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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR l5(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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 (I.R.S. Employer
incorporation or organization) Identification Number)
Highway 41 N. and Cavalier Road,
Addison, Alabama 35540
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (205) 747-1575
Securities registered pursuant to Section 12(b) of the Act:
Name of
Each Exchange
Title of Each class on Which Registered
Common Stock, par value $.10 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant ( I ) 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock on the New
York Stock Exchange as of March 20, 1997, was $149,600,075.
Indicate the number of shares outstanding of each
of the Registrant's classes of common
stock, as of March 20, 1997.
12,212,251
Common, $0.10 par value
Documents Incorporated by Reference
PartIII of this report incorporates by reference certain
portions of the Registrant's Proxy Statement for its
Annual Meeting of Stockholders to be held May 14, 1997.
CAVALIER HOMES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
PART I
ITEM 1. BUSINESS
General
Cavalier Homes, Inc. is a Delaware corporation, with its executive offices
located at Highway 41 North and Cavalier Road, Addison, Alabama 35540. The
Company also maintains administrative offices at 719 Scott Avenue, Suite 600,
Wichita Falls, Texas 76301. Unless otherwise indicated by the context,
references in this report to the "Company" or to "Cavalier" include the Company,
its subsidiaries, divisions of its subsidiaries and their respective
predecessors, if any.
The Company designs and manufactures a wide range of high quality manufactured
homes and markets its homes primarily in the southeast, southwest and midwest
regions of the United States, with a focus on serving the low- to medium-priced
manufactured housing market. During 1996, approximately 80% of the Company's
revenues were generated from sales in its core markets of Alabama, North
Carolina, Texas, South Carolina, Mississippi, Louisiana, Georgia and Tennessee.
At December 31, 1996, the Company operated thirteen facilities. Seven are
located in Alabama, two in North Carolina, two in Texas and one each in Georgia
and Pennsylvania.
The Company's homes are sold under thirty-three brand names. As of December 31,
1996, the Company's homes were sold by over 500 independent dealers (including
115 independent exclusive dealers) operating over 600 retail sales centers. The
Company's homes are normally fully furnished, including appliances, and are
comprised of one or more floor sections.
Through its financial services segment, the Company offers retail installment
sale financing to retail customers of its exclusive dealers and various
insurance products to certain retail and wholesale purchasers of its homes
including both personal and commercial lines of insurance.
Home Manufacturing Operations
At December 31, 1996, the Company, through eight wholly owned subsidiaries,
operated thirteen manufacturing facilities engaged in the production of
manufactured homes. Immediately following the end of 1996, the Company
reorganized these operating subsidiaries and merged them into and combined them
with two new operating subsidiaries, Cavalier Industries, Inc. ("CII"), a
Delaware corporation, (formerly Brigadier Homes of North Carolina, Inc., Astro
Mfg. Co., Inc., Mansion Homes, Inc. and Homestead Homes, Inc.) and Cavalier
Manufacturing, Inc. ("CMI"), a Delaware corporation, (formerly Cavalier Homes of
Alabama, Inc., Buccaneer Homes of Alabama, Inc., Riverchase Homes, Inc. and
Cavalier Town & Country of Texas, Inc.). The former operating subsidiaries will
continue their operations as divisions of CII and CMI. The divisions of CII are
Brigadier Homes of North Carolina (one facility), Astro Homes (one facility),
Mansion Homes (one facility) and Homestead Homes (one facility). The divisions
of CMI are Cavalier Homes of Alabama (three facilities), Buccaneer Homes (three
facilities), Riverchase Homes (one facility) and Town & Country Homes (two
facilities). The management of each of the Company's manufacturing divisions
typically consists of a president or general manager, a production manager, a
general sales manager, a controller, a service manager, a purchasing manager and
a quality control manager. These mid-level management personnel manage, the
Company's manufacturing divisions and typically participate in an incentive
compensation system based upon their respective profitability.
The Company has experienced significant growth during the past five years,
expanding from four production facilities in 1992 to thirteen facilities at the
end of 1996. The Company's facilities normally operate on a single-shift,
five-day week basis. The approximate current annual capacity of the respective
divisions is shown below:
Approximate
Number of Annual Capacity
Manufacturing Division Facilities in Floors
Cavalier Homes of Alabama 3 6,000
- --------
+ Certain items in the report that follows are marked with an asterisk (*),
indicating that they are subject to the "Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995 found on page 38 of this
report.
Buccaneer Homes 3 5,500
Town & Country Homes 2 3,500
Riverchase Homes 1 1,500
Mansion Homes 1 1,500
Brigadier Homes of North Carolina 1 3,000
Homestead Homes 1 2,500
Astro Homes 1 1,500
----- ----------
13 25,000
======= ===========
Additionally, the following table sets forth certain production information for
1996, 1995 and 1994:
For the Year Ended December 31,
----------------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------- ----------------------------------- ----------------------------------
Number of Homes Sold:
Single-Section Homes 8,505 58% 7,123 60% 6,309 63%
Multi-Section Homes 6,044 42% 4,705 40% 3,733 37%
------------------ ---------------- ------------------ ---------------- ----------------- ----------------
Total Homes 14,549 100% 11,828 100% 10,042 100%
Number of Floors Sold 20,608 16,543 13,799
Construction of a home begins by welding steel frame members together. The frame
is then moved through the plant, stopping at a number of work stations where
various components and sub-assemblies are attached. Certain sub-assemblies, such
as plumbing, cabinets, ceilings and wall systems, are assembled at off-line work
stations. The completed home is usually sold fully furnished and is ready for
connection to customer-supplied water, sewage and electrical systems.
The principal raw materials purchased by the Company are steel, lumber, plywood,
sheetrock, aluminum, galvanized pipe, insulating materials, electrical supplies
and plastics. The Company purchases axles, wheels, tires, kitchen appliances,
laminated wallboard, roof trusses, plumbing fixtures, furniture, carpet, vinyl
floor covering, windows and decorator accessories. Currently, the Company
maintains approximately two to three weeks' inventory of raw materials. The
Company is not dependent on any single source of supply and believes that the
materials and parts necessary for the construction and assembly of its homes are
readily available from other sources.
Certain of the Company's manufacturing facilities currently purchase laminated
wallboards, exterior doors, cabinet doors, roof trusses and certain other
products from joint ventures in which the Company owns an interest. The Company
believes prices obtained by the Company for these products from these joint
ventures are competitive with the Company's other sources of supply.
Because the cost of transporting a manufactured home is significant, there is a
limit to the distance between a manufacturing facility and the dealers it can
service. The Company believes that the location of its manufacturing facilities
in multiple states allows it to serve more dealers in more markets. The Company
generally arranges, at the dealer's expense, for the transportation of finished
homes to dealers using independent trucking companies. Dealers or other
independent installers are responsible for placing the home on site, making
utility connections and providing and installing certain accessory items and
appurtenances, such as decks, carports and foundations.
Products
The Company's homes include both single-section and multi-section models, with
the substantial majority of such products being "HUD Code Homes" which are
manufactured homes that meet the specifications of the National Manufactured
Home Construction and Safety Act of 1974, as amended, and administered by the
U.S. Department of Housing and Urban Development ("HUD"). Single-section homes
are 14 to 16 feet wide, vary in length from 40 to 80 feet and contain between
560 and 1,280 square feet. The multi-section models consist of two or more floor
sections that are joined at the home site, vary in length from 40 to 80 feet and
contain between 880 and 2,128 square feet.
The Company currently produces over 300 different models of manufactured homes
with a variety of decors that are marketed under 33 brand names. The homes
typically include a living room, dining area, kitchen, one to four bedrooms and
one or more bathrooms. Each home contains a cooking range and oven,
refrigerator, hot water heater and central heating. Depending on the customer's
preferences, most homes are sold fully furnished. Customers may also choose many
available
options including fireplaces, ceiling fans, dishwashers, garbage disposals,
microwave ovens, stereos, bay windows, composition shingle roofs, vinyl siding
and sliding glass patio doors.
During 1995, the Company began manufacturing a series of homes intended to be
located in subdivisions or residential communities and marketed by real estate
developers. These "Developer" homes differ from the Company's traditional
manufactured homes as they have sheetrock walls that have been taped and
textured and residential style roof-lines. These upscale homes can be set on a
permanent foundation and may include garages, porches, decks and other
site-built amenities not found in traditional manufactured homes.
Modular homes are homes designed to meet building codes administered by states
and local authorities, as opposed to the national HUD guidelines. Three of the
Company's manufacturing facilities currently manufacture a limited number of
modular homes meeting applicable regulatory standards.
The Company's product development and engineering personnel design homes in
consultation with operating management, sales representatives and dealers. They
also evaluate new materials and construction techniques and use computer-aided
and other design methods in a continuous program of product development, design
and enhancement. The Company's product development activities do not require
significant capital investments or expenditures.
Independent Dealer Network, Sales and Marketing
As of December 31, 1996, the Company's homes were sold through over 500
independent dealers (including 115 independent exclusive dealers) operating over
600 retail sales centers located in over thirty states. Approximately 80% of the
Company's sales in 1996 were to dealers operating sales centers in the Company's
core markets as follows: Alabama - 18%, North Carolina - 13%, Texas - 13%, South
Carolina - 11%, Mississippi - 8%, Louisiana - 7%, Georgia - 6% and Tennessee -
4%.
The Company has written agreements with most of its independent dealers
requiring each dealer to maintain qualified service staff to perform day-to-day
repair work on the Company's homes sold by the dealer and requiring prompt
payment by the dealer for homes purchased. These agreements may be terminated at
any time by either party, with or without cause, after a short notice period,
generally 30 days. The Company does not have any control over the operations of,
or financial interests in, any of its independent dealers, including any of its
independent exclusive dealers. The Company is not dependent on any single
dealer, and in 1996, the Company's largest dealer accounted for approximately
2.9% of sales.
The Company believes that its independent dealer network enables the Company to
achieve broader distribution of its products than if the Company operated its
own retail sales centers and allows the Company to avoid the substantial
investment in management, capital and overhead associated with company owned
sales centers. To enable dealers to maximize retail market penetration and
enhance customer service, typically only one dealer within a given market area
distributes a particular product line of the Company. The Company believes its
strategy of selling its homes through independent dealers helps to ensure that
the Company's homes are competitive with those of other manufacturers in terms
of consumer acceptability, product design, quality and price. Accordingly, a
component of the Company's business strategy is to continually strengthen its
dealer relations. The Company believes its relations with its independent
dealers, including its independent exclusive dealers, are good. *
Since 1991, the Company has been developing an independent exclusive dealer
network. The Company's independent exclusive dealers market and sell only homes
manufactured by the Company, while the Company's independent non-exclusive
dealers typically will choose to offer the products of other manufacturers in
addition to those of the Company. The growth in the Company's number of
exclusive dealers and percentage of total Company sales represented by them is
summarized in the following table:
For the Year Ended December 31,
-----------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Number of Exclusive Dealers 115 93 73
Percentage of Total Company Sales 44% 39% 37%
The Company makes installment sale financing through CAC available to the retail
customers of its exclusive dealers and provides these dealers with other
services and support.
- --------
* See Safe Harbor Statement on page 38.
Each of the Company's manufacturing divisions typically employs a general sales
manager and its own respective sales representatives who are compensated on a
commission basis. The plant-level sales representatives are charged with the
day-to-day servicing of the needs of the Company's independent dealers,
including its independent exclusive dealers. The Company markets its homes
through product promotions, participation in regional manufactured housing shows
and advertisements in local media. As of December 31, 1996, the Company
maintained a sales force of 49 full-time salesmen and 7 full-time general sales
managers.
Retail Financing Activities
A significant factor affecting sales of manufactured homes is the availability
and terms of financing. The Company engages in the business of making retail
installment finance loans to customers of its independent exclusive dealers
through its finance subsidiary, CAC. In addition, the Company's goal is for
CAC's activities to provide the Company with a source of consistent earnings
which may, to a certain extent, be insulated from fluctuating manufactured home
sales volumes. *
CAC seeks to provide highly competitive financing terms to customers of the
Company's independent exclusive dealers. CAC currently offers various
conventional loan programs which require a down-payment ranging from 0% to 20%
of the purchase price, in cash, trade-in value of a previously-owned
manufactured home and/or appraised value of equity in any real property pledged
as collateral. Repayment terms generally range from 84 to 240 months, depending
upon the type of home and amount financed, the amount of the down payment and
the customer's creditworthiness. CAC's loans are secured by a purchase money
security interest in the manufactured home and, in certain instances, a mortgage
on real property pledged as additional collateral. As of December 31, 1996, all
of CAC's outstanding loans were secured. Loans purchased and originated by CAC
normally provide a fixed rate of interest with equal monthly payments and are
non-recourse to the dealer. All of CAC's loans outstanding at December 31, 1996
provided for a predetermined fixed rate of interest. The interest rates
applicable to CAC's loans as of such date generally ranged from 9.25% to 14.00%,
and the approximate weighted average annual percentage interest rate was 10.9%.
Currently, CAC operates in each of the 15 states in which the Company has
independent exclusive dealers.
For those retail customers who meet CAC's lending standards, CAC provides prompt
credit approvals and funding of loans. CAC has established a standardized credit
scoring system to facilitate such prompt decision-making on loan applications.
The most important criteria in the scoring system are the income, employment
stability and credit worthiness of the borrower. The system requires a minimum
score before CAC will consider funding the installment sale contract.
In the event an installment sale contract becomes delinquent, CAC normally
contacts the customer within 10 to 25 days thereafter in an effort to cure the
delinquency. CAC generally repossesses the home after payments have become 60 to
90 days delinquent. After repossession, CAC normally transports the home to one
of the Company's independent dealer's sales center where CAC attempts to resell
the home or contracts with an independent party to remarket the home. To a
limited extent, CAC sells repossessed homes at wholesale.
The Company maintains a reserve for estimated credit losses on installment sale
contracts owned by CAC to provide for future losses based on the Company's
historical loss experience, current economic conditions and portfolio
performance. * Amounts credited to the reserve were $778,000, $311,000 and
$265,000 in 1996, 1995 and 1994, respectively. Additionally, as a result of
defaults and repossessions the reserve was charged $388,000, $110,000 and
$19,000 in 1996, 1995 and 1994, respectively. The reserve for credit losses at
December 31, 1996 was $941,000, as compared to $551,000 at December 31, 1995,
and $350,000 at December 31, 1994.
In fiscal 1996, 1995 and 1994, CAC repossessed 41, 13 and 3 homes, respectively.
The Company's inventory of repossessed homes was 6 homes at December 31, 1996,
as compared to 6 homes at December 31, 1995, and 2 homes at December 31, 1994.
The Company's net losses resulting from repossessions on CAC originated loans as
a percentage of the average principal amount of such loans outstanding for
fiscal 1996, 1995 and 1994 was 1.40%, .76% and .29%, respectively.
At December 31, 1996 and December 31, 1995, delinquencies expressed as a
percentage of the total number of installment sale contracts which CAC owned
were as follows:
Delinquency Percentage
Total Number December 31,1996
----------------------------------------------------------------------
of Contracts 30 Days 60 Days 90 Days Total
- ---------------------------------------------- ---------------- ---------------- ---------------- ----------------
1,292 1.16% 0.08% 0.00% 1.24%
15 1 0 16
- --------
* See Safe Harbor Statement on page 38.
Delinquency Percentage
Total Number December 31,1995
----------------------------------------------------------------------
of Contracts 30 Days 60 Days 90 Days Total
- ---------------------------------------------- ---------------- ---------------- ---------------- ----------------
758 0.26% 0.40% 0.00% 0.66%
2 3 0 5
At December 31, 1996 and December 31, 1995, delinquencies expressed as a
percentage of the total outstanding principal balance of installment sale
contracts which CAC owned were as follows:
Delinquency Percentage
Total Value December 31,1996
----------------------------------------------------------------------
of Contracts 30 Days 60 Days 90 Days Total
- ---------------------------------------------- ---------------- ---------------- ---------------- ----------------
$ 36,425,000 1.13% 0.09% 0.00% 1.22%
Delinquency Percentage
Total Value December 31,1995
----------------------------------------------------------------------
of Contracts 30 Days 60 Days 90 Days Total
- ---------------------------------------------- ---------------- ---------------- ---------------- ----------------
$ 19,209,000 0.25% 0.35% 0.00% 0.60%
There can be no assurance that the Company's future results with respect to
delinquencies and repossessions will be consistent with its past experience as
reflected above.
Certain operating data relating to CAC are set forth in the following table:
December 31,
----------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
Total loans receivable $ 36,425,000 $ 19,209,000 $ 9,825,000
Allowance for credit losses $ 941,000 $ 551,000 $ 350,000
Number of loans outstanding 1,292 758 415
Number of delinquencies 16 5 2
Net loss ratio on average
outstanding principal balance 1.40% 0.76% 0.29%
Weighted average annual
percentage rate 10.9% 11.3% 11.4%
CAC presently has 4 part-time and 24 full-time employees.
Although the level of CAC's future activities cannot presently be determined,
the Company expects to utilize internally generated working capital and
borrowings under the Company's revolving, warehouse and term loan agreement with
its primary lender (described below under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources") to fund retail installment sale contracts on homes sold by
the Company's independent exclusive dealers and to develop a portfolio of such
installment sale contracts. * The Company believes that its relationships with
its exclusive dealers will assist the development of this portfolio.* During
1995, the Company instituted the Dealership Stock Option Plan which grants
options to purchase the Company's common stock to exclusive dealers that
originate installment sales contracts with CAC. The Company believes this dealer
stock option program will further enhance the growth of CAC. * (For information
relating to the Dealership Stock Option Plan of the Company, see note 7 of
"Notes to Consolidated Financial Statements" which are included herein.)
CAC currently acts principally as a permanent lender on its conventional loans
and holds such loans as long-term receivables. The Company believes that the
term loan component of its warehouse and term loan agreement will facilitate the
Company's attempts to match liabilities and assets of CAC both as to term and
rate, which should reduce exposure from interest rate fluctuations; * however,
there can be no assurance that volatility or a significant change in interest
rates will not materially affect the Company's business, results of operations
or financial condition. Substantially all the installment sale contracts held by
CAC are pledged as collateral to secure the obligations of the Company under its
warehouse and term loan agreement. In the future, CAC may "pool" certain of the
installment sale contracts in its portfolio for sale to institutional or other
investors, either on a full-, partial- or non-recourse basis. *
- --------
* See Safe Harbor Statement on page 38.
CAC's ability to finance installment sale contracts is dependent on the
availability of funds to the Company. The Company believes that borrowings under
the warehouse and term loan agreement and available working capital generated
from operations will provide CAC with adequate sources of capital to finance its
anticipated purchases and originations of installment sale contracts on the
Company's homes in 1997. * However, if the Company cannot obtain sufficient
sources of capital in the future, the Company would have to curtail its
financing activities until other sources could be obtained. (For further
discussion, see "Liquidity and Capital Resources" in Item 7., Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
Retail Insurance Activities
During 1994, the Company formed Cavalier Insurance Agency, Inc. ("CIA"), and
during 1996 acquired Blake Insurance Agency, Inc. ("Blake"), to sell various
insurance products to retail purchasers of the Company's homes, including,
physical damage and extended home warranties. CIA and Blake also sell commercial
lines of insurance products, including general liability and property insurance,
to the Company's independent exclusive dealers and others. At December 31, 1996,
CIA and Blake had 9 full-time employees and 1 part-time employee.
Wholesale Dealer Financing and Repurchase Obligations
In accordance with manufactured housing industry practice, substantially all of
the Company's dealers finance their purchases of manufactured homes through
wholesale "floor plan" financing arrangements. Under a typical floor plan
financing arrangement, a financial institution provides the dealer with a loan
for the purchase price of the home and maintains a security interest in the home
as collateral. The financial institution which provides financing to the dealer
customarily requires the Company to enter into a separate repurchase agreement
with the financial institution under which the Company is obligated, upon
default by the dealer, to repurchase the financed homes at a declining price
based upon the Company's original invoice price plus, in specific cases, certain
administrative expenses. A portion of purchases by dealers are pre-sold to
retail customers and are paid through retail financing commitments.
The risk of loss under such repurchase agreements is mitigated by the fact that
(i) sales of the Company's manufactured homes are spread over a relatively large
number of independent dealers, the largest of which accounted for approximately
2.9% of the Company's net sales in 1996, (ii) the repurchase obligation expires
on individual homes after a reasonable period of time (generally 12 to 18 months
from invoice date) and also declines during such period based on predetermined
amounts and (iii) the Company is in many cases able to sell homes repurchased
from credit sources in the ordinary course of business without incurring
significant losses. As of December 31, 1996, the Company's contingent liability
under these repurchase and other similar recourse agreements was an amount
estimated to be approximately $80 million. The Company has provided an allowance
for possible repurchase losses of $800,000 as of December 3l, 1996, based on
prior experience and current market conditions. Management currently expects no
material loss in excess of the allowance. *
Quality Control, Warranties and Service
The Company believes the quality in materials and workmanship, continuous
refinement in design and production procedures as well as price and other market
factors, is an important element in the market acceptance of manufactured homes.
The Company maintains a rigorous quality control inspection program at all
production stages. The Company's manufacturing facilities and the plans and
specifications of its manufactured homes have been approved by a HUD-designated
inspection agency. An independent, HUD-approved third-party inspector checks
each of the Company's manufactured homes for compliance during construction.
The Company provides the initial home buyer with a HUD-mandated, one-year
limited warranty against manufacturing defects in the home's construction.
Warranty services after sale are performed, at the expense of the Company, by
local plant personnel, by independent dealers or, in certain cases, local
independent contractors. In addition to the warranty by the Company, direct
warranties often are provided by the manufacturers of specific components and
appliances.
The Company maintains a full-time service manager at most of its manufacturing
facilities. In addition, the Company has 97 full-time service personnel to
provide on-site service and correct production deficiencies that are
attributable to the manufacturing process. Warranty service constitutes a
significant cost to the Company, and management of the Company has placed
emphasis on diagnosing potential problem areas to help minimize costly field
repairs. The Company also has focused
- --------
* See Safe Harbor Statement on page 38.
on reducing response time to customer service requests. At December 31, 1996,
the Company had established a reserve for future warranty claims of $7.0 million
relating to homes sold, based upon management's assessment of historical
experience factors and current industry trends. *
Competition
The manufactured housing industry is highly competitive, characterized by low
barriers to entry and severe price competition. Competition is based on price,
product features and quality, reputation for service and quality, depth of field
inventory, delivery capabilities, warranty repair service, dealer promotions,
merchandising and terms of dealer and retail consumer financing. The Company
also competes with other manufacturers, some of which maintain their own retail
sales centers, for quality independent dealers. In addition, the Company's
manufactured homes compete with other forms of low-cost housing, including
site-built, prefabricated, modular homes, apartments, townhouses and
condominiums. The selection by retail buyers of a manufactured home rather than
an apartment or other alternative forms of housing is significantly affected by
their ability to obtain satisfactory financing. The Company faces direct
competition from numerous manufacturers, many of which possess greater
financial, manufacturing, distribution and marketing resources.
The Company intends to increase substantially the level of retail financing
provided through CAC. * The Company believes that increasing the level of
financing by CAC will have a positive impact on the Company's efforts to sell
its products and enhance its competitive ability within the industry. * However,
due to strong competition in the retail finance segment of the industry from
companies much larger than CAC, combined with the limited operating history of
CAC, there can be no assurance that CAC will be able to increase its financing
or that providing this financing will have a positive impact on the Company's
ability to compete.
Regulation
The Company's business is subject to a number of federal, state and local laws,
regulations and codes. Construction of manufactured housing is governed by the
National Manufactured Home Construction and Safety Standards Act of 1974, as
amended, and regulations issued thereunder by HUD, which have established
comprehensive national construction standards. The HUD regulations cover all
aspects of manufactured home construction, including structural integrity, fire
safety, wind loads, thermal protection and ventilation. Such regulations preempt
state and local regulations on such matters. The National Commission on
Manufactured Housing has held hearings to develop recommendations relating to
the regulation of the manufactured housing industry. This commission has issued
an interim report to Congress which contains a number of recommendations
relating to various aspects of manufactured housing regulation, including
inspection, warranty and enforcement. The Company cannot presently determine
what, if any, legislation may be adopted by Congress or the effect any such
legislation may have on the Company or the manufactured housing industry as a
whole.
The Company's manufacturing facilities and the plans and specifications of its
manufactured homes have been approved by a HUD-designated inspection agency.
Furthermore, an independent, HUD-approved third-party inspector regularly checks
the Company's manufactured homes for compliance during construction. Failure to
comply with the HUD regulations could expose the Company to a wide variety of
sanctions, including closing the Company's manufacturing facilities. The Company
believes its manufactured homes meet or surpass all present HUD requirements. *
HUD has promulgated regulations with respect to structural design and wind loads
and energy conservation. The Company's operations were not materially affected
by the regulations; however, HUD has these matters under continuous review and
the Company cannot predict what effect (if any) additional regulations
promulgated by HUD would have on the Company or the manufactured industry as a
whole.
Certain components of manufactured and modular homes are subject to regulation
by the U.S. Consumer Product Safety Commission ("CPSC"), which is empowered to
ban the use of component materials believed to be hazardous to health and to
require the repair of defective components. The CPSC, the Environmental
Protection Agency and other governmental agencies are evaluating the effects of
formaldehyde. Manufactured, modular and site-built homes are all built with
particle board, paneling and other products that contain formaldehyde resins.
Since February 1985, HUD has regulated the allowable concentration of
formaldehyde in certain products used in manufactured homes and required
manufacturers to warn purchasers concerning formaldehyde associated risks. The
Company currently uses materials in its manufactured homes that it believes meet
HUD standards for formaldehyde emissions and otherwise comply with HUD
regulations in this regard. *
- --------
* See Safe Harbor Statement on page 38.
The Company's manufactured homes are subject to local zoning and housing
regulations. A number of states require manufactured home producers to post
bonds to ensure the satisfaction of consumer warranty claims. A number of states
have adopted procedures governing the installation of manufactured homes.
Utility connections are subject to state and local regulation.
The Company is subject to the Magnuson-Moss Warranty Federal Trade Commission
Improvement Act, which regulates the descriptions of warranties on products. The
description and substance of the Company's warranties are also subject to a
variety of state laws and regulations.
The Company's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. The Company
currently does not believe it will be required under existing environmental laws
and enforcement policies to expend amounts which will have a material adverse
effect on its results of operations or financial condition. * However, the
requirements of such laws and enforcement policies have generally become more
strict in recent years. Accordingly, the Company is unable to predict the
ultimate cost of compliance with environmental laws and enforcement policies.
A variety of federal laws affect the financing of manufactured homes, including
the financing activities conducted by CAC. The Consumer Credit Protection Act
(Truth-in-Lending) and Regulation Z promulgated thereunder require substantial
disclosures to be made in writing to a consumer with regard to various aspects
of the particular transaction, including the amount financed, the annual
percentage rate, the total finance charge, itemization of the amount financed
and other matters and also set forth certain substantive limitations on
permissible contract terms. The Equal Credit Opportunity Act and Regulation B
promulgated thereunder prohibit credit discrimination against any credit
applicant based on certain prohibited bases, and also require that certain
specified notices be sent to credit applicants whose applications are denied.
The Federal Trade Commission has adopted or proposed various trade regulation
rules to specify and prohibit certain unfair credit and collection practices and
also to preserve consumers' claims and defenses. The Government National
Mortgage Association ("GNMA") specifies certain credit underwriting requirements
in order for installment manufactured home sale contracts to be eligible for
inclusion in a GNMA program. HUD also has promulgated substantial disclosure and
substantive regulations and requirements in order for a manufactured home
installment sale contract to qualify for insurance under the Federal Housing
Authority ("FHA") program, and the failure to comply with such requirements and
procedures can result in loss of the FHA guaranty protection. In addition, the
financing activities of CAC may also become subject to the disclosure
requirements of the Home Mortgage Disclosure Act. In addition to the extensive
federal regulation of consumer credit matters, many states have also adopted
consumer credit protection requirements that may impose significant requirements
for consumer credit lenders. For example, many states require that a consumer
credit finance company such as CAC obtain certain regulatory licenses or permits
in order to engage in such business in that state, and many states also set
forth a number of substantive contractual limitations regarding provisions that
permissibly may be included in a consumer contract, as well as limitations upon
the permissible interest rates, fees and other charges that may be imposed upon
a consumer. Failure by the Company or CAC to comply with the requirements of
federal or state law pertaining to consumer credit could result in the
unenforceability of the particular contract for the affected consumer, civil
liability to the affected customers, criminal liability and other adverse
results.
Employees
As of December 31, 1996, the Company had 3,155 employees, of whom 2,782 were
engaged in home manufacturing, 65 in sales, 97 in warranty and service, 173 in
general administration, 28 in retail finance services and 10 in insurance
services. At year end, only Astro's employees engaged in manufacturing (142
employees) were covered by a collective bargaining agreement. Management
considers its relations with its employees to be good. *
ITEM 2. PROPERTIES
The following table sets forth the location and approximate square footage for
each principal facility of the Company, separated by segment as of December 31,
1996. Except as indicated in footnotes to the table, all the facilities are
owned by the Company.
Approximate
Location Use (Number of Facilities) Square Footage
Manufacturing
Cavalier Homes of Alabama
Addison, Alabama Manufacturing facilities (3) 326,000 (1)
Riverchase Homes
Haleyville, Alabama Manufacturing facility (1) 78,000 (6)
Buccaneer Homes
Hamilton, Alabama Manufacturing facilities (2) 232,000 (6)
Winfield, Alabama Manufacturing facility (1) 72,000 (2)
Homestead Homes
Cordele, Georgia Manufacturing facility (1) 110,000
Brigadier Homes of North Carolina
Nashville, North Carolina Manufacturing facility (1) 130,000
Mansion Homes
Robbins, North Carolina Manufacturing facility (1) 99,000 (3)
Astro Homes
Shippenville, Pennsylvania Manufacturing facility (1) 134,000
Town & Country Homes
Fort Worth, Texas Manufacturing facility (1) 101,000 (2)
Mineral Wells, Texas Manufacturing facility (1) 81,000 (4)
Financial Services
Hamilton, Alabama Administrative Office 5,000
Haleyville, Alabama Administrative Office 1,000
General Corporate
Addison, Alabama Administrative Office 16,000 (5)
Wichita Falls, Texas Administrative Office 1,000 (3)
(1) Lease expires on one facility in 1997 and one in 1998.
(2) Lease expires in 1999.
(3) Lease expires in 1998.
(4) Lease expires in 2006.
(5) Included in Cavalier of Alabama lease expiring in 1998.
(6) One facility in Hamilton, Alabama and the facility in Haleyville,
Alabama is subject to an encumbrance arising out of industrial
development bond financing.
In general, the manufacturing facilities are in good condition and are operated
at capacities which range from approximately 77% to 97%.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings incidental to its business.
In the opinion of management, the ultimate liability, if any, with respect to
these proceedings is not presently expected to materially affect the financial
position or results of operations of the Company; however, the ultimate
resolution of these matters could result in losses in excess of current
estimates.*
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK
HOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "CAV". The following table sets forth, for each of the periods
indicated, the reported high and low closing sale prices per share on the NYSE
for the Company's common stock and the cash dividends paid per share in such
periods. The amounts have been adjusted, as appropriate, to reflect a
five-for-four stock split with respect to the Company's common stock, effected
as a 25%
- --------
* See Safe Harbor Statement on page 38.
stock dividend paid on August 15, 1995, a three-for-two stock split with respect
to the Company's common stock, effected as a 50% stock dividend paid on February
15, 1996 and a five-for-four stock split with respect to the Company's common
stock, effected as a 25% stock dividend paid on November 15, 1996. All adjusted
prices of the Company's common stock have been rounded to the nearest one-eighth
of one dollar.
Closing Sales Price
-----------------------------------------------------------
High Low Dividends
---------------------------- ----------------------------- ----------------
Fiscal Year ended December 31, 1996
Fourth Quarter 17 3/8 10 1/2 0.030
Third Quarter 19 1/8 12 7/8 0.024
Second Quarter 18 3/4 12 1/8 0.024
First Quarter 12 3/8 9 3/8 0.024
Fiscal Year ended December 31, 1995
Fourth Quarter 11 5/8 8 3/4 0.016
Third Quarter 8 3/4 5 1/8 0.016
Second Quarter 5 1/8 4 5/8 0.013
First Quarter 5 3/8 4 1/4 0.013
As of March 20, 1997, the Company had approximately 5,700 record and beneficial
holders of its common stock, based upon information in securities position
listings by registered clearing agencies upon request of the Company's transfer
agent.
The Company intends to continue to pay regular quarterly dividends. * However,
the payment of dividends on the Company's Common Stock is determined by the
Board of Directors of the Company in light of conditions then existing,
including the earnings of the Company and its subsidiaries, their funding
requirements and financial conditions, certain loan restrictions and applicable
laws and governmental regulations. The Company's present loan agreement contains
restrictive covenants which, among other things, limit the aggregate dividend
payments and purchases of treasury stock to 50% of the Company's aggregate net
income for the two most recent fiscal years.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data regarding
the Company for the periods indicated. The statement of income data, the balance
sheet data, and other data of the Company for each of the five years ended
December 31, 1996, have been derived from the consolidated financial statements
of the Company. The Company's audited financial statements as of December 31,
1996 and 1995, and for each of the years in the three-year period ended December
31, 1996, including the notes thereto and the related report of Deloitte &
Touche LLP, independent auditors, are included elsewhere in this report. The
selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements (including the Notes thereto) and the other
financial information contained elsewhere in this report, and with the Company's
consolidated financial statements and the notes thereto appearing in the
Company's previously filed Annual Reports on Form 10-K.
- --------
* See Safe Harbor Statement on page 38.
Year Ended December 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- --------------- --------------
(in thousands, except per share amounts)
Statement of Income Data
Revenues:
Net sales $ 345,415 $ 272,486 $ 206,442 $ 155,595 $ 106,405
Financial services 3,333 1,764 703 230 60
-------------- -------------- -------------- --------------- --------------
Total revenues 348,748 274,250 207,145 155,825 106,465
Cost of sales 284,024 227,646 176,041 133,423 91,863
Selling, general and administrative 42,869 31,974 22,975 17,049 11,258
-------------- -------------- -------------- --------------- --------------
Operating profit 21,855 14,630 8,129 5,353 3,344
Life insurance proceeds 1,750 - - - -
Other income(expense) - net 944 404 450 201 (20)
-------------- -------------- -------------- --------------- --------------
Income before taxes $ 24,549 $ 15,034 $ 8,579 $ 5,554 $ 3,324
============== ============== ============== =============== ==============
Net income $ 15,366 $ 9,020 $ 5,079 $ 3,333 $ 2,014
============== ============== ============== =============== ==============
Net income per share1 $ 1.25 $ .79 $ .52 $ .41 $ .28
============== ============== ============== =============== ==============
Cash dividend per share1 $ .100 $ .056 $ .032 $ .029 $ .023
============== ============== ============== =============== ==============
Weighted average number of shares
outstanding1 12,258 11,486 9,835 8,092 7,279
============== ============== ============== =============== ==============
Other Data
Capital expenditures $ 7,871 $ 8,035 $ 6,330 $ 2,933 $ 1,124
============== ============== ============== =============== ==============
December 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- --------------- --------------
Balance Sheet Data
Working capital $ 8,473 $ 11,121 $ 12,576 $ 5,483 $ 5,328
Total assets $ 115,574 $ 82,626 $ 63,763 $ 31,182 $ 19,966
Long-term debt $ 4,918 $ 4,314 $ 3,207 $ - $ -
Stockholders' equity $ 68,805 $ 46,071 $ 36,460 $ 16,632 $ 9,835
1 As adjusted for all stock splits paid through November 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The principal business of the Company since its inception has been the design
and production of manufactured homes. In the first quarter of 1992, the Company,
through its wholly owned subsidiary, CAC, commenced retail installment sale
financing operations, and by the end of 1993 these operations had become
significant enough to require segment reporting by the Company.
The Company's business is cyclical and seasonal and is influenced by many of the
same economic and demographic factors that affect the housing market as a whole.
According to the Manufactured Housing Institute, the manufactured housing
industry has posted gains in shipments for 1992, 1993, 1994, 1995 and 1996 of
24%, 21%, 20%, 12% and 7%, respectively. The greatest gains have occurred in the
southeastern United States, which have posted gains in shipments for 1992, 1993,
1994, 1995 and 1996 of 34%, 25%, 21%, 15% and 14%, respectively. The Company
conducts a substantial portion of its business in the southeastern United States
and attributes the strong shipment growth to a reduction of alternative housing,
increased availability of retail financing, increased consumer confidence and
continuing strength in the national economy.
The Company has increased its production capacity to better take advantage of
the growth in the industry, increasing the number of manufacturing facilities
from four facilities at the end of 1992 to thirteen at the end of 1996.
Results of Operations
The following tables summarize, for the periods and dates indicated, certain
financial, operating and balance sheet data including, as applicable, the
percentage of net sales or total revenue:
For the Year Ended December 31,
--------------------------------------------------------------------------------
STATEMENT OF INCOME SUMMARY 1996 1995 1994
------------------------- ------------------------ ------------------------
(dollars in thousands)
Net Sales $ 345,415 100.0% $ 272,486 100.0% $ 206,442 100.0%
Cost of Sales 284,024 82.2% 227,646 83.5% 176,041 85.3%
------------- ---------- ------------- ---------- ------------- ----------
Gross Profit on Sales $ 61,391 17.8% $ 44,840 16.5% $ 30,401 14.7%
============= ============= =============
Net Sales $ 345,415 $ 272,486 $ 206,442
Financial Services 3,333 1,764 703
------------- ------------- -------------
Total Revenue $ 348,748 100.0% $ 274,250 100.0% $ 207,145 100.0%
============= ============= =============
Selling, General and Administrative $ 42,869 12.3% $ 31,974 11.7% $ 22,975 11.1%
Operating Profit $ 21,855 6.3% $ 14,630 5.3% $ 8,129 3.9%
Net Income $ 15,366 4.4% $ 9,020 3.3% $ 5,079 2.5%
For the Year Ended December 31,
-------------------------------------------------------------
OPERATING DATA SUMMARY 1996 1995 1994
------------------ ------------------ ------------------
(dollars in thousands)
Installment Loan Originations $ 19,932 $ 10,721 $ 7,309
Capital Expenditures $ 7,871 $ 8,035 $ 6,330
Home Shipments 14,549 11,828 10,042
Floor Shipments 20,608 16,543 13,799
Independent Exclusive Dealers 115 93 73
Home Manufacturing Facilities 13 11 9
Balances as of December 31,
-------------------------------------------------------------
BALANCE SHEET SUMMARY 1996 1995 1994
------------------ ------------------ ------------------
(dollars in thousands)
Cash and Cash Equivalents $ 24,529 $ 21,005 $ 16,035
Working Capital $ 8,473 $ 11,121 $ 12,576
Current Ratio 1.2 to 1 1.4 to 1 1.5 to 1
Long-Term Debt $ 4,918 $ 4,314 $ 3,207
Ratio of Long-Term Debt to Equity 1 to 14 1 to 9 1 to 11
Installment Loan Portfolio $ 36,531 $ 19,209 $ 9,825
Net Sales. The Company's net sales for the three years ended December 31, 1996,
1995 and 1994 were $345, $272 and $206 million, respectively. The Company
believes the growth in net sales was primarily the result of continuing
improvement in the industry combined with new and aggressive marketing programs
instituted by the Company during the years indicated, including the Exclusive
Dealer Program and Dealership Stock Option Plan, coupled with the growth in the
Company's manufacturing capacity and a shift in the mix of products sold toward
multi-section homes.
Actual shipments of homes during the three years ended December 31, 1996, 1995
and 1994 were 14,549, 11,828 and 10,042, respectively. During the three year
period ended December 31, 1996, the average price of homes sold rose from
$20,600 in 1994, $23,000 in 1995 to $23,700 in 1996. The increase in the average
selling price was primarily due to changes in construction standards mandated by
the Department of Housing and Urban Development (during the latter part of 1994)
and price increases instituted by the Company during all three years associated
with rising prices in raw materials and the increasing shift in the mix of
products sold to multi-section homes. During the three-year period, the
percentage of multi-section homes sold was 42%, 40% and 37% of total homes sold,
in 1996, 1995 and 1994, respectively.
Gross Profit on Sales. Gross profit on sales is derived by deducting cost of
sales from net sales. Gross profit for the three years ended December 31, 1996,
1995 and 1994 was $61.4, $44.8 and $30.4 million, respectively. The increase in
gross profit was primarily attributable to increased sales volume, efficiencies
achieved as a result of production increases and price increases instituted by
the Company.
Financial Services Revenue. Financial services revenue is derived primarily from
interest on installment sale contracts held by CAC and sale of insurance
products by the Company's wholly owned insurance subsidiary, Cavalier Insurance
Agency, Inc. ("CIA"). Financial services revenue for the years ended December
31, 1996, 1995 and 1994 was approximately $3.3, $1.8 and $0.7 million,
respectively. The increase in financial services revenue was primarily
attributable to the continued growth in the Company's loan portfolio to $36.4,
$19.2 and $9.8 million at the end of 1996, 1995 and 1994, respectively.
Selling, General and Administrative. Selling, general and administrative
expenses during the three years ended December 31,1996,1995 and 1994 were $42.9,
$32.0 and $23.0 million, respectively. The increase in selling, general and
administrative expenses was attributable to additional expenses and personnel
costs associated with the Company's continued sales growth, increase in the
number of manufacturing facilities operated by the Company, increased operating
expenses of CAC consistent with its growth, increased sales commissions
consistent with the increase in sales and additional employee compensation
expenses paid under the Company's performance compensation plans.
Operating Profit. Operating profit is derived by deducting cost of sales and
selling, general and administrative expense from total revenue. Operating profit
- - manufacturing during the three years ended December 31, 1996, 1995 and 1994
was $21.9, $15.4 and $8.9 million, respectively. The increase in operating
profit - manufacturing was consistent with the increase in net sales during the
periods and increased manufacturing efficiency. Operating profit - financial
services during the three years ended December 31, 1996, 1995 and 1994 was $1.3,
$.6 and $.2 million, respectively. The increase in operating profit - financial
services was primarily attributable to the growth in CAC's loan portfolio during
the periods to $36.4, $19.2 and $9.8 million at the end of 1996, 1995 and 1994,
respectively.
Other Income(Expense):
Interest expense. The interest expense during the three years ended
December 31, 1996, 1995 and 1994 was $560,000, $508,000 and $76,000,
respectively. The increase in interest expense during the three-year period
is primarily attributable to borrowings by the Company to fund CAC.
Life insurance proceeds. During 1996, the Company experienced a
non-recurring gain on life insurance proceeds received as a result of the
death of the Company's President and Chief Executive Officer, Jerry F.
Wilson.
Other income, net. Other income during the three years ended December 31,
1996, 1995 and 1994 was $1.5 million, $912,000 and $526,000, respectively.
Other income is comprised of gain or loss on sales of assets, interest
income (unrelated to financial services) and other investment income and
income or loss on investments recorded under the equity method. The
increase in other income during the three-year period is primarily
attributable to an increase in earnings from investments recorded under the
equity method.
Net Income. Net income for three years ended December 31, 1996, 1995 and 1994,
was $15.4, $9.0 and $5.1 million, respectively. The increase in net income
during the three years was primarily attributable to the increase in net sales
for the period, increased manufacturing efficiency and the increasing growth and
profitability of CAC. Additionally, during the year ended December 31, 1996, the
Company received $1.75 million of life insurance proceeds.
Financial Services. The Company offers retail installment sales financing and
various insurance products through CAC and CIA. The following table summarizes
the operations of CAC and CIA:
For the Year Ended December 31,
-------------------------------------------------------------
FINANCIAL SERVICES SUMMARY 1996 1995 1994
------------------ ------------------ ------------------
(dollars in thousands)
Installment Loan Portfolio $ 36,425 $ 19,209 $ 9,825
Installment Loan Originations $ 19,932 $ 10,721 $ 7,309
Financial Services Revenues - CAC $ 2,991 $ 1,682 $ 660
Financial Services Revenues - CIA $ 342 $ 82 $ 43
Principal Collections $ 2,716 $ 1,337 $ 543
Number of Loans Outstanding 1,292 758 415
Weighted Average Interest Rate 10.9% 11.3% 11.4%
CAC offers retail installment sales financing for manufactured homes sold
through the Company's independent exclusive dealer network. During the three
years ended December 31, 1996, 1995 and 1994, CAC purchased and originated
$19.9, $10.7 and $7.3 million, respectively, and had collected principal amounts
under such installment contracts of $2.7, $1.3 and $0.5 million, respectively.
At the end of 1996, 1995 and 1994, CAC had aggregated balances in its portfolio
of installment loan obligations of $36.5, $19.2 and $9.8 million, respectively,
and had established allowances for credit losses of $941,000, $551,000 and
$350,000, respectively. The Company expects to continue to expand the operations
of CAC and CIA during 1997 utilizing internally generated capital and borrowings
under a $23 million revolving, warehouse and term-loan agreement (the "Credit
Facility", for a further discussion of the Credit Facility, see "Liquidity and
Capital Resources"). * See Safe Harbor Statement on page 38. The Company expects
that as the operations of CAC and CIA expand, they will have a greater effect
upon the Company's consolidated results of operations and financial condition. *
- --------
* See Safe Harbor Statement on page 38.
Liquidity and Capital Resources
As of December 31, 1996, 1995 and 1994, the Company had working capital of $8.5,
$11.1 and $12.6 million, respectively. The working capital for 1996 and 1995
decreased, despite strong earnings in both periods and borrowing by CAC of $1.0
million in 1996 and $2.0 million in 1995, primarily due to loan originations by
CAC during 1996 and 1995 of $19.9 and $10.7 million, respectively, and capital
expenditures by the Company during the same periods of $7.9 and $8.0 million,
respectively. The Company's capital expenditures were financed primarily with
internally generated working capital, with the exception of 1994 during which
capital expenditures of $6.3 million were partly financed with $3.8 million
representing a portion of the proceeds of an offering of the Company's Common
Stock. During 1996 and 1995, capital expenditures included normal property,
plant and equipment additions and replacements as well as the opening in 1996 of
two additional manufacturing facilities located in Mineral Wells, Texas and
Hamilton, Alabama. During 1995, the Company opened an additional facility in
Addison, Alabama.
The ratio of current assets to current liabilities for the three years ended
December 31, 1996, 1995 and 1994 was 1.2 to 1, 1.4 to 1 and 1.5 to 1,
respectively. Annualized inventory turnover for the same periods was 25.9, 23.6,
and 22.5, respectively.
The Company entered into the Credit Facility in February 1994 and later amended
it in March of 1996. The facility presently consists of a $23 million revolving,
warehouse and term-loan agreement with its primary lender. The Credit Facility
contains a revolving line of credit which provides for borrowings (including
letters of credit) of up to 80% and 50% of the Company's eligible (as defined)
accounts receivable and inventories, respectively, up to a maximum of $5
million. Interest is payable under the revolving line of credit at the bank's
prime rate. The warehouse and term-loan agreements contained in the Credit
Facility provide for borrowings of up to 80% of the Company's eligible (as
defined) installment sales contracts, up to a maximum of $18 million. Interest
on the term notes is fixed for a period of five years from issuance at a rate
based on five-year treasury securities averaged over the preceding 13 weeks,
plus 2%, with a floating rate for the remaining two years (subject to certain
limits) equal to the bank's prime rate plus .75%. The warehouse component of the
Credit Facility provides for borrowings of up to $2 million with interest
payable at the bank's prime rate plus 1%. However, in no event can the aggregate
borrowings under the warehouse and term-loan agreement exceed $18 million.
The Company's growth strategy includes the continued expansion of CAC and the
financial services segment of its business. Accordingly, it is likely that the
Company will incur additional debt, or other forms of leverage, in order to
continue to fund such growth. * The Company believes existing cash and
investment balances, funds available under the Credit Facility and funds
provided by operations will be adequate to fund the Company's operations and
expansion plans for the next twelve months. * However, in order to provide
additional funds that may be necessary for the continued pursuit of the
Company's growth strategies and for operations over the longer term, the Company
may incur, from time to time, additional short and long-term bank indebtedness
and may issue, in public or private transactions, its equity and debt
securities, the availability and terms of which will depend upon market and
other conditions. * There can be no assurance that such additional financing
will be available on terms acceptable to the Company.
Impact of Inflation
The Company generally has been able to increase its selling prices to offset
increased costs, including the costs of raw materials. Sudden increases in costs
as well as price competition can affect the ability of the Company to increase
its selling prices. The Company believes that the relatively moderate rate of
inflation over the past several years has not had a significant impact on its
sales or profitability, but can give no assurance that this trend will continue
in the future. *
Impact of Accounting Statements
During the three years ended December 31, 1996, 1995 and 1994, the Company has
adopted the provisions of various Statements of Financial Accounting Standards
("SFAS") promulgated by the Financial Accounting Standards Board ("FASB"). Such
statements adopted included the provisions of SFAS No. 107 relating to the fair
value of financial instruments, SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, SFAS No. 115, Accounting for Certain Investment in Debt
and Equity Securities, and SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. The adopted
statements have had minimal impact on the Company's consolidated financial
statements and only result in increased disclosures.
- --------
* See Safe Harbor Statement on page 38.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires adoption of the disclosure provisions no later than
fiscal years beginning after December 15, 1995, and adoption of the recognition
and measurement provisions for nonemployee transactions entered into after
December 15, 1995. The new standard defines a fair value method of accounting
for stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award.
Pursuant to the new standard, companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, ("APB No. 25") but are required to disclose in a note to the
financial statements pro forma net income and earnings per share as if the
company had applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has determined that it will continue to account for employee stock-based
transactions under APB No. 25 and will not elect to change to the fair value
method. Adoption of the disclosure provisions of SFAS No. 123 in 1996 related to
such employee stock-based transactions will result in only increased disclosures
regarding pro forma net income and earnings per share as if the Company had
applied the new method of accounting.
During 1995, the Company approved the Dealership Stock Option Plan of Cavalier
Homes, Inc. (the "Dealer Plan") which provides for certain stock option grants
to eligible independent dealerships. Such grants under the Dealer Plan are
considered nonemployee transactions. The Company has adopted the recognition and
measurement provisions of SFAS No. 123 for grants subsequent to December 15,
1995, under the Dealer Plan.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Selected Quarterly Financial Data (Unaudited)
The table contained on the following page sets forth certain unaudited quarterly
financial data for the two years ended December 31, 1996 and 1995. The Company
believes that the following quarterly financial data includes all adjustments
necessary for a fair presentation, in accordance with generally accepted
accounting principles. The following quarterly financial data should be read in
conjunction with the other financial information contained elsewhere in this
report. The operating results for any interim period are not necessarily
indicative of results for a complete year or for any future period.
Fourth Third Second First
Quarter Quarter Quarter Quarter
------------------ ------------------ ------------------ ------------------
(in thousands, except per share amounts)
1996
Revenues:
Net sales $ 90,817 $ 88,976 $ 90,838 $ 74,784
Financial services 1,074 867 772 620
------------------ ------------------ ------------------ ------------------
Total revenues 91,891 89,843 91,610 75,404
Gross profit 17,549 16,617 16,967 13,591
Net income 5,361 * 3,609 3,525 2,871
Net income per share1 .43 * .29 .29 .24
1995
Revenues:
Net sales $ 73,018 $ 70,900 $ 70,755 $ 57,813
Financial services 550 484 396 334
------------------ ------------------ ------------------ ------------------
Total revenues 73,568 71,384 71,151 58,147
Gross profit 12,872 12,765 11,662 9,305
Net income 2,611 2,479 2,412 1,518
Net income per share1 .22 .22 .22 .14
The sum of the quarterly amounts may not equal the annual amounts due to
rounding.
* Includes non-recurring gain of $1,750 or $.14 per share from life insurance
proceeds.
1 Adjusted for the five-for-four stock split paid in August 1995, three-for-two
stock split paid in February 1996 and the five-for-four stock split paid in
November 1996.
CAVALIER HOMES, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements and Schedule
Independent Auditor's Report 17
Consolidated Balance Sheets 18
Consolidated Statements of Income 20
Consolidated Stockholders' Equity 21
Consolidated Statement of Cash Flows 22
Notes to Consolidated Financial Statements 23
Schedule -
II - Valuation and Qualifying Accounts 33
Schedules I, III, IV and V have been omitted because they are either not
required or are inapplicable.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Cavalier Homes, Inc.:
We have audited the accompanying consolidated balance sheets of Cavalier Homes,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the index at Item 8. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Cavalier Homes, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
February 28, 1997
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,529 $ 21,005
Marketable securities available for sale (Note 3) 1,097 3,583
Accounts receivable, less allowance for losses of
$800 (1996) and $750 (1995) (Notes 5 and 10) 3,046 1,893
Notes and installment contracts receivable - current
(Notes 4 and 5) 1,086 694
Inventories (Note 5) 12,394 9,541
Deferred income taxes (Note 8) 4,663 3,648
Other current assets 2,475 1,954
---------- ---------
Total current assets 49,290 42,318
---------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 847 582
Buildings and improvements 15,803 10,775
Machinery and equipment 17,144 14,227
---------- ---------
33,794 25,584
Less accumulated depreciation and amortization 9,034 6,690
---------- ---------
Total property, plant and equipment, net 24,760 18,894
---------- ---------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $941 (1996) and
$551 (1995) (Notes 4 and 5) 34,504 17,964
GOODWILL, less accumulated amortization
of $588 (1996) and $310 (1995) (Note 2) 3,126 2,213
OTHER ASSETS 3,894 1,237
---------- ---------
TOTAL $ 115,574 $ 82,626
========== =========
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 5) $ 951 $ 666
Accounts payable 7,916 7,099
Amounts payable under dealer incentive programs 10,937 6,998
Accrued wages and related withholdings 1,652 1,220
Accrued incentive compensation 2,615 2,019
Estimated warranties 7,000 5,800
Accrued insurance (Note 10) 2,023 1,676
Other accrued expenses 7,722 5,720
---------- ---------
Total current liabilities 40,816 31,198
---------- ---------
DEFERRED INCOME TAXES (Note 8) 1,035 1,043
---------- ---------
LONG-TERM DEBT (Note 5) 4,918 4,314
---------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Notes 5, 6 and 7):
Series A Junior Participating Preferred Stock, $.01 par value;
200,000 shares authorized, none issued
Preferred stock, $.01 par value; 300,000 shares authorized,
none issued
Common stock, $.10 par value; authorized 15,000,000 shares,
issued 12,169,128 shares (1996) and 11,242,439 shares (1995) 1,217 899
Additional paid-in capital 31,057 22,804
Retained earnings 36,531 22,368
Total stockholders' equity 68,805 46,071
---------- ---------
TOTAL $ 115,574 $ 82,626
========== =========
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
REVENUES:
Net sales $ 345,415 $ 272,486 $ 206,442
Financial services 3,333 1,764 703
---------- ---------
348,748 274,250 207,145
---------- ---------
COST OF SALES (Note 10) 284,024 227,646 176,041
SELLING, GENERAL AND
ADMINISTRATIVE (Notes 7 and 9):
Manufacturing 40,793 30,848 22,430
Financial services 2,076 1,126 545
---------- ---------
326,893 259,620 199,016
---------- ---------
OPERATING PROFIT 21,855 14,630 8,129
---------- ---------
OTHER INCOME (EXPENSE):
Interest expense:
Manufacturing (68) (7) (1)
Financial services (492) (501) (75)
Life insurance proceeds 1,750
Other income, net 1,504 912 526
---------- ---------
2,694 404 450
---------- ---------
INCOME BEFORE INCOME TAXES 24,549 15,034 8,579
INCOME TAXES (Note 8) 9,183 6,014 3,500
---------- ---------
NET INCOME $ 15,366 $ 9,020 $ 5,079
========== =========
NET INCOME PER SHARE (Note 6) $ 1.25 $ 0.79 $ 0.52
========== =========
WEIGHTED AVERAGE SHARES
OUTSTANDING (Note 6) 12,258,461 11,486,245 9,835,524
========== ==========
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Treasury
Additional Stock - At
Common Paid-in Retained Average
Stock Capital Earnings Cost
BALANCE, JANUARY 1, 1994 $ 360 $ 7,486 $ 9,228 $ (444)
Sale of common stock, net of offering costs (Note 6) 109 12,735
Treasury stock reissued in connection with acquisition (Note 2) 1,695 394
Stock options exercised (Note 7) 2 52
Income tax benefits attributable to exercise of stock options
(Note 7) 86
Cash dividends paid ($.03 per share) (322)
Net income 5,079
---------- --------- -------- --------
BALANCE, DECEMBER 31, 1994 471 22,054 13,985 (50)
Five-for-four stock split effected in the form of a dividend
(Note 6) 118 (118)
Treasury stock reissued and common stock issued in connection with
a purchase option 1 413 50
Stock options exercised (Note 7) 9 689
Income tax benefits attributable to exercise
of stock options (Note 7) 281
Other (215)
Three-for-two stock split effected in the form of a dividend
(Note 6) 300 (300)
Cash dividends paid ($.06 per share) (637)
Net income 9,020
---------- --------- -------- --------
BALANCE, DECEMBER 31, 1995 899 22,804 22,368 $ -
Stock options exercised (Note 7) 68 3,667 ========
Income tax benefits attributable to exercise of stock options
(Note 7) 3,488
Sale of common stock under Employee Stock Purchase Plan (Note 7) 2 238
Common stock issued in connection with acquisitions 5 887
Accrued compensation 216
Five-for-four stock split effected in the form of a dividend
(Note 6) 243 (243)
Cash dividends paid ($.10 per share) (1,203)
Net income 15,366
---------- --------- --------
BALANCE, DECEMBER 31, 1996 $ 1,217 $ 31,057 $ 36,531
========== ========= ========
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1996 1995 1994
OPERATING ACTIVITIES:
Net income $ 15,366 $ 9,020 $ 5,079
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,763 2,509 1,746
Provision for credit losses and repurchase commitments 389 301 286
(Gain) loss on sale of property, plant and equipment (144) 23 (20)
Equity in earnings of equity investments (289) (237) (304)
Compensation related to issuance of stock options 216
Changes in assets and liabilities provided (used) cash,
net of effects of acquisitions:
Accounts receivable (489) 863 (409)
Inventories (3,547) 194 (2,372)
Amounts payable under dealer incentive programs 3,831 1,813 779
Accrued wages and related withholdings 346 (244) 84
Estimated warranties 829 1,600 750
Other assets and liabilities 3,565 2,899 4,128
--------- -------- -------
Net cash provided by operating activities 23,836 18,741 9,747
--------- -------- -------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisitions (370) (215) (1,118)
Proceeds from sale of property, plant and equipment 228 63 37
Capital expenditures (7,871) (8,035) (6,330)
Distribution from equity investment 778
Purchases of marketable securities (1,004) (6,076)
Proceeds from maturity of marketable securities 2,479 3,210
Investments in joint ventures (900)
Purchases and originations of installment contracts (19,932) (10,721) (7,309)
Principal collected on installment contracts 2,716 1,337 543
Other 138 55
--------- -------- -------
Net cash used in investing activities (22,872) (15,227) (20,198)
--------- -------- -------
FINANCING ACTIVITIES:
Net proceeds from sales of common stock 240 12,844
Proceeds from long-term borrowings 1,004 2,000 3,700
Payments on long-term debt (1,216) (605) (115)
Proceeds from exercise of stock options 3,735 698 54
Cash dividends paid (1,203) (637) (322)
--------- -------- -------
Net cash provided by financing activities 2,560 1,456 16,161
--------- -------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,524 4,970 5,710
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 21,005 16,035 10,325
--------- -------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 24,529 $ 21,005 $ 16,035
========= ======== =======
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES (Note 7):
Contribution of assets as an equity investment $ 2,396
=========
Reissuance of treasury stock in connection with acquisition $ 1,874
=======
Liabilities assumed in connection with acquisition $ 3,063
=======
See notes to consolidated financial statements.
CAVALIER HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Cavalier Homes, Inc. and its wholly-owned
subsidiaries, (hereinafter collectively referred to as the "Company"). The
Company's 50% or less ownership interests in various joint ventures are
accounted for using the equity method and are included in other assets in
the accompanying consolidated balance sheets. Intercompany profits,
transactions and balances have been eliminated in consolidation.
*
Nature of Operations - The Company designs and manufactures a wide range
of high quality manufactured homes which are sold to a network of
independent dealers located primarily in the southeast, southwest and
midwest regions of the United States. In addition, through its financial
services segment, the Company offers retail installment sale financing and
related insurance products for manufactured homes sold through the
Company's independent exclusive dealer network.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingencies at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from
those estimates.
Fair Value of Financial Instruments - The carrying value of the Company's
cash equivalents, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the short-term maturity of
those instruments. Additional information concerning the fair value of
other financial instruments is disclosed in Notes 4 and 5.
Cash Equivalents - The Company considers all highly liquid investments
with original maturities of less than 90 days to be cash equivalents.
Inventories - Inventories consist primarily of raw materials and are
stated at the lower of cost (first-in, first-out method) or market. During
1996, 1995 and 1994, the Company purchased raw materials of approximately
$22,200, $7,900 and $7,360 respectively, from certain joint ventures
referred to above.
Property, Plant and Equipment - Property, plant and equipment is stated at
cost and depreciated primarily over the estimated useful lives of the
related assets using the straight-line method. Maintenance and repairs are
expensed as incurred.
Goodwill - Goodwill is amortized over 15 years using the straight-line
method. The Company periodically reviews goodwill to assess
recoverability, and impairments would be recognized in operating results
if a permanent diminution in value were to occur.
Revenue Recognition - Sales of manufactured homes to independent dealers
are recorded as of the date the home is shipped to the dealer. All sales
are final and without recourse except for the contingency described in
Note 10. Interest income on installment contracts receivable is recognized
using the interest method.
Product Warranties - The Company provides a one-year limited warranty
covering defects in material or workmanship in home structure, plumbing
and electrical systems. A liability is provided for estimated future
warranty costs relating to homes sold, based upon management's assessment
of historical experience factors and current industry trends.
Allowance for Losses on Installment Contracts - The Company has provided
an allowance for estimated future losses resulting from retail financing
activities of Cavalier Acceptance Corporation ("CAC") primarily based upon
management's assessment of historical experience and current industry
trends.
Insurance - The Company's workmen's compensation, product liability and
general liability insurance coverages are 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 when
sufficiently reliable data is available in accordance with the consensus
reached in Emerging Issues Task Force Issue No. 93-14, Accounting for
Multiple-Year Retrospectively Rated Insurance Contracts by Insurance
Enterprises and Other Enterprises.
Net Income Per Share - Net income per share is based on the weighted
average number of shares outstanding during each period including the
dilutive effect of stock options.
2. ACQUISITIONS
On October 28, 1994, the Company acquired all of the outstanding stock
of Astro Mfg. Co., Inc. for cash and common stock totaling $5,173. This
acquisition was accounted for using the purchase method.
The following unaudited pro forma consolidated results of operations for
the year ended December 31, 1994 has been prepared as though the
acquisition occurred as of January 1, 1994. The pro forma results have
been prepared for comparative purposes only and do not purport to be
indicative of the results of operations that would have been achieved had
the acquisition taken place as of January 1, 1994 or in the future.
Net sales $ 217,213
Net income 5,056
Net income per share .51
3. MARKETABLE SECURITIES
Marketable securities have been classified in the consolidated balance
sheets at December 31, 1996 and 1995 according to management's intent. As
permitted by A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities issued by the Financial
Accounting Standards Board in November 1995, the Company reassessed the
appropriateness of the classifications of all its marketable securities.
Accordingly, at December 31, 1995 the Company transferred approximately
$2,500 of marketable securities classified as held to maturity to
available for sale. At December 31, 1996 and 1995, the carrying amounts of
marketable securities, which approximate their fair values, were as
follows:
Marketable securities available for sale:
Closed-end funds $ 1,097 $ 1,097
Corporate bonds 1,482
United States Treasury Notes 1,000
Common stocks 4
$ 1,097 $ 3,583
4. INSTALLMENT CONTRACTS RECEIVABLE
CAC does not exclusively finance sales for any dealer; all dealers have
other financing sources available to offer to their retail customers.
Standard loan programs require minimum down payments, ranging from 0% to
20% of the purchase price of the home, on all installment contracts based
on the creditworthiness of the borrower. In addition, CAC requires the
borrower to maintain adequate insurance on the home throughout the life of
the contract. Contracts are secured by the home which is subject to
repossession by CAC upon default by the borrower.
CAC's portfolio consists of fixed rate contracts with interest rates
generally ranging from 9.25% to 14.0% at December 31, 1996 and 1995. The
average original term of the portfolio was approximately 208 and 187
months at December 31, 1996 and 1995, respectively.
Estimated principal payments under installment contracts receivable are as
follows:
Year Ending December 31,
1997 $ 980
1998 1,088
1999 1,213
2000 1,351
2001 1,506
Thereafter 30,287
Total $ 36,425
At December 31, 1996 and 1995, the estimated fair value of installment
contracts receivable was $36,205 and $20,320, respectively. These fair
values were estimated using discounted cash flows and interest rates
offered by CAC on similar contracts at that time.
Activity in the allowance for losses on installment contracts was as
follows:
1996 1995 1994
Balance, beginning of year $ 551 $ 350 $ 104
Provision for losses 778 311 265
Charge-offs, net (388) (110) (19)
Balance, end of year $ 941 $ 551 $ 350
5. CREDIT ARRANGEMENTS
The Company has a $23,000 revolving, warehouse and term-loan agreement
(the "Credit Facility") with its primary bank, whose president is a
director of the Company. The Credit Facility contains a revolving line of
credit which provides for borrowings (including letters of credit) of up
to 80% and 50% of the Company's eligible (as defined) accounts receivable
and inventories, respectively, up to a maximum of $5,000. Interest is
payable under the revolving line of credit at the bank's prime rate (8.25%
and 8.50% at December 31, 1996 and 1995, respectively).
The warehouse and term-loan agreement contained in the Credit Facility
provide for borrowings of up to 80% of the Company's eligible (as defined)
installment sale contracts, up to a maximum of $18,000. Interest on term
notes is fixed for a period of five years from issuance at a rate based on
the weekly average yield on five-year treasury securities averaged over
the preceding 13 weeks, plus 2%, and floats for the remaining two years
at a rate (subject to certain limits) equal to the bank's prime rate plus
.75%. The warehouse component of the Credit Facility provides for
borrowings of up to $2,000 with interest payable at the bank's prime rate
plus 1%. However, in no event may the aggregate outstanding borrowings
under the warehouse and term-loan agreement exceed $18,000.
The Credit Facility contains certain restrictive covenants, which limit
the aggregate of dividend payments and purchases of treasury stock to 50%
of consolidated net income for the two most recent years. Amounts
outstanding under the Credit Facility are secured by the accounts
receivable and inventories of the Company, loans purchased and originated
by CAC and the capital stock of certain of the Company's consolidated
subsidiaries. The bank's commitment under the Credit Facility will expire
in April of 1998.
At December 31, 1996 and 1995, the Company's long-term debt consists of
various fixed and variable rate term loans bearing interest at rates
ranging from 6.19% to 10.15% and 9.40% to 10.15%, respectively.
Principal repayment requirements on long-term debt are as follows:
Year Ending
December 31,
1997 $ 951
1998 1,054
1999 1,156
2000 1,043
2001 663
Thereafter 1,002
Total 5,869
Less current portion 951
Long-term debt $ 4,918
The estimated fair value of outstanding borrowings is $5,715 and $5,224 at
December 31, 1996 and 1995, respectively. These estimates were determined
using rates at which the Company believes it could have obtained similar
borrowings at that time.
Cash paid for interest during the years ended December 31, 1996, 1995 and
1994 was $566, $494 and $62, respectively.
6. STOCKHOLDERS' EQUITY
In 1994, the Company sold 1,090,000 shares of common stock through a
secondary public offering. Net proceeds from the offering were $12,844.
During the years ended December 31, 1996 and 1995, the Company's Board of
Directors declared the following stock splits of the Company's common
stock. All applicable share and per share data have been restated to give
effect to all stock splits.
Declaration Stock Record Distribution
Date Split Date Date
July 17, 1995 5 for 4 July 31, 1995 August 15, 1995
January 22, 1996 3 for 2 January 31, 1996 February 15, 1996
October 16, 1996 5 for 4 October 31, 1996 November 15, 1996
The Company has adopted a Stockholder Rights Plan. The terms and
conditions of the plan are set forth in a Rights Agreement dated October
23, 1996 between the Company and its Rights Agent. Pursuant to the plan,
the Board of Directors of the Company declared a dividend of one Right (as
defined in the Rights Agreement) for each share of the Company's
outstanding common stock to stockholders of record on November 6, 1996.
The Rights, when exercisable, entitle the holder to purchase a unit of one
one-hundredth share of Series A Junior Participating Preferred Stock, par
value $.01, at a purchase price of $80 per share. Upon certain events
relating to the acquisition of, or right to acquire, beneficial ownership
of 20% or more of the Company's outstanding common stock by a third party,
or a change in control of the Company, the Rights entitle the holder to
acquire, after the Rights are no longer redeemable by the Company, shares
of common stock of the Company (or, in certain cases, securities of an
acquiring person) for each Right held at a significant discount. The
Rights will expire on November 6, 2006, unless redeemed earlier by the
Company at $.01 per Right under certain circumstances.
7. STOCK PLANS
Dealership Stock Option Plan -
During 1995, the Company's Board of Directors approved the
Dealership Stock Option Plan of Cavalier Homes, Inc. (the "Dealer
Plan") under which an aggregate of 562,500 shares of the Company's
common stock may be issued to the eligible independent dealerships
(as defined in the Dealer Plan) at a price equal to the fair market
value of the Company's common stock as of a date during the calendar
quarter determined by the plan administrator for which such option is
to be granted. Options granted under the Dealer Plan are immediately
exercisable and expire three years from the grant date. Options
exercisable and shares available for future grants were 65,939 and
472,410, respectively. All outstanding options are exercisable at
prices ranging from $8.73 to $14.80. Since these options have been
granted to persons other than employees, the Company adopted the
recognition and measurement provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS 123") for Dealer Plan options granted after December 15, 1995.
Employee and Director Plans:
The Company adopted and the shareholders approved the 1996 Key
Employee Stock Incentive Plan (the "1996 Plan") which provides for
both incentive stock options and non-qualified stock options.
Additionally, the 1996 Plan provides for stock appreciation rights
and awards of both restricted stock and performance shares. Options
are granted at prices and terms determined by the compensation
committee of the Board of Directors. Initially the aggregate number
of shares available under the 1996 Plan is 753,125, (including 3,125
shares canceled from the 1993 Non-qualified Plan) however, on January
1 of each year an additional 1.5% of the then outstanding common
stock becomes available for grant. Options granted under the 1996
Plan generally expire ten years from date of grant.
During 1996, the Company further amended the 1993 Amended and
Restated Non-employee Director Plan (the "1993 Non-employee Directors
Plan") to provide for the issuance of stock options at fair market
value on the date of grant, to non-employee directors, to acquire up
to 625,000 shares of common stock. Options are generally granted upon
a directors initial election to the Board and automatically on an
annual basis thereafter. Options granted under this plan are generally
exercisable after six months from the date of grant and must be
exercised within ten years from such date, except under certain
conditions.
During 1996, the Company adopted the Cavalier Homes, Inc. Employee
Stock Purchase Plan under which an aggregate of 625,000 shares of the
Company's common stock may be issued to eligible employees (as
defined in the Plan) at a price equal to the lesser of 85% of the
market price of the stock as of the first day (January 1 or July 1)
or last day (June 30 or December 31) of the Payment Periods (as
defined). Employees may elect to have a portion of their compensation
withheld, subject to certain limits, to purchase the Company's common
stock.
The Company also adopted the Cavalier Homes, Inc. Dividend
Reinvestment and Stock Purchase Plan under which the Company may
issue an aggregate of 200,000 shares of the Company's common stock to
eligible participants (as defined in the Plan). Participants in the
Plan may purchase additional shares of the Company's common stock by
reinvesting the cash distributions on all, or part, of their shares,
or by investing both their cash distributions and optional cash
payments. The purchase price of the stock will be the higher of 95%
of the average daily high and low sale prices of the Company's common
stock on the four trading days including and preceding the Investment
Date (as defined in the Plan) or 95% of the average high and low
sales prices on the Investment Date. No shares were sold under this
plan during 1996.
The Company applied Accounting Principles Board Opinion No. 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 the fair value on the date of grant. 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 SFAS 123, the
Company's net income and net income per share would approximate the pro
forma amounts below:
1996 1995
Net income:
As reported $ 15,366 $ 9,020
Pro forma $ 13,017 $ 8,923
Net income per share:
As reported $ 1.25 $ 0.79
Pro forma $ 1.06 $ 0.78
The fair value of options granted for 1996 and 1995 were estimated at the
date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
1996 1995
Dividend yield 0.85 % 2.05 %
Expected volatility 0.3985 % 0.4182 %
Risk free interest rate 6.20 % 6.81 %
Expected lives 2.76 years 2.76 years
SFAS 123 does not apply to awards prior to 1995. The effects of applying
SFAS 123 in this pro forma disclosure may not be indicative of future
amounts, and additional awards in future years are anticipated.
With respect to options exercised, the income tax benefits resulting from
compensation expense allowable under federal income tax regulations in
excess of the expense reflected in the Company's financial statements have
been credited to additional paid-in-capital. These benefits, which totaled
$3,488 (1996), $281 (1995), and $86 (1994), represent a noncash financing
transaction for purposes of the consolidated statements of cash flows.
Information regarding all of the Company's stock option plans is
summarized below:
Weighted
Weighted Average
Average Fair Value
Shares Exercise Price At Grant Date
Shares under option:
Outstanding at January 1, 1994 1,138,309 $ 3.95
Granted -
Price = Fair Value 460,478 4.77
Exercised (44,529) 1.23
Cancelled (347,404) 4.78
Outstanding at December 31, 1994 1,206,854 4.17
Granted:
Price = Fair Value 123,049 5.86 $ 1.77
Price less than Fair Value 22,299 8.73 2.77
Exercised (174,804) 3.99
Cancelled (43,941) 7.09
Outstanding at December 31, 1995 1,133,457 4.35
Granted:
Price = Fair Value 1,321,633 14.68 4.52
Price less than Fair Value 28,833 13.70 3.75
Exercised (844,883) 4.42
Cancelled (483,431) 15.90
Outstanding at December 31, 1996 1,155,609 $ 11.51
Options exercisable as of December 31, 1996 631,707 $ 10.07
Stock options available for future grants at December 31, 1996 were
1,670,793 under all of the Company's various stock option plans.
The following table summarizes information concerning stock options
outstanding at December 31, 1996:
Options Outstanding Options Exercisabale
------------------------------------------------------------ ----------------------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of As of Contractual Exercise As of Exercise
Exercise Prices 12/31/96 Life Price 12/31/96 Price
$ 0.55 - $10.00 351,233 7.57 $ 5.30 327,326 $ 5.40
$11.50 - $13.60 558,393 9.20 13.35 84,648 11.94
$14.50 - $16.60 245,983 8.50 16.22 219,733 16.31
$ 0.55 - $16.60 1,155,609 8.55 $ 11.51 631,707 $ 10.07
8. INCOME TAXES
Provision for income taxes consist of:
1996 1995 1994
Current:
Federal $ 8,416 $ 5,994 $ 3,313
State 1,482 855 581
9,898 6,849 3,894
Deferred:
Federal (610) (734) (333)
State (105) (101) (61)
(715) (835) (394)
Total $ 9,183 $ 6,014 $ 3,500
Total income tax expense for 1996, 1995, and 1994 is different from the
amount that would be computed by applying the expected federal income tax
rate of 35% to income before income taxes. The reasons for this difference
are as follows:
1996 1995
Assets (Liabilities)
Current differences:
Warranty expense $ 2,137 $ 1,731
Inventory capitalized 251 176
Allowance for losses on receivables 652 488
Accrued expenses 1,473 979
Other 150 274
$ 4,663 $ 3,648
Noncurrent differences:
Depreciation and basis differential
of acquired assets $ (1,414) $ (1,109)
Other 379 66
$ (1,035) $ (1,043)
Deferred tax assets and liabilities are based on the expected future tax
consequences of temporary differences between the book and tax bases of
assets and liabilities. The approximate tax effects of temporary
differences at December 31, 1996 and 1995 were as follows:
1996 1995 1994
Income tax at expected federal income tax rate $ 8,592 $ 5,262 $ 3,003
State income taxes, net of federal tax effect 1,123 752 343
Non-taxable life insurance proceeds (655)
Non-deductible operating expenses 107 171 110
Effect of graduated tax rates (121) (86)
Other 16 (50) 130
$ 9,183 $ 6,014 $ 3,500
Cash paid for income taxes for the years ended December 31, 1996, 1995
and 1994 was $5,858, $5,905 and $3,519, respectively.
9. EMPLOYEE BENEFIT PLAN
The Company sponsors an Employee 401(k) Retirement Plan covering all
employees who meet participation requirements. Employee contributions are
limited to a percentage of their basic compensation as defined in the
Plan. The amount of the Company's matching contribution is discretionary
as determined by the Board of Directors. Company contributions amounted to
$285, $229 and $175 for the years ended December 31, 1996, 1995 and 1994,
respectively.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases:
Three of the Company's manufacturing facilities are leased under separate
operating lease agreements (the "Related Leases") with partnerships or
companies whose owners are certain officers, directors or stockholders of
the Company. The Related Leases require monthly payments ranging from $9
to $20 and provide for lease terms ending from April 1997 to April 1999 as
well as renewal option periods. The Related Leases also contain purchase
options whereby the Company can purchase the respective manufacturing
facility for amounts ranging from $875 to $2,100 at any time during the
lease terms.
The Company also leases three other manufacturing facilities under
operating leases with unrelated parties. These leases currently require
monthly payments ranging from $3 to $14 and provide for lease terms ending
from March 1999 to October 2006 as well as renewal option periods. The
Company has the option under one of these leases to (i) cancel the lease
at any time after October 2001 with a one year notice and (ii) purchase
the manufacturing facility for $995 at any time during the lease term. The
Company also has the option under one of these leases to cancel the lease
after the first five years with 180 days notice.
Future minimum rents payable under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December
31, 1996 are as follows:
Year Ending
December 31,
1997 $ 557
1998 512
1999 196
2000 119
2001 119
Thereafter 553
Total $ 2,056
Total rent expense was $1,130, $1,044 and $832 for the years ended
December 31, 1996, 1995 and 1994, respectively, including rents paid to
related parties of $653 (1996), $723 (1995) and $662 (1994).
Contingent Liabilities and Other:
a. It is customary practice for companies in the manufactured housing
industry to enter into repurchase and other recourse agreements with
lending institutions which have provided wholesale floor plan
financing to dealers. Substantially all of the Company's sales are
made to dealers located primarily in the southeast, southwest and
midwest regions of the United States pursuant to repurchase
agreements with lending institutions. These agreements generally
provide for repurchase of the Company's products from the lending
institutions for the balance due them in the event of repossession
upon a dealer's default. Although the Company was contingently
liable for an amount estimated to be $80,000 under these agreements
as of December 31, 1996, such contingency is reduced by the resale
value of the homes which are required to be repurchased. The Company
has an allowance for losses of $800 (1996) and $750 (1995) based
on prior experience and current market conditions. Management
expects no material loss in excess of the allowance.
b. Under the insurance plans described in Note 1, the Company is
contingently liable at December 31, 1996 for future retrospective
premium adjustments up to a maximum of approximately $7,300 in the
event that additional losses are reported related to prior years.
c. The Company is a party to various legal proceedings incidental to
its business. In the opinion of management, the ultimate liability,
if any, with respect to these proceedings is not presently expected
to materially affect the financial position or results of operations
of the Company; however, the ultimate resolution of these matters
could result in losses in excess of current estimates.
d. During 1994, the Company entered into split-dollar life insurance
agreements with two of its executive officers which provide for
payment of the related insurance premiums by the Company and also
for reimbursement to the Company of such premiums upon payment of
death benefits under the policies.
11. INDUSTRY SEGMENT INFORMATION
The Company's primary activities are the design, production and wholesale
sale of manufactured homes to a system of independent dealers. The Company
also offers retail financing of its homes through its exclusive
independent dealer network. For purposes of segment reporting, corporate
assets consist primarily of cash, certain property and equipment and other
investments. Operating profit is considered to be income before general
corporate expenses, interest and income taxes.
Financial information for these segments is summarized in the following
table:
General
Financial Corporate
Manufacturing Services (Unallocated) Total
Year ended December 31, 1996:
Revenues $ 345,415 $ 3,333 $ 348,748
Operating profit 21,910 1,257 $ (1,312) 21,855
Identifiable assets 69,161 38,175 8,238 115,574
Depreciation and amortization 3,591 129 43 3,763
Capital expenditures 7,434 196 241 7,871
Year ended December 31, 1995:
Revenues $ 272,486 $ 1,764 $ 274,250
Operating profit 15,394 638 $ (1,402) 14,630
Identifiable assets 56,804 22,388 3,434 82,626
Depreciation and amortization 2,443 59 7 2,509
Capital expenditures 7,762 260 13 8,035
Year ended December 31, 1994:
Revenues $ 206,442 $ 703 $ 207,145
Operating profit 8,928 158 $ (957) 8,129
Identifiable assets 45,748 14,179 3,836 63,763
Depreciation and amortization 1,722 14 10 1,746
Capital expenditures 6,330 6,330
* * * * *
CAVALIER HOMES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1996, 1995 and 1994
Additions
Balance at Charged to Charged Balance at
Beginning of Costs and to Other End of
Period Expenses Accounts Deductions Period
-------------- ---------------- --------------- ---------------- --------------
Allowance for losses on Accounts
Receivable:
Year Ended December 31, 1996 $ 750,000 224,883 50,846 (225,729) $ 800,000
============== ================ =============== ================ ==============
Year Ended December 31, 1995 $ 650,000 152,554 - (52,554) $ 750,000
============== ================ =============== ================ ==============
Year Ended December 31, 1994 $ 560,000 62,860 50,000 (22,860) $ 650,000
============== ================ =============== ================ ==============
Allowance for credit losses:
Year Ended December 31, 1996 $ 551,188 778,226 (388,043) $ 941,371
============== ================ =============== ================ ==============
Year Ended December 31, 1995 $ 350,000 311,190 - (110,002) $ 551,188
============== ================ =============== ================ ==============
Year Ended December 31, 1994 $ 103,930 265,048 - (18,978) $ 350,000
============== ================ =============== ================ ==============
Accumulated amortization of goodwill:
Year Ended December 31, 1996 $ 309,729 278,663 $ 588,392
============== ================ =============== ================ ==============
Year Ended December 31, 1995 $ 140,476 169,253 $ 309,729
============== ================ =============== ================ ==============
Year Ended December 31, 1994 $ 47,405 93,071 $ 140,476
============== ================ =============== ================ ==============
Accumulated amortization of non-compete
agreement:
Year Ended December 31, 1996 $ 188,904 32,346 $ 221,250
============== ================ =============== ================ ==============
Year Ended December 31, 1995 $ 122,232 66,672 $ 188,904
============== ================ =============== ================ ==============
Year Ended December 31, 1994 $ 55,560 66,672 $ 122,232
============== ================ =============== ================ ==============
Warranty reserve:
Year Ended December 31, 1996 $ 5,800,000 13,874,316 370,545 (13,044,861) $ 7,000,000
============== ================ =============== ================ ==============
Year Ended December 31, 1995 $ 4,200,000 11,385,825 - (9,785,825) $ 5,800,000
============== ================ =============== ================ ==============
Year Ended December 31, 1994 $ 3,100,000 7,740,813 350,000 (6,990,813) $ 4,200,000
============== ================ =============== ================ ==============
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
For a description of the directors and executive officers of the Company, see
"Election of Directors," "Executive Officers and Principal Stockholders," and
"Compliance with Section 16(a) of the Exchange Act" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 14, 1997,
which are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For a description of the Company's executive compensation, see "Election of
Directors," "Executive Officers and Principal Stockholders," "Executive
Compensation" (other than the "Report of the Compensation Committee on Executive
Compensation" and the "Performance Graph"), "Compensation Committee Interlocks
and Insider Participation," and "Certain Relationships and Related Transactions"
of the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 14, 1997, which are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
For a description of the security ownership of management and certain beneficial
owners, see "Executive Officers and Principal Stockholders" of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 14,
1997, which are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain relationships and related transactions of the
Company, see "Compensation Committee Interlocks and Insider Participation," and
"Certain Relationships And Related Transactions" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 14, 1997,
which are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. The financial statements contained in this report and the page on which
they may be found are as follows:
Financial Statement Description Form 10-K Page No.
Independent Auditors' Report 17
Consolidated Balance Sheets as of
December 31, 1996 and 1995 18
Consolidated Statements of Income
for the years ended December 31, 1996,
1995 and 1994 20
Consolidated Statements of Stockholders'
Equity for the years ended
December 31, 1996, 1995 and 1994 21
Consolidated Statements of Cash Flows
for the years ended December 31,
1996, 1995 and 1994 22
Notes to Consolidated Financial Statements 23
2. The financial statement schedules required to be filed with this report
and the pages on which they may be found are as follows:
Schedule Description Form 10-K Page No.
II Valuation and Qualifying Accounts 33
3. The exhibits required to be filed with this report are listed below. The
Company will furnish upon request any of the exhibits listed upon the receipt of
$15.00 per exhibit, plus $.50 per page, to cover the cost to the Company of
providing the exhibit.
(3) Articles of Incorporation and By-laws.
* (a) The Amended and Restated Certificate of Incorporation of the Company,
filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by reference.
* (b) The Certificate of Designation of Series A Junior Participating Preferred
Stock of Cavalier Homes, Inc. as filed with the Office of the Delaware Secretary
of State on October 24, 1996 and filed as Exhibit A to Exhibit 4 to the
Company's Registration Statement on form 8-A filed on October 30, 1996, is
incorporated herein by reference.
* (c) The By-laws of the Company, as amended, filed as Exhibit (b) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993, are
incorporated herein by reference.
(4)
* (a) Articles four, six, seven, nine and ten of the Company's Amended and
Restated Certificate of Incorporation, as amended, included in Exhibit 3(a)
above.
* (b) Article II, Sections 1 through 11; Articles III, Sections 1 and 2; Article
IV, Sections 1 and 2; Article VI, Sections 1 through 6; Article VIII, Sections 1
through 3; Article IX, Section 1 of the Company's By-laws, included in Exhibit
3(c) above.
* (c) Rights Agreement between Cavalier Homes, Inc. and ChaseMellon Shareholder
Services, LLC, filed as Exhibit 4 to the Company's Current Report on Form 8-K
dated October 30, 1996, is incorporated herein by reference.
(10) Material contracts
* (a) Rights Agreement between Cavalier Homes, Inc. and ChaseMellon Shareholder
Services, LLC, file as Exhibit 4 to the Company's Current Report on Form 8-K
dated October 30, 1996, is incorporated herein by reference.
(b) Lease Agreement dated October 16, 1996, between Virginia Cary L.
McDonald and Star Industries, Inc. regarding the lease of the manufacturing
facility located in Robbins, North Carolina.
(c) Assignment and Assumption Agreement between Star Industries, Inc.
and Cavalier Industries, Inc. regarding the lease of the manufacturing facility
located in Robbins, North Carolina.
* (d) Cavalier Homes, Inc. Dividend Reinvestment and Stock Purchase
Plan, filed as Appendix A to the Company's Registration Statement on Form S-3
(Registration No. 333-18213), is incorporated herein by reference.
* ** (e) Cavalier Homes, Inc. Executive Incentive Compensation Plan, filed as an
Appendix to the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders held May 15, 1996, is incorporated herein by reference.
* ** (f) Cavalier Homes, Inc. Employee Stock Purchase Plan, filed as an Appendix
to the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders held May 15, 1996, is incorporated herein by reference.
* ** (g) Cavalier Homes, Inc. Key Employee Stock Incentive Plan, filed as an
Appendix to the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders held May 15, 1996, is incorporated herein by reference.
* ** (h) Amendments to the Cavalier Homes, Inc. Nonemployee Directors Stock
Option Plan, filed as an Appendix to the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders held May 15, 1996, is incorporated herein
by reference.
** (i) Amendment to Cavalier Homes, Inc. Amended and Restated Nonemployee
Directors Plan.
* (j) Option and Stock Exchange Agreement by and among Wheelhouse
Structures, Inc., Shareholders of Wheel House Structures, Inc. and Cavalier
Homes, Inc. dated as of August 28, 1995, filed as Exhibit 2(a) to the Company's
Registration Statement on Form S-3 (Registration No. 333-00607), as amended, is
incorporated herein by reference.
* (k) Dealership Stock Option Plan of Cavalier Homes, Inc. filed as
Exhibit 4(c) to the Company's Registration Statement on Form S-3 dated September
11, 1995 (Registration No. 33-62487), is incorporated herein by reference.
* (l) Lease Agreement between City of Mineral Wells, Texas and Cavalier Homes of
Texas dated February 27, 1996, filed as Exhibit 10(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, is incorporated herein
by reference.
* (m) Stock Purchase Agreement, as amended, by and among Astro Mfg. Co., Inc.,
Shareholders of Astro Mfg. Co., Inc.and Cavalier Homes, Inc. dated as of October
14, 1994, filed as Exhibit 2(a) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, is incorporated herein by reference.
* (n) Holdback agreement between Cavalier Homes, Inc. and Raymond A. Peltcs,
dated October 28, 1994, filed as Exhibit 2(b) to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994, is incorporated herein by
reference.
* (o) Revolving, Warehouse and Term Loan Agreement among the Company and First
Commercial Bank dated February 17, 1994, filed as Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993, is incorporated
herein by reference.
* (p) Amendments to the Revolving, Warehouse and Term Loan Agreement among the
Company and First Commercial Bank dated March 14, 1996, filed as Exhibit 10(d)
to the Company's Annual Report on Form 10-K for the year ended December 31,
1995, are incorporated herein by reference.
(q) Assumption Agreement dated as of January 2, 1997, by and among the
Company, First Commercial Bank and certain subsidiaries of the Company.
* (r) Lease Agreement between Leonard Properties and Cavalier Homes of Texas,
Inc. dated February 17, 1994, and amendment No. 1 thereto, filed as Exhibit
10(f) to the Company's Annual Report on Form 10-K, for the year ended December
31, 1993, and 10(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 1, 1994, respectively, are incorporated herein by reference.
* ** (s) Cavalier Homes, Inc. 1993 Amended and Restated Nonqualified Stock
Option Plan, filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, is incorporated herein by reference.
* ** (t) Cavalier Homes, Inc. 1988 Nonqualified Stock Option Plan, as amended,
filed as Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by reference.
(u) Lease between Cavalier Homes of Alabama, Inc. and Robert L. Burdick,
John W Lowe, and Jerry F. Wilson (now Estate of Jerry F. Wilson), as tenants in
common, dated July 30, 1996.
(v) Assignment and Assumption Agreement between Cavalier Homes of Alabama,
Inc. and Cavalier Homes, Inc. regarding the lease between Cavalier Homes of
Alabama, Inc. and Robert L. Burdick, John W Lowe and Jerry F. Wilson (now Estate
of Jerry F. Wilson).
* (w) Commercial Sub-Lease between Winston County Industrial Development
Association and Cavalier Homes of Alabama, Inc., dated March 5, 1993, filed as
Exhibit 10(d) to the Company's Registration Statement on Form S-2 (Registration
No.33-59452), is incorporated herein by reference.
(x) Assignment and Assumption Agreement between Cavalier Homes of Alabama,
Inc. and Cavalier Homes, Inc. regarding the Commercial Sub-Lease between
Cavalier Homes of Alabama, Inc. and Winston County Industrial Development
Association.
* (y) Sub-lease Agreement with Option to Purchase between Winfield
Industrial Development Association, Inc and Buccaneer Homes of Alabama, Inc.
dated May 9, 1994, filed as Exhibit 10(k) to Amendment No. 1 to the Company's
Registration Statement on Form S-2 (Registration No. 33-78644), is incorporated
herein by reference.
* (z) Lease Agreement with Option to Purchase between Marion County
Industrial Development Association, Inc and Quality Housing Supply, Inc. dated
May 9, 1994, filed as Exhibit 10(l) to Amendment No. 1 to the Company's
Registration Statement on Form S-2 (Registration No. 33-78644), is incorporated
herein by reference.
(aa) Lease Agreement dated March 1, 1997, between the City of Winfield
and Buccaneer Homes, a division of Cavalier Manufacturing, Inc.
(bb) Lease Agreement dated March 1, 1995, between the Industrial
Development Board of the City of Haleyville, Alabama and Wheel House Properties,
Inc., as assigned to and assumed by Star Industries, Inc. on January 11, 1996,
and as further assigned to and assumed by Cavalier Manufacturing, Inc. in
December 1996.
(11) Statement re Computation of Per Share Earnings.
(21) Subsidiaries of the Registrant.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule. (Filed as an EDGAR exhibit only.)
* Incorporated by reference herein.
** Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
"Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995:
With the exception of historical factual information, the matters and statements
discussed, made or incorporated by reference in this Annual Report on Form 10-K
(including statements regarding trends in the industry and the business and
growth and financing strategies of the Company), as well as those statements
specifically designated with an asterisk (*), constitute forward-looking
statements, contain the words "believes," "anticipates," "expects," and words of
similar import, are based upon current expectations and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements and words involve known and unknown assumptions,
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements or words. Such assumptions, risks, uncertainties and
factors include those associated with general economic and business conditions;
manufactured housing and retail consumer financing industry trends, cyclicality
and seasonality; availability of consumer and dealer financing; changes and
volatility in interest rates; the sufficiency of reserves established for
installment contract receivables; warranty, product liability and other
litigation arising in the course of the Company's manufacturing and financial
services business; contingent repurchase and guaranty obligations; dependence on
key personnel; demographic changes; competition; raw material and labor costs
and availability; import protection and regulation; relationships with and
dependence on customers, distributors or dealers; changes in the business
strategy or development plans of the Company; the availability, terms and
deployment of capital; changes in or the failure to comply with government
regulations; and the inability or failure to identify or consummate successful
acquisitions or to assimilate the operations of any acquired businesses with
those of the Company. The Company expressly disclaims any obligation to update
any forward-looking statements as a result of developments occurring after the
filing of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By:/s/ DAVID A. ROBERSON
Its President
Date: March 31, 1996
Pursuant to the requirements of Section 13 or 15(d) 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.
Signature Title Date
/s/ DAVID A. ROBERSON Director and Principal March 31, 1996
- ---------------------------- Executive Officer
/s/ MICHAEL R. MURPHY Diretor and Principal March 31, 1996
- ---------------------------- Financial and Accounting
Officer
/s/ BARRY DONNELL Chairman of the Board March 31, 1996
- ---------------------------- and Director
/s/ THOMAS A. BROUGHTON, III Director March 31, 1996
- ----------------------------
/s/ JOHN W LOWE Director March 31, 1996
- ----------------------------
/s/ LEE ROY JORDAN Director March 31, 1996
- ----------------------------
/s/ GERALD R. MOORE Director March 31, 1996
- ----------------------------
INDEX
Page in
Sequentially
Exhibit Numbered
Number Filing
(10) Material Contracts
(11) Statement Re Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedule (Filed as an EDGAR exhibit only)