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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 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 July 30, 2004
____________________________ ____________________________
Common Stock, $.10 Par Value 17,931,774 Shares
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - dollars in thousands except per share amounts)
June 26 December 31,
ASSETS 2004 2003
----------------------- -----------------------
CURRENT ASSETS:
Cash and cash equivalents $ 17,821 $ 32,393
Accounts receivable, less allowance for losses of
$83 (2004) and $102 (2003)
Notes and installment contracts receivable - current 8,317 1,939
Inventories 3,361 2,238
Deferred income taxes 16,741 10,964
Income tax receivable 693 693
Other current assets 1,241 2,879
----------------------- -----------------------
Total current assets 48,174 51,106
----------------------- -----------------------
PROPERTY, PLANT AND EQUIPMENT (Net) 35,671 37,192
----------------------- -----------------------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $1,076 (2004) and $1,030 (2003) 6,573 6,846
----------------------- -----------------------
OTHER ASSETS 3,583 3,389
----------------------- -----------------------
TOTAL $ 94,001 $ 98,533
======================= =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,794 $ 3,447
Accounts payable 5,354 3,844
Amounts payable under dealer incentive programs 4,457 5,828
Accrued compensation and related withholdings 3,148 2,664
Accrued insurance 6,838 6,385
Estimated warranties 12,700 13,475
Reserve for repurchase commitments 2,700 3,070
Other accrued expenses 4,520 4,580
----------------------- -----------------------
Total current liabilities 41,511 43,293
----------------------- -----------------------
DEFERRED INCOME TAXES 693 693
----------------------- -----------------------
LONG-TERM DEBT 11,952 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,
18,949,074 (2004) and 18,692,944 (2003) shares issued 1,895 1,869
Additional paid-in capital 56,794 55,952
Accumulated deficit (15,214) (12,733)
Treasury stock, at cost; 1,017,300 (2004 and 2003) shares (4,101) (4,101)
----------------------- -----------------------
Total stockholders' equity 39,374 40,987
----------------------- -----------------------
TOTAL $ 94,001 $ 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
---------------------------------------
June 26, June 28,
2004 2003
----------------- -----------------
REVENUE $ 53,867 $ 68,721
COST OF SALES 45,148 57,817
SELLING, GENERAL AND ADMINISTRATIVE 9,279 11,144
IMPAIRMENT AND OTHER RELATED CHARGES - 54
----------------- -----------------
OPERATING LOSS (560) (294)
OTHER INCOME (EXPENSE):
Interest expense (311) (278)
Other, net 281 163
----------------- -----------------
(30) (115)
----------------- -----------------
LOSS BEFORE INCOME TAXES (590) (409)
INCOME TAX PROVISION 9 -
----------------- -----------------
NET LOSS $ (599) $ (409)
================= =================
BASIC AND DILUTED LOSS PER SHARE:
NET LOSS $ (0.03) $ (0.02)
================= =================
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 17,894,513 17,665,644
================= =================
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 17,894,513 17,665,644
================= =================
Year-to-Date Ended
---------------------------------------
June 26, June 28,
2004 2003
----------------- -----------------
REVENUE $ 98,121 $ 127,932
COST OF SALES 81,810 110,193
SELLING, GENERAL AND ADMINISTRATIVE 18,656 23,961
IMPAIRMENT AND OTHER RELATED CHARGES - 54
----------------- -----------------
OPERATING LOSS (2,345) (6,276)
OTHER INCOME (EXPENSE):
Interest expense (589) (561)
Other, net 462 246
----------------- -----------------
(127) (315)
----------------- -----------------
LOSS BEFORE INCOME TAXES (2,472) (6,591)
INCOME TAX PROVISION 9 -
----------------- -----------------
NET LOSS $ (2,481) $ (6,591)
================= =================
BASIC AND DILUTED LOSS PER SHARE:
NET LOSS $ (0.14) $ (0.37)
================= =================
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 17,800,077 17,665,644
================= =================
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 17,800,077 17,665,644
================= =================
See notes to condensed consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Year-to-Date Ended
----------------------------------------
June 26, June 28,
2004 2003
---------------- ----------------
OPERATING ACTIVITIES:
Net loss $ (2,481) $ (6,591)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 1,792 2,508
Provision for credit and accounts receivable losses 4 352
Gain on sale of installment contracts (479) (599)
Loss (gain) on sale of property, plant and equipment 12 (1,170)
Impairment and other related charges - 54
Other, net (371) (114)
Changes in assets and liabilities:
Accounts receivable (6,369) (8,586)
Inventories (5,777) 4,966
Income taxes (93) 5,738
Accounts payable 1,510 301
Other assets and liabilities 190 (6,222)
---------------- ----------------
Net cash used in operating activities (12,062) (9,363)
---------------- ----------------
INVESTING ACTIVITIES:
Proceeds from disposition of property, plant and equipment 7 3,718
Capital expenditures (290) (227)
Originations of notes and installment contracts (17,972) (20,216)
Proceeds from sale of installment contracts 16,387 19,545
Principal collected on notes and installment contracts 1,088 998
Other investing activities 192 111
---------------- ----------------
Net cash provided by (used in) investing activities (588) 3,929
---------------- ----------------
FINANCING ACTIVITIES:
Payments on long-term debt (2,790) (4,014)
Proceeds from exercise of stock options 868 -
---------------- ----------------
Net cash used in financing activities (1,922) (4,014)
---------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (14,572) (9,448)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 32,393 34,939
---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,821 $ 25,491
================ ================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (received) for:
Interest $ 611 $ 590
Income taxes $ 102 $ (6,336)
See notes to condensed consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited - dollars in thousands except per share amounts)
1. BASIS OF PRESENTATION
o The accompanying condensed consolidated financial statements have been
prepared in compliance with standards for interim financial reporting
and Form 10-Q instructions and thus do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. In the opinion of management, these statements contain all
adjustments necessary to present fairly the Company's financial
position as of June 26, 2004, and the results of its operations for the
quarter and year-to-date periods ended June 26, 2004 and June 28, 2003,
and the results of its cash flows for the year-to-date periods ended
June 26, 2004 and June 28, 2003. All such adjustments are of a normal,
recurring nature.
o The results of operations for the quarter and year-to-date periods
ended June 26, 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/A.
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 Year-to-Date Ended
------------------------------- --------------------------------
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
------------- -------------- --------------- --------------
Weighted average common shares
outstanding - basic 17,894,513 17,665,644 17,800,077 17,665,644
Dilutive effect if stock options were exercised - - - -
------------- -------------- --------------- --------------
Weighted average common shares
outstanding - diluted 17,894,513 17,665,644 17,800,077 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 June 26, 2004 and June 28, 2003, were 2,250,634
and 2,764,403, respectively. The maximum antidilutive options and
warrants for the year-to-date ended June 26, 2004 and June 28, 2003
were 2,353,712 and 2,820,646 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 Year-to-Date Ended
_______________________________ ________________________________
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Net loss, as reported $ (599) $ (409) $ (2,481) $ (6,591)
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (20) (19) (40) (26)
-------------- -------------- -------------- --------------
Pro forma $ (619) $ (428) $ (2,521) $ (6,617)
============== ============== ============== ==============
Basic and diluted loss per share:
As reported $ (0.03) $ (0.02) $ (0.14) $ (0.37)
Pro forma $ (0.03) $ (0.02) $ (0.14) $ (0.37)
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 Year-to-Date Ended
________________________________ ________________________________
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
-------------- --------------- -------------- --------------
Dividend yield 0.00% 0.00% 0.00% 0.00%
Expected volatility 62.51% 62.94% 62.51% 62.79%
Risk free interest rate 3.52% 2.39% 3.52% 2.55%
Expected lives 5.0 years 5.0 years 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.
The Sarbanes-Oxley Act of 2002 (the "Act") has introduced many new
requirements applicable to the Company regarding corporate governance and
financial reporting. Section 404 of the Act requires management to report
on the Company's internal controls over financial reporting and for the
Company's registered public accountant to attest to this report. Section
404 is effective December 31, 2004 if the Company qualifies as an
"accelerated filer," which is defined as a company with public float of at
least $75,000 at the end of the second quarter of the year. Based on the
Company's public float as of June 26, 2004, the Company will qualify as an
accelerated filer and will be required to comply with Section 404 for the
year ending December 31, 2004. The Company expects to devote substantial
time and resources and will incur substantial costs during 2004 to ensure
compliance.
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 June 26, 2004 and
December 31, 2003 were as follows:
June 26, December 31,
2004 2003
----------------- -----------------
Raw materials $ 10,003 $ 7,791
Work-in-process 1,141 1,083
Finished goods 5,597 2,090
----------------- -----------------
Total inventory $ 16,741 $ 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 $11,353 (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.
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.
5. INCOME TAXES
During the second quarter of 2004, the Company recorded an income tax
provision of $9, for state income taxes payable for subsidiaries in states
for which the Company does not have a net operating loss carry-forward.
During the first half 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 Year-to-Date Ended
---------------------------------- ----------------------------------
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
--------------- -------------- --------------- --------------
Balance, beginning of period $ 13,000 $ 14,900 $ 13,475 $ 15,000
Warranty expense, net 3,259 5,565 6,616 12,370
Payments (3,559) (6,065) (7,391) (12,970)
--------------- -------------- --------------- --------------
Balance, end of period $ 12,700 $ 14,400 $ 12,700 $ 14,400
=============== ============== =============== ==============
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 June 26, 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 $7,160 and $8,895 was
outstanding at June 26, 2004 and December 31, 2003 respectively. Interest
on the term note 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 June 26, 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 18 to 24 months) and the risk of loss is further reduced by
the resale value of repurchased homes. The maximum amount for which the
Company is contingently liable under such agreements approximated
$72,000 at June 26, 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 Year-to-Date Ended
_________________________________ _________________________________
June 26, June 28, June 26, June 28,
2004 2003 2004 2003
--------------- -------------- -------------- ---------------
Balance, beginning of period $ 2,900 3,750 3,070 4,000
Provision for losses on inventory repurchases, net (58) (122) (74) 185
Recoveries (payments), net (142) (128) (296) (685)
--------------- -------------- -------------- ---------------
Balance, end of period $ 2,700 3,500 2,700 3,500
=============== ============== ============== ===============
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 June 26, 2004,
the Company was contingently liable for future retrospective premium
adjustments up to a maximum of approximately $18,519, for which the
Company has reserved $4,787, 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
June 26, 2004, $3,107 of debt was outstanding, of which the Company had
guaranteed $1,243.
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 Year-to-Date Ended
-------------------------------------- --------------------------------------
June 26, 2004 June 28, 2003 June 26, 2004 June 28, 2003
----------------- ----------------- ----------------- ------------------
Gross revenue:
Home manufacturing $ 53,226 $ 67,250 $ 96,860 $ 125,131
Financial services 679 728 1,221 1,356
Retail 1,962 1,959 3,492 3,327
----------------- ----------------- ----------------- ------------------
Gross revenue $ 55,867 $ 69,937 $ 101,573 $ 129,814
================= ================= ================= ==================
Intersegment revenue:
Home manufacturing $ 2,000 $ 1,216 $ 3,452 $ 1,882
Financial services - - - -
Retail - - - -
----------------- ----------------- ----------------- ------------------
Intersegment revenue $ 2,000 $ 1,216 $ 3,452 $ 1,882
================= ================= ================= ==================
Revenue from external customers:
Home manufacturing $ 51,226 $ 66,034 $ 93,408 $ 123,249
Financial services 679 728 1,221 1,356
Retail 1,962 1,959 3,492 3,327
----------------- ----------------- ----------------- ------------------
Total revenue $ 53,867 $ 68,721 $ 98,121 $ 127,932
================= ================= ================= ==================
Operating profit (loss):
Home manufacturing $ 610 $ 726 $ 4 $ (4,290)
Financial services 143 118 225 234
Retail (15) (89) (29) 119
Elimination (71) (8) (119) 144
----------------- ----------------- ----------------- ------------------
Segment operating profit (loss) 667 747 81 (3,793)
General corporate (1,227) (1,041) (2,426) (2,483)
----------------- ----------------- ----------------- ------------------
Operating (loss) $ (560) $ (294) $ (2,345) $ (6,276)
================= ================= ================= ==================
June 26, December 31,
2004 2003
----------------- ------------------
Identifiable assets:
Home manufacturing $ 62,449 $ 62,311
Financial services 13,560 13,364
Retail 3,400 2,987
----------------- ------------------
Segment assets 79,409 78,662
General corporate 14,592 19,871
----------------- ------------------
Total assets $ 94,001 $ 98,533
================= ==================
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements (See pages 2 through 10)
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. 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 section 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 revised projections indicate an annual
increase in home shipment levels of 2%. We believe a significant portion of the
2004 improvement will be based on single section home shipments.* During the
first five months of 2004, the most current industry information available, the
Company's floor shipments fell 27.8% from the same period in 2003, while
industry wide shipments fell 6.7%, with the Company's market share being 4.3%.
In the Company's core states, its market share was 10.6%, with shipments falling
24.4% compared to the industry decrease of 12.7% in those states. Despite the
positive signals on the industry's direction that were evident after the first
quarter, the Company continues to face a difficult operating environment,
evident in the drop in industry shipments in April (2.7%) and May (8.7%), after
a promising upturn in March. Able to redirect its focus from plant closures and
down-sizing, the Company believes it is well-positioned to 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
Relaxed credit standards were a major factor contributing to the manufactured
housing industry growth in the 1990s , 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
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. In May 2004, Chase Financial, which has
previously represented an important source of retail lending for manufactured
housing customers, announced its withdrawal from the retail financing market.
However, during 2003 and to-date in 2004, there are indications that some
lenders are beginning to enter or re-enter the market which could 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 the 48 contiguous states and
land/home financing in 13 states with plans to enter the remaining states for
land/home financing 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. 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 section 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. *
__________________________________________
*See Safe Harbor Statement on page 21.
Raw Materials Cost and Gross Margin
Additionally, the Company's gross margin has been negatively impacted by (1)
escalating lumber prices, beginning in May 2003, 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 cost 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 cost will have on the
Company's future revenue and earnings, however, recent industry indications
appear to point to stabilized prices overall.
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 second quarter of 2004, the manufacturing
plants operated at 49% capacity down slightly from 53% in the fourth quarter of
2003 and up from the first quarter of 2004 at 47%. 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 70% 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 the first quarter of 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 could 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 and strengthen its
competitive position in the marketplace going forward.* However, the Company is
uncertain 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.
___________________________________________
*See Safe Harbor Statement on page 21.
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 Ended
STATEMENT OF OPERATIONS DATA June 26, 2004 June 28, 2003 Difference
----------------------------- -------------------------- --------------------------
Revenue:
Home manufacturing net sales $ 51,226 $ 66,034 $ (14,808) -22.4%
Financial services 679 728 (49) -6.7%
Retail 1,962 1,959 3 0.2%
------------ ------------ ----------- ------------
Total revenue 53,867 100.0% 68,721 100.0% (14,854) -21.6%
Cost of sales 45,148 83.8% 57,817 84.1% (12,669) -21.9%
------------ ----------- ------------ ------------ ----------- ------------
Gross profit 8,719 16.2% 10,904 15.9% (2,185) -20.0%
Selling, general and administrative 9,279 17.2% 11,144 16.2% (1,865) -16.7%
Impairment and other related charges - 0.0% 54 0.1% (54) -100.0%
------------ ----------- ------------ ------------ ----------- ------------
Operating loss (560) -1.0% (294) -0.4% (266) -90.5%
Other income (expense):
Interest expense (311) -0.6% (278) -0.4% (33) -11.9%
Other, net 281 0.5% 163 0.2% 118 72.4%
------------ ----------- ------------ ------------ ----------- ------------
(30) -0.1% (115) -0.2% 85 73.9%
------------ ----------- ------------ ------------ ----------- ------------
Loss before income taxes (590) (409) (181)
Income tax provision 9 0.0% - 0.0% 9 0.0%
------------ ----------- ------------ ------------ ----------- ------------
Net loss $ (599) -1.1% $ (409) -0.6% $ (190) -46.5%
============ =========== ============ ============ =========== ============
For the Year-to-Date Ended
June 26, 2004 June 28, 2003 Difference
--------------------------- --------------------------- -----------------------
Revenue:
Home manufacturing net sales $ 93,408 $ 123,249 $ (29,841) -24.2%
Financial services 1,221 1,356 (135) -10.0%
Retail 3,492 3,327 165 5.0%
------------ ------------ ----------- ------------
Total revenue 98,121 100.0% 127,932 100.0% (29,811) -23.3%
Cost of sales 81,810 83.4% 110,193 86.1% (28,383) -25.8%
------------ ------------ ------------ ----------- ----------- ------------
Gross profit 16,311 16.6% 17,739 13.9% (1,428) -8.1%
Selling, general and administrative 18,656 19.0% 23,961 18.7% (5,305) -22.1%
Impairment and other related charges - 0.0% 54 0.0% (54) -100.0%
------------ ------------ ------------ ----------- ----------- ------------
Operating loss (2,345) -2.4% (6,276) -4.9% 3,931 62.6%
Other income (expense):
Interest expense (589) -0.6% (561) -0.4% (28) -5.0%
Other, net 462 0.5% 246 0.2% 216 87.8%
------------ ------------ ------------ ----------- ----------- ------------
(127) -0.1% (315) -0.2% 188 59.7%
------------ ------------ ------------ ----------- ----------- ------------
Loss before income taxes (2,472) (6,591) 4,119
Income tax provision 9 0.0% - 0.0% 9 0.0%
------------ ------------ ------------ ----------- ----------- ------------
Net loss $ (2,481) -2.5% $ (6,591) -5.2% $ 4,110 62.4%
============ ============ ============ =========== =========== ============
OPERATING DATA
Quarter Ended
---------------------------------------------------------------
June 26, 2004 June 28, 2003
------------------------------ -----------------------------
Home manufacturing sales:
Floor shipments 2,579 3,549
Home shipments
Single section 212 15.3% 285 14.9%
Multi section 1,172 84.7% 1,632 85.1%
------------- ------------- ------------- -------------
Total shipments 1,384 100.0% 1,917 100.0%
Shipments to company owned retail locations (47) -3.4% (35) -1.8%
------------- ------------- ------------- -------------
Wholesale shipments to independent retailers 1,337 96.6% 1,882 98.2%
============= ============= ============= =============
Retail sales:
Single section 16 31.4% 14 28.6%
Multi section 35 68.6% 35 71.4%
------------- ------------- ------------- -------------
Total sales 51 100.0% 49 100.0%
============= ============= ============= =============
Cavalier produced homes sold 43 84.3% 44 89.8%
============= ============= ============= =============
Used homes sold 8 15.7% 5 10.2%
============= ============= ============= =============
Other operating data:
Installment loan purchases $ 10,726 $ 11,021
Capital expenditures $ 202 $ 108
Year-to-Date Ended
---------------------------------------------------------------
June 26, 2004 June 28, 2003
------------------------------ -----------------------------
Home manufacturing sales:
Floor shipments 4,699 6,643
Home shipments
Single section 373 14.8% 503 14.1%
Multi section 2,151 85.2% 3,070 85.9%
------------- ------------- ------------- -------------
Total shipments 2,524 100.0% 3,573 100.0%
Shipments to company owned retail locations (88) -3.5% (53) -1.5%
------------- ------------- ------------- -------------
Wholesale shipments to independent retailers 2,436 96.5% 3,520 98.5%
============= ============= ============= =============
Retail sales:
Single section 24 27.9% 23 26.1%
Multi section 62 72.1% 65 73.9%
------------- ------------- ------------- -------------
Total sales 86 100.0% 88 100.0%
============= ============= ============= =============
Cavalier produced homes sold 75 87.2% 76 86.4%
============= ============= ============= =============
Used homes sold 11 12.8% 12 13.6%
============= ============= ============= =============
Other operating data:
Installment loan purchases $ 17,934 $ 20,159
Capital expenditures $ 290 $ 227
Home manufacturing facilities (operating) 7 7
Independent exclusive dealer locations 123 168
Company-owned retail locations 3 3
Quarter ended June 26, 2004 and June 28, 2003
Revenue
Revenue for the second quarter of 2004 totaled $53,867, decreasing $14,854, or
21.6%, from 2003's second quarter revenue of $68,721.
Home manufacturing net sales accounted for virtually the entire decrease,
falling to $51,226. Home manufacturing net sales for the second quarter of 2003
were $66,034. Home shipments decreased 27.8%, with floor shipments decreasing by
27.3%. Cavalier attributes the decrease in sales and shipments to an intensely
competitive marketplace. Single-section home shipments, as a percentage of total
shipments, increased to 15.3% in the second quarter of 2004. Of these
shipments, 56.6% in 2004 and 46.9% in 2003 were to exclusive dealers. Actual
shipments of homes for the second quarter of 2004 were 1,384 versus 1,917 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 $98,000 at June
26, 2004 from $130,000 a year ago, but was up slightly from $97,000 at the end
of the first quarter of 2004. At its peak in June 1999, dealer inventory
approximated $314,000.
Revenue from the financial services segment decreased 6.7% to $679 for the
second quarter of 2004 compared to $728 in 2003. During the second quarter of
2004, CIS Financial Services, Inc. ("CIS"), the Company's wholly-owned finance
subsidiary, purchased contracts of $10,726 and resold installment contracts
totaling $9,236. In the same period of 2003, CIS purchased contracts of $11,021
and resold installment contracts totaling $9,531. CIS does not retain the
servicing function and does not earn the interest income on these resold loans.
Revenue from the retail segment was $1,962 for the second quarter of 2004
comparable to $1,959 for 2003.
Gross Profit
Gross profit was $8,719 or 16.2% of total revenue, for the second quarter of
2004, versus $10,904, or 15.9%, 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 sales
price increases in 2004 over the second quarter of 2003. However, gross margin
has also been negatively impacted by (1) escalating lumber prices, beginning in
May 2003, 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 cost increases 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 second quarter of 2004
were $9,279, or 17.2% of total revenue, versus $11,144 or 16.2% in 2003, a
decrease of $1,865 or 16.7%. The overall decrease includes a $105 reduction in
advertising and promotion cost, including sales salaries and commissions, and
cost to support the exclusive dealer program, a decrease of $828 in employee
benefits costs (primarily health insurance), and a $587 decrease in salaries,
wages and incentive compensation. The aforementioned reduction in selling,
general and administrative expenses were primarily due to the elimination of
costs at closed facilities.
Impairment and Other Related Charges
During the second quarter of 2003, the Company recorded impairment and other
related charges of $54 ($54 after tax or $0.00 per diluted share) related to the
closing of an under-performing retail location in Pennsylvania. There were no
such charges in the comparable 2004 period.
Operating Loss
Operating loss for the quarter was $560 compared to an operating loss of $294 in
the second quarter of 2003. Segment operating results were as follows: (1) Home
manufacturing operating profit, before intercompany eliminations, was $610 in
the second quarter of 2004 as compared to $726 in 2003. The decreased home
manufacturing operating profit is primarily due to the factors described above
under revenue, gross profit and selling, general and administrative expenses.
(2) Financial services operating income was $143 in the second quarter of 2004
as compared to $118 in 2003. The financial services operating results increased
in 2004 primarily due to cost reductions. (3) The retail segment's operating
loss was $15 in the second quarter of 2004, an improvement from a loss of $89 in
2003 primarily due to a lack of impairment and other charges in 2004 of which
there were $54 in the second quarter of 2003. (4) General corporate operating
expense, which is not identifiable to a specific segment, increased from $1,041
in the second quarter of 2003 to $1,227 in 2004 due to promotional advertising
monies received in 2003 but not in 2004.
Other Income (Expense)
Interest expense remained consistent primarily due to lower debt amounts
outstanding.
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 $118 due
primarily to improved earnings in equity investees offset by lower amounts of
invested funds in the second quarter of 2004 compared to 2003.
Loss before Income Taxes
The Company's pre-tax loss for the second quarter was $590, compared to the
pre-tax loss of $409 in the second quarter of 2003 primarily due to lower
revenue which was partially offset by decreased trailing costs associated with
closed facilities.
Income Tax Provision
During the second quarter of 2004, the Company recorded an income tax provision
of $9, for state income taxes payable for subsidiaries in states for which the
Company does not have a net operating loss carry-forward. During the first half
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.
Net Loss
The net loss for the second quarter of 2004 was $599 or $0.03 per diluted share
compared with a net loss in the prior-year period of $409 or $0.02 per diluted
share. The major components of this loss are discussed above under Revenue,
Gross Profit, and Selling, General and Administrative expenses.
Year-to-date ended June 26, 2004 and June 28, 2003
Revenue
Revenue for the first half of 2004 totaled $98,121, decreasing $29,811 or 23.3%
from 2003's first half revenue of $127,932.
Home manufacturing net sales accounted for virtually the entire decrease,
falling to $93,408. Home manufacturing net sales for the first half of 2003 were
$123,249. Home shipments decreased 29.3%, with floor shipments decreasing by
29.4%. Cavalier attributes the decrease in sales and shipments to an intensely
competitive marketplace. Single-section home shipments, as a percentage of total
shipments, increased to 14.8% in the first half of 2004. Of these shipments,
56.5% in 2004 and 52.1% in 2003 were to exclusive dealers. Actual shipments of
homes for the first half of 2004 were 2,524 versus 3,573 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 $98,000 at June
26, 2004 from $130,000 a year ago, but was up slightly from $97,000 at the end
of the first quarter of 2004. At its peak in June 1999, dealer inventory
approximated $314,000.
Revenue from the financial services segment decreased 10.0% to $1,221 for the
first half of 2004 compared to $1,356 in 2003. During the first half of 2004,
CIS Financial Services, Inc. ("CIS"), the Company's wholly-owned finance
subsidiary, purchased contracts of $17,934 and resold installment contracts
totaling $15,908. In the same period of 2003, CIS purchased contracts of $20,159
and resold installment contracts totaling $18,946. CIS does not retain the
servicing function and does not earn the interest income on these resold loans.
Revenue from the retail segment was $3,492 for the first half of 2004 compared
to $3,327 for 2003, an increase of 5.0% due mainly to increased sales prices.
Gross Profit
Gross profit was $16,311, or 16.6% of total revenue, for the first half of 2004,
versus $17,739, or 13.9%, 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 sales price
increases in 2004 over the first half of 2003. However, gross margin has also
been negatively impacted by (1) escalating lumber prices, beginning May 2003,
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 cost increases 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 half of 2004 were
$18,656, or 19.0% of total revenue, versus $23,961 or 18.7% in 2003, a decrease
of $5,305 or 22.1%. The overall decrease includes a $1,145 reduction in
advertising and promotion cost, including sales salaries and commissions, and
cost to support the exclusive dealer program, a decrease of $1,618 in employee
benefits costs (primarily health insurance), and a $1,310 decrease in salaries,
wages and incentive compensation. The aforementioned reduction in selling,
general and administrative expenses were primarily due to the elimination of
costs at closed facilities.
Impairment and Other Related Charges
During the first half of 2003, the Company recorded impairment and other related
charges of $54 ($54 after tax or $0.00 per diluted share) related to the closing
of an under-performing retail location in Pennsylvania. There were no such
charges in the comparable 2004 period.
Operating Loss
Operating loss for the first half of 2004 was $2,345 compared to an operating
loss of $6,276 in the first half of 2003. Segment operating results were as
follows: (1) Home manufacturing operating income, before intercompany
eliminations, was $4 in the first half of 2004 as compared to a loss of $4,290
in 2003. The decreased home manufacturing operating loss is primarily due to the
elimination of trailing costs at closed facilities. (2) Financial services
operating income was $225 in the first half of 2004 as compared to $234 in 2003.
(3) The retail segment's operating loss was $29 in the first half of 2004 as
compared to an operating profit of $119 in 2003. (4) General corporate operating
expense, which is not identifiable to a specific segment, remained constant from
$2,483 in the first half of 2003 to $2,426 in 2004.
Other Income (Expense)
Interest expense remained consistent primarily due to lower debt amounts
outstanding offset somewhat by a higher rate on amounts outstanding.
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 $216 due
primarily to improved earnings in equity investees offset by lower amounts of
invested funds and lower interest income rates earned on invested funds in the
first half of 2004 compared to 2003.
Loss before Income Taxes
The Company's pre-tax loss for the first half of 2004 was $2,472, compared to
the pre-tax loss of $6,591 in the first half of 2003 primarily due to lower
revenue which was partially offset by decreased trailing costs associated with
closed facilities.
Income Tax Provision
The Company recorded an income tax provision of $9 in the first half of 2004 for
state income taxes payable for subsidiaries in states for which the Company does
not have a net operating loss carry-forward. During the first half 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 half of 2004 was $2,481 or $0.14 per diluted share
compared with a net loss in the prior-year period of $6,591 or $0.37 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
-----------------------------------------------------------
June 26, 2004 December 31, 2003
----------------------- -----------------------
Cash, cash equivalents & certificates of deposit $ 17,821 $ 32,393
Working capital $ 6,663 $ 7,813
Current ratio 1.2 to 1 1.2 to 1
Long-term debt $ 11,952 $ 13,089
Ratio of long-term debt to equity 1 to 3 1 to 3
Installment loan portfolio $ 11,011 $ 10,114
Operating activities during the first half of 2004 used net cash of $12,062.
The increase in accounts receivable and reduction in cash and cash equivalents
from December 31, 2003 to June 26, 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 $290 for the six months ended June 26,
2004, as compared to $227 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 June 26, 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 $7,160 and $8,895 was outstanding at June
26, 2004 and December 31, 2003 respectively. Interest on the term note 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 June 26, 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. The
Company believes the periodic sale of installment contracts under these retail
finance agreements will reduce requirements for both working capital and
borrowings, increase the Company's liquidity, reduce the Company's exposure to
interest rate fluctuations and enhance the ability of CIS to increase its volume
of loan purchases.* There can be no assurance, however, that additional sales
will be made under these agreements, or that CIS and the Company will be able to
realize the expected benefits from such agreements.*
The Company currently believes existing cash and funds available under the
Credit Facility, together with cash provided by operations, will be adequate to
fund the Company's operations and plans for the next twelve months.* However,
there can be no assurances to this effect. If it is not, or if the Company is
unable to remain in compliance with its covenants under its Credit Facility, the
Company would seek to maintain or enhance its liquidity position and capital
resources through 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.
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 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 judgments 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
__________________________________________
*See Safe Harbor Statement on page 21.
rate contracts with interest rates generally ranging from 8.0% to 15.0% and an
average original term of 269 months at June 26, 2004. At June 26, 2004, the
estimated fair value of installment contracts was $10,993. 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 two industrial development revenue bond issues and a revolving
line of credit that are exposed to interest rate changes. Since these borrowings
are floating rate debt, an increase in short-term interest rates would adversely
affect interest expense. Additionally, Cavalier has five industrial development
revenue bond issues at fixed interest rates. At June 26, 2004, the estimated
fair value of borrowings was $14,055. 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 its 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 4: Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held May 19, 2004, and the
stockholders elected ten directors. The following is a tabulation of voting on
this matter:
Shares Voting
For Withheld
--------------------------------------
John W. Allison 16,259,734 70,614
Thomas A. Broughton, III 15,373,434 956,914
Barry B. Donnell 16,114,534 215,814
Norman W. Gayle, III 16,258,637 71,711
Lee Roy Jordan 16,108,612 221,736
A. Douglas Jumper, Sr. 16,258,908 71,440
John W. Lowe 15,374,112 956,236
David A. Roberson 16,114,534 215,814
Bobby Tesney 16,259,734 70,614
J. Don Williams 16,259,634 70,714
The stockholders also ratified the Board of Director's appointment of Deloitte &
Touche, LLP as Independent Certified Public Accountants for the Company. The
appointment was ratified by a vote of 16,126,085 for and 169,896 against.
Item 5: Other Information
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 complied with the requirements of the
American Stock Exchange ("Amex"), the Company changed its listing, and its
common stock (CAV) began trading on the Amex effective March 5, 2004.
The Sarbanes-Oxley Act of 2002 (the "Act") has introduced many new requirements
applicable to the Company regarding corporate governance and financial
reporting. Section 404 of the Act requires management to report on the Company's
internal controls over financial reporting and for the Company's registered
public accountant to attest to this report. Section 404 is effective December
31, 2004 if the Company qualifies as an "accelerated filer," which is defined as
a company with public float of at least $75,000 at the end of the second quarter
of the year. Based on the Company's public float as of June 26, 2004, the
Company will qualify as an accelerated filer and will be required to comply with
Section 404 for the year ending December 31, 2004. The Company expects to devote
substantial time and resources and will incur substantial costs during 2004 to
ensure compliance.
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-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 April 29,
2004, with respect to a press release announcing the
year-to-date financial results for the period ended March 27,
2004.
(b) The Company filed a Current Report on Form 8-K on June 23,
2004, with respect to a press release regarding the
year-to-date financial results for the period ended June 26,
2004.
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: July 30, 2004 /s/ David A. Roberson
----------------------------------
David A. Roberson - President
and Chief Executive Officer
Date: July 30, 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
------------------------------------------
June 26, June 28,
2004 2003
----------------- -----------------
Net loss $ (599,000) $ (409,000)
================= =================
SHARES:
Weighted average common shares - basic 17,894,513 17,665,644
Dilutive effect if stock options and warrants were exercised - -
----------------- -----------------
Weighted average common shares - diluted 17,894,513 17,665,644
================= =================
Basic and diluted loss per share:
Net loss $ (0.03) $ (0.02)
================= =================
Year-to-Date Ended
------------------------------------------
June 26, June 28,
2004 2003
----------------- -----------------
Net loss $ (2,481,000) $ (6,591,000)
================= =================
SHARES:
Weighted average common shares - basic 17,800,077 17,665,644
Dilutive effect if stock options and warrants were exercised - -
----------------- -----------------
Weighted average common shares - diluted 17,800,077 17,665,644
================= =================
Basic and diluted loss per share:
Net loss $ (0.14) $ (0.37)
================= =================
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: July 30, 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: July 30, 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 June 26, 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: July 30, 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 June 26, 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: July 30, 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.