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, 2001
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)
32 Wilson Boulevard 100,
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. X
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 19, 2002, was $56,024,518.
Indicate the number of shares outstanding of
each of the Registrant's classes of
common stock, as of March 19, 2002.
17,663,644
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 21, 2002.
CAVALIER HOMES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001
PART I
ITEM 1. BUSINESS
General
Cavalier Homes, Inc. (the "Company"), incorporated in 1984, is a Delaware
corporation with its executive offices located at 32 Wilson Boulevard 100,
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, 2001,
Cavalier had a total of 242 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 approximately 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, include appliances, may be furnished and are
comprised of one or more floor sections. At December 31, 2001, the Company
operated 14 home manufacturing facilities, one plant that manufactures laminated
wallboard and a cabinet manufacturing operation. 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 primarily 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, 2001
are contained in Note 11 of Notes to Consolidated Financial Statements in Part
II.
Home Manufacturing Operations
At December 31, 2001, the Company, through three wholly owned subsidiaries,
owned or leased 14 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 ten 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, 2001, operated a total of 14 home manufacturing
facilities, reflecting an approximate one-third reduction in manufacturing
capacity since 1999. 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 36,000 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 2001, 2000, and
1999:
For the Year Ended December 31,
---------------------------------------------------------------------------------------
2001 2000 1999
-------------------------- ------------------------- -------------------------
Number of homes sold:
Single-section homes 4,013 32% 4,406 38% 10,546 47%
Multi-section homes 8,656 68% 7,072 62% 11,831 53%
------------ ------------ ----------- ----------- ----------- -----------
Total homes 12,669 100% 11,478 100% 22,377 100%
============ ============ =========== =========== =========== ===========
Number of floors sold 21,324 18,590 34,294
============ =========== ===========
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, panels,
sheetrock, vinyl siding, roofing materials, insulating materials, and electrical
supplies. The Company purchases axles, wheels, tires, appliances, laminated
wallboard, roof trusses, plumbing fixtures, 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 subsidiaries provide laminated wallboards
and cabinets for most 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
practical limit to the distance between a manufacturing facility and its
dealers. 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 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, air conditioning, 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 250 different models of manufactured homes
with a variety of decors that are marketed under multiple brand names. The
Company reviewed its product offerings and eliminated many redundant products by
geographic location to streamline manufacturing processes during 2001,
dramatically reducing the quantity of models offered. * The homes typically
include a living room, dining area, kitchen, two to four bedrooms and two
bathrooms. Each home contains a range and oven, refrigerator, microwave,
dishwasher, water heater and central heating. Customers also may choose from
available options including gas appliances, kitchen cabinets, various decor
packages, recessed frames for use with permanent foundations and wind load and
thermal options for use in certain geographic areas.
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, 2001, the Company had 242 participating dealer locations
selling the Company's homes under its Exclusive Dealer Program, which included
five Company-owned retail locations. In addition, the Company markets its homes
through approximately 600 active non-exclusive independent dealer locations in
approximately 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, 2001 2000 1999
- --------------------------------------------- ------ ------ ------
Number of independent exclusive dealer locations 237 193 274
Percentage of manufactured home sales 51% 49% 55%
Through its finance subsidiary, CIS, the Company purchases qualifying retail
installment sales contracts primarily for manufactured homes sold through the
Company's dealer network.
Approximately 84% of the Company's sales in 2001 were to dealers operating sales
centers in the Company's core states as follows: Texas - 13%, Arkansas - 11%,
Louisiana - 10%, North Carolina - 10%, Alabama - 9%, Georgia - 8%, Mississippi -
8%, South Carolina - 6%, Missouri - 4%, Tennessee - 3% and New Mexico-2%.
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 2001, the Company's largest dealer accounted for approximately
2.2% 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
* See Safe Harbor Statement on page 32.
helps to ensure that the Company's homes are competitive with those of other
manufacturers in terms of consumer acceptability, product design, quality and
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
primarily 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, 2001,
the Company maintained a sales force of 63 full-time salesmen and 11 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 primarily through the Company's 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
180 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, 2001, 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 14%, and the
approximate weighted average annual percentage interest rate was 11.60%.
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 continually reviews
its policies and procedures to facilitate prompt decision-making on loan
applications. In the event an installment sale contract becomes 30 days
delinquent, CIS normally contacts the customer promptly in an effort to cure the
delinquency. Once a customer has failed to cure a default, CIS begins
repossession procedures. 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 $0.5, $0.7 and $2.2 million
in 2001, 2000, and 1999, respectively. Additionally, as a result of defaults,
early payoffs and repossessions, $0.8, $1.2 and $1.3 million were charged
against the reserve in 2001, 2000, and 1999, respectively. The reserve for
credit losses at December 31, 2001 was $0.8 million as compared to $1.2 million
at December 31, 2000, and $1.7 million at December 31, 1999.
In 2001, 2000 and 1999, CIS repossessed 17, 16 and 62 homes, respectively. The
Company's inventory of repossessed homes was 13 homes at December 31, 2001, as
compared to six homes at December 31, 2000 and 28 homes at December 31, 1999.
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 2001, 2000 and 1999 was 8.40%, 14.24% and 7.83%, respectively.
* See Safe Harbor Statement on page 32.
At December 31, 2001 and December 31, 2000, delinquencies, except for loans
identified as presenting uncertainty with respect to collectibility, 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
----------------- --------------- ---------------- ---------------- ----------------
2001 130 3.08% 0.00% 0.00% 3.08%
2000 220 1.82% 0.45% 0.00% 2.27%
At December 31, 2001 and December 31, 2000, delinquencies, except for loans
identified as presenting uncertainty with respect to collectibility, 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
----------------- --------------- ---------------- ---------------- ----------------
2001 $4,991,000 2.13% 0.00% 0.00% 2.13%
2000 $7,887,000 1.47% 0.49% 0.00% 1.96%
The loan portfolio contains loans identified as presenting uncertainty with
respect to collectibility. These loans totaled $0.7 million and $0.4 million at
December 31, 2001 and 2000, respectively. 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. The reserve for credit losses at
December 31, 2001 was $0.8 million as compared to $1.2 million at December 31,
2000.
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,
------------------------------------------------------
2001 2000 1999
--------------- ---------------- ----------------
Total loans receivable $ 4,991,000 $ 7,887,000 $ 9,450,000
Allowance for credit losses $ 829,000 $ 1,180,000 $ 1,656,000
Number of loans outstanding 130 220 290
Net loss ratio on average
outstanding principal balance 8.40% 14.24% 7.83%
Weighted average annual
percentage rate 11.6% 11.7% 11.2%
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. *
* See Safe Harbor Statement on page 32.
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 and December 2001, the Company
received proceeds of approximately $1.4 million and $4.5 million, respectively,
from the sale of loans that were previously held in its installment loan
portfolio. 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 agreement 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 primarily 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 date and price. A portion of purchases
by dealers are pre-sold to retail customers and are paid through retail
financing commitments.
The risk of loss under repurchase agreements is lessened 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
2.2% of sales in 2001, (ii) the price the Company is obligated to pay under such
repurchase agreements declines based on predetermined amounts over the period of
the agreement (generally 18 months) and (iii) the Company historically has been
able to resell homes repurchased from lenders. As of December 31, 2001, the
maximum amount for which the Company is contingently liable under such
agreements was approximately $135 million. The Company has a reserve for
repurchase commitments of $3.2 million as of December 3l, 2001, 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 various production
stages. The Company's manufacturing facilities and the plans and specifications
of its manufactured homes have been approved by a HUD-designated agency. An
independent, HUD-approved third-party regularly checks the Company's
manufactured homes for compliance during construction.
* See Safe Harbor Statement on page 32.
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 generally employs a full-time service manager at each of its home
manufacturing units and 233 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
repairs. At December 31, 2001, the Company had established a reserve for future
warranty claims of $11.7 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,
product features and quality, reputation for service quality, depth of field
inventory, delivery capabilities, warranty repair service, dealer promotions,
merchandising and terms of dealer (wholesale) 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. *
The Company's manufacturing facilities and the plans and specifications of its
manufactured homes have been approved by a HUD-designated agency. Furthermore,
an independent, HUD-approved third-party 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
* See Safe Harbor Statement on page 32.
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.
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
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
also may 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 also have adopted consumer credit
protection requirements that may impose significant requirements for consumer
credit lenders. For example, many states require that a consumer credit finance
* See Safe Harbor Statement on page 32.
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
Additionally, effective January 1, 2002, the State of Texas enacted a law that,
among other things, classifies and taxes manufactured homes as real property,
and not personal property, under certain conditions as set forth in the Texas
law. The classification as real property could change the rates and methods of
taxation assessed against such homes in Texas. The law also may affect the form
and structure of permanent financing extended to Texas manufactured home
consumers because such financing historically has treated manufactured homes as
personalty rather than as real estate.
Employees
As of December 31, 2001, the Company had 3,403 employees, of whom 2,746 were
engaged in home manufacturing and supply distribution, 104 in sales, 233 in
warranty and service, 248 in general administration, 1 in delivery, 51 in
finance and insurance services and 20 in retail locations. At year-end, only one
home manufacturing operation's employees (101 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 wholesale (dealer) financing;
o availability of retail (consumer) 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 and 2001.
Percentage Increase (Decrease) in Floor Shipments Through 2001
o 1992............................21%
o 1993............................22%
* See Safe Harbor Statement on page 32.
o 1994............................23%
o 1995............................12%
o 1996............................10%
o 1997............................ 1%
o 1998............................ 8%
o 1999............................(4.3)%
o 2000...........................(25.9)%
o 2001...........................(20.7)%
During much of the 1990s, the manufactured housing industry also has experienced
increases in both the number of retail dealers and manufacturing capacity, which
we believe ultimately created slower retail turnover, higher dealer inventories
and increased price competition. * These conditions significantly affected the
industry in 2001. According to MHI, floor shipments declined 20.7% in 2001 from
2000, although floor shipments increased 3.9% in the fourth quarter of 2001.
While MHI reported an increase in floor shipments in the fourth quarter of 2001,
Cavalier cannot assure investors that there will not be additional decreases in
floor shipments in the future. * In addition, a number of retail dealers have
failed and repossessions of manufactured homes have significantly increased.
Some manufactured housing wholesale and retail lenders also have 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 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. Industry projections
for wholesale shipments in 2002 are flat.
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. We have
successfully reversed the downturn in Cavalier floor shipments and began the
return to profitability during the course of 2001, but Cavalier cannot assure
investors that the increases in its floor shipments will continue. * 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;
* See Safe Harbor Statement on page 32.
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.
A major third-party lender recently announced plans to discontinue wholesale
financing of manufactured homes, which may have a material adverse effect on
Cavalier's ability to find financing for dealer purchases. * Additionally,
several lenders which traditionally have provided retail financing to
manufactured home purchasers recently have exited the manufactured home
financing market, and the lenders which continue to provide retail financing
have tightened their credit standards. Reduced availability of such financing is
currently having an adverse effect on the manufactured housing industry. * 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
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 manufactured housing industry that occurred in much of 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 1999 and another 10% in 2001 from levels at the end of 2000. 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.
* While 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
* See Safe Harbor Statement on page 32.
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 product features and quality;
o reputation for service quality;
o depth of field inventory;
o delivery capabilities;
o warranty repair service;
o dealer promotions;
o merchandising; and
o terms of wholesale (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
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 at a declining price based upon the Company's original
invoice date and price. 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 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. We also may 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. * Accordingly, we may incur additional debt, or other
* See Safe Harbor Statement on page 32.
forms of financing, in order to continue to fund such growth. * CIS has
periodically resold installment loan contracts to other financial institutions.
Cavalier sold a substantial portion of its existing loan portfolio in December
2001, in addition to its periodic sale of loans. 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, panels 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.
Cavalier obtains a substantial amount of its supply of laminated wallboard from
a wholly-owned subsidiary, and obtains a majority of its supply of cabinetry
from another wholly-owned subsidiary. We depend upon these subsidiaries for a
significant portion of the materials used to construct portions of our
manufactured homes. The inability of either of these subsidiaries to provide
laminated wallboard or cabinetry to the Company, whether due to materials
shortages, destruction of manufacturing facilities or other events affecting
production of these component parts, 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.
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, its Chief Operating Officer, Gregory A. Brown, 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
* See Safe Harbor Statement on page 32.
industry. 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.
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,
2001:
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) 104,000 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 facility (1) 94,000 Owned
Winfield, Alabama Manufacturing facility (1) 129,000 Leased
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 (c)
Quality Housing Supply, LLC
Hamiliton, Alabama Manufacturing facility (1) 60,000 Owned (d)
Ridge Crest, LLC
Haleyville, Alabama Manufacturing facilities (2) 101,000 Leased
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) 76,000 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), Riverchase and Quality Housing 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 2001, the Company recorded an impairment charge related to the
closure of this leased manufacturing facility.
(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 40% to 89%, excluding eight idled
facilities in Addison and Winfield, Alabama, Bigelow, Arkansas, Adrian, Georgia,
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, 2001
Fourth Quarter $ 3.17 $2.00 $ -
Third Quarter 3.12 1.51 -
Second Quarter 3.50 2.12 -
First Quarter 2.50 0.94 -
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
As of March 22, 2002, the Company had approximately 400 shareholders of record
and 3,700 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, 2001 have been derived from the consolidated financial
statements of the Company. The Company's audited financial statements as of
December 31, 2001 and 2000, and for each of the years in the three-year period
ended December 31, 2001, 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,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------- ------------- ------------- -------------
(in thousands, except per share amounts)
Statement of Operations Data
Revenue:
Home manufacturing net sales $ 348,235 $ 306,239 $ 582,274 $ 623,281 $ 578,587
Financial services 3,088 4,878 6,107 6,088 5,346
Retail 6,968 16,842 20,914 7,167 -
Other 5,580 5,153 5,173 2,699 2,112
------------ ------------- ------------- ------------- -------------
Total revenue 363,871 333,112 614,468 639,235 586,045
Cost of sales 309,656 292,810 504,011 520,675 487,632
Selling, general and administrative 66,690 85,430 102,938 88,809 73,973
Impairment and other related charges 1,003 6,975 4,002 - -
Non-recurring merger and related costs - - - - 7,359
------------ ------------- ------------- ------------- -------------
Operating profit (loss) (13,478) (52,103) 3,517 29,751 17,081
Life insurance proceeds - - - - 1,500
Other income (expense) - net (1,140) (494) 36 1,531 (242)
------------ ------------- ------------- ------------- -------------
Income (loss) before income taxes (benefit) $ (14,618)$ (52,597) 3,553 $ 31,282 $ 18,339
============ ============= ============= ============= =============
Net income (loss) $ (14,018)$ (33,468)$ 2,150 $ 18,655 $ 10,247
============ ============= ============= ============= =============
Basic net income (loss) per share $ (.80)$ (1.88)$ .12 $ .94 $ .52
============ ============= ============= ============= =============
Diluted net income (loss) per share $ (.80)$ (1.88)$ .12 $ .93 $ .51
============ ============= ============= ============= =============
Cash dividend per share $ - $ .09 $ .16 $ .13 $ .07
============ ============= ============= ============= =============
Weighted average number of shares
outstanding 17,580 17,800 18,126 19,905 19,835
============ ============= ============= ============= =============
Weighted average number of shares
outstanding, assuming dilution 17,580 17,800 18,204 20,144 20,028
============ ============= ============= ============= =============
Other Data
Capital expenditures $ 3,496 $ 3,807 $ 24,546 $ 14,655 $ 10,186
============ ============= ============= ============= =============
Balance Sheet Data
Working capital $ 18,183 $ 27,213 $ 33,065 $ 41,707 $ 28,484
Total assets $ 174,116 $ 187,595 $ 233,578 $ 235,952 $ 211,554
Long-term debt $ 23,999 $ 24,054 $ 10,218 $ 3,650 $ 15,808
Stockholders' equity $ 80,192 $ 94,318 $ 129,391 $ 144,911 $ 133,551
Certain amounts from prior periods have been reclassified to conform to the current presentation.
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 homes. 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 and all of 2000. The Manufactured Housing Institute
("MHI") reported that industry wholesale floor shipments declined 20.7% in 2001
as compared to 2000, following a 25.9% decline from 1999 to 2000, although
shipments increased 3.9% in the fourth quarter of 2001. MHI also has reported
that industry wholesale floor shipments declined from 608,921 in 1998 to 342,321
in 2001, or 43.8%. The industry also has been impacted by an increase in dealer
failures, 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. A
major third-party lender recently announced plans to discontinue wholesale
financing of manufactured homes, which may have a material adverse effect on the
Company's ability to find financing for dealer purchases. * 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. *
During 2001, the Company recorded impairment and other related charges of $1,003
($1,003 after tax or $0.06 per diluted share) in connection with the closing of
one home manufacturing facility. Since the fall of 1999, Cavalier has idled ten
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, 2001, operated a
total of 14 home manufacturing facilities, reflecting an approximate one-third
reduction in manufacturing capacity since 1999. 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 2,300 employees or
about 40% 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.
After substantial losses since the third quarter of 1999, the Company's results
for the latter part of 2001 showed significant improvement. Although industry
conditions remained challenging, the Company's floor shipments increased 67%
during the fourth quarter of 2001 as compared to the fourth quarter of 2000,
following a 45% increase in the third quarter over the prior year and a 2%
increase in the second quarter. The Company also recorded revenue growth over
the comparable prior year period during both the third and fourth quarters of
2001. This trend enabled the Company to return to profitability for the fourth
quarter of 2001; however, the typical seasonal slowdown that normally occurs in
the first quarter of the year combined with increased promotional costs related
to a winter promotion, will likely result in lower margins and a loss for the
first quarter of 2002. * The Company is uncertain at this time as to the extent
and duration of the effects resulting from the terrorist attacks on the United
States which began on September 11, 2001, the general economic slowdown and
continuing adverse industry conditions will have on the Company's future revenue
and earnings. *
* See Safe Harbor Statement on page 32.
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 2001 2000 1999
----------------------- ---------------------- ------------------------
Revenue:
Home manufacturing net sales $ 348,235 $ 306,239 $ 582,274
Financial services 3,088 4,878 6,107
Retail 6,968 16,842 20,914
Other 5,580 5,153 5,173
---------- ---------- ----------
Total revenue $ 363,871 100.0% $ 333,112 100.0% $ 614,468 100.0%
Cost of sales 309,656 85.1% 292,810 87.9% 504,011 82.0%
---------- ---------- ---------- ---------- ---------- ----------
Gross profit $ 54,215 14.9% $ 40,302 12.1% $ 110,457 18.0%
========== ========== ========== ========== ========== ==========
Selling, general and administrative $ 66,690 18.3% $ 85,430 25.6% $ 102,938 16.8%
Impairment and other related charges $ 1,003 0.3% $ 6,975 2.1% $ 4,002 0.7%
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) $ (13,478) -3.7% $ (52,103) -15.6% $ 3,517 0.6%
---------- ---------- ---------- ---------- ---------- ----------
Other income (expense):
Interest expense $ (1,935) -0.5% $ (2,736) -0.8% $ (1,643) -0.3%
Other, net 795 0.2% 2,242 0.7% 1,679 0.3%
---------- ---------- ----------
$ (1,140) $ (494) $ 36
========== ========== ==========
Net income (loss) $ (14,018) -3.9% $ (33,468) -10.0% $ 2,150 0.3%
========== ========== ==========
OPERATING DATA
Home manufacturing sales:
Floor shipments 21,324 18,590 34,294
Home shipments
Single section 4,013 31.7% 4,406 38.4% 10,546 47.1%
Multi section 8,656 68.3% 7,072 61.6% 11,831 52.9%
---------- ---------- ---------- ---------- ---------- ----------
Total shipments 12,669 100.0% 11,478 100.0% 22,377 100.0%
Shipments to company owned retail locations (151) -1.2% (200) -1.7% (645) -2.9%
---------- ---------- ---------- ---------- ---------- ----------
Wholesale shipments to independent retailers 12,518 98.8% 11,278 98.3% 21,732 97.1%
========== ========== ========== ========== ========== ==========
Retail sales:
Single section 75 37.5% 335 49.3% 375 58.3%
Multi section 125 62.5% 345 50.7% 268 41.7%
---------- ---------- ---------- ---------- ---------- ----------
Total sales 200 100.0% 680 100.0% 643 100.0%
========== ========== ========== ========== ========== ==========
Cavalier produced homes sold 170 85.0% 568 83.5% 490 76.2%
========== ========== ========== ========== ========== ==========
Used homes sold 29 14.5% 99 14.6% 115 17.9%
========== ========== ========== ========== ========== ==========
Other operating data:
Installment loan purchases $ 35,768 $ 59,569 $ 47,063
Capital expenditures $ 3,496 $ 3,807 $ 24,546
Home manufacturing facilities (operating) 14 15 19
Independent exclusive dealer locations 237 193 274
Company-owned retail locations 5 5 16
2001 Compared to 2000
Revenue
Total revenue for 2001 was $363,871, increasing $30,759, or 9.2%, from 2000
revenue of $333,112.
Home manufacturing net sales in 2001 increased $41,996, or 13.7%, to $348,235
net of intercompany eliminations of $4,196. Home manufacturing net sales for
2000 were $306,239, net of intercompany eliminations of $5,292. Home shipments
increased 10.4%, with floor shipments increasing by 14.7%. Multi-section home
shipments, as a percentage of total shipments, increased from 61.6% of shipments
in 2000 to 68.3% of shipments in 2001 in response to increasing consumer demand
for multi-section homes as compared to single section homes. The year 2001
average price of homes sold increased $700, from $27,100 in 2000 to $27,800 in
2001. Actual shipments of homes for 2001 were 12,669 versus 11,478 in 2000.
Cavalier attributes the increase in sales and shipments primarily to its
aggressive marketing strategies and its product offerings. * Approximately 84%
of Cavalier's shipments was to its core market of 11 states, where the Company's
floor shipments increased 12.2% compared to 2000, including a 65.0% increase in
the fourth quarter.
Although home manufacturing revenue increased, the Company's inventory at all
retail locations, including company-owned retail sales centers, declined 10% to
approximately $171,000 at December 31, 2001 from $191,000 at year end 2000. At
its peak in June 1999, dealer inventory approximated $314,000.
Revenue from the financial services segment decreased 36.7% to $3,088 for 2001
compared to $4,878 in 2000, due to primarily a lower volume of installment
contracts sold. For 2001, CIS Financial Services, Inc. ("CIS") purchased
contracts of $35,768 and resold installment contracts totaling $36,325. In 2000,
CIS purchased contracts of $59,569 and resold installment contracts totaling
$60,241. CIS does not retain the servicing function and does not earn the
interest income on these resold loans. CIS purchased and sold fewer loans in
2001 as compared to 2000 primarily due to the industry conditions cited above.
Revenue from the retail segment was $6,968 for 2001 compared to $16,842 for 2000
primarily due to a reduced number of operating retail sales locations. During
2000, the Company closed or sold 11 under-performing retail locations, bringing
the number of company-owned stores to five at December 31, 2001.
Other revenue consists mainly of revenue from the Company's wholesale supply and
component manufacturing businesses, which primarily sell to the Company's home
manufacturing segment. Revenues from external customers increased 8.3% to $5,580
for 2001 compared to $5,153 during 2000. The increase is primarily due to price
increases at one supply company.
Gross Profit
Gross profit is derived by deducting cost of sales from total revenue. Gross
profit was $54,215 or 14.9% of total revenue, for 2001, versus $40,302 or 12.1%
of total revenue, in 2000. Of the $13,913 increase, the Company attributes
approximately $3,700 to volume increase and $10,200 to cost reductions due to
continued efficiencies gained from restructured product and work processes.
Selling, General and Administrative
Selling, general and administrative expenses during 2001 were $66,690 or 18.3%
of total revenue, versus $85,430 or 25.6% of total revenue in 2000, a decrease
of $18,740. The overall decrease includes a $1,228 reduction in employee
benefits cost, a $1,161 reduction in service and warranty cost, a $7,566
decrease in inventory repurchase charges, a $2,334 reduction due to business
units sold during 2000, a $2,045 reduction due to scaled-back retail operations,
a $1,223 reduction in management information system costs and a $2,352 reduction
in advertising and promotion costs, including costs to support the exclusive
dealer program.
Impairment and Other Related Charges
During 2001, the Company recorded impairment and other related charges of $1,003
($1,003 after tax or $0.06 per diluted share) related to the closing of one home
manufacturing plant. 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 ($1,497) - a
step related to the scaling back of the Company's retail operations - and the
disposition of a portion of the Company's supply operations ($242).
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 2001 was $13,478, compared to an operating loss of
$52,103 in 2000. Home manufacturing operating loss, before intercompany
* See Safe Harbor Statement on page 32.
eliminations, was $7,915 in 2001 as compared to a loss of $33,211 in 2000. The
improvement was primarily due to the increase in revenue and gross profit and to
reduced selling, general and administrative expenses. 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). 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 profit
increased to $211 in 2001 as compared to an operating loss of $1,251 in 2000
primarily due to the decrease in impairment and other related charges noted
above. The retail segment's operating loss decreased $9,427 from $9,514 to $87
primarily due to the closing or disposition of eleven under performing
Company-owned retail locations in 2000. The other segment operating profit,
before intercompany eliminations, increase of $3,756 is due mainly to the
improved margins at one supply subsidiary and an addition of another supply
subsidiary in 2001. General corporate operating loss, which is not identifiable
to a specific segment, decreased $255.
Other Income (Expense)
Interest expense decreased $801 primarily due to a reduction in notes payable
under retail floor plan agreements and lower interest rates on amounts
outstanding under the Company's line of credit.
Other, net is comprised primarily 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 decreased $1,447 primarily due to $509 lower
interest income on operating bank balances, $556 lower gains on the sale of
property, plant and equipment and $336 higher losses from supply-related equity
partnerships.
Net Income (Loss) before Income Tax Benefit
The Company's 2001 pre-tax loss was $14,618, reflecting a 72.2% improvement over
the pre-tax loss of $52,597 in 2000. The prior-year pre-tax loss included
impairment and other related charges of $6,975, charges for anticipated dealer
failures of $9,414, inventory valuation charges of $2,971, charges related to a
plant disposition of $3,450, and a fire insurance gain of $920. In 2001, the
Company recorded charges of $1,848 for anticipated dealer failure and $1,003 for
impairment and other related charges.
Net Income (Loss)
The Company recorded an income tax benefit of $600 in the first quarter of 2001
relating to future income tax refunds and certain carryforward items, but did
not record any additional benefit for net operating losses for the remainder of
the year, because management believes it is no longer appropriate to record
income tax benefits on current losses in excess of anticipated refunds and
certain carryforward items under the provisions of SFAS No.109 Accounting for
Income Taxes. * Before impairment and other related charges discussed above, the
Company's net loss for 2001 was $13,015 or $0.74 per diluted share compared with
net loss before impairment and other related charges of $28,285 or $1.59 per
diluted share in 2000. The Company's net loss for 2001, after impairment and
other related charges, was $14,018 or $0.80 per diluted share, as compared to a
net loss of $33,468 or $1.88 per diluted share in 2000, primarily due to the
factors noted above.
2000 Compared to 1999
Revenue
Total revenue for 2000 was $333,112, down 45.8% from 1999 revenue of $614,468.
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 47.4% to $306,239 net of intercompany eliminations of
$5,292. Home manufacturing net sales for 1999 were $582,274, net of intercompany
* See Safe Harbor Statement on page 32.
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, primarily due to competitive pressure on the rate
earned on resold installment contracts. For 2000, CIS 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 primarily sell to the Company's home
manufacturing segment. Revenues from external customers remained consistent at
$5,153 for 2000 compared to $5,173 during 1999.
Gross Profit
Gross profit is derived by deducting cost of sales from total revenue. Gross
profit was $40,302 or 12.1% of total revenue, for 2000, versus $110,457 or 18.0%
of total revenue, in 1999. Of the $70,155 decrease, the Company attributes
approximately $50,600 to volume decrease and $19,600 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 $85,430 or 25.6%
of total revenue, versus $102,938 or 16.8% of total revenue in 1999, a decrease
of $17,508. The overall decrease is primarily due 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.
* See Safe Harbor Statement on page 32.
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
($1,497) - a step related to the scaling back of the Company's retail operations
- - and the 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 primarily was 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 primarily due 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 primarily due 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 comprised primarily 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 primarily due 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.
Liquidity and Capital Resources
Balances as of December 31,
-----------------------------------
(dollars in thousands) 2001 2000 1999
---------- ---------- ----------
Cash, cash equivalents & certificates of deposit $ 43,256 $ 35,394 $ 39,635
Working capital $ 18,183 $ 27,213 $ 33,065
Current ratio 1.3 to 1 1.4 to 1 1.4 to 1
Long-term debt $ 23,999 $ 24,054 $ 10,218
Ratio of long-term debt to equity 1 to 3 1 to 4 1 to 13
Installment loan portfolio $ 4,991 $ 7,887 $ 9,450
Operating activities during 2001 provided net cash of $7,303. The Company
received a federal income tax refund in April 2001 of $16,725. Effective March
9, 2002, the Jobs Creation and Workers' Assistance Act was passed which enabled
companies to carry back net operating losses five years instead of two years as
under the previous rules. The Company estimates it will receive approximately
$4,600 in tax refunds as a result of this change, which will be recorded in the
first quarter of 2002. *
The Company's capital expenditures were $3,496 for 2001, as compared to $3,807
for 2000. Capital expenditures during these periods included normal property,
plant and equipment additions and replacements and the exercise of a purchase
option for a previously leased facility for $1,125 in 2001. The proceeds for
this purchase came from an industrial development revenue bond issue. This
increase in long-term debt reduced by normal principal payments resulted in a
decrease in long-term debt of $55.
The Company purchased 312,200 shares of treasury stock during 2001 for $608. The
Company has 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 2001 and 2000, the Company received proceeds of approximately
$4,500 and $1,400, respectively, from the sale of loans that were previously
held in its installment loan portfolio.
On May 4, 2001, the Company amended its 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. At certain
levels of tangible net worth, defined as the total of the Company's tangible net
worth and treasury stock purchases for 2000 and 2001, the amount available under
the Credit Facility and applicable interest rate changes are noted in the
following table.
Applicable interest rate
Tangible net worth Credit Facility ----------------------------------
("TNW") Available Bank's Prime LIBOR
- ------------------------ ------------------ ------------------- ------------
Above $85,000 $35,000 less 0.50% plus 2.00%
$85,000 - $77,000 35% of TNW less 0.50% plus 2.00%
$77,000 - $65,000 35% of TNW prime plus 2.50%
$65,000 - $58,000 30% of TNW plus 0.25% plus 2.75%
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, 2001, $15,000 was outstanding under
the revolving line of credit, against a total borrowing capacity of $20,087
based on the Company's tangible net worth. At December 31, 2000, $15,000 was
outstanding under the revolving line of credit, against a total borrowing
capacity of $27,354 based on the Company's tangible net worth. 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
* See Safe Harbor Statement on page 32.
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, 2002 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
$58,000. The Credit Facility also requires CIS to comply with certain specified
restrictions and financial covenants.
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. 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. * CIS is currently
re-selling 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 will be adequate to
fund the Company's operations and plans for the next twelve months. * However,
there can be no assurances to this effect. If it is not, or if the Company is
unable to remain in compliance with its covenants under its Credit Facility, the
Company would seek to maintain or enhance its liquidity position and capital
resources through further modifications to or waivers under 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. *
Projected cash to be provided by operations in the coming year is largely
dependent on sales volume. The Company's manufactured homes are sold mainly
through independent dealers who generally rely on third-party lenders to provide
floor plan financing for homes purchased. In addition, 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. A major third-party lender
recently announced plans to discontinue wholesale financing of manufactured
homes, which may have a material adverse effect on Cavalier's ability to find
financing for dealer purchases. * Reduced availability of such financing is
currently having an adverse effect on the manufactured housing industry. * 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
* See Safe Harbor Statement on page 32.
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. Additionally, effective January 1,
2002, the State of Texas enacted a law that, among other things, classifies and
taxes manufactured homes as real property, and not personal property, under
certain conditions as set forth in the Texas law. The classification as real
property could change the rates and methods of taxation assessed against such
homes in Texas. The law also may affect the form and structure of permanent
financing extended to Texas manufactured home consumers because such financing
historically has treated manufactured homes as personalty rather than as real
estate.
Contractual Obligations and Commitments (dollars in thousands)
The following table summarizes contractual obligations of the Company at
December 31, 2001, including short and long-term debt, commitments for future
payments under non-cancelable operating lease agreements and other long-term
obligations. For additional information related to these obligations, see Notes
5 and 10 to the Consolidated Financial Statements. This table excludes long-term
obligations for which there is no definite commitment period.
Payments Due by Period
----------------------------------------------------------------------
Total Less than 1 yea1 -3 years 4 - 5 years After 5 years
------------- -------------------------- ------------ ----------
Notes payable under retail floor plan agreements $ 2,364 $ 2,364 $ - $ - $ -
Revolving credit facility 15,000 - 15,000 - -
Industrial development revenue bond issues 10,293 1,294 2,885 2,449 3,665
------------- ----------- ----------- ------------ ----------
Total contractual cash obligations $ 27,657 $ 3,658 $ 17,885 $ 2,449 $ 3,665
============= =========== =========== ============ ==========
The following table summarizes contingent commitments of the Company at December
31, 2001, including contingent repurchase obligations, guarantees of debt for
equity method investees and letters of credit. For additional information
related to these contingent obligations, see Note 10 to the Consolidated
Financial Statements and Critical Accounting Policies below. Contingent
insurance plans' retrospective premium adjustments are excluded from this table
as there is no definite expiration period (see Critical Accounting Policies
below).
Amount of Commitment Expiration per Period
----------------------------------------------------------------------
Total Less than 1 yea1 -3 years 4 - 5 years After 5 years
------------- -------------------------- ------------ ----------
Repurchase obligations (1) $ 135,000 $ 36,000 $ 99,000 $ - $ -
Guarantees (2) 1,861 461 423 228 749
Letters of credit (3) 2,878 2,490 388 - -
------------- ----------- ----------- ------------ ----------
Total commitments $ 139,739 $ 38,951 $ 99,811 $ 228 $ 749
============= =========== =========== ============ ==========
(1) For a complete description of the contingent repurchase obligation,
see Critical Accounting Policies-Reserve for Repurchase Commitments.
Although the commitments outstanding at December 31, 2001 have a
finite life, these commitments are continually replaced as the
Company continues to sell its manufactured homes to dealers under
repurchase and other recourse agreements with lending institutions
which have provided wholesale floor plan financing to dealers. The
cost of these contingent repurchase obligations to the Company was
$1,848 (2001), $9,414 (2000), and $3,088 (1999).
(2) 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 $2,805. At December 31,
2001, $5,663 was outstanding under the various guarantees, of which
the Company had guaranteed $1,861. One of the companies has a lease
purchase agreement with a third party to sell a facility financed by
debt that the Company has guaranteed. The Company expects the
proceeds from the exercise of the purchase option to be used to pay
off the debt and to be released from the guaranty upon payoff in
2003.
(3) The Company has provided letters of credit to providers of certain of
its insurance policies. While the current letters of credit have a
finite life, they are subject to renewal at different amounts based
on the requirements of the insurance carriers. The Company has
recorded insurance expense based on anticipated losses related to
these policies.
Critical Accounting Policies
Cavalier follows certain significant accounting policies when preparing our
consolidated financial statements as summarized in Note 1 to the Consolidated
Financial Statements. The preparation of these financial statements in
conformity with accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that affect the amounts
reported in the financial statements and notes. We evaluate these estimates and
assumptions on an ongoing basis and use historical experience factors, current
economic conditions and various other assumptions that we believe are reasonable
under the circumstances. The results of these estimates form the basis for
making judgments about the carrying values of assets and liabilities as well as
identifying the accounting treatment with respect to commitments and
contingencies. Actual results could differ from these estimates under different
assumptions or conditions. The following is a list of the accounting policies
that we believe are most important to the portrayal of our financial condition
and results of operations that require our most difficult, complex or subjective
judgments as a result of the need to make estimates about the effect of matters
that are inherently uncertain.
Product Warranties
Cavalier provides the retail home buyer a one-year limited warranty covering
defects in material or workmanship in home structure, plumbing and electrical
systems. We record a liability for estimated future warranty costs relating to
homes sold, based upon our assessment of historical experience factors and
current industry trends. Factors we use in the estimation of the warranty
liability include historical sales amounts and warranty costs related to homes
sold and any outstanding service work orders. We have a reserve for estimated
warranties of $11,700 (2001) and $11,800 (2000). Although we maintain reserves
for such claims, based on our assessments as described above, 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.
Insurance
Cavalier's workmen's compensation (prior to February 1, 1999, and after April 1,
2001), product liability and general liability (prior to April 1, 2001)
insurance coverages were provided under incurred loss, retrospectively rated
premium plans. Under these plans, we incur 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. We were
contingently liable at December 31, 2001 for future retrospective premium
adjustments up to a maximum of approximately $19,675 in the event that
additional losses are reported related to prior years. We recorded an estimated
liability of approximately $3,861 (2001) and $4,103 (2000) related to these
contingent claims. Claims exceeding our current expense levels could have a
material adverse effect on Cavalier's results of operations.
Reserve for Repurchase Commitments
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
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 new products from
the lending institutions 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, the largest of which accounted for
approximately 2.2% of sales in 2001; (2) the price that Cavalier is obligated to
pay under such repurchase agreements declines based on predetermined amounts
over the period of the agreement (generally 18 months) and (3) Cavalier
historically has been able to resell homes repurchased from lenders. Cavalier
reviews the aging of retail dealers' inventory to estimate the amount of
inventory subject to repurchase obligation. Additionally, we review repurchase
notifications received from floor plan sources and review our dealer inventory
for expected repurchase notifications based on various communications from the
lenders and the dealers as well as for dealers who are experiencing financial
difficulty. We apply a historical loss factor to the inventory estimated to be
repurchased. The maximum amount for which we are contingently liable under such
agreements approximated $135,000 at December 31, 2001. 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 much of 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 significant 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 1999 and another 10% in 2001 from levels at the end of 2000. 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. We have a reserve for repurchase
commitments of $3,200 (2001) and $4,100 (2000).
Impairment of Long-Lived Assets
Since the latter part of 1999, Cavalier and the manufactured housing industry
have experienced a downturn in business as discussed above. Due to deteriorating
market conditions, during this time, we have idled, closed or sold 10
manufactured housing facilities, a portion of our insurance and premium finance
business, a portion of our supply operations and 11 under-performing retail
locations. We periodically evaluate 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 based primarily on independent
appraisals and preliminary or definitive contractual arrangements less costs to
dispose.
Related Party Transactions
During 2001, 2000, and 1999, the Company purchased raw materials of
approximately $15,648, $11,893, and $20,166, 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.
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
of which $15,000 was outstanding at December 31, 2001 and 2000. See footnote 5
to the Consolidated Financial Statements for additional information regarding
the Credit Facility.
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
* See Safe Harbor Statement on page 32.
exercised in 2001 for $1,125 using proceeds from an industrial development bond
issue. The Company paid rents to related parties of $63 (2001), $377 (2000), and
$354 (1999). In 1999, the Company paid $337 for construction of plant facilities
and paid $3,400 to exercise purchase options on two previously leased
facilities, to companies among whose owners are certain officers, directors or
stockholders of the Company.
The Company recorded net income (loss) of investees accounted for by the equity
method of $(485), $(243), and $397 for the years ended December 31, 2001, 2000,
and 1999, respectively. Additionally, the Company and certain of its equity
partners have guaranteed certain debt for companies in which the Company owns
various equity interests. For additional information related to these
guarantees, see footnote (2) under Contractual Obligations and Commitments
above.
The Company's General Counsel is also a director of the Company. The Company
paid legal fees of $170 (2001), $201 (2000), and $269 (1999).
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 "2000 Compared to 1999 - 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
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
Company's consolidated financial statements.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets. This statement is effective for financial statements issued for years
beginning after December 15, 2001. Under this pronouncement, goodwill and
intangible assets with indefinite lives will no longer be amortized but reviewed
at least annually for impairment. Goodwill is considered impaired and a loss is
recognized when its carrying value exceeds its implied fair value. The Company
is currently evaluating SFAS No. 142 and has not yet determined its impact on
the Company's consolidated financial statements although it is probable that
some or all of the goodwill may be impaired. The Company has $15,468 in recorded
goodwill at December 31, 2001. Impairment charges, if any, would be recorded in
the first quarter of 2002 and would be reflected as a change in accounting
principle.
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets, which is effective for fiscal years beginning
after December 15, 2001. SFAS No. 144 addresses financial accounting and
reporting for the impairment of long-lived assets and for long-lived assets to
be disposed of. The Company is currently evaluating SFAS No. 144 and has not yet
determined its 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
* See Safe Harbor Statement on page 32.
commodity price risk. The Company manages its exposure to these market risks
through its regular operating and financing activities.
The Company is exposed to market risk related to investments held in a
non-qualified trust used to fund benefits under its deferred compensation plan.
These investments totaled $2,233 at December 31, 2001 and a deferred
compensation liability of $2,934. 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 14.0% and an
average original term of 298 months at December 31, 2001. 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, 2001.
The Company has notes payable under retail floor plan agreements, two industrial
development revenue bond issues 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 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) 2002 2003 2004 2005 2006 Thereafter Total Fair value
---- ---- ---- ---- ---- ---------- ----- ----------
Installment loan portfolio $ 930 a $ 30 $ 34 $ 38 $ 43 $ 3,916 $ 4,991 $ 4,944
(weighted average interest rate - 11.60%)
Expected Principal Maturity Dates
------------------------------------------------------------------------
(dollars in thousands) 2002 2003 2004 2005 2006 Thereafter Total Fair value
---- ---- ---- ---- ---- ---------- ----- ----------
Notes payable and long-term debt $ 3,658 b $ 16,339 $ 1,546 $ 1,204 $ 1,245 $ 3,665 $ 27,657 $ 28,292
(weighted average interest rate - 4.69%)
a The Company has recorded an allowance for credit losses of $829, primarily
based upon management's assessment of historical experience factors and
current economic conditions.
b Amount payable in 2002 includes $1,294 of current portion of long-term debt
and $2,364 of notes payable under retail floor plan agreements.
* See Safe Harbor Statement on page 32.
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 also may 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 acceptance of Cavalier's new product initiatives;
o changes in demographic trends, consumer preferences and Cavalier's
business strategy;
o changes and volatility in interest rates and the availability of
capital;
o changes in the availability of retail (consumer) financing;
o changes in the availability of wholesale (dealer) financing;
o changes in level of industry retail inventories;
o the ability to attract and retain quality independent dealers,
executive officers and other key 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;
o the potential volatility in our stock price; and
o currency fluctuations, exchange controls, market disruptions and other
effects resulting from the terrorist attacks on September 11, 2001 and
actions, including armed conflict by the United States and other
governments, in reaction thereto.
Any or all of our forward-looking statements in this report, in the 2001 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, 2001 and 2000. 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 Quarter Third Quarter Second Quarter First Quarter Total
---------------- --------------- --------------- ---------------- ------------
2001
Revenue:
Home manufacturing $ 105,222 $ 97,118 $ 90,332 $ 55,563 $ 348,235
Financial services 884 724 785 695 3,088
Retail 1,785 1,790 1,751 1,642 6,968
Other 1,520 1,313 1,469 1,278 5,580
------------- ------------- ------------- ------------- -------------
Total revenue 109,411 100,945 94,337 59,178 363,871
------------- ------------- ------------- ------------- -------------
Gross profit 20,581 16,567 12,044 5,023 54,215
Net income (loss) 1,250 (397) (4,613) (10,258) (14,018)
Basic net income (loss) per share a 0.07 b (0.02) (0.26) (0.59) (0.80) b
Diluted net income (loss) per share a 0.07 b (0.02) (0.26) (0.59) (0.80) b
2000
Revenue:
Home manufacturing $ 58,581 $ 67,891 $ 91,492 $ 88,275 $ 306,239
Financial services 709 1,132 1,590 1,447 4,878
Retail 2,654 3,382 7,865 2,941 16,842
Other 1,073 808 1,748 1,524 5,153
------------- ------------- ------------- ------------- -------------
Total revenue 63,017 73,213 102,695 94,187 333,112
------------- ------------- ------------- ------------- -------------
Gross profit 8,396 8,818 11,689 11,399 40,302
Net loss (5,630) (6,192) (13,009) (8,637) (33,468)
Basic net loss per share a (0.32) f (0.35) e (0.73) d (0.49) c (1.88)c,d,e,f
Diluted net loss per share a (0.32) f (0.35) e (0.73) d (0.49) c (1.88)c,d,e,f
a The sum of quarterly amounts may not equal the annual amounts due to
rounding.
b Includes impairment and other related charges of $1,003 ($1,003 net of
taxes, or $.06 per share basic and diluted) recorded in connection with
closing one home manufacturing facility.
c 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.
d 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.
e 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.
f 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.
CAVALIER HOMES, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements and Schedule
Independent Auditor's Report 35
Consolidated Balance Sheets 36
Consolidated Statements of Operations 38
Consolidated Statements of Stockholders' Equity 39
Consolidated Statements of Cash Flows 40
Notes to Consolidated Financial Statements 41
Schedule -
II - Valuation and Qualifying Accounts 56
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, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001 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.
/s/ Deloitte and Touche LLP
- -----------------------------
Birmingham, Alabama
February 22, 2002
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------------------------
2001 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 43,256 $ 35,394
Accounts receivable, less allowance for losses of
$625 (2001) and $346 (2000) 7,293 3,751
Notes and installment contracts receivable - current 1,708 1,890
Inventories 20,672 21,390
Deferred income taxes 8,075 11,776
Income tax receivable 15,052
Other current assets 2,011 2,211
--------- ---------
Total current assets 83,015 91,464
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 6,047 5,943
Buildings and improvements 50,633 49,784
Machinery and equipment 44,185 44,763
--------- ---------
100,865 100,490
Less accumulated depreciation and amortization 41,173 36,010
--------- ---------
Total property, plant and equipment, net 59,692 64,480
--------- ---------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $829 (2001) and
$1,180 (2000) 3,232 5,079
--------- ---------
DEFERRED INCOME TAXES 7,787 4,591
--------- ---------
GOODWILL, less accumulated amortization
of $6,968 (2001) and $5,990 (2000) 15,468 16,446
--------- ---------
OTHER ASSETS 4,922 5,535
--------- ---------
TOTAL $ 174,116 $ 187,595
========= =========
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------
2001 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,294 $ 1,154
Notes payable under retail floor plan agreements 2,364 3,321
Accounts payable 8,059 8,176
Amounts payable under dealer incentive programs 17,542 21,204
Accrued compensation and related withholdings 4,260 2,725
Accrued insurance 7,083 4,615
Estimated warranties 11,700 11,800
Reserve for repurchase commitments 3,200 4,100
Other accrued expenses 9,330 7,156
--------- ---------
Total current liabilities 64,832 64,251
--------- ---------
LONG-TERM DEBT 23,999 24,054
--------- ---------
OTHER LONG-TERM LIABILITIES 5,093 4,972
--------- ---------
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,
18,677,651 (2001) and 18,504,266 (2000) shares issued 1,868 1,850
Additional paid-in capital 55,918 55,436
Retained earnings 26,507 40,525
Treasury stock, at cost; 1,017,300 (2001) and 705,100 (2000) shares (4,101) (3,493)
--------- ---------
Total stockholders' equity 80,192 94,318
--------- ---------
TOTAL $ 174,116 $ 187,595
========= =========
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------------------------------------------
2001 2000 1999
REVENUE $ 363,871 $ 333,112 $ 614,468
----------- ----------- -----------
COST OF SALES 309,656 292,810 504,011
SELLING, GENERAL AND ADMINISTRATIVE 66,690 85,430 102,938
IMPAIRMENT AND OTHER RELATED
CHARGES 1,003 6,975 4,002
----------- ----------- -----------
377,349 385,215 610,951
----------- ----------- -----------
OPERATING PROFIT (LOSS) (13,478) (52,103) 3,517
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (1,935) (2,736) (1,643)
Other, net 795 2,242 1,679
----------- ----------- -----------
(1,140) (494) 36
---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT) (14,618) (52,597) 3,553
INCOME TAXES (BENEFIT) (600) (19,129) 1,403
----------- ----------- -----------
NET INCOME (LOSS) $ (14,018) $ (33,468) $ 2,150
=========== =========== ===========
BASIC NET INCOME (LOSS) PER SHARE $ (0.80) $ (1.88) $ 0.12
=========== =========== ===========
DILUTED NET INCOME (LOSS) PER SHARE $ (0.80) $ (1.88) $ 0.12
=========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 17,580,499 17,799,505 18,125,763
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING,
ASSUMING DILUTION 17,580,499 17,799,505 18,204,030
========== =========== ===========
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- ---------------------------------------------------------------------------------------------------------------------------------
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
BALANCE, JANUARY 1, 1999 $ 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
Stock options exercised 1 1
Sale of common stock under Employee Stock
Purchase Plan 18 120 138
Accrued compensation 361 361
Purchase of treasury stock (312,200 shares) (608) (608)
Net loss (14,018) (14,018)
--------- --------- --------- ----------- ----------
BALANCE, DECEMBER 31, 2001 $ 1,868 $ 55,918 $ 26,507 $ (4,101) $ 80,192
========= ========= ========= =========== ==========
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------
2001 2000 1999
OPERATING ACTIVITIES:
Net income (loss) $ (14,018) $ (33,468) $ 2,150
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,174 9,759 10,250
Change in provision for credit and accounts receivable losses (72) (264) 1,004
Gain on sale of installment contracts (1,640) (2,037) (2,257)
(Gain) loss on sale of property, plant and equipment (355) (864) 85
Impairment and other related charges 1,003 6,975 4,002
Other, net 714 411 2
Changes in assets and liabilities provided (used) cash,
net of effects of acquisitions:
Accounts receivable (3,821) 6,059 (1,277)
Inventories 718 28,730 (5,376)
Income tax receivable 15,052 (12,919) (5,804)
Accounts payable (117) (4,127) (6,929)
Other assets and liabilities 1,665 (7,830) (2,370)
---------- ---------- ---------
Net cash provided by (used in) operating activities 7,303 (9,575) (6,520)
---------- ---------- ---------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisitions (4,439)
Proceeds from disposition of property, plant and equipment 1,111 3,673 437
Capital expenditures (3,496) (3,807) (24,546)
Net change in notes and installment contracts (33,722) (57,057) (44,943)
Proceeds from sale of installment contracts 37,965 62,278 62,815
Other investing activities 42 270 (1,686)
---------- ---------- ---------
Net cash provided by (used in) investing activities 1,900 5,357 (12,362)
---------- ---------- ---------
FINANCING ACTIVITIES:
Net borrowings (payments) on notes payable (957) (12,241) 4,824
Proceeds from long-term borrowings 1,250 15,000 7,807
Payments on long-term debt (1,165) (1,129) (545)
Net proceeds from sales of common stock 138 226 505
Proceeds from exercise of stock options 1 4 284
Cash dividends paid (1,600) (2,926)
Purchase of treasury stock (608) (283) (15,675)
---------- ---------- ---------
Net cash used in financing activities (1,341) (23) (5,726)
---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 7,862 (4,241) (24,608)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 35,394 39,635 64,243
--------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 43,256 $ 35,394 $ 39,635
========= ========== =========
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 primarily 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 over the estimated useful lives of the related assets
primarily using the straight-line method. Maintenance and repairs are
expensed as incurred. In 2001, the Company paid $1,125 to exercise a
purchase option on a previously leased facility, and in 1999, the Company
paid $337 for construction of plant facilities and paid $3,400 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"), 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, and after April 1, 2001), product liability and general liability
(prior to April 1, 2001) insurance coverages were 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. The Company's
workmen's compensation insurance coverage from February 1999 through March
2001 was provided under a fully insured, large deductible policy, and
during 2001, the Company's product liability and general liability
insurance coverages were converted to fully insured, large deductible
policies.
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):
2001 2000 1999
Weighted average shares outstanding 17,580 17,800 18,126
Dilutive effect of stock options and warrants 78
------ ------- ------
Weighted average shares outstanding,
assuming dilution 17,580 17,800 18,204
====== ====== ======
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 2001 and 2000 are excluded due to their antidilutive effect
as a result of the Company's net loss. Antidilutive options and warrants
(in thousands of shares) were 2,661, 2,971, and 2,602, for 2001, 2000, and
1999, 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 Company's consolidated financial statements.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets. This statement is effective for
fiscal years beginning after December 15, 2001. Under this pronouncement,
goodwill and intangible assets with indefinite lives will no longer be
amortized but reviewed at least annually for impairment. The Company is
currently evaluating SFAS No. 142 and has not yet determined its impact on
the Company's consolidated financial statements although it is probable
that some or all of the goodwill may be impaired.
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 2001. SFAS No. 144 addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. The Company is currently evaluating
SFAS No. 144 and has not yet determined its impact on the Company's
consolidated financial statements.
Reclassifications - Certain amounts from the prior periods have been
reclassified to conform to the 2001 presentation.
2. IMPAIRMENT AND OTHER RELATED CHARGES
During 2001, the Company recorded impairment and other related charges of
$1,003 ($1,003 after tax or $0.06 per diluted share) in connection with the
closing of a home manufacturing facility to be disposed of. The charge
includes writedowns of $332 for property, plant and equipment, $84 for
lease obligations and $587 for involuntary termination benefits for 93
employees. No termination benefits have been paid as of year end. After
recording the impairment charges, the carrying value of assets to be
disposed of was $27. Before recording the impairment charges, the result of
operations for 2001 related to assets to be disposed of was a loss of
$2,309.
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 and 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. During 2001, payments of $165 were made against the reserve for
lease 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.
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. Payments of $100 and $619 were made
against the reserve for lease and other obligations during 2001 and 2000,
respectively. 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
primarily 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 14.0% and from 9.0% to 16.0% at December 31,
2001 and 2000, respectively. The average original term of the portfolio was
approximately 298 and 296 months at December 31, 2001 and 2000,
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 $36,325, $60,241, and
$60,558 of contracts receivable and realized gains of $1,640, $2,037, and
$2,257 for the years ended December 31, 2001, 2000 and 1999, respectively.
At December 31, 2001, scheduled principal payments of installment contracts
receivable (including sales of contracts receivable in January 2002) are as
follows:
Year Ending
December 31,
2002 $ 930
2003 30
2004 34
2005 38
2006 43
Thereafter 3,916
-------
Total $ 4,991
=======
Activity in the allowance for credit losses on installment contracts was as
follows:
2001 2000 1999
Balance, beginning of year $ 1,180 $ 1,656 $ 760
Provision for credit losses 459 687 2,192
Charge-offs, net (810) (1,163) (1,296)
-------- -------- --------
Balance, end of year $ 829 $ 1,180 $ 1,656
======== ======== ========
At December 31, 2001 and 2000, the estimated fair value of installment
contracts receivable was $4,944 and $7,360, respectively. 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:
2001 2000
Raw materials $ 13,917 $ 14,501
Work-in-process 2,086 2,224
Finished goods 4,669 4,665
-------- --------
Total $ 20,672 $ 21,390
======== ========
During 2001, 2000, and 1999, the Company purchased raw materials of
approximately $15,648, $11,893, and $20,166, 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. At
certain levels of tangible net worth, defined as the total of the Company's
tangible net worth and treasury stock purchases for 2000 and 2001, the
amount available under the Credit Facility and applicable interest rates
are noted in the following table.
Tangible net worth Credit Facility Applicable interest rate
-------------------------------------
("TNW") Available Bank's Prime LIBOR
------------------------------------- --------------------- ---------------- --------------
Above $85,000 $35,000 less 0.50% plus 2.00%
$85,000 - $77,000 35% of TNW less 0.50% plus 2.00%
$77,000 - $65,000 35% of TNW prime plus 2.50%
$65,000 - $58,000 30% of TNW plus 0.25% plus 2.75%
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, 2001, $15,000 was
outstanding under the revolving line of credit, against a total lending
capacity of $20,087 based on the Company's tangible net worth. 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. The bank's prime rate and LIBOR rate at December 31, 2001 and
2000 were 4.75% and 9.5%, and 1.88% and 6.4%, respectively. 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, 2001 and 2000.
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
requires 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 $2,364 and $3,321 of notes payable under retail floor plan
agreements at December 31, 2001 and 2000, respectively. The notes are
collateralized by certain inventories and bear interest ranging from prime
to prime plus 2%.
The Company has amounts outstanding under seven Industrial Development
Revenue Bond issues ("Bonds") of $10,293 and $10,208 at December 31, 2001
and 2000, 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. One of the bond issues is payable in
annual installments through 2013 with interest payable monthly at a
variable rate currently at 2.01% as determined by a remarketing agent. The
bonds are collateralized by certain plant facilities. At December 31, 2000,
restricted bond proceeds of $228 were not disbursed and are reflected as a
non-current asset in the consolidated balance sheet. At December 31, 2001,
principal repayment requirements on long-term debt are as follows:
Year Ending
December 31,
2002 $ 1,294
2003 16,339
2004 1,546
2005 1,204
2006 1,245
Thereafter 3,665
--------
Total 25,293
Less current portion 1,294
--------
Long-term debt $ 23,999
========
At December 31, 2001 and 2000, the estimated fair value of outstanding
borrowings was $25,928 and $25,281. 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, 2001, 2000, and
1999 was $1,990, $2,725, and $1,480, 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 3,168,800 shares has been purchased at a
cost of $24,842. 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, 2001, the Company has authority under the program to acquire
up to 831,200 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. 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. As of December 31, 2001, all 625,000 shares available were
issued to eligible employees.
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, 2001, the Company had recorded plan
investments of $2,233 and a deferred compensation liability of $2,934.
Compensation expense recorded in connection with these plans for the years
ended December 31, 2001, 2000 and 1999 was not material.
The Company has a Dividend Reinvestment Plan which provides for 500,000
shares to be purchased by participants in the Plan 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:
2001 2000 1999
Net income (loss):
As reported $ (14,018) $ (33,468) $ 2,150
Pro forma $ (14,461) $ (33,904) $ 1,029
Basic net income (loss) per share:
As reported $ (0.80) $ (1.88) $ 0.12
Pro forma $ (0.82) $ (1.90) $ 0.06
Diluted net income (loss) per share:
As reported $ (0.80) $ (1.88) $ 0.12
Pro forma $ (0.82) $ (1.90) $ 0.06
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:
2001 2000 1999
Dividend yield 0.00% 0.10% 1.90%
Expected volatility 56.05% 42.87% 40.10%
Risk free interest rate 4.64% 6.57% 5.27%
Expected lives 5.6 years 6.2 years 9.0 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 $0 (2001), $3 (2000), and $28 (1999), 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 January 1, 1999 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
Granted at fair value 330,663 2.90 $ 1.58
Exercised (1,610) 0.55
Cancelled (218,233) 11.27
----------
Outstanding at December 31, 2001 2,788,089 $ 8.49
========== ========
Options exercisable at December 31, 2001 2,494,114 $ 9.13
========== ========
Options exercisable at December 31, 2000 2,656,869 $ 9.46
========== ========
Options exercisable at December 31, 1999 2,762,803 $ 10.17
========== ========
Stock options available for future grants at December 31, 2001 were
1,177,415 under all of the Company's various stock option plans.
The following table summarizes information concerning stock options outstanding
at December 31, 2001:
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 - $5.50 867,249 10.10 $ 3.56 573,274 $ 3.83
$6.00 - $9.88 401,470 18.44 8.84 401,470 8.84
$10.00 - $10.50 576,446 5.89 10.18 576,446 10.18
$10.63 - $16.60 942,924 5.27 11.84 942,924 11.84
--------- ---------
$0.55 - $16.60 2,788,089 8.80 $ 8.49 2,494,114 $ 9.13
========= ===== ====== ========= =======
8. INCOME TAXES (BENEFIT)
Provision (benefit) for income taxes consist of:
2001 2000 1999
Current:
Federal $ (505) $ (16,469) $ 5,337
State (600) 750
-------- ---------- --------
(1,105) (16,469) 6,087
-------- ---------- --------
Deferred:
Federal 446 (2,353) (4,140)
State 59 (307) (544)
-------- ---------- --------
505 (2,660) (4,684)
-------- ---------- --------
Total $ (600) $ (19,129) $ 1,403
======== ========== ========
Total income tax expense (benefit) for 2001, 2000, and 1999, 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:
2001 2000 1999
Income tax (benefit) at expected federal income tax rate $ (5,117) $ (18,409) $ 1,143
State income taxes, net of federal tax effect (178) (1,439) 125
Valuation allowance 4,310 500
Non-deductible operating expenses 385 219 262
State jobs tax credits (38)
Other (89)
--------- ---------- --------
Total $ (600) $ (19,129) $ 1,403
========= ========== ========
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, 2001 and 2000 were as follows:
2001 2000
Assets (Liabilities)
--------------------------------
Current differences:
Warranty expense $ 4,031 $ 3,941
Inventory capitalization 885 668
Allowance for losses on receivables 1,024 1,060
Accrued expenses 4,755 5,275
Repurchase commitments 1,203 1,552
Deferred gain (332)
Other 13 (102)
--------- ----------
11,579 12,394
Less valuation allowance 3,504 618
--------- ----------
Total $ 8,075 $ 11,776
========= ==========
2001 2000
Assets (Liabilities)
-------------------------------
Noncurrent differences:
Depreciation and basis differential of acquired assets $ (2,047) $ (2,601)
Fixed asset valuation 1,919 1,813
Net operating loss carryforwards 8,445 2,681
Alternative minimum tax credit carryforward 254
Goodwill 537 621
Capital loss carryforward 576 576
Charitable contribution carryforward 57
Merger related expenses 252 427
Other 1,173 1,315
------- -------
11,166 4,832
Less valuation allowance 3,379 241
------- -------
Total $ 7,787 $ 4,591
======= =======
At December 31, 2001, the Company had a capital loss carryforward of $1,472
which will expire in 2005. Additionally, at December 31, 2001, the Company
had federal and state net operating loss carryforwards of $15,100 and
$68,600, respectively. The net operating loss carryforwards will expire as
follows:
Federal State
2010 $ 848
2019 $ 3,602
2020 48,239
2021 14,252 16,759
The Company has recorded a valuation allowance of $6,883 against net
deferred income tax assets because management believes it is no longer
appropriate to record income tax benefits on current losses in excess of
anticipated refunds and certain carryforward items. The valuation allowance
can be adjusted in future periods as the probability of realization of the
deferred assets change.
Net cash paid (received) for income taxes for the years ended December 31,
2001, 2000, and 1999 was $(17,057), $(3,553), and $11,835, 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 $4,334, $5,467, and $8,022 for
years ended December 31, 2001, 2000, and 1999, 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 $591, $736, and
$1,071 for the years ended December 31, 2001, 2000, and 1999, 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 $292, $1,131, and
$1,191 for the years ended December 31, 2001, 2000, and 1999, respectively,
including rents paid to related parties of $63 (2001), $377 (2000), and
$354 (1999).
Future minimum rents payable under operating leases that have initial or
remaining noncancelable lease terms in excess of one year at December 31,
2001 are not significant.
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 $135,000 at
December 31, 2001. The Company has a reserve for repurchase
commitments of $3,200 (2001) and $4,100 (2000) based on prior
experience and market conditions.
b. Under the insurance plans described in Note 1, the Company was
contingently liable at December 31, 2001 for future retrospective
premium adjustments up to a maximum of approximately $19,675 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. Legal fees associated with these lawsuits
are accrued at the time such cases are identified. 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 aggregate guaranty of $2,805. At December 31,
2001, $5,663 was outstanding under the various guarantees, of which
the Company had guaranteed $1,861.
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).
2001 2000 1999
Gross revenue:
Home manufacturing $ 352,431 $ 311,531 $ 599,647
Financial services 3,088 4,878 6,107
Retail 6,968 16,842 20,914
Other 28,966 29,261 40,465
---------- ---------- ----------
Gross revenue 391,453 362,512 667,133
---------- ---------- ----------
Intersegment revenue:
Home manufacturing 4,196 5,292 17,373
Financial services
Retail
Other 23,386 24,108 35,292
---------- ---------- ----------
Intersegment revenue 27,582 29,400 52,665
---------- ---------- ----------
Revenue from external customers:
Home manufacturing 348,235 306,239 582,274
Financial services 3,088 4,878 6,107
Retail 6,968 16,842 20,914
Other 5,580 5,153 5,173
---------- ---------- ----------
Total revenue $ 363,871 $ 333,112 $ 614,468
========== ========== ==========
Operating profit (loss):
Home manufacturing $ (7,915) $ (33,211) $ 16,544
Financial services 211 (1,251) (219)
Retail (87) (9,514) (1,934)
Other 1,948 (1,808) 689
Elimination (64) 1,507 (1,281)
---------- ---------- ----------
Segment operating profit (loss) (5,907) (44,277) 13,799
General corporate (7,571) (7,826) (10,282)
---------- ---------- ----------
Operating profit (loss) $ (13,478) $ (52,103) $ 3,517
========== ========== ==========
Depreciation and amortization:
Home manufacturing $ 6,427 $ 7,370 $ 8,215
Financial services 118 294 359
Retail 24 327 544
Other 463 548 463
---------- ---------- ----------
Segment depreciation and amortization 7,032 8,539 9,581
General corporate 1,142 1,220 669
---------- ---------- ----------
Total depreciation and amortization $ 8,174 $ 9,759 $ 10,250
========== ========== ==========
2001 2000 1999
Capital expenditures:
Home manufacturing $ 1,501 $ 3,289 $ 17,486
Financial services 20 86 167
Retail 11 986
Other 1,947 159 1,208
---------- ---------- ----------
Segment capital expenditures 3,468 3,545 19,847
General corporate 28 262 4,699
---------- ---------- ----------
Total capital expenditures $ 3,496 $ 3,807 $ 24,546
========== ========== ==========
Identifiable assets:
Home manufacturing $ 109,429 $ 131,925 $ 159,493
Financial services 12,387 12,674 17,248
Retail 5,566 11,006 24,372
Other 11,709 14,153 14,225
Elimination (51,803) (45,526) (32,752)
---------- ----------- ---------
Segment identifiable assets 87,288 124,232 182,586
General corporate 86,828 63,363 50,992
---------- ----------- ---------
Total assets $ 174,116 $ 187,595 $ 233,578
========== ========== ==========
The Financial services segment's operating profit includes net interest
income of $1,197, $1,223, and $1,968, and gains from the sale of
installment contracts of $1,640, $2,037, and $2,257 for the years ended
December 31, 2001, 2000, and 1999, respectively.
Identifiable assets for the General corporate category include $1,603,
$1,768, and $1,604 of investment in equity method investees at December 31,
2001, 2000, and 1999, respectively. General corporate operating income
includes equity in the net income (loss) of investees accounted for by the
equity method of $(485), $(243), and $397 for the years ended December 31,
2001, 2000, and 1999, respectively.
CAVALIER HOMES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2001, 2000 and 1999
(Dollars in Thousands)
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, 2001 $ 346 343 (64) $ 625
=========== =========== =========== =========== ============ ===========
Year Ended December 31, 2000 $ 134 369 (157) $ 346
=========== =========== =========== =========== ============ ===========
Year Ended December 31, 1999 $ 26 127 (19) $ 134
=========== =========== =========== =========== ============ ===========
Allowance for credit losses:
Year Ended December 31, 2001 $ 1,180 459 (810) $ 829
=========== =========== =========== =========== ============ ===========
Year Ended December 31, 2000 $ 1,656 687 (1,163) $ 1,180
=========== =========== =========== =========== ============ ===========
Year Ended December 31, 1999 $ 760 2,192 (1,296) $ 1,656
=========== =========== =========== =========== ============ ===========
Accumulated amortization of goodwill:
Year Ended December 31, 2001 $ 5,990 978 - $ 6,968
=========== =========== =========== =========== ============ ===========
Year Ended December 31, 2000 $ 5,368 1,203 (581) $ 5,990
=========== =========== =========== =========== ============ ===========
Year Ended December 31, 1999 $ 4,130 1,278 (40) $ 5,368
=========== =========== =========== =========== ============ ===========
Accumulated amortization of non-compete
agreement:
Year Ended December 31, 2001 $ - - - $ -
=========== =========== =========== =========== ============ ===========
Year Ended December 31, 2000 $ 169 50 (219)$ -
=========== =========== =========== =========== ============ ===========
Year Ended December 31, 1999 $ 154 100 (85)$ 169
=========== =========== =========== =========== ============ ===========
Warranty reserve:
Year Ended December 31, 2001 $ 11,800 21,819 (21,919)$ 11,700
=========== =========== =========== =========== ============ ===========
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
=========== =========== =========== =========== ============ ===========
Reserve for repurchase commitments:
Year Ended December 31, 2001 $ 4,100 1,848 (2,748)$ 3,200
=========== =========== =========== =========== ============ ===========
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
=========== =========== =========== =========== ============ ===========
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 21, 2002,
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 21, 2002, 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 21,
2002, 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 21, 2002,
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 35
Consolidated Balance Sheets as of December 31, 2001 and 2000 36
Consolidated Statements of Operations for the years ended December 31, 2001, 38
2000 and 1999
Consolidated Statements of Stockholders' Equity for the years ended 39
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended December 31, 40
2001, 2000 and 1999
Notes to Consolidated Financial Statements 41
2. The financial statement schedule required to be filed with this
report and the pages on which it may be found is as follows:
No. Schedule Description Form 10-K Page
- --- --------------------- ---------------
II Valuation and Qualifying Accounts 56
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, filed as Exhibit 10(c) to
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
* (d) 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).
* (e) 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.
* (f) 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.
* (g) 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.
* (h) 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.
* (i) 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.
* (j) 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.
* (k) 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.
* (l) 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.
* (m) 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.
* (n) Lease Agreement dated March 1, 2001, between the Industrial
Development Board of the City of Hamilton and Quality Housing Supply, LLC
regarding the lease of the component manufacturing facility located in Hamilton,
Alabama, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001.
* (o) Lease Agreement dated March 5, 2001, between Minor & Smith Real
Estate, Inc. and Ridge Crest, LLC regarding the lease of the component
manufacturing facility located in Haleyville, Alabama, filed as Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2001.
* (p) 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.
* (q) 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.
* (r) 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.
* (s) 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.
* (t) 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.
* (u) 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.
* (v) 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.
* (w) Second Amendment to Amended and Restated Revolving and Term Loan
Agreement, dated as of May 4, 2001, between the Company and First Commercial
Bank, filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2001.
* (x) 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.
* (y) 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.
* (z) 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.
* (aa) 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.
* (bb) 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.
* (cc) 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.
* (dd) 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.
* (ee) 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.
* ** (ff) 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.
* ** (gg) 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.
* ** (hh) 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.
* ** (ii) 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.
* ** (jj) 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.
* ** (kk) 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.
* ** (ll) 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.
* ** (mm) 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.
* ** (nn) 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.
* ** (oo) 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.
* ** (pp) Cavalier Homes, Inc. Amended and Restated Nonemployee Directors
Stock Option Plan, filed as an Appendix to the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders held May 15, 1996.
* ** (qq) 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.
* ** (rr) 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.
* (ss) 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.
* (tt) 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.
* ** (uu) 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.
* ** (vv) 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.
* ** (ww) 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.
* ** (xx) 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.
* (yy) 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.
* (zz) 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.
* (aaa) 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.
(bbb) Split Dollar Insurance Agreement dated April 1, 1994 by and between
the Company and Judy Darnell as Trustee of the Barry Donnell Irrevocable
Insurance Trust.
* ** (ccc) 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.
* ** (ddd) 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.
* ** (eee) 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.
(fff) Retention and Severance Agreement, dated August 26, 1998, by and
between Cavalier Homes, Inc. and Gregory A. Brown.
(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 25, 2002
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 25, 2002
- ------------------------------------
Officer
/s/ MICHAEL R. MURPHY Director and Principal Financial and March 25, 2002
- ------------------------------------
Accounting Officer
/s/ BARRY DONNELL Chairman of the Board and Director March 25, 2002
- ------------------------------------
/s/ THOMAS A. BROUGHTON, III Director March 25, 2002
- ------------------------------------
/s/ JOHN W LOWE Director March 25, 2002
-----------------------------------
/s/ LEE ROY JORDAN Director March 25, 2002
- ------------------------------------
/s/ GERALD W. MOORE Director March 25, 2002
- ------------------------------------
/s/ A. DOUGLAS JUMPER, SR. Director March 25, 2002
- ------------------------------------
/s/ MIKE KENNEDY Director March 25, 2002
- ------------------------------------
/s/ JOHN W. ALLISON Director March 25, 2002
- ------------------------------------
INDEX
Exhibit
Number
(10) Material Contracts
(a) Split Dollar Insurance Agreement dated April 1, 1994 by and between
the Company and Judy Darnell as Trustee of the Barry Donnell Irrevocable
Insurance Trust.
(b) Retention and Severance Agreement, dated August 26, 1998, by and
between Cavalier Homes, Inc. and Gregory A. Brown.
(11) Statement Re Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
Exhibit 11
Statement re Computation of Per Share Earnings
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(dollars in thousands except per share amounts)
For the Year Ended December 31,
--------------------------------------------------------------
2001 2000 1999
------------------ ------------------ -------------------
BASIC & DILUTED
Net income (loss) $ (14,018) $ (33,468) $ 2,150
================== ================== ===================
SHARES:
Weighted average common shares
outstanding (basic) 17,580,499 17,799,505 18,125,763
Dilutive effect of stock options
and warrants - - 78,267
------------------ ------------------ -------------------
Weighted average common shares
outstanding, assuming dilution (diluted) 17,580,499 17,799,505 18,204,030
================== ================== ===================
Basic net income (loss) per share $ (0.80) $ (1.88) $ 0.12
================== ================== ===================
Diluted net income (loss) per share $ (0.80) $ (1.88) $ 0.12
================== ================== ===================
Exhibit 21
Subsidiaries of the Registrant
BRC Components, Inc., an Alabama corporation
Cavalier/AAA, a Delaware limited liability company
CIS Financial Services, Inc., an Alabama corporation
Cavalier Asset Management, Inc., a Delaware corporation
Cavalier Associated Retailers, Inc., a Delaware corporation
Cavalier Enterprises, Inc., a Delaware corporation
Cavalier Enterprises Asset Co., Inc., a Delaware corporation
Cavalier Industries, Inc., a Delaware corporation
Cavalier Industries Asset Co., Inc., a Delaware corporation
Cavalier Manufacturing, Inc., a Delaware corporation
Cavalier Manufacturing Asset Co., Inc., a Delaware corporation
Cavalier Properties, Inc., a Delaware corporation
Cavalier Real Estate Co., Inc., a Delaware corporation
Delta Homes, Inc., a Mississippi corporation
Direct Connection, LLC, a Delaware limited liability company
Impact Media Group, Inc., an Alabama corporation
CK Homes, Inc., a Florida corporation
Quality Certified Insurance Services, Inc., an Alabama corporation
Quality Housing Supply, LLC, a Delaware limited liability company
Ridge Pointe Manufacturing, LLC, an Alabama limited liability company
Ridge Crest, LLC, a Delaware limited liability company
The Home Place, Inc., an Alabama corporation
Exhibit 23
Consent of Deloitte & Touche LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
33-20842, 33-20859, 33-86232, 33-86236, 333-06371, 333-19833, 333-45255 and
333-57743 of Cavalier Homes, Inc. on Form S-8, and to the incorporation by
reference in Registration Statements Nos. 33-62487 (as amended), 333-18213 (as
amended), 333-00607 (as amended), 333-48111(as amended) and 333-64925 (as
amended) of Cavalier Homes, Inc. on Form S-3 of our report dated February 22,
2002, appearing in this Annual Report on Form 10-K of Cavalier Homes, Inc. for
the year ended December 31, 2001.
/s/ Deloitte & Touche LLP
Birmingham, Alabama
March 25, 2002