UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 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 November 12, 2004
- --------------------------- --------------------------------
Common Stock, $0.10 Par Value 17,971,774 Shares
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - dollars in thousands except per share amounts)
September 25, December 31,
ASSETS 2004 2003
--------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 17,083 $ 32,393
Accounts receivable, less allowance for losses of
$78 (2004) and $102 (2003) 16,030 1,939
Notes and installment contracts receivable - current, including
held for resale $2,234 (2004) and $2,157 (2003) 2,304 2,238
Inventories 19,293 10,964
Deferred income taxes 693 693
Other current assets 1,346 2,879
--------------- -------------
Total current assets 56,749 51,106
--------------- -------------
PROPERTY, PLANT AND EQUIPMENT (Net) 34,272 37,192
--------------- -------------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $953 (2004) and $1,030 (2003) 5,614 6,846
--------------- -------------
OTHER ASSETS 3,847 3,389
--------------- -------------
TOTAL $ 100,482 $ 98,533
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,744 $ 3,447
Note payable under retail floor plan agreement 945 -
Accounts payable 9,614 3,844
Amounts payable under dealer incentive programs 4,460 5,828
Accrued compensation and related withholdings 3,887 2,664
Accrued insurance 7,138 6,385
Estimated warranties 12,545 13,475
Reserve for repurchase commitments 2,400 3,070
Other accrued expenses 4,834 4,580
--------------- -------------
Total current liabilities 47,567 43,293
--------------- -------------
DEFERRED INCOME TAXES 693 693
--------------- -------------
LONG-TERM DEBT 11,719 13,089
--------------- -------------
OTHER LONG-TERM LIABILITIES - 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,
18,989,074 (2004) and 18,692,944 (2003) shares issued 1,899 1,869
Additional paid-in capital 56,851 55,952
Accumulated deficit (14,146) (12,733)
Treasury stock, at cost; 1,017,300 (2004 and 2003) shares (4,101) (4,101)
--------------- -------------
Total stockholders' equity 40,503 40,987
--------------- -------------
TOTAL $ 100,482 $ 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
-------------------------------
September 25, September 27,
2004 2003
--------------- -------------
REVENUE $ 60,003 $ 63,863
COST OF SALES 49,495 53,952
SELLING, GENERAL AND ADMINISTRATIVE 9,377 9,382
IMPAIRMENT AND OTHER RELATED CHARGES - 122
--------------- -------------
OPERATING INCOME 1,131 407
OTHER INCOME (EXPENSE):
Interest expense (260) (204)
Other, net 211 161
--------------- -------------
(49) (43)
--------------- -------------
INCOME BEFORE INCOME TAXES 1,082 364
INCOME TAX PROVISION (BENEFIT) 14 (579)
--------------- -------------
NET INCOME $ 1,068 $ 943
=============== =============
BASIC AND DILUTED INCOME PER SHARE:
NET INCOME $ 0.06 $ 0.05
=============== =============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 17,935,730 17,665,644
=============== =============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 18,186,536 17,710,286
=============== =============
Year-to-Date Ended
------------------------------
September 25, September 27,
2004 2003
--------------- -------------
REVENUE $ 158,124 $ 191,795
COST OF SALES 131,305 164,145
SELLING, GENERAL AND ADMINISTRATIVE 28,033 33,343
IMPAIRMENT AND OTHER RELATED CHARGES - 176
--------------- -------------
OPERATING LOSS (1,214) (5,869)
OTHER INCOME (EXPENSE):
Interest expense (849) (765)
Other, net 673 407
--------------- -------------
(176) (358)
--------------- -------------
LOSS BEFORE INCOME TAXES (1,390) (6,227)
INCOME TAX PROVISION (BENEFIT) 23 (579)
--------------- -------------
NET LOSS $ (1,413) $ (5,648)
=============== =============
BASIC AND DILUTED LOSS PER SHARE:
NET LOSS $ (0.08) $ (0.32)
=============== =============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 17,845,967 17,665,644
=============== =============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 17,845,967 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
---------------------------
September 25, September 27,
2004 2003
----------- -----------
(As restated,
see Note 2)
OPERATING ACTIVITIES:
Net loss $ (1,413) $ (5,648)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 2,643 3,569
Provision for (recovery of) credit and accounts receivable losses (339) 124
Loss (gain) on sale of property, plant and equipment 3 (1,410)
Impairment and other related charges - 176
Other, net (523) (241)
Changes in assets and liabilities:
Accounts receivable (14,078) (8,625)
Inventories (8,329) 5,296
Income taxes (93) 5,738
Accounts payable 5,770 234
Other assets and liabilities 1,225 (8,521)
----------- -----------
Cash used in operations (15,134) (9,308)
Installment contracts originated for resale (25,994) (28,430)
Sale of installment contracts 25,539 27,298
Principal collected on installment contracts originated for resale 1,539 1,399
----------- -----------
Net cash used in operating activities (14,050) (9,041)
----------- -----------
INVESTING ACTIVITIES:
Proceeds from disposition of property, plant and equipment 219 4,871
Capital expenditures (416) (266)
Notes and installment contracts originated for investment (197) (429)
Principal collected on notes and installment contracts originated for investment 225 259
Other investing activities 109 (18)
----------- -----------
Net cash provided by (used in) investing activities (60) 4,417
----------- -----------
FINANCING ACTIVITIES:
Net borrowings (payments) on notes payable 945 (67)
Payments on long-term debt (3,073) (16,081)
Proceeds from long-term borrowings - 10,000
Proceeds from exercise of stock options 928 -
----------- -----------
Net cash used in financing activities (1,200) (6,148)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (15,310) (10,772)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 32,393 34,939
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,083 $ 24,167
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (received) for:
Interest $ 807 $ 797
Income taxes $ 115 $ (6,645)
See notes to condensed consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited - dollars in thousands except per share amounts)
1. BASIS OF PRESENTATION
o The accompanying condensed consolidated financial statements have been
prepared in compliance with standards for interim financial reporting
and Form 10-Q instructions and thus do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. In the opinion of management, these statements contain all
adjustments necessary to present fairly the Company's financial
position as of September 25, 2004, and the results of its operations
for the quarter and year-to-date periods ended September 25, 2004 and
September 27, 2003, and the results of its cash flows for the
year-to-date periods ended September 25, 2004 and September 27, 2003.
All such adjustments are of a normal, recurring nature.
o The results of operations for the quarter and year-to-date periods
ended September 25, 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
-------------------------- -----------------------------
September 25, September 27, September 25, September 27,
2004 2003 2004 2003
----------- ----------- ------------ -------------
Weighted average common shares
outstanding-basic 17,935,730 17,665,644 17,845,967 17,665,644
Dilutive effect if stock options
were exercised 250,806 44,642 - -
----------- ----------- ------------ -------------
Weighted average common shares
outstanding-diluted 18,186,536 17,710,286 17,845,967 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 September 25, 2004 and September 27, 2003, were
1,337,421 and 2,627,429, respectively. The maximum antidilutive options
and warrants for the year-to-date ended September 25, 2004 and
September 27, 2003 were 2,280,933 and 2,792,599 respectively.
o The Company applied Accounting Principles Board Opinion 25, Accounting
for Stock Issued to Employees, and related interpretations in
accounting for its employee and director plans. Accordingly, no
compensation expense has been recognized for these plans except where
the exercise price was less than fair value on the date of grant. The
Company has granted no such options. Had compensation cost been
determined based on the fair value at the grant date for awards under
these plans consistent with the methodology prescribed under Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, the Company's net income (loss) and net
income (loss) per share would approximate the pro forma amounts below.
Quarter Ended Year-to-Date Ended
----------------------------------- ----------------------------------
September 25, September 27, September 25, September 27,
2004 2003 2004 2003
--------------- --------------- ----------------- ---------------
Net income (loss), as reported $ 1,068 $ 943 $ (1,413) (5,648)
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (2) (28) (42) (54)
--------------- ---------------- ---------------- ---------------
Pro forma $ 1,066 $ 915 (1,455) (5,702)
================= ================ ================ ===============
Basic and diluted income (loss) per share:
As reported $ 0.06 $ 0.05 $ (0.08) $ (0.32)
Pro forma $ 0.06 $ 0.05 $ (0.08) $ (0.32)
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
------------------------------------ --------------------------------------
September 25, September 27, September 25, September 27,
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
2. RESTATEMENT OF CASH FLOW ACTIVITY
The Company recently became aware that Statement of Financial Accounting
Standards ("SFAS") No. 102, Statement of Cash Flows- Exemption of Certain
Enterprises and Classification of Cash Flows from Certain Securities
Acquired for Resale, requires separate presentation in the cash flow
statement of transactions involving installment contracts originated for
resale from those originated for investment. The Company has historically
reported all installment loan activity as investing activities.
Accordingly, the Company's Consolidated Statement of Cash Flows has been
restated for the year-to-date period ended September 27, 2003, to classify
the origination, collection and sale of loans originated for resale as
operating activities rather than investing activities. The restatement had
no effect on the Consolidated Statement of Operations for such period.
Installment contracts originated for resale are reflected at the lower of
cost or market in the accompanying Condensed Consolidated Balance Sheets.
The restatement of the Consolidated Statement of Cash Flows had the
following effect:
Year-to-Date Ended
September 27, 2003
--------------------------------------------
As Previously
As Restated Reported
-------------------- --------------------
Net cash used in operating activities (9,041) (10,286)
Net cash provided by investing activities 4,417 5,662
3. RECENT ACCOUNTING PRONOUNCEMENT AND OTHER REGULATION
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 of the Act applies to the Company 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 does qualify as an accelerated filer and will be required to comply
with Section 404 for the year ending December 31, 2004. Accordingly, the
Company expects to devote substantial time and resources and will incur
substantial costs during 2004 to comply with Section 404.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Work-in-process and finished goods inventories include an
allocation for labor and overhead costs. Inventories at September 25, 2004
and December 31, 2003 were as follows:
September 25, December 31,
2004 2003
-------------- -------------
Raw materials $ 13,034 $ 7,791
Work-in-process 1,251 1,083
Finished goods 5,008 2,090
-------------- -------------
Total inventory $ 19,293 $ 10,964
============== ==============
5. 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 $10,474 (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.
In July 2003, Cavalier announced its decision to close an under-performing
home manufacturing plant in Shippenville, Pennsylvania for which the
Company recorded impairment and other related charges during the third
quarter of 2003 of $122, primarily for employee severance benefits incurred
during the quarter. 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.
6. INCOME TAXES
During the third quarter of 2004, the Company recorded an income tax
provision of $14 for state income taxes payable for subsidiaries in states
for which the Company does not have a net operating loss carry-forward. In
the third quarter of 2003, the Company recognized an income tax benefit of
$579 representing adjustments to prior years' tax provisions that became
appropriate given the results of the recent Internal Revenue Service audit
of the Company's federal income tax returns; however, the Company did not
record any tax benefit for net operating losses in the first nine months of
2004 and 2003 because management believed it was no longer appropriate to
record income tax benefits on current losses in excess of anticipated
refunds and certain carryforward items under the provisions of SFAS No. 109
Accounting for Income Taxes. 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.
7. PRODUCT WARRANTIES
The Company provides the retail home buyer a one-year limited warranty
covering defects in material or workmanship in home structure, plumbing and
electrical systems. The Company has provided a liability for estimated
future warranty costs relating to homes sold, based upon management's
assessment of historical experience factors and current industry trends.
Activity in the liability for product warranty was as follows:
Quarter Ended Year-to-Date Ended
------------------------------------ ------------------------------------
September 25, September 27, September 25, September 27,
2004 2003 2004 2003
---------------- ----------------- ---------------- ----------------
Balance, beginning of period $ 12,700 $ 14,400 $ 13,475 $ 15,000
Warranty expense, net 3,142 4,780 9,757 17,150
Payments (3,297) (5,330) (10,687) (18,300)
---------------- ----------------- ---------------- ----------------
Balance, end of period $ 12,545 $ 13,850 $ 12,545 13,850
================ ================= ================ ================
8. CREDIT ARRANGEMENTS
On October 26, 2004, the Company amended its credit facility (the "Credit
Facility") with its primary lender to extend the maturity date under the
revolving line of credit available under the Credit Facility to April 2007.
The 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 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, 2003, as noted in the following table.
Tangible Net Worth Credit Facility
("TNW") Available
------------------------ -------------------------
Above $50,000 30% of TNW
$50,000 - $38,000 $15,000
$38,000 - $23,000 $15,000 to zero (dollar
for dollar reduction)
At September 25, 2004, $8,891 was available, after deducting letters of credit
of $6,109, 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 $6,946 and $8,895 was
outstanding at September 25, 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, as amended, 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 1.35 to 1 commencing with the year ending December
31, 2005 and 1.5 to 1 for the years ending December 31, 2006 and
thereafter, and to maintain a current ratio, as defined, of at least 1.0 to
1 and consolidated tangible net worth of at least $23,000. The Credit
Facility also requires CIS Financial Services, Inc. ("CIS"), the Company's
wholly-owned finance subsidiary to comply with certain specified
restrictions and financial covenants. At September 25, 2004, the Company
was in compliance with its debt covenants, as amended.
The Company entered into a retail floor plan agreement during the third
quarter of 2004 for its Company-owned retail stores. At September 25, 2004,
the Company had $945 outstanding under this agreement. The note is
collateralized by certain Company-owned retail stores' inventories and
bears interest at rates ranging from prime to prime plus 2.5% based on the
age of the home.
9. 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 $70,000
at September 25, 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
----------------------------------- -----------------------------------
September 25, September 27, September 25, September 27,
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
Balance, beginning of period $ 2,700 $ 3,500 $ 3,070 $ 4,000
Provision for losses on inventory repurchases, net (268) (351) (342) (166)
Recoveries (payments), net (32) 151 (328) (534)
---------------- ---------------- ---------------- ----------------
Balance, end of period $ 2,400 $ 3,300 $ 2,400 $ 3,300
================ ================ ================ ================
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
September 25, 2004, the Company was contingently liable for retention
amounts up to a maximum of approximately $18,370, for which the Company
has reserved $4,638, for any additional losses 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
September 25, 2004, $2,696 of debt was outstanding, of which the
Company had guaranteed $1,079.
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.
10. 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 which 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
-------------------------------------------- --------------------------------------------
September 25, 2004 September 27, 2003 September 25, 2004 September 27, 2003
-------------------- -------------------- -------------------- --------------------
Gross revenue:
Home manufacturing $ 64,186 $ 62,463 $ 170,483 $ 187,594
Financial services 647 652 1,868 2,008
Retail 2,411 2,423 5,903 5,750
-------------------- -------------------- -------------------- --------------------
Gross revenue $ 67,244 $ 65,538 $ 178,254 $ 195,352
==================== ==================== ==================== ====================
Intersegment revenue:
Home manufacturing $ 7,241 $ 1,675 $ 20,130 $ 3,557
Financial services - - - -
Retail - - - -
-------------------- -------------------- -------------------- --------------------
Intersegment revenue $ 7,241 $ 1,675 $ 20,130 $ 3,557
==================== ==================== ==================== ====================
Revenue from external customers:
Home manufacturing $ 56,945 $ 60,788 $ 150,353 $ 184,037
Financial services 647 652 1,868 2,008
Retail 2,411 2,423 5,903 5,750
-------------------- -------------------- -------------------- --------------------
Total revenue $ 60,003 $ 63,863 $ 158,124 $ 191,795
==================== ==================== ==================== ====================
Operating income (loss):
Home manufacturing $ 2,440 $ 1,393 $ 2,444 $ (2,897)
Financial services 226 108 451 342
Retail 3 156 (26) 275
Elimination (26) 120 (145) 264
-------------------- -------------------- -------------------- --------------------
Segment operating income (loss) 2,643 1,777 2,724 (2,016)
General corporate (1,512) (1,370) (3,938) (3,853)
-------------------- -------------------- -------------------- --------------------
Operating income (loss) $ 1,131 $ 407 $ (1,214) $ (5,869)
==================== ==================== ==================== ====================
September 25, 2004 December 31, 2003
-------------------- --------------------
Identifiable assets:
Home manufacturing $ 70,873 $ 62,311
Financial services 13,863 13,364
Retail 4,536 2,987
-------------------- --------------------
Segment assets 89,272 78,662
General corporate 11,210 19,871
-------------------- --------------------
Total assets $ 100,482 $ 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)
The accompanying Management's Discussion and Analysis of Financial Condition and
Results of Operations gives effect to the restatement of the Condensed
Consolidated Statement of Cash Flows for the year-to-date period ended September
27, 2003, as described in Note 2 to the Condensed Consolidated Financial
Statements.
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 which has continued through August 2004.
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' recently revised projections indicate
annual home shipment levels ranging from flat to a 3% increase over 2003. We
believe a significant portion of the 2004 improvement, if any, will be based on
single section home shipments due both to improved financing availability for
single section homes coupled with the industry's FEMA order of approximately
4,000 units. * During the first eight months of 2004, the Company's floor
shipments fell 26.3% from the same period in 2003, while industry wide shipments
fell 6.0%, with the Company's market share being 4.2%. In the Company's core
states, its market share was 10.7%, with shipments falling 22.8% compared to the
industry decrease of 12.1% 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 inconsistent
swings in industry shipments month-to-month. 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 continued
marketing 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 which 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 several 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
________________________________________
*See Safe Harbor Statement on page 22.
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. *
Raw Materials Cost and Gross Margin
The Company's gross margin has improved primarily due to 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 third quarter of
2003. However, 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 has
experienced 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 have resulted
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 third quarter of 2004, the manufacturing
plants operated at 56% capacity, up from 47% in the first quarter of 2004 and
49% in the second quarter of 2004. During the third quarter of 2004, the Company
produced 354 single section homes as part of the Federal Emergency Management
Agency's ("FEMA") disaster relief for victims of Hurricane Charley, of which 309
homes were shipped in the third quarter of 2004. 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 67% 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 stabilize in both price and quantity. Most importantly,
however, there are indications that additional industry financing is likely to
become available in the future, 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
________________________________________
* See Safe Harbor Statement on page 22.
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 Ended
--------------------------------------------------------------
STATEMENT OF OPERATIONS DATA September 25, 2004 September 27, 2003 Difference
-------------------- -------------------- --------------------
Revenue:
Home manufacturing net sales 56,945 60,788 (3,843) -6.3%
Financial services 647 652 (5) -0.8%
Retail 2,411 2,423 (12) -0.5%
--------- ---------- ---------- ---------
Total revenue 60,003 100.0% 63,863 100.0% (3,860) 100.0%
Cost of sales 49,495 82.5% 53,952 84.5% (4,457) -8.3%
--------- --------- ---------- --------- ---------- ---------
Gross profit 10,508 17.5% 9,911 15.5% 597 6.0%
Selling, general and administrative 9,377 15.6% 9,382 14.7% (5) -0.1%
Impairment and other related charges - 0.0% 122 0.2% (122) -100.0%
--------- --------- ---------- --------- ---------- ---------
Operating income 1,131 1.9% 407 0.6% 724 177.9%
Other income (expense):
Interest expense (260) -0.4% (204) -0.3% (56) -27.5%
Other, net 211 0.4% 161 0.3% 50 31.1%
--------- --------- ---------- --------- ---------- ---------
(49) -0.1% (43) -0.1% (6) -14.0%
--------- --------- ---------- --------- ---------- ---------
Income before income taxes 1,082 364 718
Income tax provision (benefit) 14 0.0% (579) -0.9% 593 0.0%
--------- --------- ---------- --------- ---------- ---------
Net income 1,068 1.8% 943 1.5% 125 13.3%
========= ========= ========== ========= ========== =========
For the Year-to-Date Ended
--------------------------------------------------------------
September 25, 2004 September 27, 2003 Difference
-------------------- -------------------- --------------------
Revenue:
Home manufacturing net sales 150,353 184,037 (33,684) -18.3%
Financial services 1,868 2,008 (140) -7.0%
Retail 5,903 5,750 153 2.7%
--------- ---------- ---------- ---------
Total revenue 158,124 100.0% 191,795 100.0% (33,671) 100.0%
Cost of sales 131,305 83.0% 164,145 85.6% (32,840) -20.0%
--------- --------- ---------- --------- ---------- ---------
Gross profit 26,819 17.0% 27,650 14.4% (831) -3.0%
Selling, general and administrative 28,033 17.7% 33,343 17.4% (5,310) -15.9%
Impairment and other related charges - 0.0% 176 0.1% (176) -100.0%
--------- --------- ---------- --------- ---------- ---------
Operating loss (1,214) -0.8% (5,869) -3.1% 4,655 79.3%
Other income (expense):
Interest expense (849) -0.5% (765) -0.4% (84) -11.0%
Other, net 673 0.4% 407 0.2% 266 65.4%
--------- --------- ---------- --------- ---------- ---------
(176) -0.1% (358) -0.2% 182 50.8%
--------- --------- ---------- --------- ---------- ---------
Loss before income taxes (1,390) (6,227) 4,837
Income tax provision (benefit) 23 0.0% (579) -0.3% 602 0.0%
--------- --------- ---------- --------- ---------- ---------
Net loss (1,413) -0.9% (5,648) -2.9% 4,235 75.0%
========= ========= ========== ========= ========== =========
OPERATING DATA
Quarter Ended
-----------------------------------------
September 25, 2004 September 27, 2003
-------------------- --------------------
Home manufacturing sales:
Floor shipments 2,720 3,193
Home shipments
Single section 580 35.3% 221 12.9%
Multi section 1,063 64.7% 1,486 87.1%
--------- --------- ---------- ---------
Total shipments 1,643 100.0% 1,707 100.0%
Shipments to company-owned retail locations (39) -2.4% (45) -2.6%
FEMA Shipments (309) -18.8% - 0.0%
--------- --------- ---------- ---------
Wholesale shipments to independent retailers 1,295 78.8% 1,662 97.4%
========= ========= ========== =========
Retail sales:
Single section 11 20.4% 14 21.9%
Multi section 43 79.6% 50 78.1%
--------- --------- ---------- ---------
Total sales 54 100.0% 64 100.0%
========= ========= ========== =========
Cavalier produced homes sold 49 90.7% 59 92.2%
========= ========= ========== =========
Used homes sold 5 9.3% 5 7.8%
========= ========= ========== =========
Other operating data:
Installment loan purchases 8,219 8,643
Capital expenditures 126 39
Year-to-Date Ended
-----------------------------------------
September 25, 2004 September 27, 2003
-------------------- --------------------
Home manufacturing sales:
Floor shipments 7,419 9,836
Home shipments
Single section 953 22.9% 724 13.7%
Multi section 3,214 77.1% 4,556 86.3%
--------- --------- ---------- ---------
Total shipments 4,167 100.0% 5,280 100.0%
Shipments to company-owned retail locations (127) -3.0% (98) -1.9%
FEMA Shipments (309) -7.4% - 0.0%
--------- --------- ---------- ---------
Wholesale shipments to independent retailers 3,731 89.5% 5,182 98.1%
========= ========= ========== =========
Retail sales:
Single section 35 25.0% 37 24.3%
Multi section 105 75.0% 115 75.7%
--------- --------- ---------- ---------
Total sales 140 100.0% 152 100.0%
========= ========= ========== =========
Cavalier produced homes sold 124 88.6% 135 88.8%
========= ========= ========== =========
Used homes sold 16 11.4% 17 11.2%
========= ========= ========== =========
Other operating data:
Installment loan purchases 26,153 28,802
Capital expenditures 416 266
Home manufacturing facilities (operating) 7 7
Independent exclusive dealer locations 128 155
Company-owned retail locations 3 3
Quarter ended September 25, 2004 and September 27, 2003
Revenue
Revenue for the third quarter of 2004 totaled $60,003, decreasing $3,860, or
6.0%, from 2003's third quarter revenue of $63,863.
Home manufacturing net sales accounted for virtually the entire decrease,
falling to $56,945. Home manufacturing net sales for the third quarter of 2003
were $60,788. Home shipments decreased 3.7%, with floor shipments decreasing by
14.8%. Single-section home shipments, as a percentage of total shipments,
increased to 35.3% in the third quarter of 2004 from 12.9% in the third quarter
of 2003. Of these shipments, 55.5% in 2004, excluding FEMA units, and 56.8% in
2003 were to exclusive dealers. Actual shipments of homes for the third quarter
of 2004 were 1,643 versus 1,707 in 2003. Cavalier attributes the decrease in
sales and shipments primarily to continuing adverse industry conditions which
effects were partially offset by the Company's participation in building single
section homes as part of the Federal Emergency Management Agency's ("FEMA")
disaster relief for victims of Hurricane Charley, of which 309 homes were
shipped in the third quarter of 2004.
Inventory of the Company's product at all retail locations, including
company-owned retail sales centers, decreased to approximately $94,000 at
September 25, 2004 from $112,000 a year ago. At its peak in June 1999, dealer
inventory approximated $314,000.
Revenue from the financial services segment remained constant at $647 for the
third quarter of 2004 compared to $652 in 2003. During the third quarter of
2004, CIS Financial Services, Inc. ("CIS"), the Company's wholly-owned finance
subsidiary, purchased contracts of $8,219 and resold installment contracts
totaling $9,631. In the same period of 2003, CIS purchased contracts of $8,643
and resold installment contracts totaling $8,352. CIS does not retain the
servicing function and does not earn the interest income on these resold loans.
Revenue from the retail segment was $2,411 for the third quarter of 2004
comparable to $2,423 for 2003.
Gross Profit
Gross profit was $10,508, or 17.5% of total revenue, for the third quarter of
2004, versus $9,911, or 15.5%, in 2003. The increase in gross profit 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 third 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 third quarter of 2004
were $9,377, or 15.6% of total revenue, compared to $9,382 or 14.7% in 2003.
Selling, general and administrative expenses included a $774 reduction in
service and warranty costs in the third quarter of 2004 compared to the same
period in 2003 offset by a lack of comparable recoveries in 2004 of $475 from an
insurance subrogation matter and $251 from a dealer of a prior period loss
recorded in the third quarter of 2003.
Impairment and Other Related Charges
During the third quarter of 2003, the Company recorded impairment and other
related charges of $122 ($122 after tax or $0.00 per diluted share) related to
the closing of an under-performing retail location in Pennsylvania. There were
no such charges in the comparable 2004 period.
Operating Income
Operating income for the quarter was $1,131 compared to $407 in the third
quarter of 2003. Segment operating results were as follows: (1) Home
manufacturing operating income, before intercompany eliminations, was $2,440 in
the third quarter of 2004 as compared to $1,393 in 2003. The increased home
manufacturing operating profit is primarily due to improved gross profit as
discussed above. (2) Financial services operating income was $226 in the third
quarter of 2004 as compared to $108 in 2003. The financial services operating
income increased in 2004 primarily due to a reduction in the loan loss reserve
due to a lower level of installment contracts outstanding. (3) The retail
segment's operating income was $3 in the third quarter of 2004, a decline from a
profit of $156 in 2003 primarily due to income in the third quarter of 2003 from
the release of the Company from a recourse liability that did not recur in 2004.
(4) General corporate operating expense, which is not identifiable to a specific
segment, increased from $1,370 in the third quarter of 2003 to $1,512 in 2004
primarily due to expenses associated with compliance efforts under the
Sarbanes-Oxley Act of 2002.
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 $50 due
primarily to improved earnings in equity investees in the third quarter of 2004
compared to 2003.
Income before Income Taxes
The Company's pre-tax income for the third quarter was $1,082 compared to
pre-tax income of $364 in the third quarter of 2003, an improvement of $718
which is primarily due to improved gross profit as discussed above.
Income Tax Provision (Benefit)
During the third quarter of 2004, the Company recorded an income tax provision
of $14, for state income taxes payable for subsidiaries in states for which the
Company does not have a net operating loss carry-forward. In the third quarter
of 2003, the Company recognized an income tax benefit of $579 representing
adjustments to prior years' tax provisions that became appropriate given the
results of the recent Internal Revenue Service audit of the Company's federal
income tax returns; however, the Company did not record any tax benefit for net
operating losses in the first nine months of 2004 and 2003 because management
believed it was no longer appropriate to record income tax benefits on current
losses in excess of anticipated refunds and certain carryforward items under the
provisions of SFAS No. 109 Accounting for Income Taxes.
Net Income
The net income for the third quarter of 2004 was $1,068 or $0.06 per diluted
share compared with a net income in the prior-year period of $943 or $0.05 per
diluted share. The major components of the differences from 2003 compared to
2004 are discussed above under Gross Profit, Impairment and Other Related
Charges and Income Tax Provision (Benefit).
Year-to-date ended September 25, 2004 and September 27, 2003
Revenue
Revenue for the first nine months of 2004 totaled $158,124, decreasing $33,671
or 17.6% from 2003's nine month revenue of $191,795.
Home manufacturing net sales accounted for virtually the entire decrease,
falling to $150,353. Home manufacturing net sales for the first nine months of
2003 were $184,037. Home shipments decreased 21.1%, with floor shipments
decreasing by 24.6%. Single-section home shipments, as a percentage of total
shipments, increased to 22.9% in the first nine months of 2004. Of these
shipments, 56.9% in 2004, excluding FEMA units, and 52.0% in 2003 were to
exclusive dealers. Actual shipments of homes for the first nine months of 2004
were 4,167 versus 5,280 in 2003. Cavalier attributes the decrease in sales and
shipments primarily to continuing adverse industry conditions which effects were
partially offset by the Company's participation in building single section homes
as part of the FEMA disaster relief for victims of Hurricane Charley, of which
309 homes were shipped in the third quarter of 2004.
Inventory of the Company's product at all retail locations, including
company-owned retail sales centers, decreased to approximately $94,000 at
September 25, 2004 from $112,000 a year ago. At its peak in June 1999, dealer
inventory approximated $314,000.
Revenue from the financial services segment decreased 7.0% to $1,868 for the
first nine months of 2004 compared to $2,008 in 2003. During the first nine
months of 2004, CIS purchased contracts of $26,153 and resold installment
contracts totaling $25,539. In the same period of 2003, CIS purchased contracts
of $28,802 and resold installment contracts totaling $27,298. CIS does not
retain the servicing function and does not earn the interest income on these
resold loans.
Revenue from the retail segment was $5,903 for the first nine months of 2004
compared to $5,750 for 2003, an increase of 2.7%, due mainly to increased sales
prices.
Gross Profit
Gross profit was $26,819, or 17.0% of total revenue, for the first nine months
of 2004, versus $27,650, or 14.4%, 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 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 first nine months of
2004 were $28,033, or 17.7% of total revenue, versus $33,343 or 17.4% in 2003, a
decrease of $5,310 or 15.9%. The overall decrease includes a $1,403 reduction in
advertising and promotion cost, including sales salaries and commissions, and
cost to support the exclusive dealer and other programs, a decrease of $1,746 in
employee benefits costs (primarily health insurance), a $2,122 reduction in
service and warranty costs and a $1,111 decrease in salaries, wages and
incentive compensation, somewhat offset by reduced gains on sales of property,
plant and equipment of $1,413. 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 nine months of 2003, the Company recorded impairment and other
related charges of $176 ($176 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 nine months of 2004 was $1,214 compared to an
operating loss of $5,869 in the first half of 2003. Segment operating results
were as follows: (1) Home manufacturing operating income, before intercompany
eliminations, was $2,444 in the first nine months of 2004 as compared to a loss
of $2,897 in 2003. The increased home manufacturing operating profit is due
primarily to improved gross profit as discussed above. (2) Financial services
operating income was $451 in the nine-month period of 2004 as compared to $342
in 2003. The financial services operating income increased in 2004 primarily due
to a reduction in the loan loss reserve due to a lower level of installment
contracts outstanding. (3) The retail segment's operating loss was $26 in the
first nine months of 2004 as compared to an operating profit of $275 in 2003
primarily due to income in the third quarter of 2003 from the release of the
Company from a recourse liability that did not recur in 2004. (4) General
corporate operating expense, which is not identifiable to a specific segment,
remained constant from $3,853 in the nine-month period of 2003 to $3,938 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 $266 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 nine months of 2004 was $1,390,
compared to the pre-tax loss of $6,227 in the first nine months of 2003, an
improvement of $4,837. The major components of this loss are discussed above
under Revenue, Gross Profit, and Selling, General and Administrative expenses.
Income Tax Provision (Benefit)
For the first nine months of 2004, the Company recorded an income tax provision
of $23 for state income taxes payable for subsidiaries in states for which the
Company does not have a net operating loss carry-forward. In the first nine
months of 2003, the Company recognized an income tax benefit of $579
representing adjustments to prior years' tax provisions that became appropriate
given the results of the recent Internal Revenue Service audit of the Company's
federal income tax returns; however, the Company did not record any tax benefit
for net operating losses in the first nine months of 2004 and 2003 because
management believed it was no longer appropriate to record income tax benefits
on current losses in excess of anticipated refunds and certain carryforward
items under the provisions of SFAS No. 109 Accounting for Income Taxes. 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.
Net Loss
The net loss for the first nine months of 2004 was $1,413 or $0.08 per diluted
share compared with a net loss in the prior-year period of $5,648 or $0.32 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
------------------------------------------
September 25, 2004 December 31, 2003
-------------------- -----------------
Cash, cash equivalents & certificates of deposit $ 17,083 $ 32,393
Working capital $ 9,182 $ 7,813
Current ratio 1.2 to 1 1.2 to 1
Long-term debt $ 11,719 $ 13,089
Ratio of long-term debt to equity 0.3 to 1 0.3 to 1
Installment loan portfolio $ 8,871 $ 10,114
Operating activities during the first nine months of 2004 used net cash of
$14,050.
A portion of the increase in accounts receivable and reduction in cash and cash
equivalents from December 31, 2003 to September 25, 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, at the end of the third quarter of 2004, the Company had
an outstanding receivable under the FEMA contract of $9,556 which will be
collected under the terms of the agreement during the fourth quarter of 2004.
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. Also,
at the end of the third quarter of 2004, the Company had an increased level of
inventory over the second quarter of 2004 in anticipation of fulfilling the
outstanding FEMA order.
The Company's capital expenditures were $416 for the nine months ended September
25, 2004, as compared to $266 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
$1,696 pay-down on the real estate term loan using a portion of the proceeds
from the sale of two manufacturing facilities in 2004.
On October 26, 2004, the Company amended its credit facility (the "Credit
Facility") with its primary lender to extend the maturity date under the
revolving line of credit available under the Credit Facility to April 2007. The
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 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, 2003, as noted in the
following table.
Tangible Net Worth Credit Facility
("TNW") Available
------------------------ -------------------------
Above $50,000 30% of TNW
$50,000 - $38,000 $15,000
$38,000 - $23,000 $15,000 to zero (dollar
for dollar reduction)
At September 25, 2004, $8,891 was available, after deducting letters of credit
of $6,109, 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 $6,946 and $8,895 was outstanding at
September 25, 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, as amended, 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 1.35 to 1 commencing with the
year ending December 31, 2005 and 1.5 to 1 for the years ending December 31,
2006 and thereafter, and to maintain a current ratio, as defined, of at least
1.0 to 1 and consolidated tangible net worth of at least $23,000. The Credit
Facility also requires CIS to comply with certain specified restrictions and
financial covenants. At September 25, 2004, the Company was in compliance with
its debt covenants, as amended.
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
_______________________________________
* See Safe Harbor Statement on page 22.
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 8 and 9 to the Condensed 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
rate contracts with interest rates generally ranging from 8.0% to 15.0% and an
average original term of 274 months at September 25, 2004. At September 25,
2004, the estimated fair value of installment contracts was $8,706. 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 September 25, 2004, the
estimated fair value of borrowings was $13,752. 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
________________________________________
* See Safe Harbor Statement on page 22.
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 Section 404 of the Sarbanes-Oxley Act of 2002;
o the timing of completion of our evaluation, testing and remediation
actions under Section 404 or the impact of the same on our operations
since there is no current precedent available by which to measure
compliance adequacy; and
o currency fluctuations, exchange controls, market disruptions and other
effects resulting from global conflict.
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 Information
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 of the Act applies to
the Company 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 does qualify as an accelerated
filer and will be required to comply with Section 404 for the year ending
December 31, 2004. Accordingly, the Company expects to devote substantial time
and resources and will incur substantial costs during 2004 to comply with
Section 404.
Item 6: Exhibits
The exhibits required to be filed with this report are listed below.
(10) Material Contracts
(a) Inventory Security Agreement and Power of Attorney, dated as
of July 13, 2004, between the Company and 21st Mortgage
Corporation.
(b) Supply Agreement, dated as of August 30, 2004, between the
Company and Alliance Homes, Inc. and North American
Catastrophe Services, Inc.
(c) Sixth Amendment to Amended and Restated Revolving and Term
Loan Agreement, dated as of October 26, 2004, between the
Company and First Commercial Bank.
(11) Statement re: Computation of Net Income (Loss) per Common
Share.
(31) Exhibits
(a) Certification of principal executive officer pursuant to
Exchange Act Rule 13a-14(a) or 15d-14(a).
(b) Certification of principal financial officer pursuant to
Exchange Act Rule 13a-14(a) or 15d-14(a).
(32) Exhibits
(a) Certification of CEO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Certification of CFO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cavalier Homes, Inc.
--------------------
Registrant
Date: November 12, 2004 /s/ David A. Roberson
-----------------------------------
David A. Roberson - President
and Chief Executive Officer
Date: November 12, 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
-------------------------------------
September 25, September 27,
2004 2003
---------------- ----------------
Net income $ 1,068,000 $ 943,000
================ ================
SHARES:
Weighted average common shares - basic 17,935,730 17,665,644
Dilutive effect if stock options and warrants were exercised 250,806 44,642
---------------- ----------------
Weighted average common shares - diluted 18,186,536 17,710,286
================ ================
Basic and diluted income per share:
Net income $ 0.06 $ 0.05
================ ================
Year-to-Date Ended
-------------------------------------
September 25, September 27,
2004 2003
---------------- ----------------
Net loss $ (1,413,000) $ (5,648,000)
================ ================
SHARES:
Weighted average common shares - basic 17,845,967 17,665,644
Dilutive effect if stock options and warrants were exercised - -
---------------- ----------------
Weighted average common shares - diluted 17,845,967 17,665,644
================ ================
Basic and diluted loss per share:
Net loss $ (0.08) $ (0.32)
================ ================
28
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: November 12, 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: November 12, 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 September 25, 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: November 12, 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 September 25, 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: November 12, 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.