes approximately $12,100 to volume decrease and
$4,100 to margin erosion. The margin erosion includes approximately $2,200 of
additional sales discounts at the manufacturing level to help encourage
sell-through of inventory, $1,600 for inefficiencies related to low volume and
plant closings and other wholesale related costs, and $300 due to company-owned
retail locations margin decrease, primarily relating to inventory valuation
charges. There were no comparable inventory valuation charges recorded in the
third quarter of 1999.
Selling, General and Administrative
Selling, general and administrative expenses during the third quarter of 2000
were $18,002 or 25.8% of total revenue, versus $26,031 or 19.2% of total revenue
in 1999, a decrease of $8,029. The overall decrease is due to a $2,333 reduction
in salaries, wages and incentive compensation, a $990 reduction in employee
benefits cost (primarily health insurance), a $2,853 reduction in advertising
and promotion cost, including costs to support the exclusive dealer program, and
an $832 decrease in costs associated with the retail segment which were offset
by a $484 increase in repurchase charges and a $231 increase in management
information system and internet strategy costs.
Impairment Charge
Impairment charges totaling $103 ($65 after tax or $0.00 per diluted share) were
recorded in the third quarter of 2000 reflecting primarily the closing of one
under-performing company-owned retail sales center. During the third quarter of
1999, the Company recorded impairment charges of $1,453 ($879 after tax or $0.05
per diluted share) related to the idling of two home manufacturing plants.
Operating Profit (Loss)
Operating loss for the quarter was $9,340 compared to an operating loss of
$2,532 in the third quarter of 1999. Home manufacturing operating profit
declined $7,520, from $856 operating income to an operating loss of $6,664 in
the third quarter of 2000, primarily due to the decrease in sales, an increase
in home repurchase costs, and the industry and business conditions cited above.
In addition, on October 2, 2000, the Company sold the inventory, tools and
supplies at an under-performing home manufacturing operation in Adrian, Georgia,
and leased the facility to a third party with an option to purchase. The
operating loss during the third quarter of 2000 attributable to the Adrian
plant, together with inventory valuation and other charges recorded in the
quarter in connection with the transaction, totaled $1,970 ($1,241 after tax or
$0.07 per diluted share). In the third quarter of 1999, the Adrian plant
sustained operating losses of $129 ($78 after tax or $0.00 per diluted share).
Financial services operating loss decreased $148 from 1999 due primarily to
reduced costs associated with loan losses. The retail segment's operating loss
increased $80 due primarily to the inventory valuation charges noted above. The
other segment operating loss increase of $240 is due mainly to the cost
associated with the start-up of two new supply company locations and a loss at
another supply company due primarily to lower sales volume. In addition, general
corporate operating expense, which is not identifiable to a specific segment,
decreased $716.
Other Income (Expense)
Interest expense increased $237 due primarily to the increase in amounts
outstanding under industrial development revenue bond issues and borrowings
under the Company's credit facility. Other, net decreased $104 due primarily to
lower income from supply related equity partnerships.
Net Income (Loss)
Before impairment charges related to the closures discussed above, the Company's
net loss for the third quarter of 2000 was $6,127 or $0.35 per diluted share
compared with a net loss before impairment charges of $742 or $0.04 per diluted
share in the same period in 1999. The Company's net loss for the third quarter
of 2000, after impairment charges, was $6,192 or $0.35 per diluted share,
primarily due to the factors noted above, as compared with a net loss of $1,621
or $0.09 per diluted share in the same period of 1999.
Thirty-nine weeks ended September 30, 2000 and October 1, 1999
Revenue
Revenue for the thirty-nine weeks ending September 30, 2000 totaled $257,437
down 45% from 1999 year-to-date revenue of $466,610. 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 the majority of the decline against
the comparable 1999 period, falling 47% to $235,192 net of intercompany
eliminations of $3,273. Home manufacturing net sales year-to-date 1999 were
$442,652, net of intercompany eliminations of $12,878. Home shipments decreased
48.0%, with floor shipments decreasing by 45.6%. Multi-section home shipments,
as a percentage of total shipments, increased from 52.6% of shipments in 1999 to
59.6% of shipments in 2000 in response to increasing consumer demand for
multi-section homes as compared to single section homes. Actual shipments of
homes for the thirty-nine weeks ending September 30, 2000 were 9,241 versus
17,770 in 1999.
Cavalier attributes the decrease in sales and shipments primarily to the
unfavorable industry conditions described above. Approximately 87% of Cavalier's
shipments were to its core market of 11 states, where the Company's shipments
declined 48% compared to the first thirty-nine weeks of 1999. The Company has
pursued a strategy of working closely with its dealers to assist them in
reducing retail inventories, which the Company believes has contributed to its
disproportionate decline in manufacturing sales volume in relation to the
industry's decline. * Additionally, industry sales in several states in
Cavalier's core market have declined at a worse rate than the industry overall,
which the Company believes has also had an impact on its sales. *
Revenue from the financial services segment decreased 15.8% to $4,169 for the
first thirty-nine weeks of 2000 compared to $4,951 in 1999, due primarily to
* See Safe Harbor Statement on page 13.
<PAGE>
competitive pressure on the rate earned on resold installment contracts. For
2000, CAC has purchased contracts of $49,376 and resold installment contracts
totaling $50,441. In 1999, CAC purchased contracts of $35,791 and resold
installment contracts totaling $50,853, 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 $14,188 for 2000 compared to $15,230 for
1999. As of September 30, 2000, the Company has closed, sold or plans to close
or sell eleven 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 five.
Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing businesses. Revenues from external customers increased
3% to $3,888 for 2000 compared to $3,777 during 1999.
Gross Profit
Gross profit was $31,551, or 12.3% of total revenue, for the year-to-date period
of 2000, versus $88,944 or 19.1%, in 1999. Of the $57,393 decrease, the Company
attributes approximately $39,700 to volume decrease and $17,600 to margin
erosion. The margin erosion includes approximately $5,300 of additional sales
discounts at the manufacturing level to help encourage sell-through of
inventory, $8,900 for inefficiencies related to low volume and plant closings,
and $3,400 due to company-owned retail locations margin decrease, which included
$2,004 inventory valuation charges.
Selling, General and Administrative
Selling, general and administrative expenses during the year-to-date period of
2000 were $69,244, or 26.9% of total revenue, versus $78,514 or 16.8% of total
revenue in 1999, a decrease of $9,270. The overall decrease is due to a $6,915
reduction in salaries, wages and incentive compensation, a $2,306 reduction in
employee benefits cost (primarily health insurance), a $3,795 reduction in
advertising and promotion cost, including costs to support the exclusive dealer
program, and a $478 decrease in costs associated with the retail segment which
were offset by a $6,716 increase in repurchase charges and a $1,113 increase in
management information system and internet strategy costs.
Impairment Charge
Impairment charges totaling $4,848 ($3,843 or $0.21 per diluted share after tax)
were recorded in the period ending September 30, 2000. These charges were
recorded in connection with the closings of four manufacturing facilities ($956)
and 11 company-owned retail locations ($2,395) and the sale of a portion of the
Company's insurance and premium finance business ($1,497) - 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. During the comparable period of 1999, the
Company recorded impairment charges of $1,453 ($879 after tax or $0.05 per
diluted share) related to the idling of two home manufacturing plants.
Operating Profit (Loss)
Operating loss year-to-date was $42,541, compared to an operating profit of
$8,977 in 1999. Home manufacturing operating profit declined primarily due to
the decrease in sales, an increase in home repurchase costs, impairment charges
and the industry and business conditions cited above. The thirty-nine weeks
results in 2000 included an operating loss and inventory and equipment valuation
charges relating to the Adrian plant totaling $3,450 ($2,173 or $0.12 per
diluted share after tax). In the year earlier period, the Adrian plant sustained
an operating loss of $591 ($357 or $0.02 per diluted share after tax). Financial
services operating profit decreased $1,788 from the same period in 1999 due
primarily to the decrease in sales and impairment charge noted above. The retail
segment's operating loss increased $5,748 due to costs of inventory valuation
charges, impairment charges, low sales volume and the competitive conditions
currently prevalent in the marketplace. The other segment operating loss
increase of $1,977 is due mainly to the cost associated with the geographic
expansion of one supply company, the startup of a new supply company and a loss
at another supply company due primarily to lower sales volume. In addition,
general corporate operating expense, which is not identifiable to a specific
segment, increased $475 primarily due to an increase in costs associated with a
new management information system and internet strategy.
Other Income (Expense)
Interest expense increased $964 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 $532 due primarily to lower income from supply
related equity partnerships.
Net Income (Loss)
Before impairment charges related to the closures and sale discussed above, the
Company's net loss for year-to-date 2000 was $23,995 or $1.35 per diluted share
compared with net income before impairment charges of $4,821 or $0.26 per
diluted share in the same period in 1999. The Company's net loss for
year-to-date 2000, after impairment charges, was $27,838 or $1.56 per diluted
share, primarily due to the factors noted above, as compared to net income of
$5,700 or $0.31 per diluted share in 1999, primarily due to the factors noted
above.
<PAGE>
Liquidity and Capital Resources (dollars in thousands)
<TABLE>
<CAPTION>
BALANCE SHEET DATA Balances as of
-----------------------------------
9/30/00 12/31/99
-----------------------------------
<S> <C> <C>
Cash and cash equivalents $ 23,805 $ 39,635
Marketable securities held to maturity $ 5,996 $ -
Accounts receivable $ 17,463 $ 10,022
Working capital $ 32,322 $ 32,652
Current ratio 1.4 to 1 1.4 to 1
Long-term debt $ 24,329 $ 10,218
Ratio of long-term debt to equity 1 to 4 1 to 13
Installment loan portfolio $ 7,510 $ 9,450
</TABLE>]
Operating activities during the thirty-nine weeks ended September 2000 used net
cash of $16,783.
An increase in accounts receivable and a reduction in cash and cash equivalents
from December 31, 1999 to September 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 receivables.
Inventory decreased $18,933 from December 31, 1999 to September 30, 2000, as the
Company emphasized conservative cash management and a build-for-sale philosophy
and reduced the number of company-owned retail locations. Of this decrease,
$8,025 related to retail inventories that resulted in a corresponding reduction
in notes payable under retail floor plan agreements.
The Company's capital expenditures were $3,521 for the thirty-nine weeks ended
September 30, 2000, as compared to $20,667 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. During year-to-date 2000,
additions also included $388 related to the replacement of property destroyed by
fire at the Belmont facility. Additionally, during year-to-date 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 $2,523 costs of implementing an enterprise-wide
management information system.
The increase in long-term debt of $14,111 is primarily due to a $15,000
borrowing under the Company's credit facility.
The Company purchased 25,000 shares of treasury stock during year-to-date 2000
for $99. The Company has authorization to acquire up to 1,343,400 additional
shares under the current program.
In addition to its normal purchasing and selling of loans to other finance
companies, during 2000, the Company received proceeds of approximately $1,400
from the sale of loans that were previously held in its installment loan
portfolio.
The Company currently expects to receive between the date of this report and the
middle of 2001 cash, outside of its normal, recurring operations, within the
range of $15,000 to $20,000, in connection with an income tax refund, due to a
net operating loss carry-back, and insurance proceeds related to the Belmont
plant fire. * These amounts are only estimates, however, and the receipt and
timing of receipt of the amounts are subject to reaching a resolution with the
Company's insurer on its insurance claim, and successfully finalizing and
processing a tax return and claim for refund with the Internal Revenue Service
and other appropriate tax authorities. Consequently, the Company cannot give
assurances that it will receive cash within this range or within this time
frame.
On September 29, 2000, the Company amended its Credit Facility with its primary
lender in certain respects. The maturity date under the revolving line of credit
was changed from April 2002 to April 2003. The Credit Facility presently
consists of a $35,000 revolving and term loan agreement and contains a revolving
line of credit that provides for borrowings (including letters of credit) up to
a maximum of $35,000; provided, that if the Company's tangible net worth is less
than $85,000, the amount available under the facility is reduced from $35,000 to
35% of the Company's tangible net worth. However, in no event may the aggregate
outstanding borrowings under the revolving line of credit and term-loan
agreement exceed $35,000 (or such lesser amount as may be available). At
September 30, 2000, $15,000 was outstanding under the revolving line of credit,
against a total lending capacity of $28,800 based on the Company's tangible net
worth at quarter's end. At October 1, 1999, no amounts were outstanding under
the Credit Facility. 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%. If the Company's tangible net worth is below $77,000, the
interest rate changes to prime or, if elected by the Company, the 90-day LIBOR
Rate plus 2.5%. 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 (or such lesser amount as may be available). 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%.
The Credit Facility, as amended, 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 ($6,000
effective December 31, 2000), and (iv) make annual capital expenditures in
excess of $10,000. 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
* See Safe Harbor Statement on page 13.
<PAGE>
worth ratio (not to exceed 2 to 1) and cash flow to debt service ratio (not less
than 1.75 to 1) commencing with the year ending December 31, 2001 and
thereafter, 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, in 2000 and 2001,
of at least $65,000. The Credit Facility also requires CAC to comply with
certain specified restrictions and financial covenants. The Company has obtained
a waiver as of the end of the third quarter to the extent it was in violation of
certain covenants in effect prior to amending the Credit Facility and with
respect to the sale of certain assets of the Adrian, Georgia facility. Cavalier
was not in violation of any financial covenants at September 30, 2000 in
accordance with the amended credit facility.
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 $3,262 at September 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 299 months at September 30, 2000. The Company
estimated the fair value of its installment contracts receivable which
approximates carrying value, using discounted cash flows and interest rates
offered by CAC on similar contracts at September 30, 2000.
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 September 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.
* See Safe Harbor Statement on page 13.
<PAGE>
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:
o the cyclical and seasonal nature of the manufactured housing industry
and the economy generally;
o limitations in Cavalier's ability to pursue its business strategy;
o changes in demographic trends, consumer preferences and Cavalier's
business strategy;
o changes and volatility in interest rates and the availability of
capital and consumer and dealer financing;
o the ability to attract and retain quality independent dealers,
executive officers and other personnel;
o competition;
o contingent repurchase and guaranty obligations;
o uncertainties regarding Cavalier's retail financing activities;
o integrating the business operations and achieving the benefits
of the 1997 merger with Belmont Homes, Inc. and other acquisitions;
o the potential unavailability and price increases for raw materials;
o the potential unavailability of manufactured housing sites;
o regulatory constraints;
o the potential for additional warranty claims;
o litigation; and
o 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. In addition, with respect to the referenced Kentucky
Lawsuit, the Kentucky Court of Appeals has affirmed the trial court's dismissal
of the plantiff's complaint filed in the Kentucky Circuit Court. The time for
further appeal of the Court of Appeals' affirmation has expired.
Item 5: Other Matters
The Board of Directors has eliminated the Company's quarterly dividend. The
Board had already reduced the quarterly rate, cutting it in July to one cent
($0.01) per share from four cents ($0.04) per share.
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.
<PAGE>
(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.
(10) Material Contracts.
First Amendment to Amended and Restated Revolving and Term Loan
Agreement dated as of September 29, 2000 between
Cavalier Homes, Inc. and First Commercial Bank.
(11) Statement re: Computation of Net Income per Common Share.
(27) Article 5 - Financial Data Schedule for Form 10-Q submitted as Exhibit
27 as an EDGAR filing only.
(b) Current Report on Form 8-K.
(1)The Company filed a Current Report on Form 8-K on July 18, 2000,
with respect to the reduction of its regular quarterly dividend
from $0.04 per share to $0.01 per share.
(2)The Company filed a Current Report on Form 8-K on October 24, 2000,
with respect to the elimination of dividends.
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.
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Registrant
Date: November 13, 2000 /s/ David A. Roberson
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David A. Roberson - President
and Chief Executive Officer
Date: November 13, 2000 /s/ Michael R. Murphy
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Michael R. Murphy -
Chief Financial Officer (Principal
Financial and Accounting Officer)
