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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 September 27, 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 November 11, 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)
September 27, December 31,
ASSETS 2003 2002
-------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 24,167 $ 34,939
Accounts receivable, less allowance for losses of $122 (2003) and $145 (2002) 11,972 3,353
Notes and installment contracts receivable - current 3,421 6,102
Inventories 12,991 18,287
Deferred income taxes 981 1,083
Income tax receivable - 5,738
Other current assets 1,259 3,118
-------------- -------------
Total current assets 54,791 72,620
-------------- -------------
PROPERTY, PLANT AND EQUIPMENT (Net) 43,539 50,357
-------------- -------------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $1,039 (2003) and $859 (2002) 6,306 4,058
-------------- -------------
OTHER ASSETS 3,255 3,036
-------------- -------------
TOTAL $ 107,891 $ 130,071
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,845 $ 1,347
Notes payable under retail floor plan agreements - 67
Accounts payable 7,294 7,060
Amounts payable under dealer incentive programs 7,922 10,840
Accrued compensation and related withholdings 3,748 8,398
Estimated warranties 13,850 15,000
Reserve for repurchase commitments 3,300 4,000
Accrued insurance 6,428 6,961
Other accrued expenses 6,061 6,601
-------------- -------------
Total current liabilities 50,448 60,274
-------------- -------------
DEFERRED INCOME TAXES 981 1,083
-------------- -------------
LONG-TERM DEBT 16,064 22,643
-------------- -------------
OTHER LONG-TERM LIABILITIES 510 535
-------------- -------------
CONTINGENCIES (NOTE 9)
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 (13,811) (8,163)
-------------- -------------
Total stockholders' equity 39,888 45,536
-------------- -------------
TOTAL $ 107,891 $ 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 Thirty-nine Weeks Ended
------------------------------ ------------------------------
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
------------- ------------- ------------- ------------
REVENUE $ 63,863 $ 98,693 $ 191,795 $ 300,249
COST OF SALES 53,952 82,902 164,145 256,254
SELLING, GENERAL AND ADMINISTRATIVE 9,382 16,892 33,343 46,954
IMPAIRMENT AND OTHER RELATED CHARGES 122 - 176 -
------------- ------------- ------------- ------------
OPERATING PROFIT (LOSS) 407 (1,101) (5,869) (2,959)
OTHER INCOME (EXPENSE): ------------- ------------- ------------- ------------
Interest expense (204) (363) (765) (1,122)
Other, net 161 291 407 938
------------- ------------- ------------- ------------
(43) (72) (358) (184)
------------- ------------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT 364 (1,173) (6,227) (3,143)
INCOME TAX BENEFIT (579) (411) (579) (3,623)
------------- ------------- ------------- ------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 943 (762) (5,648) 480
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF TAX BENEFIT OF $1,306 - - - (14,162)
------------- ------------- ------------- ------------
NET INCOME (LOSS) $ 943 $ (762) $ (5,648) $ (13,682)
============= ============= ============= ============
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 0.05 $ (0.04) $ (0.32) $ 0.03
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE - - - (0.80)
------------- ------------- ------------- ------------
NET INCOME (LOSS) $ 0.05 $ (0.04) $ (0.32) (0.77)
============= ============= ============= ============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 17,665,644 17,665,644 17,665,644 17,664,643
============= ============= ============= ============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 17,710,286 17,665,644 17,665,644 17,705,762
============= ============= ============= ============
See notes to condensed consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Thirty-nine Weeks Ended
------------------------------
September 27, September 28,
2003 2002
------------- -------------
OPERATING ACTIVITIES:
Net loss $ (5,648) $ (13,682)
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 3,569 4,828
Provision for credit and accounts receivable losses 157 (420)
Gain on sale of installment contracts (875) (1,012)
Gain (loss) on sale of property, plant and equipment (1,410) 199
Impairment and other related charges 176 -
Other, net (241) (1,703)
Changes in assets and liabilities:
Accounts receivable (8,596) (10,114)
Inventories 5,296 (3,586)
Income tax receivable 5,738 (75)
Accounts payable 234 4,842
Other assets and liabilities (8,686) (1,176)
------------- -------------
Net cash used in operating activities (10,286) (7,737)
------------- -------------
INVESTING ACTIVITIES:
Proceeds from disposition of property, plant and equipment 4,871 848
Capital expenditures (266) (1,744)
Proceeds from sale of installment contracts 28,405 27,881
Net change in notes and installment contracts (27,330) (32,464)
Other investing activities (18) (257)
------------- -------------
Net cash provided by (used in) investing activities 5,662 (5,736)
------------- -------------
FINANCING ACTIVITIES:
Net payments on notes payable (67) (406)
Payments on long-term debt (16,081) (1,043)
Proceeds from long-term borrowings 10,000 -
Proceeds from exercise of stock options - 8
------------- -------------
Net cash used in financing activities (6,148) (1,441)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (10,772) (14,914)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 34,939 43,256
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,167 $ 28,342
============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (received) for:
Interest $ 797 $ 1,101
Income taxes $ (6,645) $ (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 September 27, 2003, the results of its operations for
the thirteen and thirty-nine week periods ended September 27, 2003 and
September 28, 2002 and the results of its cash flows for the
thirty-nine week periods ended September 27, 2003 and September 28,
2002. All such adjustments are of a normal, recurring nature except
for the goodwill impairment described in Note 3.
o The results of operations for the thirteen and thirty-nine weeks ended
September 27, 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 Thirty-nine Weeks Ended
-------------------------- --------------------------
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Weighted average common shares outstanding - basic 17,665,644 17,665,644 17,665,644 17,664,643
Dilutive effect if stock options were exercised 44,642 - - 41,119
------------ ------------ ------------ ------------
Weighted average common shares outstanding - diluted 17,710,286 17,665,644 17,665,644 17,705,762
============ ============ ============ ============
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 September 27, 2003 and September 28, 2002, were 2,627,429 and
3,314,194, respectively. The maximum antidilutive options for
thirty-nine weeks ended September 27, 2003 and September 28, 2002,
were 2,792,599 and 2,908,489, 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 Thirty-nine Weeks Ended
---------------------------- ----------------------------
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net income (loss), as reported $ 943 $ (762) $ (5,648) $ (13,682)
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (28) (124) (54) (844)
------------ ------------ ------------ ------------
Pro forma $ 915 $ (886) $ (5,702) $ (14,526)
============ ============ ============ ============
Basic and diluted income (loss) per share:
As reported $ 0.05 $ (0.04) $ (0.32) $ (0.77)
Pro forma $ 0.05 $ (0.05) $ (0.32) $ (0.82)
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 Thirty-nine Weeks Ended
----------------------------- ----------------------------
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Dividend yield 0.00% 0.00% 0.00% 0.00%
Expected volatility 62.94% 59.84% 62.79% 59.37%
Risk free interest rate 2.39% 4.71% 2.55% 4.57%
Expected lives 5.0 years 15.0 years 5.0 years 6.6 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 December 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 September 27, 2003
and December 31, 2002 were as follows:
September 27, December 31,
2003 2002
------------- -------------
Raw materials $ 7,917 $ 12,006
Work-in-process 1,162 1,488
Finished goods 3,912 4,793
------------- -------------
Total inventory $ 12,991 $ 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 nine months
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, one eight year renewal term through
July 2019 and a purchase option. 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, of which $122 was recorded as incurred
during the third quarter 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 September 27,
2003 were $1,428 leaving a liability of $42 at September 27, 2003.
6. INCOME TAXES
In the third quarter of 2003, the Company recognized an income tax benefit
of $579 representing adjustments to prior years' tax provisions that became
appropriate given the results of the recent Internal Revenue Service audit
of the Company's federal income tax returns; however, the Company did not
record any tax benefit for net operating losses in the first nine months of
2003 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 $3,623 in
the first nine months 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 Thirty-nine Weeks Ended
------------------------------ -----------------------------
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Balance, beginning of period $ 14,400 $ 12,200 $ 15,000 $ 11,700
Warranty expense 4,780 6,241 17,150 18,171
Payments (5,330) (5,941) (18,300) (17,371)
------------- ------------- ------------- -------------
Balance, end of period $ 13,850 $ 12,500 $ 13,850 $ 12,500
============= ============= ============= =============
8. 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 used the long-term portion
of the new facility, together with $2,000 cash to repay the outstanding
amount on the revolving line of credit. 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 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)
At September 27, 2003, $8,847 was available under the revolving line of
credit of which no amount was outstanding.
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
("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. 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 Financial Services, Inc. ("CIS"), the Company's wholly-owned finance
subsidiary, to comply with certain specified restrictions and financial
covenants. At September 27, 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 $96,000 at
September 27, 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 Thirty-nine Weeks Ended
------------------------------ -------------------------------
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
--------------- -------------- ---------------- --------------
Balance, beginning of period $ 3,500 $ 3,300 $ 4,000 $ 3,200
Provision for losses on inventory repurchases, net (351) 243 (166) 1,200
Recoveries (payments), net 151 (243) (534) (1,100)
--------------- -------------- ---------------- --------------
Balance, end of period $ 3,300 $ 3,300 $ 3,300 $ 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 September 27,2003, the Company was contingently liable for future
retrospective premium adjustments up to approximately $17,042 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. Anticipated 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 two companies in which the Company owns a one-third interest.
The guarantees are limited to 40% of the outstanding debt. At
September 27, 2003, $3,197 of debt was outstanding, of which the
Company had guaranteed $1,279.
10. SEGMENT INFORMATION
The Company's reportable segments are organized around products and
services. Through its Home manufacturing segment, the Company's five
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 supply companies who primarily 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).
* See Safe Harbor Statement on page 19.
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------------------------------- ---------------------------------------------
September 27, 2003 September 28, 2002 September 27, 2003 September 28, 2002
-------------------------------------------- ---------------------------------------------
Gross revenue:
Home manufacturing $ 61,851 $ 96,373 $ 186,078 $ 294,353
Financial services 652 755 2,008 1,902
Retail 2,423 2,335 5,750 5,954
Other 7,232 11,670 21,841 32,510
-------------------------------------------- ---------------------------------------------
Gross revenue $ 72,158 $ 111,133 $ 215,677 $ 334,719
============================================ =============================================
Intersegment revenue:
Home manufacturing $ 1,675 $ 1,265 $ 3,557 $ 4,134
Financial services - - - -
Retail - - - -
Other 6,620 11,175 20,325 30,336
-------------------------------------------- ---------------------------------------------
Intersegment revenue $ 8,295 $ 12,440 $ 23,882 $ 34,470
============================================ =============================================
Revenue from external customers:
Home manufacturing $ 60,176 $ 95,108 $ 182,521 $ 290,219
Financial services 652 755 2,008 1,902
Retail 2,423 2,335 5,750 5,954
Other 612 495 1,516 2,174
-------------------------------------------- ---------------------------------------------
Total revenue $ 63,863 $ 98,693 $ 191,795 $ 300,249
============================================ =============================================
Operating profit (loss):
Home manufacturing $ 193 $ (1,038) $ (5,973) $ (1,565)
Financial services 108 25 342 (114)
Retail 156 (59) 275 (140)
Other 1,200 1,546 3,076 3,389
Elimination 120 55 264 (35)
-------------------------------------------- ---------------------------------------------
Segment operating profit (loss) 1,777 529 (2,016) 1,535
General corporate (1,370) (1,630) (3,853) (4,494)
-------------------------------------------- ---------------------------------------------
Operating profit (loss) $ 407 $ (1,101) $ (5,869) $ (2,959)
============================================ =============================================
September 27, 2003 December 31, 2002
---------------------------------------------
Identifiable assets:
Home manufacturing $ 64,370 $ 70,397
Financial services 13,201 12,497
Retail 3,711 6,458
Other 10,467 10,257
---------------------------------------------
Segment assets 91,749 99,609
General corporate 16,142 30,462
---------------------------------------------
Total assets $ 107,891 $ 130,071
=============================================
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 produce, sell and finance 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 23%
through August 2003, as compared to 2002, following a cumulative 50% decline
since January 1, 1999 through December 31, 2002. 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 by 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.
Additionally, the Company's gross margin has been negatively impacted by rapidly
rising lumber prices, between May and September 2003, due to military demand in
Iraq, Hurricane Isabel and other weather-related factors, including the
California forest fires, and strong new home sales, as well as to the plywood
industry's maintenance of lean inventory to stem over-supply before these
unforeseen events. While the Company seeks to offset rising costs through
increasing its selling prices, sudden increases in costs, as well as dealers'
retail sales commitments, can affect the timing and ability of the Company to
pass on its cost increases. The Company is uncertain at this time as to the
impact the extent and duration of the increased lumber prices will have on the
Company's future revenue and earnings. *
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 and employed approximately 1,100 people. The Company has shifted
a substantial part of the production from these plants (with the exception of
the Pennsylvania plant) 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 63% since December 31, 1998. The Company is continuing to
evaluate its options regarding capacity, cost and overhead issues, the need for
further plant, retail and other consolidations, reductions, idling 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.
* See Safe Harbor Statement on page 19.
As industry conditions remained challenging, the Company's floor shipments have
declined 42.3% in the first nine months of 2003 versus the comparable period of
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 fourth quarter of
2003 to be a modest loss (excluding the impact of any potential gain or loss on
property, plant and equipment), 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
-------------------------------------------------------------------
September 27,2003 September 28,2002 Difference
----------------- ----------------- -----------
Revenue:
Home manufacturing net sales $ 60,176 $ 95,108 $ (34,932)
Financial services 652 755 (103)
Retail 2,423 2,335 88
Other 612 495 117
-------------- --------------- -----------
Total revenue $ 63,863 100.0% $ 98,693 100.0% $ (34,830) -35.3%
Cost of sales 53,952 84.5% 82,902 84.0% (28,950) -34.9%
-------------- ------ --------------- ------ ----------- ------
Gross profit $ 9,911 15.5% $ 15,791 16.0% $ (5,880) -37.2%
============== ====== =============== ====== =========== ======
Selling, general and administrative $ 9,382 14.7% $ 16,892 17.1% $ (7,510) -44.5%
Impairment and other related charges $ 122 0.2% $ - 0.0% $ 122 0.0%
-------------- ------ --------------- ------ ----------- ------
Operating profit (loss) $ 407 0.6% $ (1,101) -1.1% $ (1,508) -137.0%
-------------- ------ --------------- ------ ----------- ------
Other income (expense):
Interest expense $ (204) -0.3% $ (363) -0.4% $ (159) -43.8%
Other, net 161 0.3% 291 0.3% (130) -44.7%
-------------- --------------- ----------- ------
$ (43) $ (72) $ (29) 40.3%
============== =============== =========== ======
Income (loss) before income taxes $ 364 0.6% $ (1,173) -1.2% $ (1,537) -131.0%
Income tax benefit $ (579) -0.9% $ (411) -0.4% $ 168 40.9%
-------------- --------------- ----------- ------
Income (loss) before cumulative effect of
change in accounting principle $ 943 1.5% $ (762) -0.8% $ (1,705) -223.8%
Cumulative effect of change in accounting
principle, net of tax benefit of $1,306 - 0.0% - 0.0% - 100.0%
-------------- --------------- -----------
Net income (loss) $ 943 1.5% $ (762) -0.8% $ (1,705) -223.8%
============== ====== =============== ====== =========== ======
For the Thirty-nine Weeks Ended
-------------------------------------------------------------------
September 27,2003 September 28,2002 Difference
----------------- ----------------- -----------
Revenue:
Home manufacturing net sales $ 182,521 $ 290,219 $ (107,698)
Financial services 2,008 1,902 106
Retail 5,750 5,954 (204)
Other 1,516 2,174 (658)
-------------- --------------- -----------
Total revenue $ 191,795 100.0% $ 300,249 100.0% $ (108,454) -36.1%
Cost of sales 164,145 85.6% 256,254 85.3% (92,109) -35.9%
-------------- ------ --------------- ------ ----------- ------
Gross profit $ 27,650 14.4% $ 43,995 14.7% $ (16,345) -37.2%
============== ====== =============== ====== =========== ======
Selling, general and administrative $ 33,343 17.4% $ 46,954 15.6% $ (13,611) -29.0%
Impairment and other related charges $ 176 0.1% $ - 0.0% $ 176 0.0%
-------------- ------ --------------- ------ ----------- ------
Operating loss $ (5,869) -3.1% $ (2,959) -1.0% $ 2,910 98.3%
-------------- ------ --------------- ------ ----------- ------
Other income (expense):
Interest expense $ (765) -0.4% $ (1,122) -0.4% $ (357) -31.8%
Other, net 407 0.2% 938 0.3% (531) -56.6%
-------------- --------------- ----------- ------
$ (358) $ (184) $ 174 -94.2%
============== =============== =========== ======
Loss before income taxes $ (6,227) -3.2% $ (3,143) -1.0% $ 3,084 98.1%
Income tax benefit $ (579) -0.3% $ (3,623) -1.2% $ (3,044) -84.0%
-------------- --------------- ----------- ------
Income (loss) before cumulative effect of
change in accounting principle $ (5,648) -2.9% $ 480 0.2% $ 6,128 -1277.4%
Cumulative effect of change in accounting
principle, net of tax benefit of $1,306 - 0.0% (14,162) -4.7% (14,162) 100.0%
-------------- --------------- -----------
Net loss $ (5,648) -2.9% $ (13,682) -4.6% $ (8,034) -58.7%
============== ====== =============== ====== =========== ======
* See Safe Harbor Statement on page 19.
OPERATING DATA For the Thirteen Weeks Ended
----------------------------------------------
September 27,2003 September 28,2002
--------------------- ----------------------
Home manufacturing sales:
Floor shipments 3,193 5,388
Home shipments:
Single section 221 12.9% 482 16.4%
Multi-section 1,486 87.1% 2,453 83.6%
-------------- ------ --------------- ------
Total shipments 1,707 100.0% 2,935 100.0%
Shipments to Company-owned retail locations (45) -2.6% (38) -1.3%
-------------- ------ --------------- ------
Wholesale shipments to independent dealers 1,662 97.4% 2,897 98.7%
============== ====== =============== ======
Retail sales:
Single section 14 21.9% 19 28.4%
Multi-section 50 78.1% 48 71.6%
-------------- ------ --------------- ------
Total sales 64 100.0% 67 100.0%
============== ====== =============== ======
Cavalier-produced homes sold 59 92.2% 58 86.6%
============== ====== =============== ======
Used homes sold 5 7.8% 9 13.4%
============== ====== =============== ======
Other Operating Data:
Installment loan purchases $ 8,814 $ 11,957
Capital expenditures $ 39 $ 432
Home manufacturing facilities - operating 7 12
Independent exclusive dealer locations 155 255
Company-owned retail locations 3 5
For the Thirty-nine Weeks Ended
----------------------------------------------
September 27,2003 September 28,2002
--------------------- -----------------------
Home manufacturing sales:
Floor shipments 9,836 17,059
Home shipments:
Single section 724 13.7% 1,842 19.5%
Multi-section 4,556 86.3% 7,609 80.5%
-------------- ------ --------------- ------
Total shipments 5,280 100.0% 9,451 100.0%
Shipments to Company-owned retail locations (98) -1.9% (132) -1.4%
-------------- ------ --------------- ------
Wholesale shipments to independent dealers 5,182 98.1% 9,319 98.6%
============== ====== =============== ======
Retail sales:
Single section 37 24.3% 53 32.3%
Multi-section 115 75.7% 111 67.7%
-------------- ------ --------------- ------
Total sales 152 100.0% 164 100.0%
============== ====== =============== ======
Cavalier-produced homes sold 135 88.8% 142 86.6%
============== ====== =============== ======
Used homes sold 17 11.2% 22 13.4%
============== ====== =============== ======
Other Operating Data:
Installment loan purchases $ 29,159 $ 33,836
Capital expenditures $ 4,871 $ 848
Home manufacturing facilities - operating 7 12
Independent exclusive dealer locations 155 255
Company-owned retail locations 3 5
Thirteen weeks ended September 27, 2003 and September 28, 2002
Revenue
Revenue for the third quarter of 2003 totaled $63,863, a decrease of 35.3% from
2002's third quarter revenue of $98,693.
Home manufacturing net sales accounted for virtually the entire decrease,
falling to $60,176, net of intercompany eliminations of $1,675. Home
manufacturing net sales for the third quarter of 2002 were $95,108, net of
intercompany eliminations of $1,265. Home shipments decreased 41.8%, with floor
shipments decreasing by 40.7%. Multi-section home shipments, as a percentage of
total shipments, continued to increase, from 83.6% of shipments in the third
quarter of 2002 to 87.1% 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
third quarter of 2003 were 1,707 versus 2,935 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 $112,000 at
September 27, 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 decreased to $652 for the third
quarter of 2003 compared to $755 in 2002. The revenue decrease was primarily
due to a lower rate earned, due to competitive market conditions, on the loans
resold by the Company's finance subsidiary in the third quarter of 2003 as
compared to the same period of 2002. During the third quarter of 2003, CIS
Financial Services, Inc. ("CIS"), the Company's wholly-owned finance subsidiary,
purchased contracts of $8,814 and resold installment contracts totaling $8,509.
In the third quarter of 2002, CIS purchased contracts of $11,957 and resold
installment contracts totaling $9,307. CIS does not retain the servicing
function and does not earn the interest income on these resold loans.
Revenue from the retail segment was $2,423 for the third quarter of 2003
compared to $2,335 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 third quarter
of 2003 were $612 compared to $495 for the third quarter of 2002. The increase
is due primarily to sales in 2003 to a new external customer at one of the
supply companies, which was somewhat offset by the loss of revenue due to the
sale of a supply company during the third quarter of 2002.
Gross Profit
Gross profit was $9,911, or 15.5% of total revenue, for the third quarter of
2003, versus $15,791 or 16.0%, in 2002. The $5,880 decrease in gross profit is
primarily the result of the reduction in sales. Additionally, the Company's
gross margin has been negatively impacted by rising lumber prices due to
military demand in Iraq, Hurricane Isabel and other weather-related factors,
including the California forest fires, and strong new home sales, as well as to
the plywood industry's maintenance of lean inventory to stem over-supply before
these unforeseen events.
Selling, General and Administrative
Selling, general and administrative expenses during the third quarter of 2003
were $9,382, or 14.7% of total revenue, versus $16,892 or 17.1% in 2002, a
decrease of $7,510 or 44.5%. The overall decrease includes a $1,792 reduction
in salaries, wages and incentive compensation, a $2,000 decrease in advertising
and promotion costs, including dealer support costs, a $1,357 decrease in
employee benefits cost (primarily health insurance) and a $476 increase in gain
on sale of fixed assets. Expenses for the third quarter of 2003 included a $475
recovery from an insurance subrogation matter and a $251 recovery from a dealer
of a prior-period loss.
Impairment and Other Related Charges
During the third quarter of 2003, the Company recorded impairment and other
related charges of $122 ($122 after tax or $0.00 per diluted share) for
severance benefits related to the closing of an under-performing home
manufacturing plant in Pennsylvania. There were no such charges in the
comparable 2002 period.
Operating Profit (Loss)
Operating profit for the quarter was $407 compared to an operating loss of
$1,101 in the third quarter of 2002. Segment operating results were as follows:
(1) Home manufacturing operating income, before intercompany eliminations, was
$193 in the third quarter of 2003 as compared to an operating loss of $1,038 in
2002. The improved home manufacturing operating income is primarily due to
lower costs associated with the six facilities closed during the last quarter of
2002. (2)Financial services operating income was $108 in the third quarter of
2003 compared to income of $25 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 income was $156 in the third quarter of 2003 as compared to
a loss of $59 in 2002, an improvement due primarily to the closure of an
underperforming retail location in the fourth quarter of 2002. (4) The other
segment operating profit, before intercompany eliminations, was $1,200 in the
third quarter of 2003 as compared to $1,546 in 2002, which decrease is primarily
due to lower sales to the Company's home manufacturing segment due to its
decreased sales. (5) General corporate operating expense, which is not
identifiable to a specific segment, improved from $1,630 in the third quarter of
2002 to $1,370 in 2003 primarily due to a reduction in salaries expense.
Other Income (Expense)
Interest expense decreased $159 primarily due to a reduction in the interest
rate and a lower amount outstanding under the Company's line of credit. Other,
net decreased $130 primarily due to lower interest income rates earned during
the third quarter of 2003.
Income (Loss) before Income Taxes
The Company's pre-tax income for the third quarter was $364, compared to the
pre-tax loss of $1,173 in the third quarter of 2002. This improvement is
primarily due to lower costs associated with closed facilities as discussed
above. In addition, earnings for the third quarter of 2003 included a $475
recovery from an insurance subrogation matter, a $251 recovery from a dealer
of a prior-period loss and increased gains on property, plant and equipment of
$476.
Income Tax Benefit
In the third quarter of 2003, the Company recognized an income tax benefit of
$579 representing adjustments to prior years' tax provisions that became
appropriate given the results of the recent Internal Revenue Service audit of
the Company's federal income tax returns; however, the Company did not record
any tax benefit for net operating losses in 2003 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 $411 in the third quarter of 2002.
Net Income (Loss)
The net income for the third quarter of 2003 was $943 or $0.05 per diluted share
compared with a net loss in the prior-year period of $762 or $0.04 per diluted
share. The major components of this change are discussed above under Revenue,
Gross Profit, Selling, General and Administrative Expenses and Income Tax
Benefit.
Thirty-nine weeks ended September 27, 2003 and September 28, 2002
Revenue
Revenue for the first nine months of 2003 totaled $191,795, a decrease of 36.1%
from 2002's nine month revenue of $300,249.
Home manufacturing net sales accounted for virtually the entire decrease,
falling to $182,521, net of intercompany eliminations of $3,557. Home
manufacturing net sales for the first nine months of 2002 were $290,219, net of
intercompany eliminations of $4,134. Home shipments decreased 44.1%, with floor
shipments decreasing by 42.3%. Multi-section home shipments, as a percentage of
total shipments, continued to increase, from 80.5% of shipments in the first
nine months of 2002 to 86.3% 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 nine months of 2003 were 5,280 versus 9,451 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 $112,000 at
September 27, 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 $2,008 for the first
nine months of 2003 compared to $1,902 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 nine months of 2003 as compared to the same period of 2002. During the
first nine months of 2003, CIS Financial Services, Inc. ("CIS"), the Company's
wholly-owned finance subsidiary, purchased contracts of $29,159 and resold
installment contracts totaling $27,571. In the nine month period of 2002, CIS
purchased contracts of $33,836 and resold installment contracts totaling
$26,869. CIS does not retain the servicing function and does not earn the
interest income on these resold loans.
Revenue from the retail segment was $5,750 for the first nine months 2003
compared to $5,954 for the same period in 2002 which decrease is due primarily
to the closure of an underperforming retail location in the fourth quarter of
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
nine months of 2003 to $1,516 compared to $2,174 for the same nine month period
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 in 2003 to a new
external customer at one of the supply companies.
Gross Profit
Gross profit was $27,650, or 14.4% of total revenue, for the first nine months
of 2003, versus $43,995, or 14.7%, in 2002. The $16,345 decrease in gross profit
is primarily the result of the reduction in sales. Additionally, the Company's
gross margin has been negatively impacted by rising lumber prices due to
military demand in Iraq, Hurricane Isabel and other weather-related factors,
including the California forest fires, and strong new home sales, as well as to
the plywood industry's maintenance of lean inventory to stem over-supply before
these unforeseen events.
Selling, General and Administrative
Selling, general and administrative expenses during the first nine months of
2003 were $33,343, or 17.4% of total revenue, versus $46,954 or 15.6% in 2002,
a decrease of $13,611 or 29.0%. The overall decrease includes a $4,207
reduction in salaries, wages and incentive compensation, a $4,215 decrease in
advertising and promotion costs, including dealer support costs, a $2,403
decrease in employee benefits cost (primarily health insurance) and a $1,609
increase in gain on sale of fixed assets. Expenses for the first nine months of
2003 included a $475 recovery from an insurance subrogation matter and a $251
recovery from a dealer of a prior-period loss. The first nine months of 2002
also included a benefit of $1,163 from the settlement of 1998 insurance claim
related to the Company's employee benefits plan.
Impairment and Other Related Charges
During the first nine months of 2003, the Company recorded impairment and other
related charges of $176 ($176 after tax or $0.00 per diluted share) for
severance benefits related to the closing of an under-performing home
manufacturing plant in Pennsylvania. There were no such charges in the
comparable 2002 period.
Operating Loss
Operating loss for the first nine months of 2003 was $5,869 compared to an
operating loss of $2,959 in the same period of 2002. Segment operating results
were as follows: (1) Home manufacturing operating loss, before intercompany
eliminations, was $5,973 in the first nine months of 2003 as compared to $1,565
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
$342 in the nine month period of 2003 as compared to a loss of $114 in 2002.
The financial services operating results improved in 2003 primarily due to the
higher revenue in the first nine months 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 $275 in the
first nine months of 2003 as compared to an operating loss of $140 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 $3,076 in the first nine months of 2003 as
compared to $3,389 in 2002, which decrease is primarily due to lower sales to
the Company's home manufacturing segment due to its decreased sales.
(5) General corporate operating expense, which is not identifiable to a specific
segment, improved from $4,494 in the nine month period of 2002 to $3,853 in 2003
primarily due to a reduction in salaries expense.
Other Income (Expense)
Interest expense decreased $357 primarily due to a reduction in the interest
rate and a lower amount outstanding under the Company's line of credit. Other,
net decreased $531 primarily due to lower interest income rates earned during
the first nine months of 2003 and reduced income recognized from equity method
investees.
Loss before Income Taxes
The Company's pre-tax loss for the first nine months was $6,227, compared to the
pre-tax loss of $3,143 in the same nine month period of 2002 primarily due to
decreased revenue and trailing costs associated with closed facilities as
discussed above. In addition, earnings for 2003 included a $475 recovery from an
insurance subrogation matter, a $251 recovery from a dealer of a prior-period
loss and increased gains on property, plant, and equipment of $1,609. Earnings
for 2002 included a benefit of $1,163 from the settlement of a 1998 insurance
claim related to an employee benefits plan.
Income Tax Benefit
In the third quarter of 2003, the Company recognized an income tax benefit of
$579 representing adjustments to prior years' tax provisions that became
appropriate given the results of the recent Internal Revenue Service audit of
the Company's federal income tax returns; however, the Company did not record
any tax benefit for net operating losses in 2003 because management believed it
was no longer appropriate to record income tax benefits on current losses in
excess of anticipated refunds and certain carry forward items under the
provisions of SFAS No.109 Accounting for Income Taxes. The Company recorded an
income tax benefit of $3,623 in the first nine months 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 nine months of 2003 was $5,648 or $0.32 per diluted
share compared with a net loss in the prior-year period of $13,682 or $0.77 per
diluted share. The major components of this change 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
--------------------------------------------
September 27,2003 December 31, 2002
--------------------------------------------
Cash and cash equivalents $ 24,167 $ 34,939
Working capital $ 4,343 $ 12,346
Current ratio 1.1 to 1 1.2 to 1
Accounts receivable $ 11,972 $ 3,353
Long-term debt $ 16,064 $ 22,643
Ratio of long-term debt to equity 1 to 2 1 to 2
Installment loan portfolio $ 10,766 $ 10,977
Operating activities during the first nine months of 2003 used net cash of
$10,286. 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 September 27, 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 $266 for the thirty-nine weeks ended
September 27, 2003, as compared to $1,744 for the comparable period of 2002.
Capital expenditures during these periods included normal property, plant and
equipment additions and replacements. The Company received proceeds from the
sales of property, plant and equipment of $4,871 for the thirty-nine weeks ended
September 27, 2003 as compared to $848 for the comparable period of 2002.
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
$5,000 pay-down on the revolving line of credit.
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 used the long-term portion of the new facility,
together with $2,000 cash to repay the outstanding amount on the credit
agreement. 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 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)
At September 27, 2003, $8,847 was available under the revolving line of credit
of which no amount was outstanding.
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
("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 September 27, 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 the Company's 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. The
Company's 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 judgments as a result of the need to make estimates about
* See Safe Harbor Statement on page 19.
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, thereby
eliminating the Company's exposure to market risk under this plan. Benefits
of $3,110 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 270 months at September 27, 2003. At September 27,
2003, the estimated fair value of installment contracts was $11,075. 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 (of which no amount is outstanding at
September 27, 2003) 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 and a long-term real estate note at
fixed interest rates. At September 27, 2003, the estimated fair value of
borrowings was $18,340. 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;
* See Safe Harbor Statement on page 19.
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 United States' continuing involvement in hostilities and armed
conflict 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
On March, 3, 2003, the Company received notification from the New York Stock
Exchange ("NYSE") that the Company had fallen below the NYSE continued listing
standards 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 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. 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 progress toward ongoing objectives as outlined in the
plan. 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 goals. The Company's stockholders' equity was
$39.9 million and 30 trading day average market capitalization was $47.2 million
on September 27, 2003. The Company's 30 trading day average market
capitalization was $50.4 million at November 11, 2003, the most recently
available date.
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) Amended and Restated Real Estate Note, dated as of September
26, 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 October 31,
2003, with respect to a press release clarifying comments
made on its third quarter conference call about its plan to
reestablish compliance with the New York Stock Exchange's
continued listing standards.
(b) The Company filed a Current Report on Form 8-K on October 30,
2003, with respect to a press release announcing its
financial results for the quarter ended September 27, 2003.
(c) 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.
(d) 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.
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: November 11, 2003 /s/ David A. Roberson
-----------------------------
David A. Roberson - President
and Chief Executive Officer
Date: November 11, 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 Thirty-nine Weeks Ended
-------------------------------- -------------------------------
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
-------------- -------------- ------------- --------------
Income (loss) before cumulative effect
of change in accounting principle $ 943,000 $ (762,000) $ (5,648,000) $ 480,000
Cumulative effect of change in accounting
principle, net of tax benefit of $1,306 - - - (14,162,000)
-------------- -------------- ------------- --------------
Net income (loss) $ 943,000 $ (762,000) $ (5,648,000) $ (13,682,000)
============== ============== ============= ==============
SHARES:
Weighted average common shares - basic 17,665,644 17,665,644 17,665,644 17,664,643
Dilutive effect if stock options and warrants were exercised 44,642 - - 41,119
-------------- -------------- ------------- --------------
Weighted average common shares - diluted 17,710,286 17,665,644 17,665,644 17,705,762
============== ============== ============= ==============
Basic and diluted income (loss) per share:
Income (loss) before cumulative effect
of change in accounting principle $ 0.05 $ (0.04) $ (0.32) $ 0.03
Cumulative effect of change in accounting principle - - - (0.80)
-------------- -------------- ------------- --------------
Net income (loss) $ 0.05 $ (0.04) $ (0.32) $ (0.77)
============== ============== ============= ==============
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: November 11, 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: November 11, 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 September 27, 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: November 11, 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
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 September 27, 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: November 11, 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.