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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 June 28, 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 August 12, 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)
June 28, December 31,
ASSETS 2003 2002
CURRENT ASSETS: ----------- -----------
Cash and cash equivalents $ 25,491 $ 34,939
Accounts receivable, less allowance for losses of $125 (2003) and $145 (2002) 11,937 3,353
Notes and installment contracts receivable - current 5,001 6,102
Inventories 13,321 18,287
Deferred income taxes 981 1,083
Income tax receivable - 5,738
Other current assets 1,296 3,118
----------- -----------
Total current assets 58,027 72,620
----------- -----------
PROPERTY, PLANT AND EQUIPMENT (Net) 45,474 50,357
----------- -----------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $955 (2003) and $859 (2002) 5,212 4,058
----------- -----------
OTHER ASSETS 2,938 3,036
----------- -----------
TOTAL $ 111,651 $ 130,071
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,390 $ 1,347
Notes payable under retail floor plan agreements 22 67
Accounts payable 7,361 7,060
Amounts payable under dealer incentive programs 9,024 10,840
Accrued compensation and related withholdings 3,665 8,398
Estimated warranties 14,400 15,000
Reserve for repurchase commitments 3,500 4,000
Accrued insurance 6,368 6,961
Other accrued expenses 6,851 6,601
----------- -----------
Total current liabilities 52,581 60,274
----------- -----------
DEFERRED INCOME TAXES 981 1,083
----------- -----------
LONG-TERM DEBT 18,586 22,643
----------- -----------
OTHER LONG-TERM LIABILITIES 558 535
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 (14,754) (8,163)
----------- -----------
Total stockholders' equity 38,945 45,536
----------- -----------
TOTAL $ 111,651 $ 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 Twenty-six Weeks Ended
---------------------- ------------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
---------- ---------- --------- --------
REVENUE $ 68,721 $ 106,643 $ 127,932 $ 201,556
COST OF SALES 57,817 91,769 110,193 173,352
SELLING, GENERAL AND ADMINISTRATIVE 11,144 14,558 23,961 30,062
IMPAIRMENT AND OTHER RELATED CHARGES 54 - 54 -
---------- ---------- ---------- ----------
OPERATING PROFIT (LOSS) (294) 316 (6,276) (1,858)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (278) (386) (561) (759)
Other, net 163 248 246 647
---------- ---------- ---------- ----------
(115) (138) (315) (112)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) (409) 178 (6,591) (1,970)
INCOME TAXES (BENEFIT) - 62 - (3,212)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (409) 116 (6,591) 1,242
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF TAX BENEFIT OF $1,306 - - - (14,162)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (409) $ 116 $ (6,591) $ (12,920)
========== ========== ========== ==========
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ (0.02) $ 0.01 $ (0.37) $ 0.07
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - - - (0.80)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (0.02) $ 0.01 $ (0.37) $ (0.73)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING/BASIC 17,665,644 17,665,380 17,665,644 17,664,138
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING/DILUTED 17,665,644 17,759,868 17,665,644 17,741,938
========== =========== ========== ==========
See notes to condensed consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Twenty-six Weeks Ended
----------------------
June 28, June 29,
2003 2002
---------- ---------
OPERATING ACTIVITIES:
Net loss $ (6,591) $ (12,920)
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 2,508 3,318
Provision for credit and accounts receivable losses 76 (357)
Gain on sale of installment contracts (599) (603)
Gain on sale of property, plant and equipment (1,170) (37)
Impairment and other related charges 54 -
Other, net (114) (322)
Changes in assets and liabilities:
Accounts receivable (8,564) (11,782)
Inventories 4,966 (392)
Income tax receivable 5,738 -
Accounts payable 301 2,157
Other assets and liabilities (5,992) (1,915)
---------- ---------
Net cash used in operating activities (9,387) (8,691)
---------- ---------
INVESTING ACTIVITIES:
Proceeds from disposition of property, plant and equipment 3,718 348
Capital expenditures (227) (1,312)
Proceeds from sale of installment contracts 19,661 18,165
Net change in notes and installment contracts (19,265) (21,004)
Other investing activities 111 (1,446)
---------- ---------
Net cash provided by (used in) investing activities 3,998 (5,249)
---------- ---------
FINANCING ACTIVITIES:
Net borrowings (payments) on notes payable (45) 145
Payments on long-term debt (4,014) (978)
Proceeds from exercise of stock options - 8
---------- ---------
Net cash used in financing activities (4,059) (825)
---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,448) (14,765)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 34,939 43,256
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,491 $ 28,491
========== =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (received) for:
Interest $ 590 $ 794
Income taxes $ (6,336) $ (4,760)
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 June 28, 2003, the results of its operations for the
thirteen and twenty-six week periods ended June 28, 2003 and June 29,
2002 and the results of its cash flows for the twenty-six week periods
ended June 28, 2003 and June 29, 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 and twenty-six weeks ended
June 28, 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 Twenty-six Weeks Ended
---------------------- -------------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Weighted average common shares outstanding - basic 17,665,644 17,665,380 17,665,644 17,664,138
Dilutive effect if stock options were exercised - 94,488 - 77,800
---------- ---------- ---------- ----------
Weighted average common shares outstanding - diluted 17,665,644 17,759,868 17,665,644 17,741,938
========== ========== ========== ==========
All options 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 for the thirteen weeks
ended June 28, 2003 and June 29, 2002, were 2,764,403 and 2,404,574,
respectively. The maximum antidilutive options for the twenty-six weeks
ended June 28, 2003 and June 29, 2002, were 2,820,646 and 2,414,767,
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 Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, the Company's net income (loss) and net
income (loss) per share would approximate the pro forma amounts below.
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
------- ------- ------- -------
Net income (loss), as reported $ (409) $ 116 $ (6,591) $ (12,920)
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (19) (341) (26) (720)
------- ------- ------- -------
Pro forma $ (428) $ (225) $ (6,617) $ (13,640)
======= ======= ======= =======
Basic and diluted income (loss) per share:
As reported $ (0.02) $ 0.01 $ (0.37) $ (0.73)
Pro forma $ (0.02) $ (0.01) $ (0.37) $ (0.77)
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 Twenty-six Weeks Ended
-------------------- ----------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
------- ------- ------- -------
Dividend yield 0.00% 0.00% 0.00% 0.00%
Expected volatility 62.94% 59.18% 62.79% 59.34%
Risk free interest rate 2.39% 5.47% 2.55% 4.56%
Expected lives 5.0 years 15.0 years 5.0 years 6.0 years
o Certain amounts from the prior period have been reclassified to conform to
the 2003 presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51 (FIN 46). FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The Company is
currently evaluating FIN 46 to determine the impact, if any, that it may
have on its consolidated financial statements.
3. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In June 2001, the FASB issued 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.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Work-in-process and finished goods inventories include an
allocation for labor and overhead costs. Inventories at June 28, 2003 and
December 31, 2002 were as follows:
June 28, December 31,
2003 2002
-------------- --------------
Raw materials $ 7,539 $ 12,006
Work-in-process 1,278 1,488
Finished goods 4,504 4,793
-------------- --------------
Total inventory $ 13,321 $ 18,287
============== ==============
5. 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 their related 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.
In July 2003, Cavalier announced its decision to close an under-performing
home manufacturing plant in Shippenville, Pennsylvania. The Shippenville
plant employed approximately 90 people and was Cavalier's smallest,
accounting for about 4% of its total revenue during the first half of 2003.
The Company negotiated a lease of the facility to an unrelated party, which
enabled the continuation of most of the workforce and mitigated the cost
related to the shutdown of the plant. The lease provides for an original
term from August 2003 through July 2011, including a short - term
termination notice, and one eight year renewal term through July 2019.
Monthly rentals required through the majority of the original lease term
are from $15 to $18, a portion of which would be applied to the purchase
price should the lessee exercise its option to purchase. The Company
expects to incur $200 to $300 in charges, primarily employee severance
benefits, associated with the closing during the second half of 2003.
The Company recorded impairment charges for the write-down of property,
plant and equipment of $54 in the second quarter of 2003 relating to the
closing of an under-performing retail location in Pennsylvania.
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 June 28, 2003
were $1,427 leaving a liability of $43 at June 28, 2003.
6. INCOME TAXES
In the first half 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
SFAS No.109 Accounting for Income Taxes. The Company recorded an income tax
benefit of $3,212 in the first half of 2002, reflecting the benefit of both
the Company'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.
7. 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, such as average cost per
floor, and current industry trends. Activity in the liability for product
warranty was as follows:
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
------- ------- ------- -------
Balance, beginning of period $ 14,900 $ 11,900 $ 15,000 $ 11,700
Provision for warranty costs 5,565 6,293 12,370 11,930
Payments (6,065) (5,993) (12,970) (11,430)
------- ------- ------- -------
Balance, end of period $ 14,400 $ 12,200 $ 14,400 $ 12,200
======= ======= ======= =======
8. CREDIT FACILITY
At June 28, 2003, $12,000 was outstanding under the Company's then existing
credit facility. On August 6, 2003, the Company amended its credit facility
with its primary lender. The new credit facility is comprised of a
revolving line of credit which provides for borrowings (including letters
of credit) up to $25,000 and a real estate term loan (14 year) component of
$10,000 which are cross-secured and cross-defaulted. The Company intends to
use the long-term portion of the new facility, together with $2,000 cash to
repay the outstanding amount on the credit agreement, leaving a $15,000
borrowing availability (including letters of credit) under the new
revolver. The maturity date for the revolving line of credit remains
unchanged at April 2005. The amount available under the revolving line of
credit, up to $25,000, is equal to the lesser of an amount based on defined
percentages of accounts and notes receivable and inventories or certain
levels of tangible net worth plus all treasury stock purchases after
December 31, 2002, as noted in the following table.
Tangible Net Worth Revolving Line of Credit
("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)
The applicable interest rates under the revolving line of credit are based
on certain levels of tangible net worth as noted in the following table.
Tangible Net Worth Revolving Line of Credit
("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 real estate term loan agreement contained in the Credit Facility
provides for borrowings of $10,000. Interest on term notes is fixed for a
period of five years from issuance at 6.5% and may be adjusted at 5 and 10
years. Any amounts outstanding under the real estate term loan are
collateralized by certain plant facilities and equipment.
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 $1,000, excluding floor plan notes payable
which cannot exceed $3,000 and (iv) make annual capital expenditures in
excess of $1,000. In addition, the Credit Facility contains certain
financial covenants requiring the Company to maintain on a consolidated
basis certain defined levels of debt to tangible net worth ratio (not to
exceed 2.5 to 1) and cash flow to debt service ratio of not less than 1.25
to 1 commencing with the nine months ending December 31, 2003 (1.5 to 1 and
1.75 to 1 for the years ending December 31, 2004 and 2005), and to maintain
a current ratio, as defined, of at least 1.0 to 1 and consolidated tangible
net worth of at least $23,000. The Credit Facility also requires CIS to
comply with certain specified restrictions and financial covenants. At June
28, 2003, the Company was in compliance with its debt covenants.
9. 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 12
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 $108,000 at
June 28, 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 Twenty-six Weeks Ended
--------------------- -----------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
------- ------- ------- -------
Balance, beginning of period $ 3,750 $ 3,200 $ 4,000 $ 3,200
Provision for losses on inventory repurchases, net (122) 556 185 957
Payments (128) (456) (685) (857)
------- ------- ------- -------
Balance, end of period $ 3,500 $ 3,300 $ 3,500 $ 3,300
======= ======= ======= =======
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
June 28, 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.
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 June 28, 2003, $3,636 of debt was outstanding, of which the
Company had guaranteed $1,446.
10. 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 Twenty-six Weeks Ended
---------------------------------------- ----------------------------------------
June 28, 2003 June 29, 2002 June 28, 2003 June 29, 2002
-------------------- ------------------ ------------------ -------------------
Gross revenue:
Home manufacturing $ 66,636 $ 104,639 $ 124,227 $ 197,980
Financial services 728 715 1,356 1,147
Retail 1,959 2,030 3,327 3,619
Other 7,894 11,572 14,609 20,840
-------------------- ------------------ ---------------- -----------------
Gross revenue $ 77,217 $ 118,956 $ 143,519 $ 223,586
==================== ================== ================ =================
Intersegment revenue:
Home manufacturing $ 1,216 $ 1,516 $ 1,882 $ 2,869
Financial services - - - -
Retail - - - -
Other 7,280 10,797 13,705 19,161
-------------------- ------------------ ---------------- -----------------
Intersegment revenue $ 8,496 $ 12,313 $ 15,587 $ 22,030
==================== ================== ================ =================
Revenue from external customers:
Home manufacturing $ 65,420 $ 103,123 $ 122,345 $ 195,111
Financial services 728 715 1,356 1,147
Retail 1,959 2,030 3,327 3,619
Other 614 775 904 1,679
-------------------- ------------------ ---------------- -----------------
Total revenue $ 68,721 $ 106,643 $ 127,932 $ 201,556
==================== ================== ================ =================
Operating profit (loss):
Home manufacturing $ (430) $ 386 $ (6,166) $ (527)
Financial services 118 9 234 (139)
Retail (89) (10) 119 (81)
Other 1,156 1,047 1,876 1,843
Elimination (8) (45) 144 (90)
-------------------- ------------------ ---------------- -----------------
Segment operating profit (loss) 747 1,387 (3,793) 1,006
General corporate (1,041) (1,071) (2,483) (2,864)
-------------------- ------------------ ---------------- -----------------
Operating profit (loss) $ (294) $ 316 $ (6,276) $ (1,858)
==================== ================== ================ =================
June 28, 2003 December 31, 2002
-------------------- ---------------------
Identifiable assets:
Home manufacturing $ 66,578 $ 70,397
Financial services 13,126 12,497
Retail 4,471 6,458
Other 8,998 10,257
-------------------- ---------------------
Segment assets 93,173 99,609
General corporate 18,478 30,462
-------------------- ---------------------
Total assets $ 111,651 $ 130,071
==================== =====================
* See Safe Harbor Statement on page 18.
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (See pages 2 through 9)
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 25% through May 2003, as compared to
2002, following significant declines since 1999. In response to deteriorating
market conditions, manufacturers have closed or idled some of their
manufacturing facilities and retail dealers have closed many locations. During
2002, two major industry lenders discontinued 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 those lenders. 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. 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, classified and taxed
manufactured homes as real property, and not personal property, under certain
conditions as set forth in the Texas law, and affected the form and structure of
permanent financing extended to Texas manufactured home consumers; however, the
state has recently passed a law returning to the chattel lending option. During
the period the law classifying manufactured homes as real property was in
effect, the law caused some disruption in the industry. We have not seen a
return to previous levels of chattel financing in Texas following revocation of
the law, and there can be no assurance that previous levels of chattel financing
will be available in the future. * Effective August 24, 2003, Fannie Mae, a
source of retail mortgage financing for manufactured homes, has modified the
available term based on the down payment, expanded the appraisal procedures to
include the cost approach to value, and increased "loan level price adjustment"
for the loan 50 basis points. In addition, a major industry lender discontinued,
in late 2002, chattel (home only) financing of manufactured homes at retail,
however, in June 2003, a new retail lender announced plans for possible entrance
into the manufactured housing market.
In response to the continued weakening of the manufactured housing industry
market conditions 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, and one in July 2003.
These facilities were located in Conway, Arkansas (2), Graham, Texas, Cordele,
Georgia, Belmont, Mississippi, Haleyville, Alabama and Shippenville,
Pennsylvania. The Company has shifted production from these plants, which
employed approximately 1,100 people, to one or more of the Company's seven
operating plants. The remaining plants will also handle dealer sales and
customer service for the Company's homes. On the retail side, the Company has
closed or disposed of 13 of its 16 retail sales centers, of which one closing
was announced in July 2003. 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 have
declined 43.1% in 2003 as compared to 2002. The Company is uncertain at this
time as to the impact 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 third quarter of 2003 to be a modest loss, 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.*
* See Safe Harbor Statement on page 18.
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
------------------------------------------------------------------
June 28, 2003 June 29, 2002 Difference
------------- ------------- ----------
Revenue:
Home manufacturing net sales $ 65,420 $ 103,123 $ (37,703)
Financial services 728 715 13
Retail 1,959 2,030 (71)
Other 614 775 (161)
--------- ------------ ---------
Total revenue $ 68,721 100.0% $ 106,643 100.0% $ (37,922) -35.6%
Cost of sales 57,817 84.1% 91,769 86.1% (33,952) -37.0%
--------- --------- ------------ -------- --------- --------
Gross profit $ 10,904 15.9% $ 14,874 13.9% $ (3,970) -26.7%
========= ========= ============ ======== ========= ========
Selling, general and administrative $ 11,144 16.2% $ 14,558 13.7% $ (3,414) -23.5%
Impairment and other related charges $ 54 0.1% $ - 0.0% $ 54 0.0%
--------- --------- ------------ -------- --------- --------
Operating profit (loss) $ (294) -0.4% $ 316 0.3% $ 610 -193.0%
--------- --------- ------------ -------- --------- --------
Other income (expense):
Interest expense $ (278) -0.4% $ (386) -0.4% $ (108) -28.0%
Other, net 163 0.2% 248 0.2% (85) -34.3%
--------- ------------ --------- --------
$ (115) $ (138) (23) 16.9%
========= ============ ========= ========
Income (loss) before income taxes $ (409) -0.6% $ 178 0.2% $ 587 -330.2%
Income taxes $ - 0.0% $ 62 0.1% $ 62 -100.0%
--------- ------------ --------- --------
Income (loss) before cumulative effect of
change in accounting principle $ (409) -0.6% $ 116 0.1% $ 525 -453.5%
Cumulative effect of change in accounting
principle, net of tax benefit of $1,306 - 0.0% - 0.0% - 100.0%
--------- ------------ ---------
Net income (loss) $ (409) -0.6% $ 116 0.1% $ 525 -453.5%
========= ========= ============ ======== ========= ========
For the Twenty-six Weeks Ended
------------------------------------------------------------------
June 28, 2003 June 29, 2002 Difference
------------- ------------ ---------
Revenue:
Home manufacturing net sales $ 122,345 $ 195,111 $ (72,766)
Financial services 1,356 1,147 209
Retail 3,327 3,619 (292)
Other 904 1,679 (775)
--------- ------------ ---------
Total revenue $ 127,932 100.0% $ 201,556 100.0% $ (73,624) -36.5%
Cost of sales 110,193 86.1% 173,352 86.0% (63,159) -36.4%
--------- --------- ------------ -------- --------- --------
Gross profit $ 17,739 13.9% $ 28,204 14.0% $ (10,465) -37.1%
========= ========= ============ ======== ========= ========
Selling, general and administrative $ 23,961 18.7% $ 30,062 14.9% $ (6,101) -20.3%
Impairment and other related charges $ 54 0.1% $ - 0.0% $ 54 0.0%
--------- -------- --------- --------
Operating loss $ (6,276) -4.9% $ (1,858) -0.9% $ 4,418 237.8%
--------- --------- ------------ -------- --------- --------
Other income (expense):
Interest expense $ (561) -0.4% $ (759) -0.4% $ (198) -26.1%
Other, net 246 0.2% 647 0.3% (401) -62.0%
--------- ------------ --------- --------
$ (315) $ (112) 203 -180.5%
========= ============ ========= ========
Loss before income taxes $ (6,591) -5.2% $ (1,970) -1.0% $ 4,621 234.5%
Income tax benefit $ - 0.0% $ (3,212) -1.6% $ (3,212) -100.0%
--------- ------------ --------- --------
Income (loss) before cumulative effect of
change in accounting principle $ (6,591) -5.2% $ 1,242 0.6% $ 7,833 -630.8%
Cumulative effect of change in accounting
principle, net of tax benefit of $1,306 - 0.0% (14,162) -7.0% (14,162) 100.0%
--------- ------------ ---------
Net loss $ (6,591) -5.2% $ (12,920) -6.4% $ (6,329) -49.0%
========= ========= ============ ======== ========= ========
OPERATING DATA For the Thirteen Weeks Ended
-------------------------------
June 28, 2003 June 29, 2002
-------------- ---------------
Home manufacturing sales:
Floor shipments 3,549 6,020
Home shipments:
Single section 285 14.9% 699 20.8%
Multi-section 1,632 85.1% 2,661 79.2%
------- ----- -------- ------
Total shipments 1,917 100.0% 3,360 100.0%
Shipments to company-owned retail locations (35) -1.8% (47) -1.4%
------- ----- -------- ------
Wholesale shipments to independent dealers 1,882 98.2% 3,313 98.6%
======= ===== ======== ======
Retail sales:
Single section 14 28.6% 14 28.0%
Multi-section 35 71.4% 36 72.0%
------- ----- -------- ------
Total sales 49 100.0% 50 100.0%
======= ===== ======== ======
Cavalier-produced homes sold 44 89.8% 42 84.0%
======= ===== ======== ======
Used homes sold 5 10.2% 8 16.0%
======= ===== ======== ======
Other Operating Data:
Installment loan purchases $ 11,136 $ 13,281
Capital expenditures $ 108 $ 559
Home manufacturing facilities-operating 7 14
Independent exclusive dealer locations 168 259
Company-owned retail locations 3 5
For the Twenty-six Weeks Ended
-------------------------------
June 28, 2003 June 29, 2002
-------------- ---------------
Home manufacturing sales:
Floor shipments 6,643 11,671
Home shipments:
Single section 503 14.1% 1,360 20.9%
Multi-section 3,070 85.9% 5,156 79.1%
------- ----- -------- ------
Total shipments 3,573 100.0% 6,516 100.0%
Shipments to company-owned retail locations (53) -1.5% (94) -1.4%
------- ----- -------- ------
Wholesale shipments to independent dealers 3,520 98.5% 6,422 98.6%
======= ===== ======== ======
Retail sales:
Single section 23 26.1% 34 35.1%
Multi-section 65 73.9% 63 64.9%
------- ----- -------- ------
Total sales 88 100.0% 97 100.0%
======= ===== ======== ======
Cavalier-produced homes sold 76 86.4% 84 86.6%
======= ===== ======== ======
Used homes sold 12 13.6% 13 13.4%
======= ===== ======== ======
Other Operating Data:
Installment loan purchases $ 20,345 $ 21,879
Capital expenditures $ 227 $ 1,312
Home manufacturing facilities - operating 7 14
Independent exclusive dealer location 168 259
Company-owned retail locations 3 5
Thirteen weeks ended June 28, 2003 and June 29, 2002
Revenue
Revenue for the second quarter of 2003 totaled $68,721, a decrease of 35.6% from
2002's second quarter revenue of $106,643.
Home manufacturing net sales accounted for virtually the entire decrease,
falling to $65,420, net of intercompany eliminations of $1,216. Home
manufacturing net sales for the second quarter of 2002 were $103,123, net of
intercompany eliminations of $1,516. Home shipments decreased 42.9%, with floor
shipments decreasing by 41.0%. Multi-section home shipments, as a percentage of
total shipments, continued to increase, from 79.2% of shipments in the second
quarter of 2002 to 85.1% 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
second quarter of 2003 were 1,917 versus 3,360 in 2002. Cavalier attributes the
decrease in sales and shipments primarily to continuing adverse industry
conditions, related primarily to industry financing, both retail and wholesale.
Inventory of the Company's product at all retail locations, including
company-owned retail sales centers, decreased to approximately $130,000 at June
28, 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 $728 for the second
quarter of 2003 compared to $715 in 2002. The revenue increase was primarily due
to higher revenue earned at the Company's insurance subsidiary somewhat offset
by lower revenues from the Company's finance subsidiary in the second quarter of
2003 as compared to the same period of 2002. During the second quarter of 2003,
CIS Financial Services, Inc. ("CIS"), the Company's wholly-owned finance
subsidiary, purchased contracts of $11,136 and resold installment contracts
totaling $9,577. In the second quarter of 2002, CIS purchased contracts of
$13,281 and resold installment contracts totaling $10,773. CIS does not retain
the servicing function and does not earn the interest income on these resold
loans.
Revenue from the retail segment was $1,959 for the second quarter of 2003
compared to $2,030 for the same period in 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 for the second quarter
of 2003 were $614 compared to $775 for the second quarter of 2002. The decrease
is due primarily to the sale of a supply company during the third quarter of
2002 which was somewhat offset by sales to a new external customer at one of the
supply companies.
Gross Profit
Gross profit was $10,904, or 15.9% of total revenue, for the second quarter of
2003, versus $14,874 or 13.9%, in 2002. The $3,970 decrease in gross profit is
primarily the result of the reduction in sales, while gross profit %
improved due to closing of inefficient plants.
Selling, General and Administrative
Selling, general and administrative expenses during the second quarter of 2003
were $11,144, or 16.2% of total revenue, versus $14,558 or 13.7% in 2002, a
decrease of $3,414 or 23.5%. The overall decrease includes a $1,258 reduction in
salaries, wages and incentive compensation, a $1,456 decrease in advertising and
promotion costs, including dealer support costs, a $569 decrease in employee
benefits cost (primarily health insurance) and a $628 increase in gain on sale
of fixed assets. Expenses for the second quarter of 2002 included a benefit of
$1,163 from the settlement of a 1998 insurance claim related to an employee
benefits plan.
Impairment and Other Related Charges
During the second quarter of 2003, the Company recorded impairment and other
related charges of $54 ($54 after tax or $0.00 per diluted share) related to the
closing of an under-performing retail location in Pennsylvania. There were no
such charges in the comparable 2002 period.
Operating Profit (Loss)
Operating loss for the quarter was $294 compared to operating income of $316 in
the second quarter of 2002. Segment operating results were as follows: (1) Home
manufacturing operating loss, before intercompany eliminations, was $430 in the
second quarter of 2003 as compared to operating income of $386 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 $118 in the second
quarter of 2003 compared to income of $9 in 2002. The financial services
operating results improved in 2003 primarily due to an improved level of
selling, general and administrative expenses related to cost reduction efforts.
(3) The retail segment's operating loss was $89 in the second quarter of 2003 as
compared to a loss of $10 in 2002. (4) The other segment operating profit,
before intercompany eliminations, was $1,156 in the second quarter of 2003 as
compared to $1,047 in 2002. (5) General corporate operating expense, which is
not identifiable to a specific segment, improved from $1,071in the second
quarter of 2002 to $1,041 in 2003 primarily due to a reduction in salaries
expense.
Other Income (Expense)
Interest expense decreased $108 primarily due to a reduction in the interest
rate paid on the amount outstanding under the Company's line of credit. Other,
net decreased $85 primarily due to lower interest income rates earned during the
second quarter of 2003.
Income (Loss) before Income Taxes
The Company's pre-tax loss for the second quarter was $409, compared to the
pre-tax income of $178 in the second quarter of 2002. This loss is primarily due
to decreased revenue and trailing costs associated with closed facilities as
discussed above. In addition, earnings for the second quarter of 2002 included a
benefit of $1,163 from the settlement of a 1998 insurance claim related to an
employee benefits plan and second quarter 2003 gains on property, plant and
equipment of $624 as discussed above.
Income Taxes
In the second 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
income taxes of $62 in the second quarter of 2002.
Net Income (Loss)
The net loss for the second quarter of 2003 was $409 or $0.02 per diluted share
compared with net income in the prior-year period of $116 or $0.01 per diluted
share. The major components of this loss are discussed above under Revenue,
Gross Profit, and Selling, General and Administrative Expenses.
Twenty-six weeks ended June 28, 2003 and June 29, 2002
Revenue
Revenue for the first half of 2003 totaled $127,932, a decrease of 36.5% from
2002's first half revenue of $201,556.
Home manufacturing net sales accounted for virtually the entire decrease,
falling to $122,345, net of intercompany eliminations of $1,882. Home
manufacturing net sales for the first half of 2002 were $195,111, net of
intercompany eliminations of $2,869. Home shipments decreased 45.2%, with floor
shipments decreasing by 43.1%. Multi-section home shipments, as a percentage of
total shipments, continued to increase, from 79.1% of shipments in the first
half of 2002 to 85.9% 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 half of 2003 were 3,573 versus 6,516 in 2002. Cavalier attributes the
decrease in sales and shipments primarily to continuing adverse industry
conditions, related primarily to industry financing, both retail and wholesale.
Inventory of the Company's product at all retail locations, including
company-owned retail sales centers, decreased to approximately $130,000 at June
28, 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 $1,356 for the first
half of 2003 compared to $1,147 in 2002. The revenue increase was primarily due
to an increase in the interest income earned on the loans held in its portfolio
and higher revenue earned at the Company's insurance subsidiary in the first
half of 2003 as compared to the same period of 2002. During the first half of
2003, CIS Financial Services, Inc. ("CIS"), the Company's wholly-owned finance
subsidiary, purchased contracts of $20,345 and resold installment contracts
totaling $19,062. In the first half of 2002, CIS purchased contracts of $21,879
and resold installment contracts totaling $17,562. CIS does not retain the
servicing function and does not earn the interest income on these resold loans.
Revenue from the retail segment was $3,327 for the first half 2003 compared to
$3,619 for the same period in 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
half of 2003 to $904 compared to $1,679 for the first half 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 $17,739, or 13.9% of total revenue, for the first half of 2003,
versus $28,204, or 14.0%, in 2002. The $10,465 decrease in gross profit is
primarily the result of the reduction in sales.
Selling, General and Administrative
Selling, general and administrative expenses during the first six months of 2003
were $23,961, or 18.7% of total revenue, versus $30,062 or 14.9% in 2002, a
decrease of $6,101 or 20.3%. The overall decrease includes a benefit of $1,163
from the settlement of a 1998 insurance claim related to the Company's employee
benefits plan, a $2,415 reduction in salaries, wages and incentive compensation,
a $2,215 decrease in advertising and promotion costs, including dealer support
costs, a $1,046 decrease in employee benefits cost (primarily health insurance)
and a $1,133 increase in gain on sale of fixed assets.
Impairment and Other Related Charges
During the first half of 2003, the Company recorded impairment and other related
charges of $54 ($54 after tax or $0.00 per diluted share) related to the closing
of an under-performing retail location in Pennsylvania. There were no such
charges in the comparable 2002 period.
Operating Loss
Operating loss for the first half of 2003 was $6,276 compared to an operating
loss of $1,858 in the same period of 2002. Segment operating results were as
follows: (1) Home manufacturing operating loss, before intercompany
eliminations, was $6,166 in the first half of 2003 as compared to $527 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 $234 in the
first half of 2003 as compared to a loss of $139 in 2002. The financial services
operating results improved in 2003 primarily due to the higher revenue in the
first half of 2003 as described above and due to an improved level of selling,
general and administrative expenses related to cost reduction efforts. (3) The
retail segment's operating profit was $119 in the first half of 2003 as compared
to an operating loss of $81 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 $1,876 in
the first half of 2003 as compared to $1,843 in 2002. (5) General corporate
operating expense, which is not identifiable to a specific segment, improved
from $2,864 in the first half of 2002 to $2,483 in 2003 primarily due to a
reduction in salaries expense.
Other Income (Expense)
Interest expense decreased $198 primarily due to a reduction in the interest
rate paid on the amount outstanding under the Company's line of credit. Other,
net decreased $401 primarily due to lower interest income rates earned during
the first half of 2003 and reduced income recognized from equity method
investees.
Loss before Income Taxes
The Company's pre-tax loss for the first half was $6,591, compared to the
pre-tax loss of $1,970 in the first half of 2002 primarily due to decreased
revenue and trailing costs associated with closed facilities as discussed above.
In addition, earnings for 2002 included a benefit of $1,163 from the settlement
of a 1998 insurance claim related to an employee benefits plan and 2003 includes
gains on sales of property, plant and equipment of $1,170 as discussed above.
Income Tax Benefit
In the first half 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 half of 2002, reflecting the benefit
of both the Company'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 half of 2003 was $6,591 or $0.37 per diluted share
compared with a net loss in the prior-year period of $12,920 or $0.73 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
---------------------------------
June 28, 2003 December 31, 2002
---------------------------------
Cash and cash equivalents $ 25,491 $ 34,939
Working capital $ 5,446 $ 12,346
Current ratio 1.1 to 1 1.2 to 1
Accounts receivable $ 11,937 $ 3,353
Long-term debt $ 18,586 $ 22,643
Ratio of long-term debt to equity 1 to 2 1 to 2
Installment loan portfolio $ 11,169 $ 10,977
Operating activities during the first six months of 2003 used net cash of
$9,387. 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 June 28, 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 $227 for the twenty-six weeks ended June
28, 2003, as compared to $1,312 for the comparable period of 2002. Capital
expenditures during these periods included normal property, plant and equipment
additions and replacements.
In May 2002, the Company paid $1,250 to purchase additional partnership interest
in an equity investee. The partnership is now wholly-owned by the Company and
continues to be included in the consolidated financial statements.
The decrease in long-term debt was due to scheduled principal payments and a
$3,000 pay-down on the revolving line of credit.
At June 28, 2003, $12,000 was outstanding under the Company's then existing
credit facility. On August 6, 2003, the Company amended its credit facility with
its primary lender. The new credit facility is comprised of a revolving line of
credit which provides for borrowings (including letters of credit) up to $25,000
and a real estate term loan (14 year) component of $10,000 which are
cross-secured and cross-defaulted. The Company intends to use the long-term
portion of the new facility, together with $2,000 cash to repay the outstanding
amount on the credit agreement, leaving a $15,000 borrowing availability
(including letters of credit) under the new revolver. The maturity date for the
revolving line of credit remains unchanged at April 2005. The amount available
under the revolving line of credit, up to $25,000, is equal to the lesser of an
amount based on defined percentages of accounts and notes receivable and
inventories or certain levels of tangible net worth, plus all treasury stock
purchases after December 31, 2002, as noted in the following table.
Tangible Net Worth Revolving Line of Credit
("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)
The applicable interest rates under the revolving line of credit are based on
certain levels of tangible net worth as noted in the following table.
Tangible Net Worth Revolving Line of Credit
("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 real estate term loan agreement contained in the Credit Facility provides
for borrowings of $10,000. Interest on term notes is fixed for a period of five
years from issuance at 6.5% and may be adjusted at 5 and 10 years. Any amounts
outstanding under the real estate term loan are collateralized by certain plant
facilities and equipment.
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 $1,000, excluding floor plan notes payable which cannot exceed $3,000
and (iv) make annual capital expenditures in excess of $1,000. In addition, the
Credit Facility contains certain financial covenants requiring the Company to
maintain on a consolidated basis certain defined levels of debt to tangible net
worth ratio (not to exceed 2.5 to 1) and cash flow to debt service ratio of not
less than 1.25 to 1 commencing with the nine months ending December 31, 2003
(1.5 to 1 and 1.75 to 1 for the years ending December 31, 2004 and 2005), and to
maintain a current ratio, as defined, of at least 1.0 to 1 and consolidated
tangible net worth of at least $23,000. The Credit Facility also requires CIS to
comply with certain specified restrictions and financial covenants. At June 28,
2003, the Company was in compliance with its debt covenants.
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.*
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. During 2002, two major industry
lenders discontinued 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
those lenders. In addition, a major industry lender discontinued, in late 2002,
chattel (home only) financing of manufactured homes at retail, however, in June
2003, a new retail lender announced plans for possible entrance into the
manufactured housing market. 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. *
* See Safe Harbor Statement on page 18.
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 281 months at June 28, 2003. At June 28, 2003, the
estimated fair value of installment contracts was $11,811. 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 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
June 28, 2003, the estimated fair value of borrowings was $20,228. 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.
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-15(e) and 15d-15(e)), as of the end of the period covered
by 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
During the period covered by this quarterly report, there have been no changes
in the Company's internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
controls over financial reporting.
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 the severe and continuing downturn in the manufactured housing
industry;
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 4: Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held May 22, 2003, and the
stockholders elected ten directors. The following is a tabulation of the voting
on this matter:
Shares Voting
For Withheld
John W. Allison 15,558,608 90,086
Thomas A. Broughton, III 15,408,746 239,948
Barry B. Donnell 15,523,384 125,310
Norman W. Gayle, III 15,526 857 121,837
Lee Roy Jordan 15,387,996 260,698
A. Douglas Jumper, Sr. 15,406,673 242,021
John W Lowe 14,507,909 1,140,785
David A. Roberson 15,528,108 120,586
Bobby Tesney 15,557,108 91,586
J. Don Williams 15,535,007 113,687
The stockholders also ratified the Board of Director's appointment of Deloitte &
Touche LLP as Independent Certified Public Accountants for the Company. The
appointment was ratified by a vote of 15,604,422 shares for and 37,516 shares
against.
Item 5: Other Matters
On May 22, 2003, the Company received notification from the New York Stock
Exchange ("NYSE") that the NYSE had accepted the Company's proposed plan to
reestablish compliance with the NYSE's continued listing standards. As a result,
Cavalier's common stock will continue to trade on the NYSE, subject to the
Company's achieving certain interim and ongoing objectives as outlined in the
plan. On March 27, 2003, the Company reported it 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 $33.5 million with
stockholders' equity of $38.9 million as of June 28, 2003. As required by the
NYSE, Cavalier submitted a plan to the NYSE demonstrating how it intends to
comply with its listing standards over a period of 18 months. With the NYSE's
decision to accept Cavalier's proposed plan, the Company has 18 months to
restore compliance with the continued listing standards. The Company will report
quarterly to the NYSE during this period on the Company's progress toward
achieving its operational goals.
Item 6: Exhibits and Reports on Form 8-K
The exhibits required to be filed with this report are listed below.
(10) Material Contracts
(a) Fourth Modification to Amended and Restated Revolving Note,
dated as of August 6, 2003, between the Company and First
Commercial Bank.
(b) Fifth Amendment to Amended and Restated Revolving and Term
Loan Agreement, dated as of August 6, 2003, between the
Company and First Commercial Bank.
(c) Real Estate Note, dated as of August 6, 2003, between the
Company and First Commercial Bank.
(d) Guaranty Agreement, dated as of August 6, 2003, between the
Company and First Commercial Bank.
(11) Statement re: Computation of Net Income (Loss) per Common
Share.
(31) Exhibits
(a) Certification of principal executive officer pursuant to
Exchange Act Rule 13a-14(a) or 15d-14(a).
(b) Certification of principal financial officer pursuant to
Exchange Act Rule 13a-14(a) or 15d-14(a).
(32) 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 August 11,
2003, with respect to a press release announcing its
financial results for the quarter ended June 28, 2003.
(b) The Company filed a Current Report on Form 8-K on July 17,
2003, with respect to a press release announcing the closure
of a home manufacturing plant located in Shippenville,
Pennsylvania.
(c) The Company filed a Current Report on Form 8-K on May 22,
2003, with respect to a press release announcing that the New
York Stock Exchange has accepted the Company's proposed plan
to attain compliance with the NYSE's continued listing
standards.
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: August 12, 2003 /s/ David A. Roberson
----------------------------------
David A. Roberson - President
and Chief Executive Officer
Date: August 12, 2003 /s/ Michael R. Murphy
-----------------------------------
Michael R. Murphy -
Chief Financial Officer (Principal
Financial and Accounting Officer)
PART II. - EXHIBIT 11
CAVALIER HOMES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------ ------------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
---------- ---------- ---------- -----------
Income (loss) before cumulative effect
of change in accounting principle $ (409,000) $ 116,000 $ (6,591,000) $ 1,242,000
Cumulative effect of change in accounting
principle, net of tax benefit of $1,306 - - - (14,162,000)
---------- ---------- ---------- ----------
Net income (loss) $ (409,000) $ 116,000 $ (6,591,000) $ (12,920,000)
========== ========== ========== ==========
SHARES:
Weighted average common shares - basic 17,665,644 17,665,380 17,665,644 17,664,138
Dilutive effect if stock options and warrants were exercised - 94,488 - 77,800
---------- ---------- ---------- ----------
Weighted average common shares - diluted 17,665,644 17,759,868 17,665,644 17,741,938
========== ========== ========== ==========
Basic and diluted income (loss) per share:
Income (loss) before cumulative effect
of change in accounting principle $ (0.02) $ 0.01 $ (0.37) $ 0.07
Cumulative effect of change in accounting principle - - - (0.80)
---------- ---------- ---------- ----------
Net income (loss) $ (0.02) $ 0.01 $ (0.37) $ (0.73)
========== ========== ========== ==========
EXHIBIT 31(a)
CERTIFICATIONS
I, David A. Roberson, certify that:
1. I have reviewed this 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 report;
3. Based on my knowledge, the financial statements, and other
financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation operation of
internal controls over financial reporting, 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 and material weaknesses in
the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
Date: August 12, 2003 /s/ David A. Roberson
-------------------------------------
David A. Roberson
President and Chief Executive Officer
EXHIBIT 31(b)
CERTIFICATIONS
I, Michael R. Murphy, certify that:
1. I have reviewed this 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 report;
3. Based on my knowledge, the financial statements, and other
financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation operation of
internal controls over financial reporting, 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 and material weaknesses in
the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
Date: August 12, 2003 /s/ Michael R. Murphy
---------------------
Michael R. Murphy
Chief Financial Officer
EXHIBIT 32(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 June 28, 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: August 12, 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 32(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 June 28, 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: August 12, 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.