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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission File Number 1-9792
Cavalier Homes, Inc.
--------------------
(Exact name of Registrant as specified in its charter)
Delaware 63-0949734
- ------------------------------ --------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
32 Wilson Boulevard 100, Addison, Alabama 35540
--------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(256) 747-9800
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes __ No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at May 13, 2003
- --------------------------- ---------------------------
Common Stock, $.10 Par Value 17,665,644 Shares
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - dollars in thousands except per share amounts)
March 29, December 31,
ASSETS 2003 2002
------------ ----------------
CURRENT ASSETS:
Cash and cash equivalents $ 28,215 $ 34,939
Accounts receivable, less allowance for losses of $152 (2003) and $145 (2002) 13,162 3,353
Notes and installment contracts receivable - current 5,069 6,102
Inventories 16,273 18,287
Deferred income taxes 981 1,083
Income tax receivable - 5,738
Other current assets 632 3,118
------------ ----------------
Total current assets 64,332 72,620
------------ ----------------
PROPERTY, PLANT AND EQUIPMENT (Net) 47,777 50,357
------------ ----------------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $839 (2003) and $859 (2002) 4,450 4,058
------------ ----------------
OTHER ASSETS 2,804 3,036
------------ ----------------
TOTAL $ 119,363 $ 130,071
============ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,358 $ 1,347
Notes payable under retail floor plan agreements 32 67
Accounts payable 8,816 7,060
Amounts payable under dealer incentive programs 9,290 10,840
Accrued compensation and related withholdings 3,894 8,398
Estimated warranties 14,900 15,000
Reserve for repurchase commitments 3,750 4,000
Accrued insurance 7,099 6,961
Other accrued expenses 6,990 6,601
------------ ----------------
Total current liabilities 56,129 60,274
------------ ----------------
DEFERRED INCOME TAXES 981 1,083
------------ ----------------
LONG-TERM DEBT 22,330 22,643
------------ ----------------
OTHER LONG-TERM LIABILITIES 569 535
------------ ----------------
CONTINGENCIES (NOTE 7)
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value; authorized 50,000,000 shares,
issued 18,682,944 (2003 and 2002) shares 1,868 1,868
Additional paid-in capital 55,932 55,932
Treasury stock, at cost; 1,017,300 (2003 and 2002) shares (4,101) (4,101)
Accumulated deficit (14,345) (8,163)
------------ ----------------
Total stockholders' equity 39,354 45,536
------------ ----------------
TOTAL $ 119,363 $ 130,071
============ ================
See notes to condensed consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - dollars in thousands except per share amounts)
Thirteen Weeks Ended
-------------------------------
March 29, March 30,
2003 2002
------------- --------------
REVENUE $ 59,211 $ 94,913
COST OF SALES 52,376 81,583
SELLING, GENERAL AND ADMINISTRATIVE 12,817 15,504
------------- --------------
OPERATING LOSS (5,982) (2,174)
------------- --------------
OTHER INCOME (EXPENSE):
Interest expense (283) (373)
Other, net 83 399
------------- --------------
(200) 26
------------- --------------
LOSS BEFORE INCOME TAXES (6,182) (2,148)
INCOME TAX BENEFIT - (3,274)
------------- --------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (6,182) 1,126
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF TAX BENEFIT OF $1,306 - (14,162)
------------- --------------
NET LOSS $ (6,182) $ (13,036)
============= ==============
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ (0.35) $ 0.06
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - (0.80)
------------- --------------
NET LOSS $ (0.35) $ (0.74)
============= ==============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 17,665,644 17,662,867
============= ==============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 17,665,644 17,725,588
============= ==============
See notes to condensed consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Thirteen Weeks Ended
-----------------------------
March 29, March 30,
2003 2002
------------ ------------
OPERATING ACTIVITIES:
Net loss $ (6,182) $ (13,036)
Adjustments to reconcile net loss to net cash used in operating activities:
Cumulative effect of change in accounting principle, net of tax - 14,162
Depreciation 1,304 1,691
Change in provision for credit and accounts receivable losses (13) (144)
Gain on sale of installment contracts (268) (196)
Gain on sale of property, plant and equipment (546) (41)
Other, net (18) (258)
Changes in assets and liabilities:
Accounts receivable (9,816) (9,182)
Inventories 2,014 (4,389)
Income tax receivable 5,738 (4,451)
Accounts payable 1,756 1,616
Other assets and liabilities (3,235) (645)
------------ ------------
Net cash used in operating activities (9,266) (14,873)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from disposition of property, plant and equipment 1,941 93
Capital expenditures (119) (753)
Proceeds from sale of installment contracts 9,753 6,986
Net change in notes and installment contracts (8,824) (8,225)
Other investing activities 128 (152)
------------ ------------
Net cash provided by (used in) investing activities 2,879 (2,051)
------------ ------------
FINANCING ACTIVITIES:
Net borrowings (payments) on notes payable (35) 190
Payments on long-term debt (302) (286)
Proceeds from exercise of stock options - 3
------------ ------------
Net cash used in financing activities (337) (93)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,724) (17,017)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 34,939 43,256
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 28,215 $ 26,239
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (received) for:
Interest $ 184 $ 326
Income taxes (6,334) (40)
See notes to condensed consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited - dollars in thousands except per share amounts)
1. BASIS OF PRESENTATION
o The accompanying condensed consolidated financial statements have been
prepared in compliance with standards for interim financial reporting
and Form 10-Q instructions and thus do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. In the opinion of management, these statements contain all
adjustments necessary to present fairly the Company's financial
position as of March 29, 2003, and the results of its operations and
its cash flows for the thirteen week periods ended March 29, 2003 and
March 30, 2002. All such adjustments are of a normal, recurring nature
except for the goodwill impairment described in Note 2.
o The results of operations for the thirteen weeks ended March 29, 2003
are not necessarily indicative of the results to be expected for the
full year. The information included in this Form 10-Q should be read in
conjunction with Management's Discussion and Analysis and financial
statements and notes thereto included in the Company's 2002 Annual
Report on Form 10-K.
o 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 - diluted as detailed below:
Thirteen Weeks Ended
-------------------------------
March 29, March 30,
2003 2002
------------- --------------
Weighted average common shares outstanding - basic 17,665,644 17,662,867
Dilutive effect if stock options and warrants were exercised - 62,721
------------- --------------
Weighted average common shares outstanding - diluted 17,665,644 17,725,588
============= ==============
All options and warrants that would have an antidilutive effect on net
income (loss) per share were excluded in the computation of diluted net
income (loss) per share. The maximum antidilutive options and warrants
for the thirteen weeks ended March 29, 2003 and March 30, 2002, were
2,949,147 and 3,239,655, respectively.
o 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 fair value on the date of grant. The
Company 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 No.
123, the Company's net loss and net loss per share would approximate
the pro forma amounts below.
Thirteen Weeks Ended
---------------------------
March 29, March 30,
2003 2002
------------ -------------
Net loss, as reported $ (6,182) $ (13,036)
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (7) (379)
------------ -------------
Pro forma $ (6,189) $ (13,415)
============ =============
Basic and diluted loss per share:
As reported $ (0.35) $ (0.74)
Pro forma $ (0.35) $ (0.76)
The fair value of options granted was estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions:
Thirteen Weeks Ended
--------------------------------
March 29, March 30,
2003 2002
------------ ------------
Dividend yield 0.00% 0.00%
Expected volatility 62.19% 59.34%
Risk free interest rate 3.18% 4.55%
Expected lives 5.0 years 5.9 years
o Certain amounts from the prior period have been reclassified to conform
to the 2003 presentation.
2. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and
Other Intangible Assets. Under this pronouncement, goodwill and intangible
assets with indefinite lives will no longer be amortized but reviewed at
least annually for impairment. The Company adopted SFAS No. 142 effective
January 1, 2002. Under the provisions of this statement, the Company
recorded a charge of $14,162, net of tax, or $0.80 per diluted share, as a
cumulative effect of a change in accounting principle, to eliminate all of
its goodwill due to impairment. This charge was recorded in the first
quarter of 2002, and the entire amount of goodwill was associated with the
Company's home manufacturing unit.
The Company and the manufactured housing industry have been impacted by
inventory oversupply at the retail level, an increase in dealer failures, a
reduction in available consumer credit and wholesale (dealer) financing for
manufactured housing, more restrictive credit standards and increased home
repossessions which re-enter home distribution channels. All of these
factors have caused the Company to suffer significant losses since the last
half of 1999. The fair value of the home manufacturing unit was determined
by a third-party valuation specialist, using projections provided by
Company management as well as industry and other market data. The fair
value of the home manufacturing unit was lower than the carrying value,
which required allocation of the fair value to the assets and liabilities
of the unit. In this allocation process, various independent parties were
used to appraise certain of the Company's manufacturing fixed assets.
Additionally, Company management estimated fair value of other assets and
liabilities based on assumptions believed to be appropriate to the
valuation process. As a result of this fair value allocation process, the
Company's goodwill was considered impaired and an adjustment was made
during the first quarter of 2002.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Work-in-process and finished goods inventories include an
allocation for labor and overhead costs. Inventories at March 29, 2003 and
December 31, 2002 were as follows:
March 29, December 31,
2003 2002
----------- --------------
Raw materials $ 9,328 $ 12,006
Work-in-process 1,224 1,488
Finished goods 5,721 4,793
----------- --------------
Total inventory $ 16,273 $ 18,287
=========== ==============
4. IMPAIRMENT AND OTHER RELATED CHARGES
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, the Company evaluates the carrying value of
long-lived assets to be held and used 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.
During the fourth quarter of 2002, the Company recorded impairment and
other related charges of $6,064 ($5,253 after tax or $0.30 per diluted
share) related to the closing of six home manufacturing plants. The charge
includes writedowns of $3,890 for property, plant and equipment, $22 for
lease obligations and $2,152 for involuntary termination benefits for
approximately 1,000 employees. Termination benefits paid and charged
against the liability ($1,470 at December 31, 2002) through March 29, 2003
were $1,126 leaving a liability of $344 at March 29, 2003.
5. INCOME TAXES
In the first quarter of 2003, the Company did not record any tax benefit
for net operating losses because management believed it was no longer
appropriate to record income tax benefits on current losses in excess of
anticipated refunds and certain carryforward items under the provisions of
Statement of Financial Accounting Standards No.109 Accounting for Income
Taxes. The Company recorded an income tax benefit of $3,274 in the first
quarter of 2002, reflecting the benefit of both the current quarter's net
loss and the new Jobs Creation and Workers' Assistance Act that was passed
in March 2002. Under this law, companies were able to carry back net
operating losses (through 2002) five years instead of two years as provided
under the previous rules. Due to the change in law, the Company received a
refund of $4,634 in April 2002, and received an additional refund of $6,433
in March 2003.
6. 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. The Company has provided a liability for estimated
future warranty costs relating to homes sold, based upon management's
assessment of historical experience factors and current industry trends.
Activity in the liability for product warranty was as follows:
Thirteen Weeks Ended
----------------------------------------
March 29, March 30,
2003 2002
------------------- ------------------
Balance, beginning of period $ 15,000 11,700
Provision for warranty costs 6,806 5,637
Payments (6,906) (5,437)
------------------- ------------------
Balance, end of period $ 14,900 11,900
=================== ==================
7. CONTINGENCIES
o The Company is contingently liable under terms of repurchase agreements
with financial institutions providing inventory financing for retailers
of its products. These arrangements, which are customary in the
industry, provide for the repurchase of products sold to retailers in
the event of their default. 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 (generally 18
to 24 months) and the risk of loss is further reduced by the resale
value of repurchased homes. The maximum amount for which the Company
is contingently liable under such agreements approximated $122,000 at
March 29, 2003. The Company has a reserve for estimated repurchase
commitments based on prior experience and market conditions. Activity
in the reserve for repurchase commitments was as follows:
Thirteen Weeks Ended
---------------------------
March 29, March 30,
2003 2002
------------ ------------
Balance, beginning of period $ 4,000 $ 3,200
Provision for losses on inventory repurchases, net 307 401
Payments (557) (401)
------------- ------------
Balance, end of period $ 3,750 $ 3,200
============= ============
o The Company's workers' compensation, product liability and general
liability 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. At
March 29, 2003, the Company was contingently liable for future
retrospective premium adjustments up to a maximum of approximately
$18,149 in the event that additional losses are reported related to
prior periods.
o The Company is engaged in various legal proceedings that are incidental
to and arise in the course of its business. Certain of the cases filed
against the Company and other companies engaged in businesses similar
to the Company allege, among other things, breach of contract and
warranty, product liability, personal injury and fraudulent, deceptive
or collusive practices in connection with their businesses. These
kinds of suits are typical of suits that have been filed in recent
years, and they sometimes seek certification as class actions, the
imposition of large amounts of compensatory and punitive damages and
trials by jury. 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.
* See Safe Harbor Statement on page 15.
o The Company and certain of its equity partners have guaranteed certain
debt for companies in which the Company owns various equity interests.
The guarantees are limited to various percentages of the outstanding
debt. At March 29, 2003, $3,849 of debt was outstanding, of which the
Company had guaranteed $1,549.
8. SEGMENT INFORMATION
The Company's reportable segments are organized around products and
services. Through its Home manufacturing segment, the Company's six
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 primarily 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. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies in the
Company's Annual Report on Form 10-K 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).
Thirteen Weeks Ended
----------------------------------------------
March 29, 2003 March 30, 2002
---------------- -------------------
Gross revenue:
Home manufacturing $ 57,591 $ 93,341
Financial services 628 432
Retail 1,368 1,589
Other 6,715 9,268
---------------- -------------------
Gross revenue $ 66,302 $ 104,630
================ ===================
Intersegment revenue:
Home manufacturing $ 666 $ 1,353
Financial services - -
Retail - -
Other 6,425 8,364
---------------- -------------------
Intersegment revenue $ 7,091 $ 9,717
================ ===================
Revenue from external customers:
Home manufacturing $ 56,925 $ 91,988
Financial services 628 432
Retail 1,368 1,589
Other 290 904
---------------- -------------------
Total revenue $ 59,211 $ 94,913
================ ===================
Operating profit (loss):
Home manufacturing $ (5,736) $ (913)
Financial services 116 (148)
Retail 208 (71)
Other 720 796
Elimination 152 (45)
---------------- -------------------
Segment operating profit (loss) (4,540) (381)
General corporate (1,442) (1,793)
---------------- -------------------
Operating loss $ (5,982) $ (2,174)
================ ===================
March 29, 2003 December 31, 2002
---------------- -------------------
Identifiable assets:
Home manufacturing $ 70,807 $ 70,397
Financial services 12,935 12,497
Retail 4,345 6,458
Other 8,120 10,257
---------------- -------------------
Segment assets 96,207 99,609
General corporate 23,156 30,462
---------------- -------------------
Total assets $ 119,363 $ 130,071
================ ===================
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (See pages 2 through 8)
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Industry and Company Outlook
Cavalier Homes, Inc. and its subsidiaries are engaged in the production, sale,
financing, and insuring of manufactured housing. The manufactured housing
industry is cyclical and seasonal and is influenced by many of the same economic
and demographic factors that affect the housing market as a whole. As a result
of the growth in the industry during much of the 1990s, the number of retail
dealerships, manufacturing capacity and wholesale shipments expanded
significantly, which ultimately created slower retail turnover, higher retail
inventory levels and increased price competition. The industry also has been
impacted by an increase in dealer failures, a severe reduction in available
consumer credit and wholesale (dealer) financing for manufactured housing, more
restrictive credit standards and increased home repossessions which re-enter
home distribution channels. The Manufactured Housing Institute ("MHI") reported
that wholesale floor shipments were down 11.1% in 2002, to a 40 year low for
wholesale shipments, as compared to 2001 following significant declines during
the years 1999 through 2001 as follows: 4.3% (1999), 25.9% (2000) and 20.7%
(2001). MHI reported that wholesale floor shipments were down 23.4% through
March 2003 as compared to the same period of 2002. In response to deteriorating
market conditions, manufacturers have closed or idled some of their
manufacturing facilities and retail dealers have closed many locations. A major
industry lender announced, in September 2002, plans to discontinue wholesale
(dealer) financing of manufactured homes, which did not have a material adverse
effect on the Company's ability to find financing for home purchases by dealers
whose floor plan financing was with that lender. This announcement follows
another major lender's withdrawal, beginning in May 2002, from wholesale
financing which did not have a material adverse effect on the Company's ability
to find financing for home purchases by dealers whose floor plan financing was
with that lender. The Company believes that the possibility exists for
additional retail dealer failures, as well as for the loss of additional lenders
from the industry, further tightening of credit standards and a further
reduction in the availability of wholesale and retail financing. * The current
industry trend is toward more land/home (real estate) financing rather than
chattel or home only loans. In addition, a major industry lender announced, in
November 2002, plans to discontinue chattel (home only) financing of
manufactured homes at retail. While land/ home financing generally offers more
favorable credit terms to the retail buyer of manufactured housing, the length
of time involved in closing land/home transactions is greater. Additionally,
effective January 1, 2002, the State of Texas, which historically has been one
of the largest states for consumer purchases of manufactured housing, 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; however, both
Houses of the Texas legislature recently passed bills that would return to the
chattel lending option. This legislation has not yet been acted upon by the
Texas governor.
In response to the continued weakening of the manufactured housing industry
market conditions in the fourth quarter of 2002 and the indeterminate impact of
political tensions and armed conflict in the Middle East, the Company announced
its decision to close six manufacturing facilities in the fourth quarter of
2002. These facilities were located in Conway, Arkansas (2), Graham, Texas,
Cordele, Georgia, Belmont, Mississippi and Haleyville, Alabama. The Company has
shifted production from these plants, which employed approximately 1,000 people,
to one or more of the Company's eight operating plants. The remaining plants
will also handle dealer sales and customer service for the Company's homes.
Since the fall of 1999, Cavalier has reduced the number of operating home
manufacturing plants from 24 to 8, reflecting an approximate 50% reduction in
manufacturing capacity. Some of the closed plants had lower production capacity
than the remaining operating plants. 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 12 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 had a net reduction
in its production and administrative workforce of approximately 64% 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
financial performance 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.
As industry conditions remained challenging, the Company's floor shipments
declined 45.2% in 2003 as compared to 2002. The Company is uncertain at this
* See Safe Harbor Statement on page 15.
time as to the extent and duration of the general economic conditions and
continuing adverse industry conditions will have on the Company's future revenue
and earnings.* While the Company currently expects the results of operations for
the second quarter of 2003 to be significantly improved, changes in general
economic conditions that affect consumer purchases, availability of adequate
financing sources, increases in repossessions or dealer failures could affect
the results of operations of the Company. *
Results of Operations (dollars in thousands)
The following tables set forth, for the periods and dates indicated, certain
financial and operating data, including, as applicable, the percentage of total
revenue:
STATEMENT OF OPERATIONS DATA For the Thirteen Weeks Ended
-------------------------------------------------------------------------------------
March 29, 2003 March 30, 2002 Difference
---------------- ---------------- -----------
Revenue:
Home manufacturing net sales $ 56,925 $ 91,988 $ (35,063)
Financial services 628 432 196
Retail 1,368 1,589 (221)
Other 290 904 (614)
---------------- ---------------- -----------
Total revenue $ 59,211 100.0% $ 94,913 100.0% $ (35,702)
Cost of sales 52,376 88.5% 81,583 86.0% (29,207)
---------------- -------- ---------------- --------- -----------
Gross profit $ 6,835 11.5% $ 13,330 14.0% $ (6,495)
================ ======== ================ ========= ===========
Selling, general and administrative $ 12,817 21.6% $ 15,504 16.3% $ (2,687)
---------------- -------- ---------------- --------- -----------
Operating loss $ (5,982) -10.1% $ (2,174) -2.3% $ 3,808
---------------- -------- ---------------- --------- -----------
Other income (expense):
Interest expense $ (283) -0.5% $ (373) -0.4% $ (90)
Other, net 83 0.1% 399 0.4% (316)
---------------- ---------------- -----------
$ (200) $ 26 226
================ ================ ===========
Loss before income taxes $ (6,182) -10.4% $ (2,148) -2.3% $ 4,034
Income tax benefit $ - 0.0% $ (3,274) -3.4% $ (3,274)
---------------- ---------------- -----------
Income (loss) before cumulative effect of
change in accounting principle $ (6,182) -10.4% $ 1,126 1.2% $ 7,308
Cumulative effect of change in accounting
principle, net of tax benefit of $1,306 - 0.0% (14,162) -14.9% (14,162)
---------------- ---------------- -----------
Net loss $ (6,182) -10.4% $ (13,036) -13.7% $ (6,854)
================ ======== ================ ========= ===========
OPERATING DATA For the Thirteen Weeks Ended
---------------------------------------------------
March 29, 2003 March 30, 2002
--------------------------- ----------------------
Home manufacturing sales:
Floor shipments 3,094 5,651
Home shipments:
Single section 218 13.2% 661 20.9%
Multi-section 1,438 86.8% 2,495 79.1%
-------- ---------------- --------- -----------
Total shipments 1,656 100.0% 3,156 100.0%
Shipments to company-owned retail locations (18) -1.1% (47) 1.5%
-------- ---------------- --------- -----------
Wholesale shipments to independent dealers 1,638 98.9% 3,109 98.5%
======== ================ ========= ===========
Retail sales:
Single section 9 0.5% 20 42.6%
Multi-section 30 1.8% 27 57.4%
-------- ---------------- --------- -----------
Total sales 39 2.4% 47 100.0%
======== ================ ========= ===========
Cavalier-produced homes sold 32 1.9% 42 89.4%
======== ================ ========= ===========
Used homes sold 7 0.4% 5 10.6%
======== ================ ========= ===========
Other Operating Data:
Installment loan purchases $ 9,209 $ 8,598
Capital expenditures $ 119 $ 753
Home manufacturing facilities - operating 8 14
Independent exclusive dealer locations 187 266
Company-owned retail locations 4 5
Thirteen weeks ended March 29, 2003 and March 30, 2002
Revenue
Revenue for the first quarter of 2003 totaled $59,211, a decrease of 37.6% from
2002's first quarter revenue of $94,913.
Home manufacturing net sales accounted for virtually the entire decrease,
falling to $56,925, net of intercompany eliminations of $666. Home manufacturing
net sales for the first quarter of 2002 were $91,988, net of intercompany
eliminations of $1,353. Home shipments decreased 47.5%, with floor shipments
decreasing by 45.2%. Multi-section home shipments, as a percentage of total
shipments, continued to increase, from 79.1% of shipments in the first quarter
of 2002 to 86.8% of shipments in 2003 in response to increasing consumer demand
and more favorable terms and availability of financing for multi-section homes
as compared to single section homes. Actual shipments of homes for the first
quarter of 2003 were 1,656 versus 3,156 in 2002. Cavalier attributes the
decrease in sales and shipments primarily to continuing adverse industry
conditions.
* See Safe Harbor Statement on page 15.
The Company's inventory at all retail locations, including company-owned retail
sales centers, decreased to approximately $142,000 at March 29, 2003 from
$151,000 at year end 2002. At its peak in June 1999, dealer inventory
approximated $314,000.
Revenue from the financial services segment increased to $628 for the first
quarter of 2003 compared to $432 in 2002. The revenue increase was primarily due
to an increase in the amount of resold loans in the first quarter of 2003 as
compared to the same period of 2002. During the first quarter of 2003, CIS
Financial Services, Inc. ("CIS"), the Company's wholly-owned finance subsidiary,
purchased contracts of $9,209 and resold installment contracts totaling $9,485.
In the first quarter of 2002, CIS purchased contracts of $8,598 and resold
installment contracts totaling $6,789. CIS does not retain the servicing
function and does not earn the interest income on these resold loans.
Revenue from the retail segment was $1,368 for 2003 compared to $1,589 for 2002.
Other revenue consists mainly of revenue from the Company's wholesale component
manufacturing businesses which primarily sell to the Company's home
manufacturing segment. Revenues from external customers declined for the first
quarter of 2003 to $290 compared to $904 for the first quarter of 2002. The
decrease is due primarily to the sale of a supply company during the third
quarter of 2002.
Gross Profit
Gross profit was $6,835, or 11.5% of total revenue, for the first quarter of
2003, versus $13,330, or 14.0%, in 2002. The $6,495 decrease in gross profit is
primarily the result of trailing costs associated with the six plants closed
during the last quarter of 2002.
Selling, General and Administrative
Selling, general and administrative expenses during the first quarter of 2003
were $12,817, or 21.6% of total revenue, versus $15,504 or 16.3% in 2002, a
decrease of $2,687 or 17.3%. The overall decrease includes a $1,157 reduction in
salaries, wages and incentive compensation, a $758 decrease in advertising and
promotion costs, including costs to support the exclusive dealer program, a $479
decrease in employee benefits cost (primarily health insurance) and a $505
increase in gain on sale of fixed assets.
Operating Loss
Operating loss for the quarter was $5,982 compared to an operating loss of
$2,174 in the first quarter of 2002. Segment operating results were as follows:
(1) Home manufacturing operating loss, before intercompany eliminations, was
$5,736 in the first quarter of 2003 as compared to $913 in 2002. The increased
home manufacturing operating loss is primarily due to decreased sales and
trailing costs associated with the six facilities closed during the last quarter
of 2002. (2) Financial services operating income was $116 in the first quarter
of 2003 as compared to a loss of $148 in 2002. The financial services operating
results improved in 2003 primarily due to the higher volume of loans sold in the
first quarter of 2003 as described above. (3) The retail segment's operating
profit was $208 in the first quarter of 2003 as compared to an operating loss of
$71 in 2002, an improvement due primarily to the closure of an under performing
retail location in the fourth quarter of 2002. (4) The other segment operating
profit, before intercompany eliminations, was $720 in the first quarter of 2003
as compared to $796 in 2002. (5) General corporate operating expense, which is
not identifiable to a specific segment, improved from $1,793 in the first
quarter of 2002 to $1,442 in 2003 primarily due to a reduction in salaries
expense.
Other Income (Expense)
Interest expense decreased $90 primarily due to a reduction in the interest rate
earned on the $15,000 outstanding under the Company's line of credit. Other, net
decreased $316 primarily due to lower interest income rates earned during the
first quarter of 2003 and reduced income recognized from equity method
investees.
Loss before Income Taxes
The Company's pre-tax loss for the first quarter was $6,182, compared to the
pre-tax loss of $2,148 in the first quarter of 2002 primarily due to decreased
revenue and trailing costs associated with closed facilities as discussed above.
Income Tax Benefit
In the first quarter of 2003, the Company did not record any tax benefit for net
operating losses because management believed it was no longer appropriate to
record income tax benefits on current losses in excess of anticipated refunds
and certain carryforward items under the provisions of Statement of Financial
Accounting Standards No.109 Accounting for Income Taxes. The Company recorded an
income tax benefit of $3,274 in the first quarter of 2002, reflecting the
benefit of both the current quarter's net loss and the new Jobs Creation and
Workers' Assistance Act that was passed in March 2002. Under this law, companies
were able to carry back net operating losses (through 2002) five years instead
of two years as provided under the previous rules. Due to the change in law, the
Company received a refund of $4,634 in April 2002, and received an additional
refund of $6,433 in March 2003.
Cumulative Effect of Change In Accounting Principle
In June 2001, the Financial Accounting Standards Board ("FASB") 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. SFAS No. 142 specifies that
goodwill and certain intangible assets will no longer be amortized but instead
will be subject to periodic impairment testing. The Company adopted SFAS No. 142
effective January 1, 2002. Under the provisions of this statement, in the first
quarter of 2002, the Company recorded a charge of $14,162, net of tax, or $0.80
per diluted share, as a cumulative effect of a change in accounting principle,
to eliminate all of its goodwill due to impairment. The entire amount of the
goodwill was associated with the Company's Home manufacturing unit.
Net Loss
The net loss for the first quarter of 2003 was $6,182 or $0.35 per diluted share
compared with a net loss in the prior-year period of $13,036 or $0.74 per
diluted share. The major components of this loss are discussed above under
Revenue, Gross Profit, Income Tax Benefit and Cumulative Effect of Change In
Accounting Principle.
Liquidity and Capital Resources (dollars in thousands)
BALANCE SHEET DATA
Balances as of
-----------------------------------------
March 29, 2003 December 31, 2002
-----------------------------------------
Cash and cash equivalents $ 28,215 $ 34,939
Working capital $ 8,203 $ 12,346
Current ratio 1.1 to 1 1.2 to 1
Accounts receivable $ 13,162 $ 3,353
Long-term debt $ 22,330 $ 22,643
Ratio of long-term debt to equity 1 to 2 1 to 2
Installment loan portfolio $ 10,345 $ 10,977
Operating activities during the first three months of 2003 used net cash of
$9,266. Effective March 9, 2002, the Jobs Creation and Workers' Assistance Act
was passed which enabled companies to carry back net operating losses (through
2002) five years instead of two years as under the previous rules. In April
2002, the Company received $4,634 in tax refunds as a result of this change and
received an additional refund of $6,433 in March, 2003.
The increase in accounts receivable and reduction in cash and cash equivalents
from December 31, 2002 to March 29, 2003 is a normal seasonal occurrence. As is
customary for the Company, most of its manufacturing operations are idle during
the final two weeks of the year for vacations, holidays and reduced product
demand, during which time the Company collects the majority of its outstanding
receivables, resulting in higher year end cash balances.
The Company's capital expenditures were $119 for the thirteen weeks ended March
29, 2003, as compared to $753 for the comparable period of 2002. Capital
expenditures during these periods included normal property, plant and equipment
additions and replacements.
The decrease in long-term debt was due to scheduled principal payments.
The decrease in the installment loan portfolio of $632 is due primarily to a
timing difference in the sale of loans.
As of March 29, 2003, the Company has a $35,000 revolving and term-loan
agreement (the "Credit Facility") with the Company's primary bank. The Credit
Facility contains a revolving line of credit which provides for borrowings
(including letters of credit) of up to a maximum of $35,000. The amount
available under the Credit Facility and applicable interest rates are based on
certain levels of tangible net worth, defined as the total of the Company's
tangible net worth and treasury stock purchases. At March 29, 2003 and December
31, 2002, $15,000 was outstanding under the revolving line of credit. No
additional borrowing capacity is available at March 29, 2003. (See discussion
below regarding new Credit Facility). The maturity date under the revolving line
of credit is April 2005.
The term loan agreement contained in the Credit Facility provides for borrowings
of up to 80% of the Company's eligible (as defined) installment sales contracts,
up to a maximum of $35,000 (or such lesser amount as may be available). Interest
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%, with a floating rate for the remaining two years
(subject to certain limits) equal to the bank's prime rate plus 0.75%. No
amounts were outstanding under the term loan portion of the Credit Facility at
March 29, 2003 and December 31, 2002.
The Credit Facility contains certain restrictive covenants which, among other
things, limit 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 2001 and 2002, of at least $58,000. The Credit Facility also
requires CIS to comply with certain specified restrictions and financial
covenants. At March 29, 2003, the Company was in violation of certain covenants;
however, appropriate waiver letters have been obtained from the lender.
On March 18, 2003, the Company received a commitment from its primary lender for
a new credit facility which the Company anticipates will replace the existing
Credit Facility. The Company expects the new credit facility to be comprised of
a revolving line of credit which will provide for borrowings up to $25,000 and a
real estate term loan component that allows for borrowings up to $10,000. This
new credit facility changes certain financial covenants to be less restrictive
and includes a revised borrowing base and interest rate schedule based on
various levels of tangible net worth (as defined). The maturity date for the
revolving line of credit remains unchanged.
The applicable interest rates under the new facility are based on certain levels
of tangible net worth as noted in the following table.
Tangible Net Worth
("TNW") Interest Rate
- ---------------------------------- ----------------------------------
Above $77,000 Prime less 0.50%
$77,000 - $65,000 Prime
$65,000 - $58,000 Prime plus 0.25%
$58,000 - $38,000 Prime plus 1.00%
Below $38,000 Prime plus 2.00%
The amount available under the new facility is equal to the lesser of an amount
based on defined percentages of accounts receivable and inventories or certain
levels of tangible net worth as noted in the following table.
Tangible Net Worth Credit Facility
("TNW") Available
- ---------------------------------- ----------------------------------
Above $50,000 30% of TNW
$50,000 - $38,000 $15,000
$38,000 - $23,000 $15,000 to zero (dollar
for dollar reduction)
Since its inception, CIS has been restricted in the amount 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 new
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 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.*
* See Safe Harbor Statement on page 15.
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
announced, in September 2002, plans to discontinue wholesale financing of
manufactured homes, which did not 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 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.
Critical Accounting Policies
In our Annual Report on Form 10-K for the period ended December 31, 2002, under
the heading "Critical Accounting Policies", we have provided a list of
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 judgements as a result of the need to make estimates about
the effect of matters that are inherently uncertain. *
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Market risk is the risk of loss arising from adverse changes in market prices
and interest rates. The Company is exposed to interest rate risk inherent in its
financial instruments, but is not currently subject to foreign currency or
commodity price risk. The Company manages its exposure to these market risks
through its regular operating and financing activities.
The Company was exposed to market risk related to investments held in a
non-qualified trust used to fund benefits under its deferred compensation plan.
As part of the Company's cost reduction strategy, the Board of Directors voted
to terminate this plan as of December 31, 2002. Benefits were paid during the
first quarter of 2003.
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 consisted of fixed
rate contracts with interest rates generally ranging from 9.0% to 15.0% and an
average original term of 294 months at March 29, 2003. At March 29, 2003, the
estimated fair value of installment contracts was $10,822. The Company estimated
the fair value of its installment contracts receivable using discounted cash
flows and interest rates offered by CIS on similar contracts at that time.
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. At March 29, 2003, the estimated fair value of borrowings
was $23,688. The Company estimated the fair value of its debt instruments using
rates at which the Company believes it could have obtained similar borrowings at
that time.
* See Safe Harbor Statement on page 15.
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's President/Chief Executive Officer and it's Chief Financial Officer
have reviewed the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 (c) and 15d-14 (c)), within 90 days of the filing of
this report, and have determined such disclosure controls and procedures to be
effective in alerting them to material information relating to the Company that
may be required to be included in the Company's periodic filings.
Changes in Internal Controls
Since the date of the review, there have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:
Our disclosure and analysis in this Quarterly Report on Form 10-Q contain some
forward-looking statements. Forward looking statements give our current
expectations or forecasts of future events, including statements regarding
trends in the industry and the business, financing and other strategies of
Cavalier. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They generally are designated with an
asterisk (*) and use words such as "estimates," "projects," "intends,"
"believes," "anticipates," "expects," "plans," and other words and terms of
similar meaning in connection with any discussion of future operating or
financial performance. From time to time, we 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 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;
o uncertainty concerning continued listing of our common stock on the New
York Stock Exchange;
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; and
o the commencement of hostilities and armed conflict by the United States
in Iraq.
Any or all of our forward-looking statements in this report, in the 2002 Annual
Report to Stockholders, in our Annual Report on Form 10-K for the year ended
December 31, 2002 and in any other public statements we make may turn out to be
wrong. These statements may be affected by inaccurate assumptions we might make
or by known or unknown risks and uncertainties. Many factors listed above will
be important in determining future results. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related subjects
in our future filings with the Securities and Exchange Commission or in any of
our press releases. Also note that, in our Annual Report on Form 10-K for the
period ending December 31, 2002, under the heading "Risk Factors," we have
provided a discussion of factors that we think could cause our actual results to
differ materially from expected and historical results. Other factors besides
those listed could also adversely affect Cavalier. This discussion is provided
as permitted by the Private Securities Litigation Reform Act of 1995.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Reference is made to the legal proceedings previously reported in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2002 under the
heading "Item 3 - Legal Proceedings." The description of legal proceedings in
the Company's Form 10-K remains unchanged.
Item 5: Other Matters
The Company received notification from the New York Stock Exchange ("NYSE") that
the Company had fallen below the NYSE continued listing standard requiring total
market capitalization of not less than $50 million over a 30-day trading period
and total stockholders' equity of not less than $50 million. As of March 3,
2003, the date of the NYSE notification, the Company's 30 trading day average
market capitalization was $26 million, with shareholders' equity of $45.5
million as of December 31, 2002. The Company's 30 trading day average market
capitalization was $21 million with shareholders' equity of $39.4 million as of
March 29, 2003. As required by the NYSE, Cavalier has submitted a plan to the
NYSE demonstrating how it intends to comply with its listing standards over a
period of 18 months. If the NYSE accepts the plan, Cavalier will be subject to
quarterly monitoring for compliance with plan goals and targets. If the NYSE
does not accept the plan, Cavalier will be subject to NYSE trading suspension
and delisting. Should that occur, the Company would have the opportunity to
appeal the decision to a Committee of the Board of Directors of the NYSE. Should
Cavalier's shares cease to be traded on the NYSE, the Company believes an
alternate trading venue would be available. While the Company has submitted a
business plan to the NYSE to continue its listing on the NYSE, the Company
cannot offer any assurance that the NYSE will accept such plan or, if such plan
is accepted, that the Company will be able to attain the continued listing
criteria required to continue the listing of the Company's common stock on the
NYSE.
Item 6: Exhibits and Reports on Form 8-K
The exhibits required to be filed with this report are listed below.
(11) Statement re: Computation of Net Income (Loss) per Common
Share.
(99) Exhibits
(a) Certification of CEO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Certification of CFO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Current Report on Form 8-K.
(a) The Company filed a Current Report on Form 8-K on January 3,
2003, with respect to a press release announcing the closure
of four manufacturing plants.
(b) The Company filed a Current Report on Form 8-K on March 31,
2003, with respect to a press release announcing that it has
received a commitment for a new $35 million credit facility
from its primary lender, reporting that the Company has been
advised by the NYSE that it has fallen below certain of the
NYSE's continued listing standards and reporting first
quarter 2003 expectations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cavalier Homes, Inc.
------------------------------
Registrant
Date: May 13, 2003 /s/ David A. Roberson
------------------------------
David A. Roberson - President
and Chief Executive Officer
Date: May 13, 2003 /s/ Michael R. Murphy
------------------------------
Michael R. Murphy -
Chief Financial Officer (Principal
Financial and Accounting Officer)
CERTIFICATIONS
I, David A. Roberson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Cavalier Homes, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made,
in light of the circumstances under which such statements
were made, not misleading with respect to the period covered
by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 13, 2003 /s/ David A. Roberson
-------------------------------
David A. Roberson
President and Chief Executive Officer
I, Michael R. Murphy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Cavalier Homes, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made,
in light of the circumstances under which such statements
were made, not misleading with respect to the period covered
by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
d) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and
e) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
c) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 13, 2003 /s/ Michael R. Murphy
---------------------
Michael R. Murphy
Chief Financial Officer
PART II. - EXHIBIT 11
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
Thirteen Weeks Ended
---------------------------------------------
March 29, March 30,
2003 2002
-------------- ---------------
Income (loss) before cumulative effect
of change in accounting principle $ (6,182,000) $ 1,126,000
Cumulative effect of change in accounting
principle, net of tax benefit of $1,306 - (14,162,000)
-------------- ---------------
Net loss $ (6,182,000) $ (13,036,000)
============== ===============
SHARES:
Weighted average common shares - basic 17,665,644 17,662,867
Dilutive effect if stock options and warrants were exercised - 62,721
-------------- ---------------
Weighted average common shares - diluted 17,665,644 17,725,588
============== ===============
Basic and diluted income (loss) per share:
Income (loss) before cumulative effect
of change in accounting principle $ (.35) $ .06
Cumulative effect of change in accounting principle - (0.80)
-------------- ---------------
Net loss $ (0.35) $ (0.74)
============== ===============
EXHIBIT 99(a)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with Cavalier Homes, Inc. ("Company") Quarterly Report on Form
10-Q for the period ended March 29, 2003 ("Report"), the undersigned certifies
that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: May 13, 2003 By: /s/ David A. Roberson
-------------------------------
David A. Roberson
Chief Executive Officer
A signed original of this written statement required by Section 906 has been
provided to Cavalier Homes, Inc. and will be retained by Cavalier Homes, Inc.
and furnished to the Securities and Exchange Commission or its staff upon
request.
EXHIBIT 99(b)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with Cavalier Homes, Inc. ("Company") Quarterly Report on Form
10-Q for the period ended March 29, 2003 ("Report"), the undersigned certifies
that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: May 13, 2003 By: /s/ Michael R. Murphy
-------------------------------
Michael R. Murphy
Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Cavalier Homes, Inc. and will be retained by Cavalier Homes, Inc.
and furnished to the Securities and Exchange Commission or its staff upon
request.