UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________to ________________
Commission File Number 1-9792
Cavalier Homes, Inc.
--------------------
(Exact name of Registrant as specified in its charter)
Delaware 63-0949734
- ------------------------------- ------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
32 Wilson Boulevard 100, Addison, Alabama 35540
--------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(256) 747-9800
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes __ No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at May 4, 2004
- ---------------------------- --------------------------
Common Stock, $.10 Par Value 17,872,287 Shares
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - dollars in thousands except per share amounts)
March 27, December 31,
ASSETS 2004 2003
-------- ------------
CURRENT ASSETS:
Cash and cash equivalents $20,377 $ 32,393
Accounts receivable, less allowance for losses of
$86 (2004) and $102 (2003) 10,371 1,939
Notes and installment contracts receivable - current 2,411 2,238
Inventories 15,055 10,964
Deferred income taxes 693 693
Other current assets 788 2,879
-------- -----------
Total current assets 49,695 51,106
-------- -----------
PROPERTY, PLANT AND EQUIPMENT (Net) 36,349 37,192
-------- -----------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $1,052 (2004) and $1,030 (2003) 6,695 6,846
-------- -----------
OTHER ASSETS 3,384 3,389
-------- -----------
TOTAL $96,123 $ 98,533
======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,830 $ 3,447
Accounts payable 6,340 3,844
Amounts payable under dealer incentive programs 4,345 5,828
Accrued compensation and related withholdings 2,983 2,664
Accrued insurance 6,683 6,385
Estimated warranties 13,000 13,475
Reserve for repurchase commitments 2,900 3,070
Other accrued expenses 4,430 4,580
-------- -----------
Total current liabilities 42,511 43,293
-------- -----------
DEFERRED INCOME TAXES 693 693
-------- -----------
LONG-TERM DEBT 12,740 13,089
-------- -----------
OTHER LONG-TERM LIABILITIES 471 471
-------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY:
Series A Junior Participating Preferred Stock, $0.01 par value;
200,000 shares authorized, none issued - -
Preferred Stock, $0.01 par value; 300,000 shares authorized,
none issued - -
Common stock, $0.10 par value; 50,000,000 shares authorized,
18,869,810 (2004) and 18,692,944 (2003) shares issued 1,887 1,869
Additional paid-in capital 56,537 55,952
Accumulated deficit (14,615) (12,733)
Treasury stock, at cost; 1,017,300 (2004 and 2003) shares (4,101) (4,101)
-------- -----------
Total stockholders' equity 39,708 40,987
-------- -----------
TOTAL $96,123 $ 98,533
======== ===========
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)
Quarter Ended
--------------------------
March 27, March 29,
2004 2003
-------- ---------
REVENUE $ 44,254 $ 59,211
COST OF SALES 36,662 52,376
SELLING, GENERAL AND ADMINISTRATIVE 9,377 12,817
-------- ---------
OPERATING LOSS (1,785) (5,982)
OTHER INCOME (EXPENSE):
Interest expense (278) (283)
Other, net 181 83
-------- ---------
(97) (200)
-------- ---------
LOSS BEFORE INCOME TAXES (1,882) (6,182)
INCOME TAX PROVISION (BENEFIT) - -
-------- ---------
NET LOSS $ (1,882) $ (6,182)
======== =========
BASIC AND DILUTED LOSS PER SHARE:
NET LOSS $ (0.11) $ (0.35)
======== =========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 17,701,299 17,665,644
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 17,701,299 17,665,644
=========== ===========
See notes to condensed consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Quarter Ended
------------------------
March 27, March 29,
2004 2003
---------- ---------
OPERATING ACTIVITIES:
Net loss $ (1,882) $ (6,182)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 912 1,304
Provision for credit and accounts receivable losses 8 342
Gain on sale of installment contracts (196) (268)
Loss (gain) on sale of property, plant and equipment 16 (546)
Other, net (122) (18)
Changes in assets and liabilities:
Accounts receivable (8,423) (9,799)
Inventories (4,091) 2,014
Income taxes (82) 5,738
Accounts payable 2,496 1,756
Other assets and liabilities 502 (3,576)
---------- ---------
Net cash used in operating activities (10,862) (9,235)
---------- ---------
INVESTING ACTIVITIES:
Proceeds from disposition of property, plant and equipment 3 1,941
Capital expenditures (88) (119)
Originations of notes and installment contracts (7,245) (9,212)
Proceeds from sale of installment contracts 6,868 9,753
Principal collected on notes and installment contracts 479 322
Other investing activities 192 128
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Net cash provided by investing activities 209 2,813
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FINANCING ACTIVITIES:
Payments on long-term debt (1,966) (302)
Proceeds from exercise of stock options 603 -
---------- ---------
Net cash used in financing activities (1,363) (302)
---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (12,016) (6,724)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 32,393 34,939
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,377 $ 28,215
========== =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (received) for:
Interest $ 184 $ 184
Income taxes $ 82 $ (6,334)
See notes to condensed consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited - dollars in thousands except per share amounts)
1. BASIS OF PRESENTATION
o The accompanying condensed consolidated financial statements have been
prepared in compliance with standards for interim financial reporting
and Form 10-Q instructions and thus do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. In the opinion of management, these statements contain all
adjustments necessary to present fairly the Company's financial
position as of March 27, 2004, and the results of its operations for
the quarters ended March 27, 2004 and March 29, 2003, and the results
of its cash flows for the quarters ended March 27, 2004 and March 29,
2003. All such adjustments are of a normal, recurring nature.
o The results of operations for the quarter ended March 27, 2004 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 2003 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:
Quarter Ended
--------------------------
March 27, March 29,
2004 2003
---------- ----------
Weighted average common shares outstanding-basic 17,701,299 17,665,644
Dilutive effect if stock options were exercised - -
---------- ----------
Weighted average common shares outstanding-diluted 17,701,299 17,665,644
========== ==========
All options and warrants that would have an antidilutive effect on net
income (loss) per share were excluded in the computation of diluted net
income (loss) per share. The maximum antidilutive options and warrants
for the quarter ended March 27, 2004 and March 29, 2003, were 2,461,529
and 2,949,147, 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 loss and net loss per share
would approximate the pro forma amounts below.
Quarter Ended
-------------
March 27, March 29,
2004 2003
-------------- --------------
Net loss, as reported $ (1,882) $ (6,182)
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (20) (7)
-------------- --------------
Pro forma $ (1,902) $ (6,189)
============== ==============
Basic and diluted loss per share:
As reported $ (0.11) $ (0.35)
Pro forma $ (0.11) $ (0.35)
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:
Quarter Ended
------------------------------------
March 27, March 29,
2004 2003
---------------- -----------------
Dividend yield 0.00% 0.00%
Expected volatility 62.51% 62.19%
Risk free interest rate 3.52% 3.18%
Expected lives 5.0 years 5.0 years
o Certain amounts from the prior period have been reclassified to conform
to the 2004 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 (also formerly referred to as special purpose 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. In December 2003, the FASB issued Interpretation No. 46R,
Consolidation of Variable Interest Entities--an interpretation of ARB 51
(revised December 2003) ("FIN 46R"), which includes significant amendments to
previously issued FIN 46. Adoption of FIN 46R is required for financial
statements issued after March 15, 2004. The adoption of this interpretation
did not have a material effect on the Company's consolidated financial
statements.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Work-in-process and finished goods inventories include an allocation
for labor and overhead costs. Inventories at March 27, 2004 and December 31,
2003 were as follows:
March 27, December 31,
2004 2003
-------------- --------------
Raw materials $ 8,689 $ 7,791
Work-in-process 1,178 1,083
Finished goods 5,188 2,090
-------------- --------------
Total inventory $ 15,055 $ 10,964
============== ==============
4. IMPAIRMENT AND OTHER RELATED CHARGES
For any exit or disposal activities initiated after December 31, 2002, the
Company has adopted SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities which requires the liability for costs associated with
an exit or disposal activity be recognized when the liability is incurred
rather than at the time a company commits to an exit plan. SFAS No. 146 also
establishes that the liability initially should be measured and recorded at
fair value. During 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which provides that a long-lived
asset or asset group that is to be sold shall be classified as "held for
sale" if certain criteria are met, including the expectation supported by
evidence that the sale will be completed within one year. The Company has
idle assets of $11,575 (2004) and $13,901 (2003) recorded at estimated fair
values which are comprised primarily of closed home manufacturing facilities
which the Company is attempting to sell. With the exception of a home
manufacturing facility sold in January 2004, management does not have
evidence that it is probable that the sale of these assets will occur within
one year, and thus, in accordance with the requirements of SFAS No. 144 such
assets are classified as "held and used" and depreciation has continued on
these assets.
5. INCOME TAXES
During the first quarter of 2004 and 2003, the Company did not record any tax
benefit for net operating losses because management believed it was no longer
appropriate to record income tax benefits on current losses in excess of
anticipated refunds and certain carry-forward items under the provisions of
SFAS No. 109 Accounting for Income Taxes. Due to the Jobs Creation and
Workers' Assistance Act that was passed in March 2002, which allowed
companies to carry back net operating losses (through 2002) five years
instead of two, as provided under the previous rules, the Company received an
income tax refund in March of 2003 in the amount of $6,425.
6. PRODUCT WARRANTIES
The Company provides the retail home buyer a one-year limited warranty
covering defects in material or workmanship in home structure, plumbing and
electrical systems. The Company has provided a liability for estimated future
warranty costs relating to homes sold, based upon management's assessment of
historical experience factors and current industry trends. Activity in the
liability for product warranty was as follows:
Quarter Ended
--------------------------------------
March 27, March 29,
2004 2003
----------------- -----------------
Balance, beginning of period $ 13,475 $ 15,000
Warranty expense, net 3,357 6,806
Payments (3,832) (6,906)
----------------- -----------------
Balance, end of period $ 13,000 $ 14,900
================= =================
7. CREDIT ARRANGEMENTS
On August 6, 2003, the Company amended its credit facility (the "Credit
Facility") with its primary bank, whose chairman is a director of the
Company. 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 March 27, 2004 $8,891 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, of which $7,241 and $8,895 was outstanding at
March 27, 2004 and December 31, 2003 respectively. 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 and financial 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 March 27,
2004, the Company was in compliance with its debt covenants.
8. COMMITMENTS AND 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 default by the retailer. The risk of loss under these
agreements is spread over numerous retailers. The price the Company is
obligated to pay generally declines over the period of the agreement
(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
$77,000 at March 27, 2004. 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:
Quarter Ended
______________________________________
March 27, March 29,
2004 2003
----------------- -----------------
Balance, beginning of period $ 3,070 $ 4,000
Provision for losses on inventory repurchases, net (16) 307
Payments (154) (557)
----------------- -----------------
Balance, end of period $ 2,900 $ 3,750
================= =================
o The Company's workers' compensation (prior to February 1, 1999 and
after April 1, 2001), product liability and general liability (prior to
April 1, 2001) insurance coverages were provided under incurred loss,
retrospectively rated premium plans. Under these plans, the Company
incurs insurance expense based upon various rates applied to current
payroll costs and sales. Annually, such insurance expense is adjusted
by the carrier for loss experience factors subject to minimum and
maximum premium calculations. Refunds or additional premiums are
estimated and recorded when sufficiently reliable data is available. At
March 27, 2004, the Company was contingently liable for future
retrospective premium adjustments up to a maximum of approximately
$19,057 in the event that additional losses are reported related to
prior periods.
o The Company is engaged in various legal proceedings that are incidental
to and arise in the course of its business. Certain of the cases filed
against the Company and other companies engaged in businesses similar
to the Company allege, among other things, breach of contract and
warranty, product liability, personal injury and fraudulent, deceptive
or collusive practices in connection with their businesses. These
kinds of suits are typical of suits that have been filed in recent
years, and they sometimes seek certification as class actions, the
imposition of large amounts of compensatory and punitive damages and
trials by jury. Legal fees associated with these lawsuits are accrued
at the time such cases are identified. In the opinion of management,
the ultimate liability, if any, with respect to the proceedings in
which the Company is currently involved is not presently expected to
have a material adverse effect on the Company. However, the potential
exists for unanticipated material adverse judgments against the
Company.
o The Company and certain of its equity partners have guaranteed certain
debt for two companies in which the Company owns a one-third equity
interest. The guarantees are limited to 40% of the outstanding debt. At
March 27, 2004, $3,137 of debt was outstanding, of which the Company
had guaranteed $1,255.
o The Company has provided letters of credit to providers of certain of
its insurance policies. While the current letters of credit have a
finite life, they are subject to renewal at different amounts based on
the requirements of the insurance carriers. The outstanding letters of
credit reduce amounts available under the Company's Credit Facility.
The Company has recorded insurance expense based on anticipated losses
related to these policies.
9. SEGMENT INFORMATION
The Company's reportable segments are organized around products and services.
The Home manufacturing segment is comprised of the Company's five
manufacturing divisions (seven home manufacturing plants), and its supply
companies who sell their products primarily to the manufacturing divisions.
Through its Home manufacturing segment, the Company designs and manufactures
homes which are sold in the United States to a network of dealers which
includes three 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. 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 (expense) or income tax provision (benefit).
Quarter Ended
-----------------------------------------------
March 27, 2004 March 29, 2003
--------------------- ---------------------
Gross revenue:
Home manufacturing $ 43,634 $ 57,881
Financial services 542 628
Retail 1,530 1,368
--------------------- ---------------------
Gross revenue $ 45,706 $ 59,877
===================== =====================
Intersegment revenue:
Home manufacturing $ 1,452 $ 666
Financial services - -
Retail - -
--------------------- ---------------------
Intersegment revenue $ 1,452 $ 666
===================== =====================
Revenue from external customers:
Home manufacturing $ 42,182 $ 57,215
Financial services 542 628
Retail 1,530 1,368
--------------------- ---------------------
Total revenue $ 44,254 $ 59,211
===================== =====================
Operating profit (loss):
Home manufacturing $ (606) $ (5,016)
Financial services 82 116
Retail (14) 208
Elimination (48) 152
--------------------- ---------------------
Segment operating loss (586) (4,540)
General corporate (1,199) (1,442)
--------------------- ---------------------
Operating loss $ (1,785) $ (5,982)
===================== =====================
March 27, 2004 December 31, 2003
--------------------- ---------------------
Identifiable assets:
Home manufacturing $ 69,340 $ 62,311
Financial services 13,343 13,364
Retail 3,143 2,987
--------------------- ---------------------
Segment assets 85,826 78,662
General corporate 10,297 19,871
--------------------- ---------------------
Total assets $ 96,123 $ 98,533
===================== =====================
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 (dollars in thousands)
Overview
Cavalier Homes, Inc. and its subsidiaries produce, sell and finance manufactured
housing. Our manufacturing activities are conducted in four states within the
United States. 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, each of which have
contributed to a reduction in wholesale industry shipments to a 41 year low in
2003.
Industry/Company Shipments and Market Share
The Manufactured Housing Institute ("MHI") reported that wholesale floor
shipments were down 61% cumulatively from January 1, 1999 through December 31,
2003 as noted in the following table:
Floor Shipments
-----------------------------------------------------------------------------------------------------------------------
Nationwide Cavalier's Core 11 States
---------------------------------------------------------- ----------------------------------------------------------
Increase Increase Increase Increase
(decrease) (decrease) Market (decrease) (decrease) Market
Year Industry from prior year Cavalier from prior year Share Industry from prior year Cavalier from prior year Share
- ------- --------- --------------- ------- --------------- ------ --------- --------------- -------- --------------- -------
1998 608,921 36,517 6.0% 311,841 32,166 10.3%
1999 582,498 -4.3% 34,294 -6.1% 5.9% 284,705 -8.7% 30,070 -6.5% 10.6%
2000 431,787 -25.9% 18,590 -45.8% 4.3% 199,276 -30.0% 15,941 -47.0% 8.0%
2001 342,321 -20.7% 21,324 14.7% 6.2% 149,162 -25.1% 17,884 12.2% 12.0%
2002 304,370 -11.1% 21,703 1.8% 7.1% 124,127 -16.8% 18,039 0.9% 14.5%
2003 240,180 -21.1% 12,411 -42.8% 5.2% 87,265 -29.7% 10,584 -41.3% 12.1%
During this industry downturn, the Company's shipments fell in 1999 and 2000
disproportionately to the industry decline which the Company believes was due to
its strategy, early in the downturn, of working closely with its dealers to
assist them in reducing retail inventories, which also lessened the Company's
risk severity associated with dealer failures. The years 2001 and 2002 resulted
in significant market share gains for the Company due mainly to the Company's
aggressive marketing strategies, especially product offerings, which are core to
its plan for returning to profitability. In 2003, the Company believes its 1.9
percentage point reduction in market share was due to several factors. External
causes include an intensely competitive marketplace and a lack of chattel (home
only) financing for all homes, especially single wide homes, in the industry,
and internally, the Company's momentum was negatively impacted by the
consolidation of its sales force and the closing of 7 home manufacturing
facilities. For 2004, industry sources project a 7% increase in shipment levels
with a seasonally slow first quarter and gradual improvement for the 2nd and 3rd
quarters. During the first two months of 2004, the most current industry
information available, the Company's shipments fell 37.1% from the same period
in 2003, while industry wide shipments fell 14.4%, with the Company's market
share being 3.9%. In the Company's core states, its market share was 9.1%, with
shipments falling 32.6% compared to the industry decrease of 17.6% in those
states. Able to redirect its focus from plant closures and down-sizing, the
Company believes it is well-positioned work toward its goal to strengthen its
competitive position in the marketplace going forward with a value-packed
product line, including broader product offerings on price points as well as
enhanced features and the introduction of a line of modular homes.*
Industry Finance Environment
A major factor contributing to the manufactured housing industry growth in the
1990s was relaxed credit standards, which ultimately resulted in a change in the
financing approach in the industry due to under-performing manufactured housing
loans. Throughout the past five years, the industry has been impacted
significantly by reduced financing available at both the wholesale and retail
levels, with several lenders exiting the marketplace or limiting their
____________________________________
* See Safe Harbor Statement on page 18.
participation in the industry, coupled with more restrictive credit standards
and increased home repossessions which re-enter home distribution channels and
limit wholesale shipments of new homes. However, during 2003 and to-date in
2004, there are indications that lenders are beginning to enter or re-enter the
market which would provide the necessary liquidity to support a potential
rebound in industry sales. In August 2003, Federal National Mortgage Association
("FNMA"), a source of retail mortgage financing for manufactured homes, put in
place certain restrictive standards and terms for its manufactured home loans
but, subsequently, in February 2004, announced plans to increase its financing
of the industry by partnering with select lenders who will evaluate loans and
offering more favorable credit terms to consumers. In addition, in June 2003, US
Bank, a new retail lender, announced plans for entrance into the manufactured
housing market and has subsequently offered chattel lending in 20 states with
plans to enter the remaining states by the end of 2004. GMAC-RFC (chattel and
mortgage) and Green Tree Financial Services (chattel) announced, in February
2004, that they each planned entry into manufactured housing lending for retail
customers. Chase Manufactured Housing announced on May 3, 2004 their exit from
the financing of new manufactured homes, both home only and land home, effective
May 5, 2004. While the current industry trend is toward more land/home (real
estate) financing rather than chattel or home only loans, additional chattel
lending availability could result in renewed demand for single wide products.
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. The Company believes that the possibility
exists that the finance companies' plans to enter the manufactured housing
market may not come to fruition or that there could be a loss of additional
lenders from the industry.*
Raw Materials Cost and Gross Margin
Additionally, the Company's gross margin has been negatively impacted by (1)
escalating lumber prices, between May 2003 and 2004 to date, due to military
demand in Iraq 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, (2) continuing increases in steel and steel related items due to foreign
demand, (3) rising costs of electrical supplies, namely copper wire, (4) price
increases in panels and gypsum-related products and (5) increased delivery and
petroleum-based products costs due to rising oil prices. The Company is
experiencing tightened supply from its traditional vendors of certain types of
raw materials required for the production of its homes. The Company is working
to obtain these and substitute products from other vendors which are likely to
result in higher than normal costs. While the Company seeks to offset rising
costs through increasing its selling prices, sudden increases in costs, coupled
with 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 prices will have on the
Company's future revenue and earnings.
Capacity and Overhead Cost
In response to the continued weakening of the manufactured housing industry
market conditions, the Company has closed sixteen manufacturing facilities since
the first quarter of 1999. For the first quarter of 2004, the manufacturing
plants operated at 47% capacity down slightly from 53% in the fourth quarter of
2003. In terms of operating costs, the Company has made cost reductions in
virtually all areas of operations, 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 69% 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.
Outlook
For 2004, the Company expects the market will likely remain sluggish for some
time, however, there are some signals that renewed growth in industry shipments
may finally be at hand, which may result in first quarter 2004 marking the low
point of the cycle. * The national economy is stable and showing signs that a
recovery may gain traction. The recent industry downturn has reduced excess
dealer inventory to the point that an increase in demand will likely translate
more directly into new orders. Meanwhile, the market for repossessed homes
continues to firm in both price and quantity. Most importantly, however, there
are indications that additional industry financing is likely to become available
in the near term, which would mitigate the effect of Chase Manufactured
Housing's exit and perhaps provide the necessary liquidity to support a
potential rebound in sales. It will probably take at least several more months
for these positive factors to begin to have a meaningful influence on industry
sales, and rising commodity prices for steel, lumber and other materials may
impede or delay any industry rebound and the Company may experience continued
losses due the factors above. Longer-term, however, the Company believes the
steps taken to reduce its costs and lower its breakeven point will position it
to return to profitable operations later in 2004 and strengthen its competitive
position in the marketplace going forward. * However, the Company is uncertain
_________________________________
* See Safe Harbor Statement on page 18.
at this time as to the impact the extent and duration of the general economic
conditions and adverse industry conditions will have on the Company's future
revenue and earnings.* Changes in general economic conditions that affect
consumer purchases, availability of adequate financing sources, increases in
repossessions or dealer failures could affect the future results of operations
of the Company.
Results of Operations
The following tables set forth, for the periods and dates indicated, certain
financial and operating data, including, as applicable, the percentage of total
revenue:
For the Quarter and Year to Date Ended
--------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA March 27, 2004 March 29, 2003 Difference
---------------------- ----------------------- -----------------------
Revenue:
Home manufacturing net sales $ 42,182 $ 57,215 $ (15,033) -26.3%
Financial services 542 628 (86) -13.7%
Retail 1,530 1,368 162 11.8%
---------- ---------- ---------- ----------
Total revenue 44,254 100.0% 59,211 100.0% (14,957) 100.0%
Cost of sales 36,662 82.8% 52,376 88.5% (15,714) -30.0%
---------- ---------- ---------- ---------- ---------- ----------
Gross profit 7,592 17.2% 6,835 11.5% 757 11.1%
Selling, general and administrative 9,377 21.2% 12,817 21.6% (3,440) -26.8%
---------- ---------- ---------- ---------- ---------- ----------
Operating loss (1,785) -4.0% (5,982) -10.1% 4,197 70.2%
Other income (expense):
Interest expense (278) -0.6% (283) -0.5% 5 1.8%
Other, net 181 0.4% 83 0.1% 98 118.1%
---------- ---------- ---------- ---------- ---------- ----------
(97) -0.2% (200) -0.3% 103 51.5%
---------- ---------- ---------- ---------- ---------- ----------
Loss before income taxes (1,882) (6,182) 4,300
Income tax provision (benefit) - 0.0% - 0.0% - 0.0%
---------- ---------- ---------- ---------- ---------- ----------
Net loss $ (1,882) -4.3% $ (6,182) -10.4% $ 4,300 69.6%
========== ========== ========== ========== ========== ==========
OPERATING DATA March 27, 2004 March 29, 2003
----------------------- -----------------------
Home manufacturing sales:
Floor shipments 2,120 3,094
Home shipments
Single section 160 14.0% 218 13.2%
Multi section 980 86.0% 1,438 86.8%
---------- ---------- ---------- ----------
Total shipments 1,140 100.0% 1,656 100.0%
Shipments to company owned retail locations (41) -3.6% (18) -1.1%
---------- ---------- ---------- ----------
Wholesale shipments to independent retailers 1,099 96.4% 1,638 98.9%
========== ========== ========== ==========
Retail sales:
Single section 8 22.9% 9 23.1%
Multi section 27 77.1% 30 76.9%
---------- ---------- ---------- ----------
Total sales 35 100.0% 39 100.0%
========== ========== ========== ==========
Cavalier produced homes sold 32 91.4% 32 82.1%
========== ========== ========== ==========
Used homes sold 3 8.6% 7 17.9%
========== ========== ========== ==========
Other operating data:
Installment loan purchases $ 7,208 $ 9,209
Capital expenditures $ 88 $ 119
Home manufacturing facilities (operating) 7 8
Independent exclusive dealer locations 122 187
Company-owned retail locations 3 4
Quarter ended March 27, 2004 and March 29, 2003
Revenue
Revenue for the first quarter of 2004 totaled $44,254, decreasing $14,957, or
25.3%, from 2003's first quarter revenue of $59,211.
________________________________
* See Safe Harbor Statement on page 18.
Home manufacturing net sales accounted for virtually the entire decrease,
falling to $42,182. Home manufacturing net sales for the first quarter of 2003
were $57,215. Home shipments decreased 31.2%, with floor shipments decreasing by
31.5%. Cavalier attributes the decrease in sales and shipments to an intensely
competitive marketplace. Multi-section home shipments, as a percentage of total
shipments, remained steady at 86.0% in the first quarter of 2004. Of these
shipments, 55.3% in 2004 and 53.5% in 2003 were to exclusive dealers. Actual
shipments of homes for the first quarter of 2004 were 1,140 versus 1,656 in
2003. Cavalier attributes the decrease in sales and shipments primarily to
continuing adverse industry conditions.
Inventory of the Company's product at all retail locations, including
company-owned retail sales centers, decreased to approximately $97,000 at March
27, 2004 from $100,000 at year end 2003. At its peak in June 1999, dealer
inventory approximated $314,000.
Revenue from the financial services segment decreased 13.7% to $542 for the
first quarter of 2004 compared to $628 in 2003. During the first quarter of
2004, CIS Financial Services, Inc. ("CIS"), the Company's wholly-owned finance
subsidiary, purchased contracts of $7,208 and resold installment contracts
totaling $6,672. In the first quarter of 2003, CIS purchased contracts of $9,209
and resold installment contracts totaling $9,485. Applications for financing
during the first quarter of 2004 were down 40% from the same period in 2003. CIS
does not retain the servicing function and does not earn the interest income on
these resold loans.
Revenue from the retail segment was $1,530 for 2004 compared to $1,368 for 2003,
an increase of 11.8% due mainly to increased sales prices.
Gross Profit
Gross profit increased 11.1%, to $7,592, or 17.2% of total revenue, for the
first quarter of 2004, versus $6,835, or 11.5%, in 2003. The increase in gross
profit percentage is primarily the result of lower trailing costs associated
with the plants closed during the last quarter of 2002 and the third quarter of
2003 and a sales price increase over the first quarter in 2003. However, gross
margin has also been negatively impacted by (1) escalating lumber prices,
between May 2003 to date, due to military demand in Iraq 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, (2) increase in steel and steel
related items due to foreign demand, (3) rising cost of electrical supplies,
namely copper wire, (4) price increases in panels and gypsum related products
and (5) increased delivery and petroleum-based products costs due to rising oil
prices.
Selling, General and Administrative
Selling, general and administrative expenses during the first quarter of 2004
were $9,377, or 21.2% of total revenue, versus $12,817 or 21.6% in 2003, a
decrease of $3,440 or 26.8%. The overall decrease includes a $1,039 reduction in
advertising and promotion cost, including sales salaries and commissions, and
cost to support the exclusive dealer program a decrease of $790 in employee
benefits costs (primarily health insurance), a $723 decrease in salaries, wages
and incentive compensation and a decrease in inventory repurchase charges of
$324. With the exception of the reduction in inventory repurchase charges, the
aforementioned reduction in selling, general and administrative expenses were
primarily due to the elimination of costs at closed facilities.
Operating Loss
Operating loss for the quarter was $1,785 compared to an operating loss of
$5,982 in the first quarter of 2003. Segment operating results were as follows:
(1) Home manufacturing operating loss, before intercompany eliminations, was
$606 in the first quarter of 2004 as compared to $5,016 in 2003. The decreased
home manufacturing operating loss is primarily due to the factors described
above under gross profit and selling, general and administrative expenses. (2)
Financial services operating income was $82 in the first quarter of 2004 as
compared to $116 in 2003. The financial services operating results declined in
2004 primarily due to the lower volume of loans sold in the first quarter of
2004 as described above. (3) The retail segment's operating loss was $14 in the
first quarter of 2004 as compared to operating income of $208 in 2003. The first
quarter 2003 operating income included a $352 gain on the sale of property,
plant and equipment. (4) General corporate operating expense, which is not
identifiable to a specific segment, improved from $1,442 in the first quarter of
2003 to $1,199 in 2004 primarily due to a reduction in salaries expense.
Other Income (Expense)
Interest expense remained consistent primarily due to lower debt amounts
outstanding offset by increased letter of credit fees.
Other, net is comprised of interest income (unrelated to financial services),
equity earnings in investments accounted for on the equity basis of accounting
and applicable allocation of minority interest. Other, net increased $98 due
primarily to improved earnings in equity investees offset by lower interest
income rates earned on invested funds in the first quarter of 2004 compared to
2003.
Loss before Income Taxes
The Company's pre-tax loss for the first quarter was $1,882, compared to the
pre-tax loss of $6,182 in the first quarter of 2003 primarily due to decreased
trailing costs and selling, general and administrative expenses associated with
closed facilities as discussed above.
Income Tax Provision (Benefit)
In the first quarter of 2004 and 2003, the Company did not record any tax
benefit for net operating losses because management believed it was no longer
appropriate to record income tax benefits on current losses in excess of
anticipated refunds and certain carryforward items under the provisions of SFAS
No.109, Accounting for Income Taxes.
Net Loss
The net loss for the first quarter of 2004 was $1,882 or $0.11 per diluted share
compared with a net loss in the prior-year period of $6,182 or $0.35 per diluted
share. The major components of this loss are discussed above under Revenue,
Gross Profit, and Selling, General and Administrative expenses.
Liquidity and Capital Resources
Balances as of
------------------------------------------
March 27, 2004 December 31, 2003
---------------- -----------------
Cash, cash equivalents & certificates of deposit $ 20,377 $ 32,393
Working capital $ 7,184 $ 7,813
Current ratio 1.2 to 1 1.2 to 1
Long-term debt $ 12,740 $ 13,089
Ratio of long-term debt to equity 1 to 3 1 to 3
Installment loan portfolio $ 10,158 $ 10,114
Operating activities during the first quarter of 2004 used net cash of $10,862.
The increase in accounts receivable and reduction in cash and cash equivalents
from December 31, 2003 to March 27, 2004 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. Additionally, the
Company's inventory levels, taking into account the number of operating
facilities, are historically lower at year end during the idle period and return
to normal levels at the end of the first quarter of the year.
The Company's capital expenditures were $88 for the quarter ended March 27,
2004, as compared to $119 for the comparable period of 2003. Capital
expenditures during these periods included normal property, plant and equipment
additions and replacements.
The decrease in long-term debt was due to scheduled principal payments and a
$1,555 pay-down on the real estate term loan using a portion of the proceeds
from sale of a manufacturing facility in January 2004.
On August 6, 2003, the Company amended its credit facility (the "Credit
Facility") with its primary bank, whose chairman is a director of the Company.
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 March 27, 2004, $8,891 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, of which $7,241 and $8,895 was outstanding at March
27, 2004 and December 31, 2003 respectively. 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 and financial 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 March 27, 2004, the Company was in compliance with its debt
covenants.
Since its inception, CIS has been restricted in the amount of loans it could
purchase based on underwriting standards, as well as the availability of working
capital and funds borrowed under its credit line with its primary lender. From
time to time, the Company evaluates the potential to sell all or a portion of
its remaining installment loan portfolio, in addition to the periodic sale of
installment contracts purchased by CIS in the future.* CIS is currently
re-selling loans to other lenders under various retail finance contracts. Chase
Manufactured Housing has in the past purchased a significant portion of CIS's
retail installment contracts. The Company is continuing to work to obtain
alternate customers to purchase its retail installment 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
___________________________________
* See Safe Harbor Statement on page 18.
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. Throughout the past five years the industry has been impacted
significantly by reduced financing available at both the wholesale and retail
levels, with several lenders exiting the marketplace or limiting their
participation in the industry, coupled with more restrictive credit standards
and increased home repossessions which re-enter home distribution channels and
limit wholesale shipments of new homes. However, new lenders are beginning to
enter or re-enter the market which may provide liquidity to mitigate the effect
of Chase Manufactured Housing's exit and perhaps support a potential rebound in
industry sales. Unfavorable changes in these factors and terms of financing in
the industry may have a material adverse effect on Cavalier's results of
operations or financial condition.
Off-Balance Sheet Arrangements
The Company's material off-balance sheet arrangements consist of repurchase
obligations, guarantees and letters of credit. Each of these arrangements is
discussed in Notes 7 and 8 to the Consolidated Financial Statements.
Critical Accounting Policies
In our Annual Report on Form 10-K for the period ended December 31, 2003, under
the heading "Critical Accounting Policies," we have provided a list of
accounting policies that we believe are most important to the portrayal of our
financial condition and results of operations that require our most difficult,
complex or subjective judgements as a result of the need to make estimates about
the effect of matters that are inherently uncertain.*
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Market risk is the risk of loss arising from adverse changes in market prices
and interest rates. The Company is exposed to interest rate risk inherent in its
financial instruments, but is not currently subject to foreign currency or
commodity price risk. The Company manages its exposure to these market risks
through its regular operating and financing activities.
The Company 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 8.0% to 15.0% and an
average original term of 268 months at March 27, 2004. At March 27, 2004, the
estimated fair value of installment contracts was $10,668. The Company estimated
the fair value of its installment contracts receivable using discounted cash
flows and interest rates offered by CIS on similar contracts at that time.
The Company has notes payable under retail floor plan agreements, two industrial
development revenue bond issues and a revolving line of credit that are exposed
to interest rate changes. Since these borrowings are floating rate debt, an
increase in short-term interest rates would adversely affect interest expense.
Additionally, Cavalier has five industrial development revenue bond issues at
fixed interest rates. At March 27, 2004, the estimated fair value of borrowings
was $15,007. 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
___________________________________
* See Safe Harbor Statement on page 18.
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 control over financial reporting or in other factors
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 manufacturing housing industry;
o limitations in Cavalier's ability to pursue its business strategy;
o changes in demographic trends, consumer preferences and Cavalier's
business strategy;
o changes and volatility in interest rates and the availability of capital;
o changes in the availability of retail (consumer) financing;
o changes in the availability of wholesale (dealer) financing;
o changes in level of industry retail inventories;
o the ability to attract and retain quality independent dealers, executive
officers and other key personnel;
o competition;
o contingent repurchase and guaranty obligations;
o uncertainties regarding Cavalier's retail financing activities;
o the potential unavailability and price increases for raw materials;
o the potential unavailability of manufactured housing sites;
o regulatory constraints;
o the potential for additional warranty claims;
o litigation;
o the potential volatility in our stock price;
o the cost of compliance with recently enacted regulatory requirements such
as Sarbanes-Oxley Section 404; and
o currency fluctuations, exchange controls, market disruptions and other
effects resulting from global tension.
Any or all of our forward-looking statements in this report, in the 2003 Annual
Report to Stockholders, in our Annual Report on Form 10-K for the year ended
December 31, 2003 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, 2003, 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, 2003 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 $50,000 over a
30-day trading period and total stockholders' equity of not less than $50,000.
While the Company's market capitalization has rebounded above original NYSE
requirements, continued adverse market conditions have maintained pressure on
industry sales and have constrained the Company's profitability, thus somewhat
limiting the Company's progress with regard to stockholders' equity.
Additionally, the NYSE has recently proposed changes that would raise the
thresholds for both market capitalization and stockholders' equity to $75,000.
Accordingly, since the Company fully complies with the requirements of the
American Stock Exchange ("Amex"), the Company changed its listing, and its
common stock began trading on the Amex effective March 5, 2004.
Item 6: Exhibits and Reports on Form 8-K
The exhibits required to be filed with this report are listed below.
(11) Statement re: Computation of Net Income (Loss) per Common Share.
(31) Exhibits
(a) Certification of principal executive officer pursuant to
Exchange Act Rule 13a-15(e) or 15d-15(e).
(b) Certification of principal financial officer pursuant to
Exchange Act Rule 13a-15(e) or 15d-15(e).
(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 March 4,
2004, with respect to a press release announcing the fourth
quarter and year ended December 31, 2003 financial results
and the moving of the Company's common stock listing to the
American Stock Exchange.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cavalier Homes, Inc.
--------------------
Registrant
Date: May 4, 2004 /s/ David A. Roberson
---------------------------
David A. Roberson - President
and Chief Executive Officer
Date: May 4, 2004 /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
Quarter Ended
---------------------------------
March 27, March 29,
2004 2003
-------------- ---------------
Net loss $ (1,882,000) $ (6,182,000)
============== ===============
SHARES:
Weighted average common shares - basic 17,701,299 17,665,644
Dilutive effect if stock options and warrants were exercised - -
-------------- ---------------
Weighted average common shares - diluted 17,701,299 17,665,644
============== ===============
Basic and diluted loss per share:
Net loss $ (0.11) $ (0.35)
============== ===============
EXHIBIT 31(a)
CERTIFICATIONS
I, David A. Roberson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Cavalier Homes, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made,
in light of the circumstances under which such statements
were made, not misleading with respect to the period covered
by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and we 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 quarterly 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 quarterly report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an
annual report) 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 of internal
control 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 control 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: May 4, 2004 /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 quarterly report on Form 10-Q of
Cavalier Homes, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made,
in light of the circumstances under which such statements
were made, not misleading with respect to the period covered
by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and we 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 quarterly 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 quarterly report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an
annual report) 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 of internal
control 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 control 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: May 4, 2004 /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 March 27, 2004 ("Report"), the undersigned certifies
that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: May 4, 2004 By: /s/ David A. Roberson
----------------------------
David A. Roberson
Chief Executive Officer
A signed original of this written statement required by Section 906 has been
provided to Cavalier Homes, Inc. and will be retained by Cavalier Homes, Inc.
and furnished to the Securities and Exchange Commission or its staff upon
request.
EXHIBIT 32(b)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with Cavalier Homes, Inc. ("Company") Quarterly Report on Form
10-Q for the period ended March 27, 2004 ("Report"), the undersigned certifies
that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: May 4, 2004 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.