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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR l5(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 of (I.R.S. Employer
incorporation or organization) Identification Number)
Highway 41 N. and 32 Wilson Boulevard,
Addison, Alabama 35540
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area
code: (256) 747-9800 Securities registered
pursuant to Section 12(b) of the Act:
Name of
Each Exchange
Title of Each class on Which Registered
Common Stock, par value $.10 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock on the New
York Stock Exchange as of March 27, 2001, was $34,671,614.
Indicate the number of shares outstanding ofeach of the Registrant's
classes of common stock, as of March 27, 2001.
17,487,843
Common, $0.10 par value
Documents Incorporated by Reference
Part III of this report incorporates by reference
certain portions of the Registrant's Proxy Statement for its
Annual Meeting of Stockholders to be held May 15, 2001.
CAVALIER HOMES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
PART I
ITEM 1. BUSINESS
General
Cavalier Homes, Inc. (the "Company"), incorporated in 1984, is a Delaware
corporation with its executive offices located at Highway 41 North and 32 Wilson
Boulevard, Addison, Alabama 35540. Effective December 31, 1997, the Company
completed a merger (the "Merger") involving Belmont Homes, Inc. ("Belmont"),
pursuant to which the Company issued 7,555,121 shares of its common stock in
exchange for Belmont's common stock and Belmont became a wholly owned subsidiary
of the Company. The information herein is presented on a combined basis. Unless
otherwise indicated by the context, references in this report to the "Company"
or to "Cavalier" include the Company, its subsidiaries, divisions of these
subsidiaries and their respective predecessors, if any.
Cavalier is engaged in the production, sale, financing and insuring of
manufactured homes. The Company has chosen to build its distribution system
around independent dealers, including independent exclusive dealers, which the
Company believes gives it many of the same efficiencies and market presence that
captive retail centers provide to other companies. At December 31, 2000,
Cavalier had a total of 198 dealer locations participating in its Exclusive
Dealer Program, including five Company-owned retail locations. In addition, the
Company markets its homes through approximately 600 active non-exclusive
independent dealer locations in over 30 states.
The Company designs and manufactures a wide range of homes with a focus on
serving the low- to medium-priced manufactured housing market in the South
Central and South Atlantic regions of the United States. The Company's homes are
sold under multiple brand names, normally include appliances, may be furnished
and are comprised of one or more floor sections. At December 31, 2000, the
Company operated 15 home manufacturing facilities and one plant that
manufactures laminated wallboard. Cavalier also participates in joint ventures
with other manufactured housing companies for lumber distribution and the
manufacture of roof trusses and cabinet doors.
Through its financial services segment, the Company purchases qualifying retail
installment sales contracts for manufactured homes sold through its dealer
network and sells various commissioned insurance products to the retail home
buyer. Beginning in 1998, the business focus of CIS Financial Services, Inc.
("CIS"), formerly Cavalier Acceptance Corporation, the Company's finance
subsidiary, changed from building, holding and servicing a portfolio of loans to
purchasing loans from its dealers that are subsequently re-sold to other
financial institutions, without recourse (provided that the transferred loan was
properly originated by the dealer and purchased by CIS). CIS does not retain the
servicing function and does not earn interest income on those re-sold loans.
Revenue, operating profit (loss), identifiable assets and other financial data
of the Company's industry segments for the three years ended December 31, 2000
are contained in Note 11 of Notes to Consolidated Financial Statements in Part
II.
Home Manufacturing Operations
At December 31, 2000, the Company, through four wholly owned subsidiaries, owned
or leased 15 manufacturing facilities (excluding idled facilities) engaged in
the production of manufactured homes. Due to deteriorating market conditions,
since the fall of 1999, Cavalier has idled nine home manufacturing plants, one
of which was re-opened during the fourth quarter of 2000, and disposed of the
operations of one other. Another plant was destroyed by fire in June 2000 (a
previously idled facility was re-opened to replace that capacity). Consequently,
Cavalier, at December 31, 2000, operated a total of 15 home manufacturing
facilities, reflecting an approximate one-third reduction in manufacturing
capacity over the last year. See "Item 2. Properties". The Company's operating
facilities normally function on a single-shift, five-day week basis with the
approximate annual capacity to produce 34,000 floors.
The management of each of the Company's home manufacturing units typically
consists of a president or general manager, a production manager, a general
sales manager, a controller, a service manager, a purchasing manager and a
quality control manager. These mid-level management personnel manage the
Company's home manufacturing operations, and typically participate in an
incentive compensation system based upon their respective operation's
profitability.
The following table sets forth certain sales information for 2000, 1999, and
1998:
For the Year Ended December 31,
---------------------------------------------------------------------------------------
2000 1999 1998
-------------------------- ------------------------- -------------------------
Number of homes sold:
Single-section homes 4,406 38% 10,546 47% 12,430 51%
Multi-section homes 7,072 62% 11,831 53% 11,957 49%
------------ ------------ ----------- ----------- ----------- -----------
Total homes 11,478 100% 22,377 100% 24,387 100%
============ ============ =========== =========== =========== ===========
Number of floors sold 18,590 34,294 36,517
============ =========== ===========
Construction of a home begins by welding steel frame members together. The frame
is then moved through the plant, stopping at a number of workstations where
various components and sub-assemblies are attached. Certain sub-assemblies, such
as plumbing, cabinets, ceilings and wall systems, are assembled at off-line
workstations. The completed home is sold ready for connection to
customer-supplied utilities.
The principal raw materials purchased by the Company are steel, lumber, plywood,
sheetrock, vinyl siding, roofing materials, insulating materials, and electrical
supplies. The Company purchases axles, wheels, tires, appliances, laminated
wallboard, roof trusses, plumbing fixtures, furniture, floor covering, and
windows. Currently, the Company maintains approximately two to three weeks'
inventory of raw materials. The Company is not dependent on any single source of
supply and believes that the materials and parts necessary for the construction
and assembly of its homes are generally available from other sources. However,
during 1999, the Company experienced tightened supply from its traditional
vendors of certain types of raw materials, including sheetrock, lumber and
insulation, required for the production of its manufactured homes. The Company
obtained these and similar products from other vendors, which resulted in higher
than normal costs, some of which the Company was unable to recover through price
increases.
The Company's component manufacturing subsidiary provides laminated wallboards
for some of its home manufacturing facilities and other manufacturers.
Additionally, certain of the Company's home manufacturing facilities currently
purchase lumber, roof trusses, and cabinet doors from joint ventures in which
the Company owns an interest. The Company believes prices obtained by the
Company for these products from these joint ventures are competitive with the
Company's other sources of supply.
Because the cost of transporting a manufactured home is significant, there is a
limit to the distance between a manufacturing facility and the dealers it can
service. The Company believes that the location of its manufacturing facilities
in multiple states allows it to serve more dealers in more markets. The Company
generally arranges, at the dealer's expense, for the transportation of finished
homes to dealers using independent trucking companies. Dealers or other
independent installers are responsible for placing the home on site, combining
of multi-section homes, making utility connections and providing and installing
certain accessory items and appurtenances, such as decks, carports and
foundations.
Products
The Company's homes include both single-section and multi-section models, with
the substantial majority of such products being "HUD Code Homes" which are
manufactured homes that meet the specifications of the National Manufactured
Home Construction and Safety Act of 1974, as amended, and administered by the
U.S. Department of Housing and Urban Development ("HUD"). Single-section homes
are 14 to 16 feet wide, vary in length from 40 to 80 feet and contain
approximately 560 to 1,280 square feet. The multi-section models consist of two
or more floor sections that are joined at the home site, vary in length from 40
to 80 feet and contain approximately 1,120 to 2,560 square feet.
The Company currently produces around 800 different models of manufactured homes
with a variety of decors that are marketed under multiple brand names. The
Company is currently reviewing its product offerings and eliminating redundant
products by geographic location to streamline manufacturing processes. We expect
during 2001 that this strategy will dramatically reduce the quantity of models
offered to a level reflecting market demand. * The homes typically include a
living room, dining area, kitchen, two to four bedrooms and two bathrooms. Each
home contains a cooking range and oven, refrigerator, water heater and central
heating. Customers may also choose many available options including fireplaces,
ceiling fans, dishwashers, garbage disposals, microwave ovens, composition
shingle roofs, and sliding glass patio doors.
The Company's product development and engineering personnel design homes in
consultation with operating management, sales representatives and dealers. They
also evaluate new materials and construction techniques and use computer-aided
and other design methods in a continuous program of product development, design
and enhancement. The Company's product development activities do not require
significant capital investments.
Independent Dealer Network, Sales and Marketing
As of December 31, 2000, the Company had, under its Exclusive Dealer Program,
198 participating dealer locations selling the Company's homes, which included
five Company-owned retail locations. In addition, the Company markets its homes
through approximately 600 active non-exclusive independent dealer locations in
over 30 states.
Since 1991, the Company has been developing its independent exclusive dealer
network. The Company's independent exclusive dealers market and sell only homes
manufactured by the Company, while the Company's independent non-exclusive
dealers typically will choose to offer the products of other manufacturers in
addition to those of the Company. The Company's number of independent exclusive
dealers and percentage of total Company sales represented by them is summarized
in the following table:
For the Year Ended December 31, 2000 1999 1998
- ------------------------------------- -------- --------- ---------
Number of independent exclusive dealer locations 193 274 232
Percentage of manufactured home sales 49% 55% 40%
Through its finance subsidiary, CIS, the Company purchases qualifying retail
installment sales contracts for manufactured homes sold through the Company's
dealer network and provides other services and support.
Approximately 86% of the Company's sales in 2000 were to dealers operating sales
centers in the Company's core states as follows: Texas - 18%, Alabama - 10%,
North Carolina - 10%, Arkansas - 10%, Georgia - 9%, Louisiana - 7%, Mississippi
- - 6%, South Carolina - 5%, Tennessee - 4%, Missouri - 4% and Oklahoma - 3%.
Generally, the Company has written agreements with its independent dealers which
may be terminated at any time by either party, with or without cause, after a
short notice period. The Company does not have any control over the operations
of, or financial interests in, any of its independent dealers, including any of
its independent exclusive dealers. The Company is not dependent on any single
dealer, and in 2000, the Company's largest dealer accounted for approximately
1.1% of sales.
The Company believes that its independent dealer network enables the Company to
avoid the substantial investment in management, capital and overhead associated
with company owned sales centers. To enable dealers to maximize retail market
penetration and enhance customer service, typically only one dealer within a
given market area distributes a particular product line of the Company. The
Company believes its strategy of selling its homes through independent dealers
helps to ensure that the Company's homes are competitive with those of other
manufacturers in terms of consumer acceptability, product design, quality and
* See Safe Harbor Statement on page 27.
price. Accordingly, a component of the Company's business strategy is to
continually strengthen its dealer relations. The Company believes its relations
with its independent dealers, including its independent exclusive dealers, are
good. *
Each of the Company's manufacturing units typically employs a general sales
manager and its own respective sales representatives who are compensated on a
commission basis. The plant-level sales representatives are charged with the
day-to-day servicing of the needs of the Company's independent dealers,
including its exclusive dealers. The Company markets its homes through product
promotions, participation in regional manufactured housing shows, advertisements
in local media and trade publications. As of December 31, 2000, the Company
maintained a sales force of 64 full-time salesmen and 10 full-time general sales
managers.
Retail Financing Activities
A significant factor affecting sales of manufactured homes is the availability
and terms of financing. CIS purchases qualifying retail installment sales
contracts for manufactured homes sold through the Company's exclusive dealer
network.
CIS seeks to provide competitive financing terms to customers of the Company's
dealers. CIS currently offers various conventional loan programs which require a
down-payment ranging from 5% to 20% of the purchase price, in cash, trade-in
value of a previously-owned manufactured home and/or appraised value of equity
in any real property pledged as collateral. Repayment terms generally range from
84 to 360 months, depending upon the type of home and amount financed, the
amount of the down payment and the customer's creditworthiness. CIS's loans are
secured by a purchase money security interest in the manufactured home and, in
certain instances, a mortgage on real property pledged as additional collateral.
As of December 31, 2000, all of CIS's outstanding loans were secured. Loans
purchased by CIS normally provide a fixed rate of interest with equal monthly
payments and are non-recourse to the dealer. The interest rates applicable to
CIS's loan portfolio as of such date generally ranged from 9% to 16%, and the
approximate weighted average annual percentage interest rate was 9.57%.
Currently, CIS operates in most of the states in which the Company has
independent exclusive dealers.
For those retail customers who meet CIS's lending standards, CIS strives to
provide prompt credit approvals and funding of loans. CIS has established a
standardized credit scoring system to facilitate prompt decision-making on loan
applications. The most important criteria in the scoring system are the income,
employment stability and creditworthiness of the borrower.
In the event an installment sale contract becomes delinquent, CIS normally
contacts the customer within 10 days thereafter in an effort to cure the
delinquency. After the contract becomes 30 days delinquent, CIS has an on-site
review of the customer's account and inspection of the property with the
customer. CIS generally repossesses the home after payments have become 60 to 90
days delinquent. After repossession, CIS normally has the home delivered to a
dealer's sales center where CIS attempts to resell the home or contracts with an
independent party to resell the home. To a limited extent, CIS sells repossessed
homes at wholesale.
The Company maintains a reserve for estimated credit losses on installment sale
contracts owned by CIS to provide for future losses based on the Company's
historical loss experience, current economic conditions and portfolio
performance. Amounts provided for credit losses were $0.7, $2.2 and $1.0 million
in 2000, 1999, and 1998, respectively. Additionally, as a result of defaults,
early payoffs and repossessions, $1.2, $1.3 and $1.6 million were charged
against the reserve in 2000, 1999, and 1998, respectively. The reserve for
credit losses at December 31, 2000 was $1.2 million as compared to $1.7 million
at December 31, 1999, and $0.8 million at December 31, 1998.
In 2000, 1999 and 1998, CIS repossessed 16, 62 and 77 homes, respectively. The
Company's inventory of repossessed homes was six homes at December 31, 2000, as
compared to 28 homes at December 31, 1999 and 30 homes at December 31, 1998. The
Company's net losses resulting from repossessions on CIS purchased loans as a
percentage of the average principal amount of such loans outstanding for fiscal
2000, 1999 and 1998 was 14.24%, 7.83% and 5.01%, respectively.
* See Safe Harbor Statement on page 27.
At December 31, 2000 and December 31, 1999, delinquencies expressed as a
percentage of the total number of installment sale contracts which CIS owned
were as follows:
Delinquency Percentage
Total Number ------------------------------------------------------------------------
December 31, of Contracts 30 Days 60 Days 90 Days Total
----------------- --------------- ---------------- ---------------- ----------------
2000 220 1.79% 0.45% 0.00% 2.24%
1999 290 1.03% 0.00% 0.00% 1.03%
At December 31, 2000 and December 31, 1999, delinquencies expressed as a
percentage of the total outstanding principal balance of installment sale
contracts which CIS owned were as follows:
Delinquency Percentage
Total Value ------------------------------------------------------------------------
December 31, of Contracts 30 Days 60 Days 90 Days Total
----------------- --------------- ---------------- ---------------- ----------------
2000 $7,887,000 1.47% 0.49% 0.00% 1.96%
1999 $9,450,000 0.90% 0.00% 0.00% 0.90%
There can be no assurance that the Company's future results with respect to
delinquencies and repossessions will be consistent with its past experience as
reflected above.
Certain operating data relating to CIS are set forth in the following table:
December 31,
------------------------------------------------------
2000 1999 1998
--------------- ---------------- ----------------
Total loans receivable $ 7,887,000 $ 9,450,000 $ 26,117,000
Allowance for credit losses $ 1,180,000 $ 1,656,000 $ 760,000
Number of loans outstanding 220 290 986
Number of delinquencies 5 3 21
Net loss ratio on average
outstanding principal balance 14.24% 7.83% 5.01%
Weighted average annual
percentage rate 9.6% 11.2% 10.9%
During 1998, the business focus of CIS changed from building, holding and
servicing a portfolio of loans to purchasing loans from its dealers that are
subsequently resold to other financial institutions without CIS retaining the
servicing function. Although the level of CIS's future activities cannot
presently be determined, the Company expects to utilize internally generated
working capital and amounts generated from sales of loans under the retail
finance agreements discussed in the following paragraph to fund the purchase of
retail installment sale contracts on homes sold by the Company's dealers and may
use borrowings to develop a portfolio of such installment sale contracts. * The
Company believes that its relationships with its dealers will assist the
development of this business strategy. *
Since its inception, CIS has been restricted in the amounts of loans it could
purchase based on underwriting standards, as well as the availability of working
capital and funds borrowed under its credit line with its primary lender. In
February 1998, CIS entered into an agreement with another lender providing for
the periodic resale of a portion of CIS's loans that meet established criteria
and without recourse (provided that the transferred loan was properly originated
by the dealer and purchased by CIS). In March 1998 and in June 1999, CIS sold,
under this retail finance agreement, a substantial portion of its existing
portfolio of loans on those dates. In April 2000, the Company received proceeds
of approximately $1.4 million from the sale of loans that were previously held
in its installment loan portfolio. The effect of these transactions on net
* See Safe Harbor Statement on page 27.
income was to reduce the amount of financial services revenue from interest
income on these portions of the portfolio, offset by reduced interest expense on
debt retired in March 1998 and earnings on the remaining proceeds. From time to
time, the Company evaluates the potential to sell all or a portion of its
remaining installment loan portfolio, in addition to the periodic sale of
installment contracts purchased by CIS in the future. * While the original
retail finance ageement is no longer in effect, CIS is currently continuing to
re-sell loans to lenders under various retail finance contracts. The Company
believes the periodic sale of installment contracts under these retail finance
agreements will reduce requirements for both working capital and borrowings,
increase the Company's liquidity, reduce the Company's exposure to interest rate
fluctuations and enhance the ability of CIS to increase its volume of loan
purchases. * There can be no assurance, however, that additional sales will be
made under these agreements, or that CIS and the Company will be able to realize
the expected benefits from such agreements. *
Retail Insurance Activities
Through its wholly owned insurance agency, the Company sells commissioned
insurance products to retail purchasers of the Company's homes.
Wholesale Dealer Financing and Repurchase Obligations
In accordance with manufactured housing industry practice, substantially all of
the Company's dealers finance their purchases of manufactured homes through
wholesale "floor plan" financing arrangements. Under a typical floor plan
financing arrangement, a financial institution provides the dealer with a loan
for the purchase price of the home and maintains a security interest in the home
as collateral. The financial institution which provides financing to the dealer
customarily requires the Company to enter into a separate repurchase agreement
with the financial institution under which the Company is obligated, upon
default by the dealer, to repurchase the financed homes at a declining price
based upon the Company's original invoice price plus, in specific cases, certain
administrative expenses. A portion of purchases by dealers are pre-sold to
retail customers and are paid through retail financing commitments.
The risk of loss under such repurchase agreements is mitigated by the fact that
(i) sales of the Company's manufactured homes are spread over a relatively large
number of independent dealers, the largest of which accounted for approximately
1.1% of sales in 2000, (ii) the repurchase obligation expires on individual
homes after a reasonable period of time (generally 18 months from invoice date)
and also declines during such period based on predetermined amounts and (iii)
the Company is able to sell homes repurchased from credit sources. As of
December 31, 2000, the maximum amount for which the Company is contingently
liable under these repurchase and other similar recourse agreements was
approximately $170 million. The Company has a reserve for repurchase commitments
of $4.1 million as of December 3l, 2000, based on prior experience and market
conditions.
Quality Control, Warranties and Service
The Company believes the quality in materials and workmanship, continuous
refinement in design and production procedures as well as price and other market
factors, are important elements in the market acceptance of manufactured homes.
The Company maintains a quality control inspection program at all production
stages. The Company's manufacturing facilities and the plans and specifications
of its manufactured homes have been approved by a HUD-designated inspection
agency. An independent, HUD-approved third-party inspector regularly checks the
Company's manufactured homes for compliance during construction.
The Company provides the initial retail homebuyer with a one-year limited
warranty against manufacturing defects in the home's construction. Warranty
services after the sale are performed, at the expense of the Company, by plant
personnel, dealers or local independent contractors. Additionally, direct
warranties often are provided by the manufacturers of specific components and
appliances.
The Company employs a full-time service manager at each of its home
manufacturing units and 177 full-time service personnel to provide
administrative and on-site service and to correct production deficiencies that
are attributable to the manufacturing process. Warranty service constitutes a
significant cost to the Company, and management of the Company has placed
emphasis on diagnosing potential problem areas to help minimize costly field
* See Safe Harbor Statement on page 27.
repairs. At December 31, 2000, the Company had established a reserve for future
warranty claims of $11.8 million relating to homes sold, based upon management's
assessment of historical experience factors and current industry trends.
Competition
The manufactured housing industry is highly competitive, characterized by low
barriers to entry and severe price competition. Competition is based on price,
repair service, product features and quality, reputation for service quality,
depth of field inventory, delivery capabilities, warranty repair service, dealer
promotions, merchandising and terms of dealer and retail consumer financing. The
Company also competes with other manufacturers, some of which maintain their own
retail sales centers, for quality independent dealers. In addition, the
Company's manufactured homes compete with other forms of low-cost housing,
including site-built, prefabricated, modular homes, apartments, townhouses and
condominiums. The selection by retail buyers of a manufactured home rather than
an apartment or other alternative forms of housing is significantly affected by
their ability to obtain satisfactory financing. The Company faces direct
competition from numerous manufacturers, many of which possess greater
financial, manufacturing, distribution and marketing resources.
The Company's business strategy currently includes the continued operation of
financial services provided through CIS. The Company believes that operations of
CIS will have a positive impact on the Company's efforts to sell its products
and enhance its competitive ability within the industry. * However, due to
strong competition in the retail finance segment of the industry from companies
much larger than CIS, there can be no assurance that CIS will be able to expand
its operations or that it will have a positive impact on the Company's ability
to compete.
Regulation
The Company's businesses are subject to a number of federal, state and local
laws, regulations and codes. Construction of manufactured housing is governed by
the National Manufactured Home Construction and Safety Standards Act of 1974, as
amended, and regulations issued thereunder by HUD, which have established
comprehensive national construction standards. The HUD regulations cover all
aspects of manufactured home construction, including structural integrity, fire
safety, wind loads, thermal protection and ventilation. Such regulations preempt
state and local regulations on such matters. The Company cannot presently
determine what, if any, legislation may be adopted by Congress or state or local
governing bodies, or the effect any such legislation may have on the Company or
the manufactured housing industry as a whole.
The Company's manufacturing facilities and the plans and specifications of its
manufactured homes have been approved by a HUD-designated inspection agency.
Furthermore, an independent, HUD-approved third-party inspector regularly checks
the Company's manufactured homes for compliance during construction. Failure to
comply with the HUD regulations could expose the Company to a wide variety of
sanctions, including closing the Company's manufacturing facilities. The Company
believes its manufactured homes meet or surpass all present HUD requirements. *
HUD has promulgated regulations with respect to structural design, wind loads
and energy conservation. The Company's operations were not materially affected
by the regulations; however, HUD and other state and local governing bodies have
these and other regulatory matters under continuous review, and the Company
cannot predict what effect (if any) additional regulations promulgated by HUD or
other state or local regulatory bodies would have on the Company or the
manufactured housing industry as a whole.
Certain components of manufactured and modular homes are subject to regulation
by the U.S. Consumer Product Safety Commission ("CPSC"), which is empowered to
ban the use of component materials believed to be hazardous to health and to
require the repair of defective components. The CPSC, the Environmental
Protection Agency and other governmental agencies are evaluating the effects of
formaldehyde. Regulations of the Federal Trade Commission also require
disclosure of a manufactured home's insulation specifications. Manufactured,
modular and site-built homes may be built with compressed board, wood paneling
and other products that contain formaldehyde resins. Since February 1985, HUD
has regulated the allowable concentration of formaldehyde in certain products
used in manufactured homes and required manufacturers to warn purchasers
concerning formaldehyde associated risks. The Company currently uses materials
* See Safe Harbor Statement on page 27.
in its manufactured homes that it believes meet HUD standards for formaldehyde
emissions and otherwise comply with HUD regulations in this regard. *
The transportation of manufactured homes on highways is subject to regulation by
various federal, state and local authorities. Such regulation may prescribe size
and road use limitations and impose lower than normal speed limits and various
other requirements.
The Company's manufactured homes are subject to local zoning and housing
regulations. A number of states require manufactured home producers to post
bonds to ensure the satisfaction of consumer warranty claims. A number of states
have adopted procedures governing the installation of manufactured homes.
Utility connections are subject to state and local regulation.
The Company is subject to the Magnuson-Moss Warranty Federal Trade Commission
Improvement Act, which regulates the descriptions of warranties on products. The
description and substance of the Company's warranties are also subject to a
variety of state laws and regulations.
The Company's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. The Company
currently does not believe it will be required under existing environmental laws
and enforcement policies to expend amounts which will have a material adverse
effect on its results of operations or financial condition. * However, the
requirements of such laws and enforcement policies have generally become
stricter in recent years. Accordingly, the Company is unable to predict the
ultimate cost of compliance with environmental laws and enforcement policies.
A variety of federal laws affect the financing of manufactured homes, including
the financing activities conducted by CIS. The Consumer Credit Protection Act
(Truth-in-Lending) and Regulation Z promulgated thereunder require substantial
disclosures to be made in writing to a consumer with regard to various aspects
of the particular transaction, including the amount financed, the annual
percentage rate, the total finance charge, itemization of the amount financed
and other matters. The Equal Credit Opportunity Act and Regulation B promulgated
thereunder prohibit discrimination against any credit applicant based on certain
prohibited bases, and also require that certain specified notices be sent to
credit applicants whose applications are denied. The Federal Trade Commission
has adopted or proposed various trade regulation rules to specify and prohibit
certain unfair credit and collection practices and also to preserve consumers'
claims and defenses. The Government National Mortgage Association ("GNMA")
specifies certain credit underwriting requirements in order for installment
manufactured home sale contracts to be eligible for inclusion in a GNMA program.
HUD also has promulgated substantial disclosure and substantive regulations and
requirements in order for a manufactured home installment sale contract to
qualify for insurance under the Federal Housing Authority ("FHA") program, and
the failure to comply with such requirements and procedures can result in loss
of the FHA guaranty protection. In addition, the financing activities of CIS may
also become subject to the reporting and disclosure requirements of the Home
Mortgage Disclosure Act. In addition to the extensive federal regulation of
consumer credit matters, many states have also adopted consumer credit
protection requirements that may impose significant requirements for consumer
credit lenders. For example, many states require that a consumer credit finance
company such as CIS obtain certain regulatory licenses or permits in order to
engage in such business in that state, and many states also set forth a number
of substantive contractual limitations regarding provisions that permissibly may
be included in a consumer contract, as well as limitations upon the permissible
interest rates, fees and other charges that may be imposed upon a consumer.
Failure by the Company or CIS to comply with the requirements of federal or
state law pertaining to consumer credit could result in the invalidity of the
particular contract for the affected consumer, civil liability to the affected
customers, criminal liability and other adverse results. The sale of insurance
products by the Company is subject to various state insurance laws and
regulations which govern allowable charges and other insurance practices.
Employees
As of December 31, 2000, the Company had 2,914 employees, of whom 2,311 were
engaged in home manufacturing and supply distribution, 89 in sales, 177 in
warranty and service, 279 in general administration, 5 in delivery, 33 in retail
finance and insurance services and 20 in retail locations. At year-end, only one
home manufacturing operation's employees (91 employees) were covered by a
collective bargaining agreement. Management considers its relations with its
employees to be good.
Risk Factors
If you are interested in making an investment in Cavalier, you should carefully
consider the following risk factors concerning Cavalier and its business, in
addition to the other information contained in this Report on Form 10-K:
Cyclical and Seasonal Nature of the Manufactured Housing Industry
The manufactured housing industry is highly cyclical and seasonal and has
experienced wide fluctuations in aggregate sales in the past, resulting in the
failure of many manufacturing concerns. Many of the same national and regional
economic and demographic factors that affect the broader housing industry also
affect the market for manufactured homes. Historically, most sectors of the home
building industry, including the manufactured housing industry, have been
affected by the following, among other things:
o changes in general economic conditions;
o inflation;
o levels of consumer confidence;
o employment and income levels;
o housing supply and demand;
o availability of alternative forms of housing;
o availability of financing; and
o the level and stability of interest rates.
The Manufactured Housing Institute ("MHI") reported that from 1983 to 1991,
aggregate domestic shipments of manufactured homes declined 42%. According to
industry statistics, after a ten-year low in floor shipments in 1991, the
industry recovered significantly. Between 1992 and 1998, floor shipments
increased each year, as set forth in the table below, although the growth rate
gradually slowed and began to decline in 1999, and continued to decline
significantly in 2000.
Percentage Increase (Decrease) in Floor Shipments Through 2000
o 1992............................21%
o 1993............................22%
o 1994............................23%
o 1995............................12%
o 1996............................10%
o 1997............................ 1%
o 1998............................ 8%
o 1999............................(4.3)%
o 2000...........................(25.9)%
Over the past several years, the manufactured housing industry has also
experienced increases in both the number of retail dealers and manufacturing
capacity, which we believe is currently resulting in slower retail turnover,
higher dealer inventories and increased price competition. * These conditions
significantly affected the industry in 2000. According to MHI, floor shipments
declined 25.9% in 2000 from 1999, falling 34.7% in the fourth quarter alone. In
addition, a number of retail dealers have failed and repossessions of
manufactured homes have increased. Some manufactured housing wholesale and
retail lenders have also stopped doing business in the industry, and some of the
remaining lenders have raised their interest rates and tightened their credit
standards. We think more dealers may fail, repossessions may continue to
increase and more lenders may exit the market in the future. * We believe these
conditions reflect that the manufactured housing industry is in a down cycle,
which has had a material adverse effect on Cavalier's results of operations and
financial condition. * Sales in the manufactured housing industry are also
* See Safe Harbor Statement on page 27.
seasonal in nature, with sales of homes traditionally being stronger in April
through October and weaker during the first and last part of the calendar year.
While seasonality did not significantly impact Cavalier's business from 1992
through 1996, when industry shipments were steadily increasing, the recent
tightening of competitive conditions seems to signal a return to the industry's
traditional seasonal patterns. We cannot predict how long the tightening of
competitive and industry conditions will last, or what the extent of their
impact will be on the future results of operations and financial condition of
Cavalier.
Limitations on Ability to Pursue Business Strategy
Cavalier's current business strategies are to:
o control costs in light of currently prevailing industry conditions;
o attempt to generate an increase in sales in an increasingly competitive
environment;
o return to profitability;
o develop our exclusive and independent dealer network;
o pursue the financing, insurance and other activities of CIS and the financial
services segment, and
o eliminate redundant products to streamline production in an effort to reduce
costs.
Downturns in shipments in the manufactured housing industry and a decline in the
demand for Cavalier's homes have had a material adverse effect on us and may
continue to have a material adverse effect on us in the future. Our ability to
execute our business strategy depends on a number of factors, including the
following:
o general economic and industry conditions;
o competition from other companies in the same business as us;
o our ability to attract, retain or sell to additional independent dealers,
especially, exclusive dealers;
o the availability of semi-skilled workers in the areas in which our
manufacturing facilities are located;
o the ability of CIS and the Company's insurance and component parts operations
to be competitive;
o the availability of capital and financing;
o the ability of our independent dealers and retail locations to compete under
current industry conditions;
o the availability and terms of wholesale and retail financing from lenders in
the manufactured housing industry;
o market acceptance of new product offerings, and
o the effect of continuing operating losses on the financial position of the
Company.
There are other factors in addition to those listed above, many of which are
beyond our control. Cavalier cannot assure investors that our business strategy
will be successful. If our strategy is unsuccessful, this may have a material
adverse effect upon Cavalier's results of operations or financial condition. *
Limitations on Availability of Consumer and Dealer Financing
Third-party lenders generally provide consumer financing for manufactured home
purchases. Our sales depend in large part on the availability and cost of
financing for manufactured home purchasers and dealers as well as our own retail
locations. The availability and cost of such financing is further dependent on
the number of financial institutions participating in the industry, the
departure of financial institutions from the industry, the financial
institutions' lending practices, the strength of the credit markets generally,
governmental policies and other conditions, all of which are beyond our control.
In addition, most states classify manufactured homes for both legal and tax
purposes as personal property rather than real estate. As a result, financing
for the purchase of manufactured homes is characterized by shorter loan
maturities and higher interest rates, and in certain periods such financing is
more difficult to obtain than conventional home mortgages. Unfavorable changes
in these factors and the current adverse trend in the availability and terms of
financing in the industry may have a material adverse effect on Cavalier's
results of operations or financial condition.
Changes in Industry Retail Inventories
* See Safe Harbor Statement on page 27.
Changes in the level of retail inventories in the manufactured housing industry,
either up or down, can have a significant impact on the Company's operating
results. For example, due to the rapid expansion of the retail distribution
network in the manufacturing housing industry that occurred in the 1990's, there
is currently an imbalance between industry retail inventories and consumer
demand for manufactured homes. The deterioration in the availability of retail
financing, along with competition from repossessed homes, has already extended
the inventory adjustment period beyond what was originally expected. If these
trends were to continue, or if retail demand were to significantly weaken
further, the inventory overhang could result in even greater intense price
competition, further pressure on profit margins within the industry, and have a
material adverse effect on Cavalier. The Company's inventory at all retail
locations, including Company-owned retail sales centers, declined 34% in 2000
from levels at the end of 1999. While Cavalier believes that inventories of its
homes are approaching levels which are more consistent with retail demand, due
in part to the Company's emphasis on working with its dealers to reduce retail
inventories, we cannot give investors assurances to this effect. * In spite of
these efforts, significant unfavorable developments or further deterioration
within the industry would undoubtedly have an adverse impact on Company
operating results.
Dependence on Independent Dealers
Cavalier depends on independent dealers for substantially all retail sales of
our manufactured homes. Typically only one dealer within a given market area
distributes a particular product line of ours. Our relationships with our
dealers are cancelable on short notice by either party. The manufactured housing
industry recently has experienced a trend of increasing competition for quality
independent dealers. In addition, a number of dealers in the industry are
experiencing difficulty in the current market conditions, as a number of retail
dealers have failed and more dealers may fail before the current downturn ends.
*oWhile we believe that our relations with our independent dealers are generally
good, we cannot assure our investors that we will be able to maintain these
relations, that these dealers will continue to sell our homes, that these
dealers will be successful, or that we will be able to attract and retain
quality independent dealers. *
Intense Competition
The production and sale of manufactured homes is a highly competitive industry,
characterized by low barriers to entry and severe price competition. Competition
is based primarily on the following factors:
o price;
o repair service;
o product features and quality;
o reputation for service and quality;
o depth of field inventory;
o delivery capabilities;
o warranty repair service;
o dealer promotions;
o merchandising; and
o terms of dealer and retail consumer financing.
In addition, Cavalier competes with other manufacturers, some of which maintain
their own retail sales centers, for independent dealers. Manufactured homes also
compete with other forms of low-cost housing, including site-built,
prefabricated and modular homes, apartments, townhouses and condominiums. We
face direct competition from numerous manufacturers, many of which possess
greater financial, manufacturing, distribution and marketing resources. As a
result of these competitive conditions, Cavalier may not be able to sustain past
levels of sales or profitability.
Contingent Repurchase and Guaranty Obligations
Manufactured housing companies customarily enter into repurchase and other
recourse agreements with lending institutions which have provided wholesale
floor plan financing to dealers. Substantially all of Cavalier's sales are made
* See Safe Harbor Statement on page 27.
to dealers located primarily in the South Central and South Atlantic regions of
the United States pursuant to repurchase agreements with lending institutions.
These agreements generally provide that we will repurchase our products from the
lending institutions for the balance due them in the event such product is
repossessed upon a dealer's default. The risk of loss under repurchase
agreements is lessened by the fact that (1) sales of our manufactured homes are
spread over a relatively large number of independent dealers; (2) the price that
Cavalier is obligated to pay under such repurchase agreements generally declines
over the period of the agreement and also declines during such period based on
predetermined amounts; and (3) Cavalier has been able to resell homes
repurchased from lenders. While we have established a reserve for possible
repurchase losses, we cannot assure investors that we will not incur material
losses in excess of these reserves in the future. *
Uncertainties Regarding Retail Financing Activities
Cavalier purchases retail installment finance loans that have been originated by
our independent exclusive dealers. We maintain a reserve for estimated credit
losses on installment sale contracts owned by CIS to provide for future losses
based on our historical loss experience, current economic conditions and
portfolio performance. It is difficult to predict with any certainty the
appropriate reserves to establish, and we cannot assure investors that CIS will
not experience losses that exceed Cavalier's loss reserves and have a material
adverse effect on Cavalier's results of operations and financial condition.
*Volatility or a significant change in interest rates might also materially
affect CIS's and Cavalier's business, results of operations or financial
condition.
Our strategy currently includes the continued operation of the financial
services segment of our business. Accordingly, we may incur additional debt, or
other forms of financing, in order to continue to fund such growth. We may also
engage in other transactions, such as selling portions of our installment loan
portfolio, that are designed to facilitate the ability of CIS to purchase and/or
originate an increased volume of loans and to reduce our exposure to interest
rate fluctuations and installment loan losses. * CIS has periodically resold
installment loan contracts to other financial institutions. The Company may sell
a substantial portion of its existing loan portfolio in 2001, in addition to the
periodic sale of loans purchased by CIS in the future. Cavalier believes the
periodic sale of installment contracts under various retail finance agreements
will reduce requirements for both working capital and borrowings, increase
Cavalier's liquidity, reduce Cavalier's exposure to interest rate fluctuations
and enhance the ability of CIS to increase its volume of loan purchases. *
However, we cannot assure investors that we will be able to make additional
sales. We also cannot offer any assurance that possible additional financing, or
the aforementioned transactions involving our installment loan portfolio, will
be available on terms acceptable to Cavalier. If not, we may be forced to
curtail our financial services business and to alter our other strategies.
Potential Unavailability and Increases in Prices of Raw Materials
The availability and pricing of certain raw materials, particularly lumber,
sheetrock, particleboard and insulation may significantly affect Cavalier's
operating costs. Sudden increases in demand for these construction materials
caused by natural disasters or other market forces can greatly increase the
costs of materials or limit the availability of such materials. Increases in
costs cannot always be reflected immediately in prices, especially in
competitive times, and, consequently, may adversely impact Cavalier's
profitability. Further, a reduction in the availability of raw materials also
may affect our ability to meet or maintain production requirements.
Operations May Be Limited by the Availability of Manufactured Housing Sites
Any limitation on the growth of the number of sites for placement of
manufactured homes or on the operation of manufactured housing communities could
adversely affect the manufactured housing business. Manufactured housing
communities and individual home placements are subject to local zoning
ordinances and other local regulations relating to utility service and
construction of roadways. In the past, property owners often have resisted the
adoption of zoning ordinances permitting the location of manufactured homes in
residential areas, which Cavalier believes has adversely affected the growth of
the industry. We cannot assure investors that manufactured homes will receive
widespread acceptance or that localities will adopt zoning ordinances permitting
the location of manufactured home areas. The inability of the manufactured home
industry to gain such acceptance and zoning ordinances could have a material
adverse effect on our financial condition or results of operations.
* See Safe Harbor Statement on page 27.
Reliance on Executive Officers
Cavalier's success depends highly upon the personal efforts and abilities of its
current executive officers. Specifically, Cavalier relies on the efforts of its
Chairman of the Board, Barry B. Donnell, its President and Chief Executive
Officer, David A. Roberson, and its Vice President, Chief Financial Officer and
Secretary-Treasurer, Michael R. Murphy. The loss of the services of one or more
of these individuals could have a material adverse effect upon our business. We
do not have employment or non-competition agreements with any of our executive
officers. Our ability to continue to work through the industry's current
downturn will depend upon our ability to attract and retain additional
experienced management personnel.
Potential Adverse Effects of Regulation
Cavalier is subject to a variety of federal, state and local laws and
regulations affecting the production, sale, financing and insuring of
manufactured housing. We suggest you read the section above under the heading
"Regulation" for a description of many of these laws and regulations. Cavalier's
failure to comply with such laws and regulations could expose us to a wide
variety of sanctions, including closing one or more manufacturing facilities.
Governmental bodies have regulatory matters affecting our operations under
continuous review and we cannot predict what effect (if any) additional laws and
regulations promulgated by HUD would have on us or the manufactured housing
industry as a whole. Failure to comply with laws or regulations applicable to or
affecting Cavalier, or the passage in the future of new and more stringent laws
affecting Cavalier, may adversely affect us.
Compliance with Environmental Laws
Federal, state and local laws and regulations relating to the generation,
storage, handling, emission, transportation and discharge of materials into the
environment govern Cavalier's operations. In addition, third parties and
governmental agencies in some cases have the power under such laws and
regulations to require remediation of environmental conditions and, in the case
of governmental agencies and entities, to impose fines and penalties. The
requirements of such laws and enforcement policies have generally become
stricter in recent years. Accordingly, we cannot assure investors that we will
not be required to incur response costs, remediation expenses, fines, penalties
or other similar damages, expenses or liabilities, or to incur operational
shut-downs, business interruptions or similar losses, associated with compliance
with environmental laws and enforcement policies that either individually or in
the aggregate would have a material adverse effect on our results of operations
or financial condition.
Warranty Claims
Cavalier is subject to warranty claims in the ordinary course of its business.
Although we maintain reserves for such claims, which to date have been adequate,
there can be no assurance that warranty expense levels will remain at current
levels or that such reserves will continue to be adequate. A large number of
warranty claims exceeding our current warranty expense levels could have a
material adverse effect on Cavalier's results of operations.
Litigation
We suggest that you read Item 3., Legal Proceedings, below, for description of
certain risk factors associated with litigation.
Volatility of Stock Price
The Company's common stock is traded on the NYSE. The market price of the
Company's common stock may be subject to significant fluctuations in response to
variations in the Company's operating results and other factors affecting the
Company specifically, the manufactured housing industry generally, and the stock
market generally.
* See Safe Harbor Statement on page 27.
ITEM 2. PROPERTIES
The following table sets forth the location and approximate square footage for
each principal facility of the Company, separated by segment, as of December 31,
2000:
Approximate Owned/ (a)
Location Use (Number of Facilities) Square Footage Leased
Manufacturing & Distribution
Adrian Homes
Adrian, Georgia Manufacturing facility (1) 107,000 Owned (b)
Astro Homes
Shippenville, Pennsylvania Manufacturing facility (1) 120,000 Owned
Bellcrest Homes
Millen, Georgia Manufacturing facilities (2) 169,000 Owned
Belmont Homes, Inc.
Belmont Mississippi Manufacturing facilities (2) 384,000 Owned
Clarksdale, Mississippi Manufacturing facility (1) 91,000 Owned
BRC Components, Inc.
Phil Campbell, Alabama Distribution facility (1) 50,000 Leased (c)
Salisbury, North Carolina Distribution facility (1) 60,000 Leased (c)
Hillsboro, Texas Distribution facility (1) 42,500 Owned
Brigadier Homes of North Carolina
Nashville, North Carolina Manufacturing facility (1) 182,000 Owned
Buccaneer Homes
Hamiliton, Alabama Manufacturing facility (1) 195,000 Owned
Winfield, Alabama Manufacturing facilities (2) 205,000 Owned
Cavalier Homes of Alabama
Addison, Alabama Manufacturing facilities (4) 545,000 Owned
Homestead Homes
Cordele, Georgia Manufacturing facility (1) 110,000 Owned
Mansion Homes
Robbins, North Carolina Manufacturing facility (1) 99,000 Leased
Quality Housing Supply, LLC
Hamiliton, Alabama Manufacturing facility (1) 60,000 Owned (d)
Riverchase Homes
Haleyville, Alabama Manufacturing facility (1) 82,000 Owned
Spirit Homes, Inc.
Conway, Arkansas Manufacturing facilities (2) 297,000 Owned
Bigelow, Arkansas Manufacturing facility (1) 80,000 Owned
Town & Country Homes
Fort Worth, Texas Manufacturing facility (1) 101,000 Owned
Graham, Texas Manufacturing facility (1) 103,000 Leased
Financial Services
Hamilton, Alabama Administrative Office 7,000 Owned
General Corporate & Other
Addison, Alabama Administrative Office 10,000 Owned
Wichita Falls, Texas Administrative Office 1,000 Leased
Decatur, Alabama Administrative Office 5,000 Leased
(a) Certain of the facilities listed as owned are financed under industrial
development bond issues, including the Adrian, Buccaneer, Cavalier Homes of
Alabama (2), and Riverchase facilities. Not included in this table is the
Georgia facility for which construction is not complete.
(b) During 2000, the Company leased this facility to a third party with an option to purchase.
(c) During 2000, the Company recorded an impairment charge related to these two
leased supply company facilities due to the expected disposition of this
supply company.
(d) In March 2001, the Company exercised the purchase option on this previously leased facility for $1,125,000.
In general, the manufacturing facilities are in good condition and are operated
at capacities which range from approximately 25% to 92%, excluding seven idled
facilities in Addison and Winfield, Alabama, Bigelow, Arkansas, and Belmont and
Clarksdale, Mississippi.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are 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 its subsidiaries and companies engaged in
businesses similar to it 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. The outcome of many of the
cases in which the Company is involved or may in the future become involved
cannot be predicted with any degree of reliability, and the potential exists for
unanticipated material adverse judgments against the Company and its respective
subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the shareholders during the last
quarter of the fiscal year.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "CAV". The following table sets forth, for each of the periods
indicated, the reported high and low closing sale prices per share on the NYSE
for the Company's common stock and the cash dividends paid per share in such
periods. All adjusted prices of the Company's common stock have been rounded to
the nearest one-eighth of one dollar.
Closing Sales Price
------------------------
High Low Dividends
----------- ----------- -------------
Year ended December 31, 2000
Fourth Quarter $ 1.63 $0.75 $ -
Third Quarter 1.88 1.38 0.01
Second Quarter 2.81 1.44 0.04
First Quarter 4.31 2.63 0.04
Year ended December 31, 1999
Fourth Quarter $ 5.00 $3.75 $ 0.04
Third Quarter 6.69 3.94 0.04
Second Quarter 9.88 6.88 0.04
First Quarter 11.25 8.81 0.04
As of March 16, 2001, the Company had approximately 400 shareholders of record
and 4,400 beneficial holders of its common stock, based upon information in
securities position listings by registered clearing agencies upon request of the
Company's transfer agent.
In October 2000, Cavalier's Board of Directors voted to discontinue the payment
of cash dividends which had been reduced from $0.04 per share to $0.01 per share
for third quarter of 2000. While the Company does not expect to recommence cash
dividend payments in the foreseeable future, the future payment of dividends on
the Company's common stock will be determined by the Board of Directors of the
Company in light of conditions then existing, including the earnings of the
Company and its subsidiaries, their funding requirements and financial
conditions, certain loan restrictions and applicable laws and governmental
regulations. The Company's present loan agreement contains restrictive covenants
which, among other things, limit the aggregate dividend payments and purchases
of treasury stock to 50% of the Company's consolidated net income for the two
most recent fiscal years.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data regarding
the Company for the periods indicated. The statement of operations data, the
balance sheet data, and other data of the Company for each of the five years
ended December 31, 2000 have been derived from the consolidated financial
statements of the Company. The Company's audited financial statements as of
December 31, 2000 and 1999, and for each of the years in the three-year period
ended December 31, 2000, including the notes thereto and the related report of
Deloitte & Touche LLP, independent auditors, are included elsewhere in this
report. The selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements (including the Notes thereto) and the
other financial information contained elsewhere in this report, and with the
Company's consolidated financial statements and the notes thereto appearing in
the Company's previously filed Annual Reports on Form 10-K.
Year Ended December 31,
----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- -------------- -------------- -------------- --------------
(in thousands, except per share amounts)
Statement of Operations Data
Revenue:
Home manufacturing net sales $ 290,165 $ 555,756 $ 598,116 $ 553,730 $ 572,997
Financial services 4,878 6,107 6,088 5,346 3,333
Retail 16,842 20,914 7,167 - -
Supply 4,903 5,023 2,699 2,112 841
-------------- -------------- -------------- -------------- --------------
Total revenue 316,788 587,800 614,070 561,188 577,171
Cost of sales 277,070 476,969 496,708 464,222 482,204
Selling, general and administrative 84,846 103,312 87,611 72,526 54,120
Impairment and other related charges 6,975 4,002 - - -
Non-recurring merger and related costs - - - 7,359 -
-------------- -------------- -------------- -------------- --------------
Operating profit (loss) (52,103) 3,517 29,751 17,081 40,847
Life insurance proceeds - - - 1,500 1,750
Other income (expense) - net (494) 36 1,531 (242) 1,589
-------------- -------------- -------------- -------------- --------------
Income (loss)before income taxes (benefit)$ (52,597)$ 3,553 31,282 $ 18,339 $ 44,186
============== ============== ============== ============== ==============
Net income (loss) $ (33,468)$ 2,150 $ 18,655 $ 10,247 $ 27,479
============== ============== ============== ============== ==============
Basic net income (loss) per share 1 $ (1.88)$ .12 $ .94 $ .52 $ 1.42
============== ============== ============== ============== ==============
Diluted net income (loss) per share 1 $ (1.88)$ .12 $ .93 $ .51 $ 1.39
============== ============== ============== ============== ==============
Cash dividend per share 1 $ .09 $ .16 $ .13 $ .07 $ .06
============== ============== ============== ============== ==============
Weighted average number of shares
outstanding 17,800 18,126 19,905 19,835 19,363
============== ============== ============== ============== ==============
Weighted average number of shares
outstanding, assuming dilution 1 17,800 18,204 20,144 20,028 19,799
============== ============== ============== ============== ==============
Other Data
Capital expenditures $ 3,807 $ 24,546 $ 14,655 $ 10,186 $ 16,106
============== ============== ============== ============== ==============
Balance Sheet Data
Working capital $ 27,213 $ 33,065 $ 41,707 $ 28,484 $ 24,746
Total assets $ 187,595 $ 233,578 $ 235,952 $ 211,554 $ 196,387
Long-term debt $ 24,054 $ 10,218 $ 3,650 $ 15,808 $ 6,227
Stockholders' equity $ 94,318 $ 129,391 $ 144,911 $ 133,551 $ 122,652
1 All per share data has been adjusted for all stock splits.
ITEM 7. 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 floor shipments declined 25.9% in 2000 as compared to
1999, falling 34.7% in the fourth quarter alone. The industry also has 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, and a further
reduction in the availability of wholesale and retail financing. *
Industry conditions significantly impacted Cavalier's business and financial
results during 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 second quarter and perhaps through the end of 2001. * The Company's
revenues during the first quarter-to-date continue to be substantially below the
same period in 2000, and the Company currently expects to record a significant
loss in the first quarter of 2001.
Due to deteriorating market conditions, during 2000, the Company recorded
impairment and other related charges of $6,975 ($5,183 after tax or $0.29 per
diluted share) in connection with the closing of four home manufacturing
facilities, Company-owned retail sales centers, the sale 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, and the expected disposition of a
portion of the Company's supply operations. Since the fall of 1999, Cavalier
idled nine home manufacturing plants, one of which was re-opened during the
fourth quarter of 2000, and disposed of the operations of one other. Another
plant was destroyed by fire in June 2000 (a previously idled facility was
re-opened to replace that capacity). Consequently, Cavalier, at December 31,
2000, operated a total of 15 home manufacturing facilities, reflecting an
approximate one-third 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. * 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 2,800
employees or about 50% since December 31, 1998. 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, and, if adopted, whether and
to what extent these actions will have an effect on the financial condition and
results of operations of the Company.
* See Safe Harbor Statement on page 27.
Results of Operations (dollars in thousands)
The following table summarizes certain financial and operating data including,
as applicable, the percentage of total revenue:
For the Year Ended December 31,
---------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA 2000 1999 1998
---------------------- ----------------------- ------------------------
Revenue:
Home manufacturing net sales $ 290,165 $ 555,756 $ 598,116
Financial services 4,878 6,107 6,088
Retail 16,842 20,914 7,167
Other 4,903 5,023 2,699
---------- ---------- ----------
Total revenue $ 316,788 100.0% $ 587,800 100.0% $ 614,070 100.0%
Cost of sales 277,070 87.5% 476,969 81.1% 496,708 80.9%
---------- ---------- ---------- ---------- ---------- -----------
Gross profit $ 39,718 12.5% $ 110,831 18.9% $ 117,362 19.1%
========== ========== ========== ========== ========== ===========
Selling, general and administrative $ 84,846 26.8% $ 103,312 17.6% $ 87,611 14.3%
Impairment and other related charges $ 6,975 2.2% $ 4,002 0.7% $ - 0.0%
---------- ---------- ---------- ---------- ---------- -----------
Operating profit (loss) $ (52,103) -16.4% $ 3,517 0.6% $ 29,751 4.8%
---------- ---------- ---------- ---------- ---------- -----------
Other income (expense):
Interest expense $ (2,736) -0.9% $ (1,643) -0.3% $ (820) -0.1%
Other, net 2,242 0.7% 1,679 0.3% 2,351 0.4%
---------- ---------- ----------
$ (494) $ 36 $ 1,531
========== ========== ==========
Net income (loss) $ (33,468) -10.6% $ 2,150 0.4% $ 18,655 3.0%
========== ========== ==========
OPERATING DATA
Home manufacturing sales:
Floor shipments 18,590 34,294 36,517
Home shipments
Single section 4,406 38.4% 10,546 47.1% 12,430 51.0%
Multi section 7,072 61.6% 11,831 52.9% 11,957 49.0%
---------- ---------- ---------- ---------- ---------- -----------
Total shipments 11,478 100.0% 22,377 100.0% 24,387 100.0%
Shipments to company owned stores (200) -1.7% (645) -2.9% (164) -0.7%
---------- ---------- ---------- ---------- ---------- -----------
Shipments to independent dealers 11,278 98.3% 21,732 97.1% 24,223 99.3%
========== ========== ========== ========== ========== ===========
Retail sales:
Single section 335 49.3% 375 58.3% 70 37.2%
Multi section 345 50.7% 268 41.7% 118 62.8%
---------- ---------- ---------- ---------- ---------- -----------
Total sales 680 100.0% 643 100.0% 188 100.0%
========== ========== ========== ========== ========== ===========
Cavalier produced homes sold 568 83.5% 490 76.2% 121 64.4%
========== ========== ========== ========== ========== ===========
Used homes sold 99 14.6% 115 17.9% 26 13.8%
========== ========== ========== ========== ========== ===========
Other operating data:
Installment loan purchases $ 59,569 $ 47,063 $ 27,438
Capital expenditures $ 3,807 $ 24,546 $ 14,655
Home manufacturing facilities (operating) 15 19 23
Independent exclusive dealer locations 193 274 232
Company-owned retail locations 5 16 5
2000 Compared to 1999
Revenue
Total revenue for 2000 was $316,788, down 46% from 1999 revenue of $587,800. The
Company's revenues and profits were adversely affected by challenging market
conditions, including, among other things, intense competition, reduced lending
availability and tightened credit standards, higher interest rates, inventory
over-supply at the retail level, increased home repossessions which re-enter
home distribution channels, the ongoing contraction of dealer locations and
homes repurchased from dealers which are subsequently re-sold through the
Company's dealer network.
Home manufacturing net sales in 2000 accounted for the majority of the decline
against 1999, falling 48% to $290,165 net of intercompany eliminations of
$5,292. Home manufacturing net sales for 1999 were $555,756, net of intercompany
eliminations of $17,373. Home shipments decreased 48.7%, with floor shipments
decreasing by 45.8%. Multi-section home shipments, as a percentage of total
shipments, increased from 52.9% of shipments in 1999 to 61.6% of shipments in
2000 in response to increasing consumer demand for multi-section homes as
compared to single section homes. Despite the increased percentage of
multi-section homes sold, the year 2000 average price of homes sold remained
consistent with 1999's average price due to industry conditions. Actual
shipments of homes for 2000 were 11,478 versus 22,377 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 shipments
declined 50% compared to 1999. The Company has pursued a strategy of working
closely with its dealers to assist them in reducing retail inventories, which
also reduces the Company's risk associated with dealer failures. The Company
believes this inventory reduction strategy has contributed to its
disproportionate decline in manufacturing sales volume in relation to the
industry's decline. * The Company's inventory at all retail locations, including
company-owned retail sales centers, declined 34% to approximately $191,000 at
December 31, 2000 from $289,000 at year end 1999. At its peak in June 1999,
dealer inventory approximated $314,000. Additionally, industry sales in several
states in Cavalier's core market have declined at a higher rate than the
industry overall, which the Company believes also has had an impact on its
sales. *
Revenue from the financial services segment decreased 20.1% to $4,878 for 2000
compared to $6,107 in 1999, due primarily to competitive pressure on the rate
earned on resold installment contracts. For 2000, CIS Financial Services, Inc.
("CIS"), formerly Cavalier Acceptance Corporation, purchased contracts of
$59,569 and resold installment contracts totaling $60,241. In 1999, CIS
purchased contracts of $47,063 and resold installment contracts totaling
$60,558, including $16,000 previously held in its portfolio. CIS does not retain
the servicing function and does not earn the interest income on these resold
loans.
Revenue from the retail segment was $16,842 for 2000 compared to $20,914 for
1999. During 2000, the Company closed or sold eleven under-performing retail
locations, and has recorded impairment and other related charges and inventory
valuation charges as discussed below, bringing the number of company-owned
retail locations to five at December 31, 2000.
Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing businesses, which sell primarily to the Company's home
manufacturing segment. Revenues from external customers decreased 2.4% to $4,903
for 2000 compared to $5,023 during 1999.
Gross Profit
Gross profit is derived by deducting cost of sales from total revenue. Gross
profit was $39,718 or 12.5% of total revenue, for 2000, versus $110,831 or 18.9%
of total revenue, in 1999. Of the $71,113 decrease, the Company attributes
approximately $51,200 to volume decrease and $19,900 to margin erosion. The
margin erosion includes additional sales discounts at the manufacturing level in
response to intense price competition, to help encourage sell-through of
inventory, inefficiencies related to low volume and plant closings, $400 of
supply company inventory valuation charges and $2,500 retail inventory valuation
charges.
Selling, General and Administrative
Selling, general and administrative expenses during 2000 were $84,846 or 26.8%
of total revenue, versus $103,312 or 17.6% of total revenue in 1999, a decrease
of $18,466. The overall decrease is due primarily to a $10,003 reduction in
salaries, wages and incentive compensation, a $4,091 reduction in employee
benefits cost (primarily health insurance), a $5,424 reduction in advertising
and promotion costs, including costs to support the exclusive dealer program,
and a $1,329 decrease in costs associated with the retail segment, which were
offset by a $6,326 increase in inventory repurchase charges.
Impairment and Other Related Charges
Due to deteriorating market conditions, impairment and other related charges
totaling $6,975 ($5,183 after tax or $0.29 per diluted share) were recorded in
2000. These charges were recorded in connection with the closing of four home
manufacturing facilities ($1,024), Company-owned retail locations ($4,212), the
sale of a portion of the Company's insurance and premium finance business
* See Safe Harbor Statement on page 27.
($1,497) - a step related to the scaling back of the Company's retail operations
and the expected disposition of a portion of the Company's supply operations
($242). One previously closed home manufacturing facility was re-opened to
replace the production capacity of another facility that was destroyed by fire
in June 2000 and a second facility was re-opened in the fourth quarter of 2000.
During 1999, the Company recorded impairment and other related charges of $4,002
($2,458 after tax or $0.14 per diluted share) related to the idling of five home
manufacturing plants.
Operating Profit (Loss)
Operating profit (loss) is derived by deducting cost of sales, selling, general
and administrative expenses and impairment and other related charges from total
revenue. Operating loss for 2000 was $52,103, compared to an operating profit of
$3,517 in 1999. Home manufacturing operating loss, before intercompany
eliminations, was $33,211 in 2000 as compared to a profit of $16,544 in 1999.
The decline was primarily due to the decrease in sales, an increase in home
repurchase costs, impairment and other related charges and the industry and
business conditions cited above. The year 2000 also included an operating loss
and inventory and equipment valuation charges relating to the closing of the
Adrian, Georgia plant totaling $3,450 ($2,173 after tax or $0.12 per diluted
share). In 1999, the Adrian plant sustained an operating loss of $709 ($429
after tax or $0.02 per diluted share). On October 2, 2000, the Company sold the
inventory, tools, and supplies of the Adrian plant and leased the facility to a
third party with an option to purchase. Financial services operating loss
increased $1,032 from 1999 due primarily to the decrease in sales and impairment
and other related charges noted above. The retail segment's operating loss
increased $7,580 due to costs of inventory valuation charges, impairment and
other related charges, low sales volume and the competitive conditions currently
prevalent in the marketplace. The other segment operating profit, before
intercompany eliminations, decrease of $2,497 is due mainly to the inventory
valuation and impairment and other related charges discussed above. General
corporate operating loss, which is not identifiable to a specific segment,
decreased $2,456 primarily due to a reduction in incentive compensation.
Other Income (Expense)
Interest expense increased $1,093 due primarily to the increase during part of
the year 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 is primarily comprised of interest income (unrelated to financial
services), gains or losses on sales of assets, equity earnings in investments
accounted for on the equity basis of accounting and applicable allocation of
minority interest. Other, net increased $563 due primarily to a fire insurance
gain of $920, partially offset by losses from supply-related equity
partnerships.
Net Income (Loss)
Before impairment and other related charges discussed above, the Company's net
loss for 2000 was $28,285 or $1.59 per diluted share compared with net income
before impairment and other related charges of $4,608 or $0.26 per diluted share
in 1999. The Company's net loss for 2000, after impairment and other related
charges, was $33,468 or $1.88 per diluted share, as compared to net income of
$2,150 or $0.12 per diluted share in 1999, primarily due to the factors noted
above.
1999 compared to 1998
Revenue
Total revenue for 1999 was $587,800 compared to $614,070 for 1998.
Home manufacturing net sales for 1999 compared to 1998 decreased 7%, or $42,360,
to $555,756, net of intercompany eliminations of $17,373. Home manufacturing net
sales for 1998 were $598,116, net of intercompany eliminations of $5,253. Home
shipments decreased 8.2%, with floor shipments decreasing by 6.1%. During 1999,
52.9% of the Company's homes sold were multi-section homes compared to 49.0% for
the previous year. 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 1999 were 22,377 versus
24,387 in 1998.
The Company attributes the decrease in sales and shipments to the increasingly
competitive conditions in the industry described above. Approximately 88% of
Cavalier's shipments were to its core market of 11 states, where the Company's
floor shipments for 1999 declined 6.5% as compared to 1998. For 1999, MHI
reported an 8.7% decline in floor shipments in these 11 states. Additionally,
the Company's inventory at all retail locations, including Company-owned retail
sales centers, increased, based on twelve month trailing sales, from 151 days at
the end of 1998 to 165 days at year end 1999. The average price of homes sold
rose to $25,600 in 1999 from $24,700 in 1998. The increase in the average
selling price was primarily due to price increases instituted by the Company
associated with rising prices in raw materials and an increase in the shipments
of multi-section homes. The Company's exclusive dealer program expanded by 53
locations since December 31,1998, bringing the total to 290 at December 31,
1999, including 16 company-owned stores. Sales to exclusive dealers represented
55% of total sales in 1999 versus 40% in 1998.
Revenue in 1999 from the financial services segment approximated 1998 revenue.
During 1999, CIS purchased installment loan contracts of $47,063 and resold
$60,558 of installment contracts. In 1998, CIS purchased contracts of $27,438
and resold installment contracts totaling $45,804. During 1998, the focus of
CIS's business changed from building, holding and servicing a portfolio of loans
to purchasing loans from its dealers, which are then resold to another financial
institution, without recourse (provided that the transferred loan was properly
originated by the dealer and purchased by CIS). CIS does not retain the
servicing function and does not earn the interest income on these resold loans.
Revenue from the retail segment was $20,914 for 1999, of which 76.2% of the
units sold were Cavalier product. In 1998, retail revenue was $7,167, of which
64.4% of the units sold were Cavalier product. At December 31, 1999, the Company
operated 16 retail locations as compared to five at December 31, 1998.
Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing businesses, which sell primarily to the Company's home
manufacturing segment. Revenue from external customers increased 86.1% or
$2,324, for 1999 compared to 1998. This increase is due primarily to the
addition of a supply company.
Gross Profit
Gross profit is derived by deducting cost of sales from total revenue. Gross
profit was $110,831 or 18.9% of total revenue, in 1999 versus $117,362 or 19.1%
of total revenue, in 1998. During 1999, the Company experienced tightened supply
from its traditional vendors of certain types of raw materials, including
sheetrock, insulation and lumber, required for production of its homes. The
Company obtained these products from other vendors and purchased substitute
products, which resulted in higher than normal costs. Due to the competitive
industry conditions, some of these costs were not recoverable through price
increases.
Selling, General and Administrative
Selling, general and administrative expenses during 1999 were $103,312 or 17.6%
of total revenue, versus $87,611 or 14.3% in 1998, an increase of $15,701. Of
this increase, $1,931 is related to expanded sales and marketing efforts,
including PowerHouse promotions, and recruiting, set-up and maintenance of the
exclusive dealer network. Additionally, selling, general and administrative
expenses increased $2,001 due to higher costs for employee benefits, $784 for
increased warranty service activities and $3,140 for the start-up costs
associated with implementing an enterprise-wide management information system.
Other factors contributing to the increase in selling, general and
administrative expenses are (1) costs of $3,364 associated with operating new
retail locations and the continued development of a retail infrastructure, (2)
costs associated with the expansion of the supply distribution business of
$1,573, (3) $2,707 of costs associated with repurchased inventory, (4) $1,150 in
losses on installment contracts, and (5) $324 in costs of opening an additional
home manufacturing facility. These costs were partially offset by a reduction in
incentive compensation of $4,111.
Impairment and Other Related Charges
Because of deteriorating market conditions, Cavalier idled a total of five home
manufacturing facilities, including three subsequent to the end of 1999, that
built primarily single section homes to consolidate production into other
plants. During 1999, the Company recorded impairment and other related charges
of $4,002 ($2,458 after tax or $0.14 per diluted share) related to the idling of
these plants.
Operating Profit (Loss)
Operating profit (loss) is derived by deducting cost of sales, selling, general
and administrative expenses and impairment and other related charges from total
revenue. Operating profit declined $26,234 to $3,517 in 1999 from $29,751 in
1998.
Home manufacturing operating profit declined $18,799, before intercompany
eliminations, due primarily to lower sales, increased raw material prices,
increased selling, general and administrative expenses and the impairment charge
for idled facilities. Financial services operating profit decreased $2,434 due
principally to increased selling, general and administrative expenses,
consisting primarily of prepayment and repossession costs and payroll costs due
to the addition of area sales personnel. The retail segment's operating loss
increased $1,507 due to the operation of start-up retail locations, the
continued development of a retail infrastructure and the competitive conditions
currently prevailing in the industry. Other operating profit declined $1,966,
before intercompany eliminations, due mainly to the costs associated with the
start-up of a new supply company.
Other Income (Expense)
Interest expense increased to $1,643 in 1999 from $820 in 1998 due to the
increase in notes payable under retail floor plan agreements and amounts
outstanding under industrial development revenue bond issues.
Other, net is primarily comprised of interest income (unrelated to financial
services), gains or losses on sales of assets, equity earnings in investments
accounted for on the equity basis of accounting and applicable allocation of
minority interest. The decrease of $672 in 1999 to $1,679 from $2,351 in 1998
was primarily due to decreased interest income earned due to lower average cash
balances during 1999 as compared to 1998.
Net Income (Loss)
Before impairment and other related charges in connection with the idling of
five home manufacturing plants as discussed above, the Company's net income for
1999 was $4,608 or $0.26 per diluted share compared with net income of $18,655
or $0.93 per diluted share in 1998. The Company's net income for 1999, after
impairment and other related charges, was $2,150 or $0.12 per diluted share, as
compared to net income of $18,655 or $0.93 per diluted share in 1999, primarily
due to the factors noted above.
Liquidity and Capital Resources
Balances as of December 31,
-----------------------------------
(dollars in thousands) 2000 1999 1998
---------- ---------- ----------
Cash and cash equivalents $ 35,394 $ 39,635 $ 64,243
Working capital $ 27,213 $ 33,065 $ 41,707
Current ratio 1.4 to 1 1.4 to 1 1.5 to 1
Long-term debt $ 24,054 $ 10,218 $ 3,650
Ratio of long-term debt to equity 1 to 4 1 to 13 1 to 40
Installment loan portfolio $ 7,887 $ 9,450 $ 26,117
Operating activities during 2000 used net cash of $9,575. Inventory decreased
$28,730 from 1999 to 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, $12,241 related to retail
inventories that resulted in a corresponding reduction in notes payable under
retail floor plan agreements.
The Company's capital expenditures were $3,807 for 2000, as compared to $24,546
for 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 2000,
additions also included $433 related to the replacement of property destroyed by
fire at the Belmont facility. Additionally, during 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 $3,469 in costs for implementing an enterprise-wide management
information system.
The increase in long-term debt of $13,836 is primarily due to a $15,000
borrowing under the Company's credit facility.
The Company purchased 225,000 shares of treasury stock during 2000 for $283.
Subsequent to year end, the Company purchased an additional 312,200 shares at a
cost of $607. The Company has continuing authorization to acquire up to 831,200
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.
Between the date of this report and the middle of 2001, the Company currently
expects to receive its tax refund within the range of $15,000 to $17,000. * This
amount is an estimate, however, and the receipt and timing of receipt of the
amounts are subject to processing tax returns and a 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.
The Company has an amended revolving and term-loan agreement (the "Credit
Facility") with its primary lender. The maturity date under the revolving line
of credit available under the Credit Facility is set at April 2003. The Credit
Facility currently 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. If the Company's tangible net
worth, defined as the total of the Company's tangible net worth and treasury
stock purchases for 2000 and 2001, is less than $85,000, the amount available
under the Credit 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 December 31, 2000,
$15,000 was outstanding under the revolving line of credit, against a total
lending capacity of $27,354 based on the Company's tangible net worth. At
December 31, 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
the bank's prime rate 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 CIS'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 without the lender's consent 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
$6,000 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 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 CIS to comply with certain specified
* See Safe Harbor Statement on page 27.
restrictions and financial covenants. Cavalier was not in violation of any
financial covenants of the amended Credit Facility at December 31, 2000.
Since its inception, CIS has been restricted in the amounts of loans it could
purchase based on underwriting standards, as well as the availability of working
capital and funds borrowed under its credit line with its primary lender. In
February 1998, CIS entered into an agreement with another lender providing for
the periodic resale of a portion of CIS's loans that meet established criteria
and without recourse (provided that the transferred loan was properly originated
by the dealer and purchased by CIS). In March 1998 and in June 1999, CIS sold,
under this retail finance agreement, a substantial portion of its existing
portfolio of loans on those dates. In April 2000, the Company received proceeds
of approximately $1,400 from the sale of loans that were previously held in its
installment loan portfolio. The effect of these transactions on net income was
to reduce the amount of financial services revenue from interest income on these
portions of the portfolio, offset by reduced interest expense on debt retired in
March 1998 and earnings on the remaining proceeds. From time to time, the
Company evaluates the potential to sell all or a portion of its remaining
installment loan portfolio, in addition to the periodic sale of installment
contracts purchased by CIS in the future. * While the original retail finance
contract is no longer in effect, CIS is currently continuing to re-sell loans to
other lenders under various retail finance contracts. The Company believes the
periodic sale of installment contracts under these retail finance agreements
will reduce requirements for both working capital and borrowings, increase the
Company's liquidity, reduce the Company's exposure to interest rate fluctuations
and enhance the ability of CIS to increase its volume of loan purchases. * There
can be no assurance, however, that additional sales will be made under these
agreements, or that CIS and the Company will be able to realize the expected
benefits from such agreements. *
The Company currently believes existing cash and funds available under the
credit facility, together with cash provided by operations and cash received
from income tax refunds, will be adequate to fund the Company's operations and
plans for the balance of fiscal year 2001. * However, there can be no assurances
to this effect. If it is not, the Company could seek to enhance its liquidity
position through further modifications to the credit facility, incurrence of
additional short or long-term indebtedness or other forms of financing, asset
sales, restructuring of debt, and/or the sale of equity or debt securities in
public or private transactions, the availability and terms of which will depend
on various factors and market and other conditions, some of which are beyond the
control of the Company.
Impact of Inflation
The Company generally has been able to increase its selling prices to offset
increased costs, including the costs of raw materials. Sudden increases in costs
as well as price competition, however, can affect the ability of the Company to
increase its selling prices. As discussed above, in 1999, the Company
experienced tightened supply of certain types of raw materials, which resulted
in some higher costs that were not recoverable through price increases. For a
further discussion of this matter, see "1999 Compared to 1998 - Gross Profit."
The Company believes that the relatively moderate rate of inflation over the
past several years has not had a significant impact on its sales or
profitability, but can give no assurance that this trend will continue in the
future. *
Impact of Accounting Statements
In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS 133, as amended, is required to be adopted for
years beginning after June 15, 2000. The Company adopted SFAS 133 effective
January 1, 2001. The adoption of SFAS 133 did not have a material impact on the
Company's consolidated financial statements.
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.
* See Safe Harbor Statement on page 27.
The Company is exposed to market risk related to investments held in a
non-qualified trust used to fund benefits under its deferred compensation plan.
These investments totaled $2,455 at December 31, 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 dealers, at fixed
interest rates, in the ordinary course of business, and periodically resells a
majority 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 296 months at December 31, 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 CIS on
similar contracts at December 31, 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 December 31, 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.
Assumed Annual Principal Cash Flows
-----------------------------------------------------------------------------
(dollars in thousands) 2001 2002 2003 2004 2005 Thereafter Total Fair value
Installment loan portfolio $ 1,627 a $ 205 $ 225 $ 248 $ 274 $ 5,308 $ 7,887 $ 6,684
(weighted average interest rate - 9.57%)
Expected Principal Maturity Dates
-----------------------------------------------------------------------------
(dollars in thousands) 2001 2002 2003 2004 2005 Thereafter Total Fair value
Notes payable and long-term debt $ 4,475 b $ 1,215 $16,254 $ 1,461 $ 1,124 $ 4,000 $28,529 $28,605
(weighted average interest rate - 7.35%)
a The Company has recorded an allowance for credit losses of $1,180, primarily based upon management's assessment of historical
experience factors and current economic conditions.
b Amount payable in 2001 includes $1,154 of current portion of long-term debt and $3,321 of notes payable under retail
floor plan agreements.
* See Safe Harbor Statement on page 27.
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 Annual Report on Form 10-K 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 changes in industry retail levels;
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 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 potential volatility in our stock price.
Any or all of our forward-looking statements in this report, in the 2000 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, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Selected Quarterly Financial Data (Unaudited)
The table below sets forth certain unaudited quarterly financial data for the
two years ended December 31, 2000 and 1999. The Company believes that the
following quarterly financial data includes all adjustments necessary for a fair
presentation, in accordance with accounting principles generally accepted in the
United States of America. The following quarterly financial data should be read
in conjunction with the other financial information contained elsewhere in this
report. The operating results for any interim period are not necessarily
indicative of results for a complete year or for any future period.
Fourth Third Second First
Quarter Quarter Quarter Quarter Total
------------ ------------ ------------- ------------ -------------
2000
Revenue:
Home manufacturing $ 54,973 $ 64,606 $ 86,748 $ 83,838 $ 290,165
Financial services 709 1,132 1,590 1,447 4,878
Retail 2,654 3,382 7,865 2,941 16,842
Other 1,015 740 1,681 1,467 4,903
------------- ------------- ------------- ------------- -------------
Total revenue 59,351 69,860 97,884 89,693 316,788
Gross profit 8,167 8,765 11,551 11,235 39,718
Net loss (5,630) (6,192) (13,009) (8,637) (33,468)
Basic net loss per share a (0.32) e (0.35)d (0.73)c (0.49) b (1.88) b,c,d,e
Diluted net loss per share a (0.32) e (0.35)d (0.73)c (0.49) b (1.88) b,c,d,e
1999
Revenue:
Home manufacturing $ 113,104 $ 126,083 $ 158,086 $ 158,483 $ 555,756
Financial services 1,156 1,470 2,026 1,455 6,107
Retail b 5,684 6,748 6,004 2,478 20,914
Other b 1,246 1,534 1,243 1,000 5,023
------------- ------------- ------------- ------------- -------------
Total revenue 121,190 135,835 167,359 163,416 587,800
Gross profit 21,887 24,952 31,151 32,841 110,831
Net income (loss) (3,550) (1,621) 2,820 4,501 2,150
Basic net income (loss) per share a (0.20) g (0.09)f .16 .24 .12 f,g
Diluted net income (loss) per share a (0.20) g (0.09)f .16 .24 .12 f,g
a The sum of quarterly amounts may not equal the annual amounts due to rounding.
b Includes impairment and other related charges of $348 ($313 net of taxes, or $.02 per share basic and diluted) recorded in
connection with idling two home manufacturing facilities and closing three retail sales centers.
c Includes impairment and other related charges of $4,397 ($3,465 net of taxes, or $.19 per share basic and diluted) recorded
in connection with closing or disposition of retail sales centers, idling of two home manufacturing facilities and the sale
of a portion of the Company's insurance and premium finance business.
d Includes impairment and other related charges of $103 ($65 net of taxes, or $.00 per share basic and diluted) recorded in
connection with the closing of a retail sales center.
e Includes impairment and other related charges of $2,127 ($1,340 net of taxes, or $.08 per share basic and diluted) recorded
in connection with retail sales centers and the disposition of a supply company.
f Includes impairment and other related charges of $1,453 ($879 net of taxes, or $.05 per share basic and diluted) in
connection with the idling of two home manufacturing facilities.
g Includes impairment and other related charges of $2,549 ($1,579 net of taxes, or $.09 per share basic and diluted) in
connection with the idling of five home manufacturing facilities.
Certain amounts from the prior periods have been reclassified to conform to the 2000 presentation.
CAVALIER HOMES, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements and Schedule
Independent Auditor's Report
30
Consolidated Balance Sheets
31
Consolidated Statements of Income
33
Consolidated Statements of Stockholders' Equity
34
Consolidated Statements of Cash Flows
35
Notes to Consolidated Financial Statements
36
Schedule -
II - Valuation and Qualifying Accounts
52
Schedules I, III, IV and V have been omitted because they are either not
required or are inapplicable.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Cavalier Homes, Inc.:
We have audited the accompanying consolidated balance sheets of Cavalier Homes,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the index at Item 8. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Cavalier Homes, Inc. and
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
Birmingham, Alabama
February 21, 2001
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- -----------------------------------------------------------------------------------------------
2000 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 35,394 $ 39,635
Accounts receivable, less allowance for losses of
$346 (2000) and $134 (1999) 3,751 10,022
Notes and installment contracts receivable - current 1,890 3,202
Inventories 21,390 50,120
Deferred income taxes 11,776 13,316
Income tax receivable 15,052 2,133
Other current assets 2,211 3,109
--------- ---------
Total current assets 91,464 121,537
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 5,943 5,999
Buildings and improvements 49,784 52,182
Machinery and equipment 44,763 49,118
--------- ---------
100,490 107,299
Less accumulated depreciation and amortization 36,010 32,804
--------- ---------
Total property, plant and equipment, net 64,480 74,495
--------- ---------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $1,180 (2000) and
$1,656 (1999) 5,079 5,388
--------- ---------
DEFERRED INCOME TAXES 4,591 391
--------- ---------
GOODWILL, less accumulated amortization
of $5,990 (2000) and $5,368 (1999) 16,446 22,684
--------- ---------
OTHER ASSETS 5,535 9,083
------- -------
TOTAL $ 187,595 $ 233,578
========= =========
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------------------------------------
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,154 $ 1,119
Notes payable under retail floor plan agreements 3,321 15,562
Accounts payable 8,176 12,303
Amounts payable under dealer incentive programs 21,204 25,442
Accrued compensation and related withholdings 2,725 5,312
Accrued insurance 4,615 6,027
Estimated warranties 11,800 13,000
Reserve for repurchase commitments 4,100 3,330
Other accrued expenses 7,156 6,377
---------- ----------
Total current liabilities 64,251 88,472
---------- ----------
LONG-TERM DEBT 24,054 10,218
---------- ----------
OTHER LONG-TERM LIABILITIES 4,972 5,497
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Series A Junior Participating Preferred Stock, $.01 par value;
200,000 shares authorized, none issued
Preferred stock, $.01 par value; 300,000 shares authorized,
none issued
Common stock, $.10 par value; 50,000,000 shares authorized,
18,504,266 (2000) and 18,271,433 (1999) shares issued 1,850 1,827
Additional paid-in capital 55,436 55,181
Retained earnings 40,525 75,593
Treasury stock, at cost; 705,100 (2000) and 480,100 (1999) shares (3,493) (3,210)
----------- -----------
Total stockholders' equity 94,318 129,391
----------- -----------
TOTAL $ 187,595 $ 233,578
=========== ===========
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- ---------------------------------------------------------------------------------------------------------------
2000 1999 1998
REVENUE $ 316,788 $ 587,800 $ 614,070
------------- ----------- -----------
COST OF SALES 277,070 476,969 496,708
SELLING, GENERAL AND ADMINISTRATIVE 84,846 103,312 87,611
IMPAIRMENT AND OTHER RELATED
CHARGES 6,975 4,002
------------- ----------- -----------
368,891 584,283 584,319
------------- ----------- -----------
OPERATING PROFIT (LOSS) (52,103) 3,517 29,751
------------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (2,736) (1,643) (820)
Other, net 2,242 1,679 2,351
------------- ----------- ----------
(494) 36 1,531
------------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT) (52,597) 3,553 31,282
INCOME TAXES (BENEFIT) (19,129) 1,403 12,627
------------- ----------- ----------
NET INCOME (LOSS) $ (33,468) $ 2,150 $ 18,655
============= =========== ==========
BASIC NET INCOME (LOSS) PER SHARE $ (1.88) $ 0.12 $ 0.94
============= =========== ==========
DILUTED NET INCOME (LOSS) PER SHARE $ (1.88) $ 0.12 $ 0.93
============= =========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 17,799,505 18,125,763 19,904,746
============= =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING,
ASSUMING DILUTION 17,799,505 18,204,030 20,143,795
============= =========== ===========
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- -----------------------------------------------------------------------------------------------------------------------------
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
BALANCE, JANUARY 1, 1998 $ 1,994 $ 57,228 $ 74,329 $ 133,551
Stock options exercised 4 153 157
Income tax benefit attributable to exercise of
stock options 90 90
Sale of common stock under Employee Stock
Purchase Plan 5 504 509
Sale of common stock under Dividend
Reinvestment Plan 25 2,579 2,604
Accrued compensation 206 206
Cash dividends paid ($.13 per share) (2,584) (2,584)
Purchase of treasury stock (852,600 shares) (8,277) (8,277)
Net income 18,655 18,655
-------- --------- --------- --------- ----------
BALANCE, DECEMBER 31, 1998 2,028 60,760 90,400 (8,277) 144,911
Stock options exercised 4 280 284
Income tax benefit attributable to exercise of
stock options 28 28
Sale of common stock under Employee Stock
Purchase Plan 10 481 491
Sale of common stock under Dividend
Reinvestment Plan 14 14
Accrued compensation 114 114
Cash dividends paid ($.16 per share) (2,926) (2,926)
Purchase of treasury stock (1,779,000 shares) (15,675) (15,675)
Retirement of treasury stock (2,151,500 shares) (215) (6,496) (14,031) 20,742
Net income 2,150 2,150
-------- --------- --------- --------- ----------
BALANCE, DECEMBER 31, 1999 1,827 55,181 75,593 (3,210) 129,391
Stock options exercised 1 3 4
Income tax benefit attributable to exercise of
stock options 3 3
Sale of common stock under Employee Stock
Purchase Plan 22 196 218
Sale of common stock under Dividend
Reinvestment Plan 8 8
Accrued compensation 45 45
Cash dividends paid ($.09 per share) (1,600) (1,600)
Purchase of treasury stock (225,000 shares) (283) (283)
Net loss (33,468) (33,468)
-------- --------- --------- --------- ----------
BALANCE, DECEMBER 31, 2000 $ 1,850 $ 55,436 $ 40,525 $ (3,493) $ 94,318
======== ========= ========= ========= ===========
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------
2000 1999 1998
OPERATING ACTIVITIES:
Net income (loss) $ (33,468) $ 2,150 $ 18,655
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,759 10,250 8,365
Change in provision for credit losses and repurchase
commitments 506 3,159 (486)
Gain on sale of installment contracts (2,037) (2,257) (2,048)
(Gain) loss on sale of property, plant and equipment (864) 85 49
Impairment and other related charges 6,975 4,002
Other, net 411 2 267
Changes in assets and liabilities provided (used) cash,
net of effects of acquisitions:
Accounts receivable 6,059 (1,277) 787
Inventories 28,730 (5,376) (6,248)
Income tax receivable (12,919) (5,804) 2,168
Accounts payable (4,127) (6,929) 6,313
Other assets and liabilities (8,600) (4,525) 9,536
---------- --------- ---------
Net cash provided by (used in) operating activities (9,575) (6,520) 37,358
---------- --------- ---------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisitions (4,439) (2,358)
Proceeds from disposition of property, plant and equipment 3,673 437 282
Capital expenditures (3,807) (24,546) (14,655)
Purchases of certificates of deposit (6,044)
Maturities of certificates of deposit 10,044
Net change in notes and installment contracts (57,057) (44,943) (23,119)
Proceeds from sale of installment contracts 62,278 62,815 47,852
Other investing activities 270 (1,686) (1,085)
---------- --------- ---------
Net cash provided by (used in) investing activities 5,357 (12,362) 10,917
---------- --------- ---------
FINANCING ACTIVITIES:
Net borrowings (payments) on notes payable (12,241) 4,824 1,307
Proceeds from long-term borrowings 15,000 7,807
Payments on long-term debt (1,129) (545) (15,024)
Net proceeds from sales of common stock 226 505 3,113
Proceeds from exercise of stock options 4 284 157
Cash dividends paid (1,600) (2,926) (2,584)
Purchase of treasury stock (283) (15,675) (8,277)
---------- --------- ---------
Net cash used in financing activities (23) (5,726) (21,308)
---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (4,241) (24,608) 26,967
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 39,635 64,243 37,276
---------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 35,394 $ 39,635 $ 64,243
========== ========= =========
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of Cavalier Homes, Inc. and its wholly-owned and
majority-owned subsidiaries (collectively, the "Company"). The Company's
minority ownership interests in various joint ventures are accounted for
using the equity method and are included in other assets in the
accompanying consolidated balance sheets. Intercompany transactions have
been eliminated in consolidation. See Note 11 for information related to
the Company's business segments.
Nature of Operations - The Company designs and produces manufactured homes
which are sold to a network of dealers located primarily in the South
Central and South Atlantic regions of the United States. In addition,
through its financial services segment, the Company offers retail
installment sale financing and related insurance products for manufactured
homes sold through the Company's dealer network. The Company's retail
segment operates retail sales locations which offer the Company's homes,
financing and insurance products to retail customers.
Accounting Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and notes.
Actual results could differ from those estimates.
Fair Value of Financial Instruments - The carrying value of the Company's
cash equivalents, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the short-term nature of these
instruments. Additional information concerning the fair value of other
financial instruments is disclosed in Notes 3 and 5.
Cash Equivalents - The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.
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.
Property, Plant and Equipment - Property, plant and equipment is stated at
cost and depreciated primarily over the estimated useful lives of the
related assets using the straight-line method. Maintenance and repairs are
expensed as incurred. The Company paid $337 and $388 in 1999 and 1998,
respectively, for construction of plant facilities, and paid $3,400 in 1999
to exercise purchase options on two previously leased facilities, to
companies among whose owners are certain officers, directors or
stockholders of the Company.
Goodwill - Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired and is being amortized over the
expected periods to be benefited, 15 to 25 years, using the straight-line
method.
Impairment of Long-Lived Assets - 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 long-lived assets is considered impaired when
the anticipated undiscounted cash flow from such assets 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
assets. 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
costs to dispose.
Revenue Recognition - Sales of manufactured homes to independent dealers
are recorded as of the date the home is shipped since title and risk of
loss passes to the dealer at that time. All sales are final and without
recourse except for the contingency described in Note 10. For Company-owned
retail locations, revenue is recorded upon funding and transfer of title to
the retail home buyer. Interest income on installment contracts receivable
is recognized using the interest method.
Product Warranties - The Company provides the retail home buyer a one-year
limited warranty covering defects in material or workmanship in home
structure, plumbing and electrical systems. A liability is provided for
estimated future warranty costs relating to homes sold, based upon
management's assessment of historical experience factors and current
industry trends.
Allowance for Credit Losses on Installment Contracts - The Company has
provided an allowance for estimated future credit losses resulting from
retail financing activities of CIS Financial Services, Inc. ("CIS"),
formerly Cavalier Acceptance Corporation, a wholly-owned subsidiary,
primarily based upon management's assessment of historical experience and
current economic conditions.
Insurance - The Company's workmen's compensation (prior to February 1,
1999), 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. Under these plans, the Company incurs insurance expense
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. During 1999, the Company's workmen's
compensation coverage was converted to a fully insured policy.
Net Income (Loss) Per Share - The Company reports two separate net income
(loss) per share numbers, basic and diluted. Both are computed by dividing
net income (loss) by the weighted average shares outstanding (basic) or
weighted average shares outstanding assuming dilution (diluted) as detailed
below (in thousands of shares):
2000 1999 1998
Weighted average shares outstanding 17,800 18,126 19,905
Dilutive effect of stock options and warrants 78 239
------- ------- -------
Weighted average shares outstanding,
assuming dilution 17,800 18,204 20,144
======= ======= =======
Options and warrants that could potentially dilute basic net income per
share in the future were not included in the computation of diluted net
income per share because to do so would have been antidilutive. All options
and warrants in 2000 are excluded due to their antidilutive effect as a
result of the Company's loss from operations. Antidilutive options and
warrants (in thousands of shares) were 2,911, 2,602, and 642 for 2000,
1999, and 1998, respectively.
Recent Accounting Pronouncement - Statement of Financial Accounting
Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities, is effective for all fiscal years beginning after June
15, 2000. SFAS 133, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under
SFAS 133, certain contracts that were not formerly considered derivatives
may now meet the definition of a derivative. The Company adopted SFAS 133
effective January 1, 2001. The adoption of SFAS 133 did not have a material
impact on the financial position, results of operations, or cash flows of
the Company.
Reclassifications - Certain amounts from the prior periods have been
reclassified to conform to the 2000 presentation.
2. IMPAIRMENT AND OTHER RELATED CHARGES
During 2000, due to deteriorating market conditions, the Company recorded
impairment and other related charges of $6,975 ($5,183 after tax or $0.29
per diluted share ) in connection with the closing of four home
manufacturing facilities, Company-owned retail sales centers, the sale of a
portion of the Company's insurance and premium finance business, and the
expected disposition of a portion of the Company's supply operations. The
charge for assets to be held and used includes write-downs of $277 for
property, plant and equipment ($43 home manufacturing segment and $234
retail segment) and $1,044 for goodwill (retail segment). The charge for
assets to be disposed of includes write-downs of $2,229 for property, plant
and equipment ($981 home manufacturing segment, $1,058 retail segment and
$190 other segment), $3,038 for goodwill ($1,541 retail segment and $1,497
financial services segment), and $387 for non-competition agreements and
lease obligations ($335 retail segment and $52 other segment). After
recording the impairment charges, the carrying value of the assets to be
disposed of was $2,004 ($602 home manufacturing segment, $901 retail
segment and $501 other segment). The Company is actively marketing the
facilities to be disposed of. Before recording the impairment charges, the
results of operations for 2000 related to assets to be disposed of included
a $3,323 after-tax loss from the retail segment, $683 after tax loss from
the other segment, and $100 after-tax income from the financial services
segment. 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.
During 1999, the Company recorded impairment and other related charges of
$4,002 ($2,458 after tax or $0.14 per diluted share) in connection with the
closing of five home manufacturing facilities. The charge for assets to be
held and used includes write-downs of $850 for property, plant and
equipment. The charge for assets to be disposed of includes write-downs of
$2,186 for property, plant and equipment and $966 for lease and other
obligations. After recording the impairment charges, the carrying value of
the assets to be disposed of was $1,139. The Company is actively marketing
the facilities to be disposed of. During 2000, payments of $619 were made
against the reserve for lease and other obligations. 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.
3. INSTALLMENT CONTRACTS RECEIVABLE
CIS finances retail sales through the purchase of installment contracts
from a portion of the Company's dealer network, at fixed interest rates, in
the ordinary course of business, and resells a majority of the loans to
financial institutions under the terms of retail finance agreements.
Standard loan programs require minimum down payments, ranging from 5% to
20% of the purchase price of the home, on all installment contracts based
on the creditworthiness of the borrower. In addition, CIS requires the
borrower to maintain adequate insurance on the home throughout the life of
the contract. Contracts are secured by the home which is subject to
repossession by CIS upon default by the borrower.
CIS's portfolio consists of fixed rate contracts with interest rates
generally ranging from 9.0% to 16.0% and from 9.0% to 14.0% at December 31,
2000 and 1999, respectively. The average original term of the portfolio was
approximately 296 and 269 months at December 31, 2000 and 1999,
respectively. CIS enters into agreements to sell, without recourse
(provided that the transferred loan was properly originated by the dealer
and purchased by CIS), contracts in its portfolio that meet specified
credit criteria. Under these agreements, CIS sold $60,241, $60,558 and
$45,804 of contracts receivable and realized gains of $2,037, $2,257 and
$2,048 for the years ended December 31, 2000, 1999 and 1998, respectively.
At December 31, 2000, scheduled principal payments of installment contracts
receivable (including sales of contracts receivable in January 2001) are as
follows:
Year Ending
December 31,
2001 $ 1,627
2002 205
2003 225
2004 248
2005 274
Thereafter 5,308
--------
Total $ 7,887
========
Activity in the allowance for credit losses on installment contracts was as
follows:
2000 1999 1998
Balance, beginning of year $ 1,656 $ 760 $ 1,272
Provision for credit losses 687 2,192 1,042
Charge-offs, net (1,163) (1,296) (1,554)
-------- -------- --------
Balance, end of year $ 1,180 $ 1,656 $ 760
======== ======== ========
At December 31, 2000 and 1999, the estimated fair value of installment
contracts receivable approximated carrying value. These fair values were
estimated using discounted cash flows and interest rates offered by CIS on
similar contracts at such times.
4. INVENTORIES
Inventories consisted of the following:
2000 1999
Raw materials $ 14,501 $ 27,363
Work-in-process 2,224 3,513
Finished goods 4,665 19,244
-------- --------
Total $ 21,390 $ 50,120
======== ========
During 2000, 1999, and 1998, the Company purchased raw materials of
approximately $11,893, $20,166 and $12,413, respectively, from joint
ventures in which the Company owns a minority interest and from a company
in which a stockholder and director of the Company is also a stockholder.
5. CREDIT ARRANGEMENTS
The Company has a $35,000 revolving and term-loan agreement (the "Credit
Facility") with its primary bank, whose president is a director of the
Company. The Credit Facility contains a revolving line of credit which
provides for borrowings (including letters of credit) of up to $35,000. If
the Company's tangible net worth, defined as the total of the Company's
tangible net worth and treasury stock purchases for 2000 and 2001, is less
than $85,000, the amount available under the Credit 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 December 31, 2000, $15,000 was outstanding under the
revolving line of credit, against a total lending capacity of $27,354 based
on the Company's tangible net worth. At December 31, 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% (9.0% at
December 31, 2000) 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 the bank's prime rate or, if elected by the
Company, the 90-day LIBOR Rate plus 2.5%. The maturity date of the
revolving line of credit is April 2003.
The term-loan agreement contained in the Credit Facility provides for
borrowings of up to 80% of the Company's eligible installment sale
contracts, up to a maximum of $35,000 (or such lesser amount as may be
available). Interest on term notes is fixed for a period of five years from
issuance at a rate based on the weekly average yield on five-year treasury
securities averaged over the preceding 13 weeks, plus 1.95%, and floats for
the remaining two years at a rate (subject to certain limits) equal to the
bank's prime rate plus .75%. No amounts were outstanding under the
term-loan portion of the Credit Facility at December 31, 2000 and 1999.
The Credit Facility contains certain restrictive and financial covenants,
which, among other things, limit the aggregate of dividend payments and
purchases of treasury stock, restrict the Company's ability to pledge
assets, incur additional indebtedness and make capital expenditures, and
require the Company to maintain certain defined financial ratios. Amounts
outstanding under the Credit Facility are secured by the accounts
receivable and inventories of the Company, loans purchased and originated
by CIS, and the capital stock of certain of the Company's consolidated
subsidiaries.
The Company has $3,321 and $15,562 of notes payable under retail floor plan
agreements at December 31, 2000 and 1999, respectively. The notes are
collateralized by certain inventories and bear interest ranging from prime
to prime plus 2%.
The Company has amounts outstanding under six Industrial Development
Revenue Bond issues ("Bonds") of $10,208 and $11,337 at December 31, 2000
and 1999, respectively. Four of the bond issues bear interest at variable
rates ranging from 4.0% to 5.4% and mature at various dates through April
2009. One of the bond issues is payable in equal monthly installments and
bears interest at 75% of the prime rate and matures in 2005. One of the
bond issues is payable in equal quarterly principal payments with interest
payable at 6.75% and matures in 2004. The bonds are collateralized by
certain plant facilities. Restricted bond proceeds of $228 and $1,725 were
not disbursed and are reflected as a non-current asset in the consolidated
balance sheets at December 31, 2000 and 1999, respectively.
At December 31, 2000, principal repayment requirements on long-term debt
are as follows:
Year Ending
December 31,
2001 $ 1,154
2002 1,215
2003 16,254
2004 1,461
2005 1,124
Thereafter 4,000
---------
Total 25,208
Less current portion 1,154
---------
Long-term debt $ 24,054
=========
The estimated fair value of outstanding borrowings approximated carrying
value at December 31, 2000 and 1999. These estimates were determined using
rates at which the Company believes it could have obtained similar
borrowings at such times.
Cash paid for interest during the years ended December 31, 2000, 1999 and
1998 was $2,725, $1,480 and $776, respectively.
6. STOCKHOLDERS' EQUITY
The Company has adopted a Stockholder Rights Plan with the terms and
conditions of the plan set forth in a Rights Agreement dated October 23,
1996 between the Company and its Rights Agent. Pursuant to the plan, the
Board of Directors of the Company declared a dividend of one Right (as
defined in the Rights Agreement) for each share of the Company's
outstanding common stock to stockholders of record on November 6, 1996. One
Right is also associated with each share of the Company's outstanding
common stock issued after November 6, 1996, until the Rights become
exercisable, are redeemed or expire. The Rights, when exercisable, entitle
the holder to purchase a unit equal to 0.80 one-hundredth share of Series A
Junior Participating Preferred Stock, par value $.01, at a purchase price
of $80 per unit. Upon certain events relating to the acquisition of, or
right to acquire, beneficial ownership of 20% or more of the Company's
outstanding common stock by a third party, or a change in control of the
Company, the Rights entitle the holder to acquire, after the Rights are no
longer redeemable by the Company, shares of common stock of the Company
(or, in certain cases, securities of an acquiring person) for each Right
held at a significant discount. The Rights will expire on November 6, 2006,
unless redeemed earlier by the Company at $.01 per Right under certain
circumstances.
Pursuant to a common stock repurchase program approved by the Company's
Board of Directors, a total of 2,856,600 shares has been purchased at a
cost of $24,235. The Company retired 2,151,500 of these shares at December
31, 1999, with the remaining shares being recorded as treasury stock. At
December 31, 2000, the Company has authority under the program to acquire
up to 1,143,400 additional shares.
7. INCENTIVE PLANS
Dealership Stock Option Plan
o Effective December 31, 1999, the Company cancelled its Dealership
Stock Option Plan (the "Dealer Plan") to eligible independent
dealerships. The Dealer Plan allowed for 562,500 options to be issued
at a price equal to the fair market value on the date of grant, and
these options were earned based on the amount of contracts funded
through CIS during the year. Options granted under the Dealer Plan are
immediately exercisable and expire three years from the grant date.
Since these options have been granted to persons other than employees,
the Company adopted the recognition and measurement provisions of SFAS
123, Accounting for Stock-Based Compensation.
Employee and Director Plans:
o The Company has a Key Employee Stock Incentive Plan (the "1996 Plan")
which provides for the granting of both incentive and non-qualified
stock options. Additionally, the 1996 Plan provides for stock
appreciation rights and awards of both restricted stock and
performance shares. Options are granted at prices and terms determined
by the compensation committee of the Board of Directors. The 1996 Plan
also provides for an additional number of common shares to be reserved
for issuance each January 1, through January 1, 2001, equal to 1.5% of
the number of the common shares outstanding on that date. Options
granted under the 1996 Plan are generally exercisable six months after
the grant date and expire ten years from the date of grant.
o The Company also has a Non-employee Director Plan under which 625,000
shares of the Company's common stock were reserved for grant to
non-employee directors at fair market value on the date of such grant.
Options are granted upon the director's initial election and
automatically on an annual basis thereafter. Options granted under the
plan are generally exercisable six months after the grant date and
expire ten years from the date of grant.
o The Company has an Employee Stock Purchase Plan under which 625,000
shares of the Company's common stock may be issued to eligible
employees at a price equal to the lesser of 85% of the market price of
the stock as of the first or last day of the payment periods (as
defined). Employees may elect to have a portion of their compensation
withheld, subject to certain limits, to purchase the Company's common
stock.
o The Company has a Deferred Compensation and Flexible Option Plan (the
"Deferred Plan") which provides for deferral of a portion of certain
key employees' earnings plus a Company match. Upon the occurrence of a
distributable event, the employee will receive the greater of cash at
a fixed annual return or shares of the Company's common stock credited
to his account valued at fair market value. The Company funds benefits
under the Deferred Plan through cash contributions and through the
issuance of a stock option to a trust at an exercise price equal to
fair market value on the date of the grant. Under the Deferred Plan,
there are 500,000 shares of Company common stock available for
issuance. At December 31, 2000, the Company had recorded plan
investments of $2,455 and a deferred compensation liability of $2,942.
Compensation expense recorded in connection with these plans for the years
ended December 31, 2000, 1999 and 1998 was not material.
During 1998, the Company revised the Dividend Reinvestment Plan to increase
the shares available under the Plan to 500,000 and to eliminate the
optional cash payment feature of the Plan. Participants in the Plan may
purchase additional shares of the Company's common stock by reinvesting the
cash dividends on all, or part, of their shares. The price of the shares
purchased through the Plan is the higher of 95% of the average daily high
and low sale prices of the Company's common stock on the four trading days
including and preceding the Investment Date (as defined in the Plan) or 95%
of the average high and low sales prices on the Investment Date.
The Company applied Accounting Principles Board Opinion 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for
its employee and director plans. Accordingly, no compensation expense has
been recognized for these plans except where the exercise price was less
than the fair value on the date of grant. Cavalier has granted no such
options. Had compensation cost been determined based on the fair value at
the grant date for awards under these plans consistent with the methodology
prescribed under SFAS 123, the Company's net income (loss) and net income
(loss) per share would approximate the pro forma amounts below:
2000 1999 1998
Net income (loss):
As reported $ (33,468) $ 2,150 $ 18,655
Pro forma $ (33,904) $ 1,029 $ 16,506
Basic net income (loss) per share:
As reported $ (1.88) $ 0.12 $ 0.94
Pro forma $ (1.90) $ 0.06 $ 0.83
Diluted net income (loss) per share:
As reported $ (1.88) $ 0.12 $ 0.93
Pro forma $ (1.90) $ 0.06 $ 0.82
The fair value of options granted were estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions:
2000 1999 1998
Dividend yield 0.10% 1.90% 1.56 %
Expected volatility 42.87% 40.10% 40.49 %
Risk free interest rate 6.57% 5.27% 5.52 %
Expected lives 6.2 years 9.0 years 5.0 years
The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts, and additional awards in future years are
anticipated.
With respect to options exercised, the income tax benefits resulting from
compensation expense allowable under federal income tax regulations in
excess of the expense (benefit) reflected in the Company's financial
statements have been credited to additional paid-in capital. These
benefits, which totaled $3 (2000), $28 (1999), and $90 (1998), represent a
noncash financing transaction for purposes of the consolidated statements
of cash flows.
Information regarding all of the Company's stock option plans is summarized
below:
Weighted
Weighted Average
Average Fair Value
Shares Exercise Price At Grant Date
Outstanding at December 31, 1997 1,754,614 $ 10.56
Granted at fair value 890,393 10.26 $ 3.50
Exercised (35,267) 4.45
Cancelled (49,746) 11.39
----------
Outstanding at December 31, 1998 2,559,994 $ 10.52
Granted at fair value 448,266 8.96 $ 3.48
Exercised (38,500) 7.37
Cancelled (174,357) 12.34
----------
Outstanding at December 31, 1999 2,795,403 $ 10.20
Granted at fair value 343,048 3.73 $ 1.86
Exercised (7,071) 0.55
Cancelled (454,111) 10.20
----------
Outstanding at December 31, 2000 2,677,269 $ 9.40
========== =========
Options exercisable at December 31, 2000 2,656,869 $ 9.46
========== =========
Options exercisable at December 31, 1999 2,762,803 $ 10.17
========== =========
Options exercisable at December 31, 1998 2,438,434 $ 10.42
========== =========
Stock options available for future grants at December 31, 2000 were
1,040,258 under all of the Company's various stock option plans.
The following table summarizes information concerning stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
$0.55 - $5.50 558,547 10.32 $ 3.96 538,547 $ 4.07
$6.00 - $9.66 322,926 18.07 8.61 322,926 8.61
$9.75 - $10.88 1,391,196 7.93 10.37 1,391,196 10.37
$11.00 - $16.60 404,600 4.02 14.20 404,200 14.20
--------- ---------
$0.55 - $16.60 2,677,269 9.06 $ 9.40 2,656,869 $ 9.46
========= ====== ======= ========= =======
8. INCOME TAXES (BENEFIT)
Provision (benefit) for income taxes consist of:
2000 1999 1998
Current:
Federal $ (16,469) $ 5,337 $ 12,469
State 750 2,238
----------- --------- ----------
(16,469) 6,087 14,707
----------- --------- ----------
Deferred:
Federal (2,353) (4,140) (1,337)
State (307) (544) (743)
----------- --------- ----------
(2,660) (4,684) (2,080)
----------- --------- ----------
Total $ (19,129) $ 1,403 $ 12,627
=========== ========= ==========
Total income tax expense (benefit) for 2000, 1999, and 1998 is different
from the amount that would be computed by applying the expected federal
income tax rate of 35% to income (loss) before income taxes. The reasons
for this difference are as follows:
2000 1999 1998
Income tax (benefit) at expected federal income tax rate $ (18,409) $ 1,143 $ 10,948
State income taxes, net of federal tax effect (1,439) 125 1,100
Valuation allowance 500
Non-deductible operating expenses 219 262 295
State jobs tax credits (38) (126)
Other (89) 410
---------- --------- ---------
$ (19,129) $ 1,403 $ 12,627
========== ========= =========
Deferred tax assets and liabilities are based on the expected future tax
consequences of temporary differences between the book and tax bases of
assets and liabilities. The approximate tax effects of temporary
differences at December 31, 2000 and 1999 were as follows:
2000 1999
Assets (Liabilities)
Current differences:
Warranty expense $ 3,941 $ 4,460
Inventory capitalization 668 732
Allowance for losses on receivables 1,060 1,223
Accrued expenses 5,275 4,974
Repurchase commitments 1,552 1,260
Other (102) 667
---------- ----------
12,394 13,316
Less valuation allowance 618
---------- ----------
$ 11,776 $ 13,316
========== ==========
2000 1999
Assets (Liabilities)
Noncurrent differences:
Depreciation and basis differential of acquired assets $ (2,601) $ (2,384)
Fixed asset valuation 1,813 1,850
Net operating loss carryforwards 2,681 462
Goodwill 621 (289)
Merger related expenses 427 684
Other 1,891 68
---------- ----------
4,832 391
Less valuation allowance 241
---------- ----------
$ 4,591 $ 391
========== ==========
At December 31, 2000, the Company had a capital loss carryforward of $1,472
which will expire in 2005. Additionally, the Company had federal and state
net operating loss carryforwards of $848 and $51,841, respectively. The net
operating loss carryforwards will expire as follows:
Federal State
2010 $848
2019 $3,602
2020 48,239
On December 31, 2000, the Company established a valuation allowance of $859
against net deferred income tax assets. In the opinion of management, the
likelihood of a portion of the capital loss carryforward and the state net
operating loss carryforward assets expiring before being fully utilized
became more likely than not. The valuation allowance can be adjusted in
future periods as the probability of realization of the capital loss
carryforward and state net operating loss carryforward assets change.
Net cash paid (received) for income taxes for the years ended December 31,
2000, 1999 and 1998 was $(3,553), $11,835 and $12,250, respectively.
9. EMPLOYEE BENEFIT PLANS
The Company has self-funded group medical plans which are administered by
third party administrators. The medical plans have reinsurance coverage
limiting liability for any individual employee loss to a maximum of $100,
with an aggregate limit of losses in any one year based on the number of
covered employees. Incurred claims identified under the Company's incident
reporting system and incurred but not reported claims are funded or accrued
based on estimates that incorporate the Company's past experience, as well
as other considerations such as the nature of each claim or incident,
relevant trend factors and advice from consulting actuaries. The Company
has established self-insurance trust funds for payment of claims and makes
deposits to the trust funds in amounts determined by consulting actuaries.
The cost of these plans to the Company was $5,467, $8,022 and $5,517 for
years ended December 31, 2000, 1999 and 1998, respectively.
The Company sponsors an employee 401(k) retirement plan covering all
employees who meet participation requirements. Employee contributions are
limited to a percentage of compensation as defined in the plan. The amount
of the Company's matching contribution is discretionary as determined by
the Board of Directors. Company contributions amounted to $736, $1,071 and
$623 for the years ended December 31, 2000, 1999 and 1998, respectively.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases:
Two of the Company's manufacturing facilities were leased under separate
operating lease agreements with companies among whose owners are certain
officers, directors or stockholders of the Company. One related lease was
terminated in April 2000 with a one-time cancellation payment of $150 made
to the lessor. The other related lease contained a purchase option that was
exercised in 2001 for $1,125 using proceeds from an industrial development
bond issue.
Additionally, the Company is obligated under various operating lease
agreements with varying monthly payments and expiration dates through June
2017. Total rent expense under operating leases was $1,131, $1,191 and
$1,353 for the years ended December 31, 2000, 1999 and 1998, respectively,
including rents paid to related parties of $377 (2000), $354 (1999) and
$865 (1998).
Future minimum rents payable under operating leases that have initial or
remaining noncancelable lease terms in excess of one year at December 31,
2000 are as follows:
Year Ending
December 31,
2001 $ 321
2002 249
2003 136
2004 89
2005 84
Thereafter 70
------
Total $ 949
======
Contingent Liabilities and Other:
a. 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 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 maximum amount for which the Company is
contingently liable under such agreements approximated $170,000 at
December 31, 2000. The Company has a reserve for repurchase
commitments of $4,100 (2000) and $3,330 (1999) based on prior
experience and market conditions.
b. Under the insurance plans described in Note 1, the Company was
contingently liable at December 31, 2000 for future retrospective
premium adjustments up to a maximum of approximately $14,856 in the
event that additional losses are reported related to prior years.
c. 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.
d. 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 December 31, 2000, $7,027
was outstanding under the various guarantees, of which the Company had
guaranteed $2,363.
11. SEGMENT INFORMATION
The Company's reportable segments are organized around products and
services. Through its Home manufacturing segment, the Company's 11
divisions, which are aggregated for reporting purposes, design and
manufacture homes which are sold in the United States to a network of
dealers which includes Company owned retail locations. Through its
Financial services segment, the Company offers retail installment sale
financing and related insurance products for manufactured homes sold
through the Company's dealer network. The Company's retail segment is
comprised of company owned retail lots that derive their revenues from home
sales to individuals. Included in the "other" category are primarily supply
companies who sell their products to the manufacturing segment of the
Company as well as other manufacturers. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies except that intercompany profits, transactions and
balances have not been eliminated. The Company's determination of segment
operating profit does not reflect other income (expenses) or income taxes
(benefit).
2000 1999 1998
Gross revenue:
Home manufacturing $ 295,457 $ 573,129 $ 603,369
Financial services 4,878 6,107 6,088
Retail 16,842 20,914 7,167
Other 29,011 40,315 36,699
---------- ---------- ----------
Gross revenue 346,188 640,465 653,323
---------- ---------- ----------
Intersegment revenue:
Home manufacturing 5,292 17,373 5,253
Financial services
Retail
Other 24,108 35,292 34,000
---------- ---------- ----------
Intersegment revenue 29,400 52,665 39,253
---------- ---------- ----------
Revenue from external customers:
Home manufacturing 290,165 555,756 598,116
Financial services 4,878 6,107 6,088
Retail 16,842 20,914 7,167
Other 4,903 5,023 2,699
---------- ---------- ----------
Total revenue $ 316,788 $ 587,800 $ 614,070
========== ========== ==========
Operating profit (loss):
Home manufacturing $ (33,211) $ 16,544 $ 34,806
Financial services (1,251) (219) 2,215
Retail (9,514) (1,934) (427)
Other (1,808) 689 2,655
Elimination 1,507 (1,281) (826)
---------- ---------- ----------
Segment operating profit (loss) (44,277) 13,799 38,423
General corporate (7,826) (10,282) (8,672)
---------- ---------- ----------
Operating profit (loss) $ (52,103) $ 3,517 $ 29,751
========== ========== ==========
Depreciation and amortization:
Home manufacturing $ 7,370 $ 8,215 $ 7,305
Financial services 294 359 209
Retail 327 544 146
Other 548 463 385
---------- ---------- ----------
Segment depreciation and amortization 8,539 9,581 8,045
General corporate 1,220 669 320
---------- ---------- ----------
Total depreciation and amortization $ 9,759 $ 10,250 $ 8,365
========== ========== ==========
Capital expenditures:
Home manufacturing $ 3,290 $ 17,486 $ 13,173
Financial services 86 167 181
Retail 10 986 601
Other 159 1,208 384
---------- ---------- ----------
Segment capital expenditures 3,545 19,847 14,339
General corporate 262 4,699 316
---------- ---------- ----------
Total capital expenditures $ 3,807 $ 24,546 $ 14,655
========== ========== ==========
2000 1999 1998
Identifiable assets:
Home manufacturing $ 131,925 $ 159,493 $ 157,394
Financial services 12,674 17,248 28,424
Retail 11,006 24,372 7,665
Other 14,153 14,225 11,683
Elimination (45,526) (32,752) (9,548)
---------- ---------- ----------
Segment identifiable assets 124,232 182,586 195,618
General corporate 63,363 50,992 41,509
---------- ---------- ----------
Total assets $ 187,595 $ 233,578 $ 237,127
========== ========== ==========
The Financial services segment's operating profit includes net interest
income of $1,223, $1,968, and $2,987 and gains from the sale of installment
contracts of $2,037, $2,257 and $2,048 for the years ended December 31,
2000, 1999, and 1998, respectively.
Identifiable assets for the General corporate category include $1,768,
$1,604, and $1,447 of investment in equity method investees at December 31,
2000, 1999 and 1998, respectively. General corporate operating income
includes equity in the net income (loss) of investees accounted for by the
equity method of $(243), $397, and $250 for the years ended December 31,
2000, 1999 and 1998, respectively.
Increases Additions
Balance at Attributable Charged to Charged Balance at
Beginning of to Costs and to Other End of
Period Acquisitions Expenses Accounts Deductions Period
----------- ----------- ----------- ------------ ----------- -----------
Allowance for losses on Accounts
Receivable:
Year Ended December 31, 2000 $ 134 369 (157)$ 346
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1999 $ 26 127 (19)$ 134
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1998 $ 26 $ 26
=========== =========== =========== ============ =========== ===========
Allowance for credit losses:
Year Ended December 31, 2000 $ 1,656 687 (1,163)$ 1,180
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1999 $ 760 2,192 (1,296)$ 1,656
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1998 $ 1,272 1,042 (1,554)$ 760
=========== =========== =========== ============ =========== ===========
Accumulated amortization of goodwill:
Year Ended December 31, 2000 $ 5,368 1,203 (581)$ 5,990
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1999 $ 4,130 1,278 (40)$ 5,368
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1998 $ 3,078 1,052 $ 4,130
=========== =========== =========== ============ =========== ===========
Accumulated amortization of non-compete
agreement:
Year Ended December 31, 2000 $ 169 50 (219)$
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1999 $ 154 100 (85)$ 169
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1998 $ 78 76 $ 154
=========== =========== =========== ============ =========== ===========
Warranty reserve:
Year Ended December 31, 2000 $ 13,000 27,531 (28,731)$ 11,800
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1999 $ 12,400 33,653 (33,053)$ 13,000
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1998 $ 11,700 27,771 (27,071)$ 12,400
=========== =========== =========== ============ =========== ===========
Reserve for repurchase commitments:
Year Ended December 31, 2000 $ 3,330 9,414 (8,644)$ 4,100
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1999 $ 1,175 3,088 (933)$ 3,330
=========== =========== =========== ============ =========== ===========
Year Ended December 31, 1998 $ 1,175 381 (381)$ 1,175
=========== =========== =========== ============ =========== ===========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
For a description of the directors and executive officers of the Company, see
"Election of Directors," "Executive Officers and Principal Stockholders," and
"Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 15, 2001,
which are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For a description of the Company's executive compensation, see "Election of
Directors," "Executive Officers and Principal Stockholders," "Executive
Compensation" (other than the "Report of the Compensation Committee on Executive
Compensation" and the "Performance Graph"), "Compensation Committee Interlocks
and Insider Participation," and "Certain Relationships and Related Transactions"
of the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 15, 2001, which are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
For a description of the security ownership of management and certain beneficial
owners, see "Executive Officers and Principal Stockholders" of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 15,
2001, which are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain relationships and related transactions of the
Company, see "Compensation Committee Interlocks and Insider Participation," and
"Certain Relationships and Related Transactions" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 15, 2001,
which are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) 1. The financial statements contained in this report and the page
on which they may be found are as follows:
Financial Statement Description Form 10-K Page No.
------------------------------- ------------------
Independent Auditors' Report 30
Consolidated Balance Sheets as of December 31, 2000 and 1999 31
Consolidated Statements of Income for the years ended December 31, 2000, 33
1999 and 1998
Consolidated Statements of Stockholders' Equity for the years ended 34
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended December 31, 35
2000, 1999 and 1998
Notes to Consolidated Financial Statements 36
2. The financial statement schedules required to be filed with
this report and the pages on which they may be found are as follows:
No. Schedule Description Form 10-K Page
- --- --------------------- ---------------
II Valuation and Qualifying Accounts 52
3. The exhibits required to be filed with this report are listed
below. The Company will furnish upon request any of 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.
(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.
* (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.
* (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.
(4) Instruments Defining the Rights of Security Holders, Including
Indentures.
* (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 Company's Current Report on
Form 8-K dated October 30, 1996.
(10) Material contracts
* (a) Rights Agreement between Cavalier Homes, Inc. and ChaseMellon
Shareholder Services, LLC, filed as Exhibit 4 to the Company's Current Report on
Form 8-K dated October 30, 1996.
* (b) Lease Agreement dated April 1, 1999, between Development Authority of
Johnson County, Georgia and Bellcrest Homes, Inc. regarding the lease of the
manufacturing facility located in Adrian, Georgia, filed as Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
* (c) Industrial Sublease dated October 2, 2000, by and among Cavalier
Industries, Inc., as successor by merger to Bellcrest Homes, Inc., Alliance
Homes, Inc., All-Span Homes, LLC and G. Hiller Spann, regarding the sublease of
the manufacturing facility located in Adrian, Georgia.
* (d) Lease Agreement with Option to Purchase between John H. Beard and
Alexander P. Beard, Trustees under the Will of Bryce Parker Beard, and BRC
Components, Inc. dated March 4, 1999, filed as Exhibit 10(b) to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 2, 1999.
* (e) Sub-lease Agreement with Option to Purchase between Winfield
Industrial Development Association, Inc and Buccaneer Homes of Alabama, Inc.
dated May 9, 1994, filed as Exhibit 10(k) to Amendment No. 1 to the Company's
Registration Statement on Form S-2 (Registration No. 33-78644).
* (f) Lease Agreement dated March 1, 1997, between the City of Winfield and
Buccaneer Homes, a division of Cavalier Manufacturing, Inc., filed as Exhibit
10(aa) to the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
* (g) Lease Agreement between the Industrial Development Board of the Town
of Addison and Jerry F. Wilson, Robert Lowell Burdick and John W Lowe, dated as
of June 1, 1984, filed as Exhibit 10(j) to the Company's Registration Statement
on Form S-1, Registration No. 33-3525, dated February 21, 1986.
* (h) Assignment and Assumption Agreement by and among the Estate of Jerry
F. Wilson, Robert Lowell Burdick, John W Lowe, Cavalier Manufacturing, Inc. and
Cavalier Real Estate Co., Inc., dated January 13, 1999, regarding the lease of
the manufacturing facility located in Addison, Alabama, filed as Exhibit 10(g)
to the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
* (i) Lease Agreement between the Industrial Development Board of the Town
of Addison and the Winston County Industrial Development Association, dated as
of February 1, 1994, regarding the lease of the manufacturing facility located
in Addison, Alabama, filed as Exhibit 10(h) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
* (j) Assignment and Assumption Agreement by and among Winston County
Industrial Development Association, Cavalier Manufacturing, Inc. and Cavalier
Real Estate Co., Inc. dated January 13, 1999, regarding the lease of the
manufacturing facility located in Addison Alabama, filed as Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
* * (k) Lease Agreement between The Industrial Development Board of the Town
of Addison and Cavalier Homes of Alabama, a division of Cavalier
Manufacturing, Inc., dated November 1, 1997, filed as Exhibit 10(yy) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
* (l) Lease Agreement dated April 1, 1999, between Crisp County-Cordele
Industrial Development Authority and Cavalier Industries, Inc. regarding the
lease of the manufacturing facility located in Cordele, Georgia, filed as
Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
* (m) Lease Agreement dated October 16, 1996, between Virginia Cary L.
McDonald and Star Industries, Inc. regarding the lease of the manufacturing
facility located in Robbins, North Carolina, filed as Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
* (n) Assignment and Assumption Agreement between Star Industries, Inc. and
Cavalier Industries, Inc. regarding the lease of the manufacturing facility
located in Robbins, North Carolina, filed as Exhibit 10(c) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
* (o) Lease Agreement with Option to Purchase between Marion County
Industrial Development Corporation, Inc and Quality Housing Supply, Inc. dated
May 9, 1994, filed as Exhibit 10(l) to Amendment No. 1 to the Company's
Registration Statement on Form S-2 (Registration No. 33-78644).
* (p) Commercial Sub-Lease and Agreement between Perfect Panels, Inc. and
Quality Housing Supply, Inc., dated July 1, 1996, filed as Exhibit 10(zz) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
* (q) Lease Agreement dated March 1, 1995, between the Industrial
Development Board of the City of Haleyville, Alabama and Wheel House Properties,
Inc., as assigned to and assumed by Star Industries, Inc. on January 11, 1996,
and as further assigned to and assumed by Cavalier Manufacturing, Inc. in
December 1996, filed as Exhibit 10(bb) to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
* (r) Lease Agreement between City of Mineral Wells, Texas and Cavalier
Homes of Texas dated February 27, 1996, filed as Exhibit 10(c) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
* (s) Lease Agreement dated June 1, 1997, between Graham Industrial
Association, Inc. and Cavalier Manufacturing, Inc. regarding the lease of the
manufacturing facility located in Graham, Texas, filed as Exhibit 10(q) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
* (t) Lease Agreement dated November 1, 1997, between Greenstar, L.L.C. and
The Colonial Group, regarding the lease of an administrative facility in
Greensboro, North Carolina, filed as Exhibit 10(r) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
* (u) Addendum to Lease Agreement dated January 18, 1999, between
Greenstar, L.L.C. and The Colonial Group, regarding the lease of an
administrative facility in Greensboro, North Carolina, filed as Exhibit 10(s) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
* (v) Assignment and Assumption Agreement dated April 29, 1999, between The
Colonial Group and Cavalier Homes, Inc. regarding the lease of the
administrative facility in Greensboro, North Carolina, filed as Exhibit 10(t) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
* (w) Amended and Restated Revolving and Term Loan Agreement, dated as of
March 31, 2000, by and among the Company, First Commercial Bank and certain
subsidiaries of the Company, filed as Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000.
* (x) First Amendment to Amended and Restated Revolving and Term Loan
Agreement, dated as of September 29, 2000, between the Company and First
Commercial Bank, filed as Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000.
* (y) Assumption Agreement dated as of January 2, 1997, by and among the
Company, First Commercial Bank and certain subsidiaries of the Company, filed as
Exhibit 10(q) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
* (z) Assumption Agreement among Cavalier Homes, Inc. and First Commercial
Bank, dated June 1, 1998, filed as Exhibit 10(c) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 26, 1998.
* (aa) Commitment Letter and Addendum among Cavalier Homes, Inc., Cavalier
Acceptance Corporation and First Commercial Bank, dated February 29, 2000, filed
as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
* (bb) Guaranty Agreement between First Commercial Bank and Cavalier Homes,
Inc. dated July 15, 1997, relating to guaranty of payments by Lamraft, LP filed
as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 26, 1997. 10-K for the year ended December 31, 1998.
* (cc) Amendment to the Limited Credit Guaranty Agreement between First
Commercial Bank and Cavalier Homes, Inc., executed as of March 24, 1999,
relating to guaranty of payments by Lamraft, LP filed as Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1999.
* (dd) Guaranty Agreement between First Commercial Bank and Cavalier Homes,
Inc., dated as of September 1, 1999, relating to guaranty of payments by
Lamraft, LP, filed as Exhibit 10(a) to the Company's Quarterly Report on Form
10-Q for the quarter ended October 1, 1999.
* (ee) Guaranty Agreement between First Commercial Bank and Cavalier Homes,
Inc. dated July 15, 1997, relating to guaranty of payments by Hillsboro
Manufacturing, LP filed as Exhibit 10(b) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 26, 1997.
* (ff) Amendment to the Limited Credit Guaranty Agreement between First
Commercial Bank and Cavalier Homes, Inc. executed as of March 24, 1999, relating
to guaranty of payments by Hillsboro Manufacturing, LP filed as Exhibit 10(c) to
the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1999.
* (gg) Guaranty Agreement between First Commercial Bank and Cavalier Homes,
Inc. dated July 15, 1997, relating to guaranty of payments by Woodperfect of
Texas, LP filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 26, 1997.
* (hh) Amendment to the Limited Credit Guaranty Agreement between First
Commercial Bank and Cavalier Homes, Inc. executed March 24, 1999, relating to
guaranty of payments by Woodperfect of Texas, LP filed as Exhibit 10(d) to the
Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1999.
* (ii) Continuing Guaranty Agreement between First Commercial Bank and
Cavalier Homes, Inc., dated March 31, 2000, relating to guaranty of payments of
Cavalier Acceptance Corporation, filed as Exhibit 10(c) to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
* (jj) Release of Guarantor and Amendment to Guaranty Agreements among
First Commercial Bank, Patriot Homes, Inc., Cavalier Homes, Inc., Southern
Energy Homes, Inc. and Lee Roy Jordan, dated as of December 31, 1999, filed as
Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
* (kk) Guaranty Agreement between SouthTrust Bank and Cavalier Homes, Inc.
dated as of July 27, 1998, relating to guaranty of payments by Woodperfect,
Ltd., filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 1, 1999.
* (ll) Agreement dated March 10, 1998, by and between Cavalier Acceptance
Corporation and Green Tree Financial Servicing Corporation, filed as Exhibit
10(xx) to the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
* (mm) Amended and Restated Finance Agreement among Cavalier Manufacturing,
Inc., Cavalier Acceptance Corporation and certain related entities and Green
Tree Financial Corp. and certain related entities, filed as Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 27, 1998.
* (nn) Manufactured Home Loan Purchase Agreement dated as of June 30, 1999,
by and between Cavalier Acceptance Corporation and Green Tree Financial
Corporation and certain of its affiliates, filed as Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1999.
* ** (oo) Cavalier Homes, Inc. 1988 Nonqualified Stock Option Plan, as
amended, filed as Exhibit 10(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
* ** (pp) Cavalier Homes, Inc. 1993 Amended and Restated Nonqualified Stock
Option Plan, filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
* ** (qq) Cavalier Homes, Inc. Executive Incentive Compensation Plan, filed as
an Appendix to the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders held May 15, 1996.
* ** (rr) Amendment to Cavalier Homes, Inc. Executive Incentive Compensation
Plan, filed as Exhibit 10(ii) to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 28, 1997.
* ** (ss) Cavalier Homes, Inc. Employee Stock Purchase Plan, filed as an
Appendix to the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders held May 15, 1996.
* ** (tt) Cavalier Homes, Inc. Key Employee Stock Incentive Plan, filed as an
Appendix to the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders held May 15, 1996.
* ** (uu) Amendment to Cavalier Homes, Inc. Key Employee Stock Incentive Plan,
filed as Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 28, 1997.
* ** (vv) Amendment to Cavalier Homes, Inc. Key Employee Stock Incentive Plan,
effective December 30, 1997, filed as Exhibit 10(j) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
* ** (ww) Amendment to Cavalier Homes, Inc. Key Employee Stock Incentive Plan,
effective January 23, 1998, filed as Exhibit 10(k) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
* ** (xx) Amendment to Cavalier Homes, Inc. Key Employee Stock Incentive Plan,
effective October 20, 1998, filed as Exhibit 10(l) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
* ** (yy) Cavalier Homes, Inc. Amended and Restated Nonemployee Directors
Stoc Option Plan, filed as an Appendix to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders held May 15, 1996.
* ** (zz) Amendment to Cavalier Homes, Inc. Amended and Restated Nonemployee
Directors Plan filed as Exhibit 10(i) to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
* ** (aaa) Amendment to Cavalier Homes, Inc. Amended and Restated Nonemployee
Directors Plan, filed as Exhibit 10(n) to the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
* (bbb) Cavalier Homes, Inc. Amended and Restated Dividend Reinvestment
Plan, filed as Appendix A to the Prospectus appearing in the Company's
Post-Effective Amendment No. 1 to Form S-3, Registration No. 333-48111, filed on
September 29, 1998.
* (ccc) Cavalier Homes, Inc. Amended and Restated Dealership Stock Option
Plan filed as Appendix A to the Company's Registration Statement on Form S-3,
Amendment No. 2, Registration No. 33-62487, dated June 18, 1998.
* ** (ddd) Cavalier Homes, Inc. Deferred Compensation Plan, effective April 1,
1998, filed as Exhibit 10(d) to the Quarterly Report on Form 10-Q for the
quarter ended June 26, 1998.
* ** (eee) Cavalier Homes, Inc. Flexible Option Plan filed as Exhibit 4(e) to
the Company's Registration Statement on Form S-8, Registration No. 333-57743,
dated June 28, 1998.
* ** (fff) Belmont Homes, Inc. 1994 Incentive Stock Plan, filed as an Exhibit
to the Belmont Homes, Inc. Registration Statement on Form S-1, Registration
No. 33-87868.
* ** (ggg) Belmont Homes, Inc. 1994 Non-Qualified Stock Option Plan for
Non-Employee Directors, filed as an Exhibit to the Belmont Homes, Inc.
Registration Statement on Form S-1, Registration No. 33-87868.
* (hhh) Form of Indemnification Agreement between Belmont Homes, Inc. and
the Directors and Executive Officers of Belmont Homes, Inc., filed as Exhibit
10.2 to Belmont Homes, Inc. Current Report on Form 8-K filed on September 8,
1997.
* (iii) Form of Indemnification Agreement by and between Cavalier Homes,
Inc. and each member of its Board of Directors, filed as Exhibit 10(a)
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 25, 1998.
* (jjj) Split dollar Agreement dated May 15, 1998, by and between the
Company and Jerry F. Wilson, Jr. as Trustee of the David Allen Roberson Family
Trust, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 26, 1998.
* ** (kkk) Retention and Severance Agreement, dated August 26, 1998, by
and between Cavalier Homes, Inc. and Barry B. Donnell, filed as Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for the quarter ended September
25, 1998.
* ** (lll) Retention and Severance Agreement, dated August 26, 1998, by and
between Cavalier Homes, Inc. and David A. Roberson, originally filed as Exhibit
10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 25, 1998 and filed as 10(ggg) to the Company's Annual Report on Form
10-K for the year ended December 31, 1998 in order to correct a typographical
error.
* ** (mmm) Retention and Severance Agreement, dated August 26, 1998, by and
between Cavalier Homes, Inc. and Michael R. Murphy, filed as Exhibit 10(d) to
the Company's Quarterly Report on Form 10-Q for the quarter ended September 25,
1998.
* (nnn) Stock Purchase Agreement dated October 25, 1996, among Belmont
Homes, Inc., Bellcrest Holding Co., Inc., G. Hiller Spann, Joe H. Bell,
James M. Birdwell and Delroy Dailey, Jr., filed as an exhibit to Belmont
Homes, Inc. Current Report on Form 8-K filed November 13, 1996, File No.
0-26142.
* (ooo) First Amendment to Stock Purchase Agreement between Belmont Homes,
Inc. And the former shareholders of Bellcrest Homes, Inc. filed as Exhibit
10.1 to Belmont Homes, Inc. Current Report on Form 8-K filed on September 8,
1997.
* (ppp) The Agreement and Plan of Merger dated August 14, 1997, by and
among the Company, Crimson Acquisition Corp. and Belmont Homes, Inc., filed as
Exhibit 2 to the Company's Current Report on Form 8-K dated August 19, 1997.
* (qqq) Amendment No. 1 to the Agreement and Plan of Merger referenced
in Exhibit 10(nn) above filed as Exhibit 10(e) to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 26, 1997.
(11) Statement re Computation of Per Share Earnings.
(21) Subsidiaries of the Registrant.
(23) Consent of Deloitte & Touche LLP.
-----------------------------------------
* Incorporated by reference herein.
** Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAVALIER HOMES, INC.
--------------------
Registrant
By: /s/ DAVID A. ROBERSON
-----------------------
Its President
Date: March 30, 2001
Pursuant to the requirements of Section 13 or 15(d) 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.
Signature Title Date
/s/ DAVID A. ROBERSON Director and Principal Executive March 30, 2001
- ------------------------------------ Officer
/s/ MICHAEL R. MURPHY Director and Principal Financial and March 30, 2001
- --------------------------- Accounting Officer
/s/ BARRY DONNELL Chairman of the Board and Director March 30, 2001
- ---------------------------
/s/ THOMAS A. BROUGHTON, III Director March 30, 2001
- ------------------------------------
/s/ JOHN W LOWE Director March 30, 2001
--------------------------
/s/ LEE ROY JORDAN Director March 30, 2001
- ------------------------------------
/s/ GERALD W. MOORE Director March 30, 2001
- ------------------------------------
/s/ A. DOUGLAS JUMPER, SR. Director March 30, 2001
- ---------------------------
/s/ MIKE KENNEDY Director March 30, 2001
- ---------------------------
/s/ JOHN W. ALLISON Director March 30, 2001
- ------------------------------------
INDEX
Exhibit
Number
(10) Material Contracts
(c)Industrial Sublease dated October 2, 2000, by and among Cavalier
Industries, Inc., as successor by merger to Bellcrest Homes, Inc.,
Alliance Homes, Inc., All-Span Homes, LLC and G. Hiller Spann,
regarding the sublease of the manufacturing facility located in
Adrian, Georgia.
(11) Statement Re Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP