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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
Fiscal Year Ended September 30, 1995 Commission File 0-8822
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
An Arizona Corporation No. 86-0214910
301 East Bethany Home Road, Suite C-178 Phoenix, AZ 85012
Registrant's Telephone No. (602) 265-0580
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Five cent ($.05) Par Value Common Stock
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark 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. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of November 30, 1995 was $14,153,196.
As of November 30, 1995, the issuer had 3,382,977 shares of its five
cent ($.05) par value common stock outstanding.
The Exhibit Index is located on Page 37.
The total number of pages is 44.
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PART I
ITEM 1: BUSINESS
(a) General
Cavco Industries, Inc., hereinafter referred to as the "Company" or
"Cavco", is the largest manufacturer of residential and recreational housing
in Arizona. The Company began as an unincorporated association in 1965,
manufacturing truck campers under the name Roadrunner Manufacturing Company.
In 1966, the Company changed its name to Cavalier Manufacturing Company and it
incorporated in 1968. In 1974, the Company changed its name to Cavco
Industries, Inc.
In November, 1986, the Company began manufacturing relocatable
commercial modular structures for sale or lease, marketed by a division of the
Company doing business as CVC Leasing ("CVC"). In October, 1993, CVC
diversified its leasing operations to include security storage containers. In
August, 1994, the Company sold the relocatable modular commercial structures of
CVC. In August, 1994, the Company founded National Security Containers, Inc.
("NSC") to market and lease security storage containers and trailer vans. The
Company owns 100% of NSC's stock.
In March, 1987, the Company founded Action Healthcare Management
Services, Inc., ("Action," formerly known as Action Health Care, Inc.) to
provide health care management services. The Company owns approximately 93% of
Action's stock.
In December, 1991, the Company founded Sun Built Homes, Inc., ("Sun
Built") to develop manufactured housing subdivisions and sell manufactured
homes in established subdivisions. The Company owns 100% of Sun Built's stock.
The Company's executive office is located at 301 E. Bethany Home Road,
Suite C-178, Phoenix, Arizona 85012.
(b) Financial Information About Industry Segments
The Company operates principally in four industries: manufactured
housing, leasing, real estate development, and health care management.
Information with respect to net sales, operating profit (loss) and identifiable
assets by industry segment is shown in the notes to consolidated financial
statements in Part II of this Form 10-K.
(c) Narrative Description of Business
I. Manufactured Housing
DESCRIPTION OF BUSINESS
The Company is a manufacturer of quality residential and recreational
housing. The manufactured housing products are transported from the factory to
the dealer retail outlet and ultimately to the site in one or more sections and
are installed utilizing their own chassis on either temporary or permanent
foundations. Although these manufactured housing products are designed to be
transportable, fewer than five percent are ever moved off the owner's original
site.
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The Company is subject to the regulations of federal and state
agencies which dictate building codes for manufactured housing. Cavco
implements efficient assembly line techniques and uses essentially the same
materials used in site-built homes. The Company purchases components from
outside sources, installs electrical, plumbing and heating systems and
fabricates sub-floors, walls and cabinets. Interior walls are constructed with
a drywall material and exterior walls from wood products, vinyl lap, aluminum
or anodized steel. The roof is covered with asphalt shingles or constructed of
galvanized steel.
Cavco's housing products are distributed under various trademarks,
with models available in a variety of floorplans ranging in size from 399
square feet for a recreation/retirement park home, and 560 to 2,026 square feet
for a residential home. A typical home includes a living room, dining room,
one or two baths and one or more bedrooms. The base price of the Company's
homes includes carpeting, major appliances, draperies and forced air furnaces.
There are numerous options available and the Company can customize virtually
any of its models to meet the needs of any geographical area. Retail prices of
the Company's housing range from a low price of $17,000 up to a high of
$100,000. The average price of a recreational/retirement park home is
approximately $25,000, and the average price of a residential home is
approximately $36,000. The retail price of the manufactured homes is set by
the individual dealers and not by the Company.
METHOD OF DISTRIBUTION
The Company does not sell its housing directly to the general public.
The Company sells its homes only to fill orders received by its dealers. Many
of the Company's dealers operate more than one retail outlet. The Company
presently has 153 dealer retail outlets in 10 states, Canada and Japan, of
which there are 91 in Arizona, 15 in New Mexico, 12 in Colorado, 9 in Utah, 6
in Texas, 5 in Nevada, 3 in California, 2 in Oregon, 1 each in Idaho and
Washington, 6 in Canada and 2 in Japan. The Company may enter into agreements
with dealers that would require them to sell the Company's products
exclusively, although most of the dealers also sell competing products.
The dealer first establishes credit with a bank and with the Company.
The dealer then orders a home, either based on a contract with the retail
customer or to increase its inventory. Upon receiving the order from the
dealer, the Company clears the order with the dealer's bank and receives a
commitment from the dealer's bank for the money, which is earmarked for the
home ordered, identified by its serial number. The Company then builds the
home and ships it to the dealer. The dealer is responsible for all shipping
costs. The dealer examines the home, approves it and authorizes the bank to
pay the Company, in accordance with its previous commitment. The length of
time it takes to manufacture and ship a home after an order is placed varies
according to the backlog.
Once the Company delivers the manufactured home to the dealer, it is
the dealer's responsibility to install the home on its customer's property.
The Company is released from any contingent liability when the dealer sells the
manufactured home to the ultimate customer. If the home is not sold and the
bank is not paid by the dealer, the bank can request that the Company
repurchase the home.
The Company is contingently liable under terms of repurchase
agreements covering dealer floor plan financing arrangements. These
arrangements, which are customary in the industry, provide for the repurchase
of the manufacturer's products in the event the dealer defaults on payments.
The risk of loss is spread over numerous dealers and financing institutions and
is further reduced by the resale value of repurchased units. The Company has
not incurred any significant losses from these arrangements since its
inception.
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The Company gives a limited warranty to original retail customers.
The Company warrants structural components for 12 months and nonstructural
components for 90 days. The Company does not warrant anything that pertains to
installation, setup or any appliances. The appliances are warranted by their
original manufacturer.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company has not experienced any problems purchasing its raw
materials or component parts. The Company buys from manufacturers and
distributors located primarily in California and Arizona. The Company buys
wood, wood products, aluminum, steel, tires, hardware, windows and doors. The
only real raw materials are the wood products. Approximately 39 percent of the
unit cost of a manufactured home is raw wood products. The majority of the
other component parts of the homes are manufactured products in one stage or
another.
PATENTS, TRADEMARKS AND LICENSES
The Company does not own any materially significant patents, licenses,
franchises, trademarks or concessions. The Company does not sell or grant
franchises to its dealers.
SEASONAL
The Company's business is not seasonal. It produces and sells
manufactured homes throughout the entire year.
INVENTORY
The Company does not maintain a significant finished product inventory.
CUSTOMERS
The Company currently has 153 dealer outlets. Sales to one dealer
exceeded 10% of the Company's sales volume. This dealer is not affiliated with
the Company and the loss of any dealer would not have a material effect on the
Company.
BACKLOG
The backlog of firm orders for manufactured homes as of September 30,
1995 was approximately $19,300,000 (1,300 floors) as compared with September
30, 1994, when the backlog was approximately $19,575,000. It currently
requires approximately six to eight weeks to fill an order. The entire backlog
at September 30, 1995 will be filled during the 1996 fiscal year.
GOVERNMENT CONTRACTS
None of the Company's business is subject to renegotiation of profits
or termination of contracts at the election of the government.
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COMPETITION
The Company sells its housing products in the states of Arizona, New
Mexico, Colorado, Texas, California, Nevada, Idaho, Utah, Washington, Oregon,
as well as Canada and Japan. The Company estimates that there are 9 other
manufacturers competing for the Arizona market. The Company enjoys
approximately a 35% share of the Arizona market and a small share of the market
in the other states. The largest competitors are Fleetwood, Redman, Palm
Harbor, Schult, and Skyline. Most of these competitors have manufacturing
facilities in Arizona. The Company has a broad product line at competitive
prices, builds quality homes and offers complete service.
RESEARCH AND DEVELOPMENT
During the last two fiscal years, the amount the Company has spent on
research and development was immaterial.
ENVIRONMENTAL CONTROLS
The Company believes that compliance with federal, state and local
environmental protection regulations will not have a material adverse effect on
its capital expenditures, earnings or competitive position.
EMPLOYEES
The Company employs 999 people in its manufacturing segment. Of
these, 154 are salaried managerial, office and clerical workers; 832 are hourly
production workers, and 13 are commissioned salespeople.
FOREIGN OPERATIONS
The Company does not have any foreign operations.
II. Health Care Management
DESCRIPTION OF BUSINESS
Action was founded in March, 1987 to provide health care management
services. These services initially consisted of utilization management, but
were expanded to include employee benefit and worker's compensation, large case
management and a high risk pregnancy program.
Expanded services were necessitated by self-insurance/reinsurance in
the employee benefits arena, excessive and fraudulent claims in the worker's
compensation sector and the advent of an increasing number of women in the
workforce. Current economic conditions have increased the need for reducing
necessary hospital expenses without compromising the quality of care or freedom
of choice available to health care participants.
As the demand for a national health care program increases,
utilization management and large case management will become a critical factor
to the success of any such program.
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DESCRIPTION OF SERVICES
Utilization management is the methodology for monitoring the medical
necessity and appropriateness of health care services, including hospital
admissions, proposed length of hospital stay, use of outpatient facilities and
other treatment alternatives. All of Action's utilization management services
are performed by licensed nurses with a broad base of clinical specialty
experience. Using a sophisticated menu-driven computer system, the nurse has
access to pertinent medical information and criteria to evaluate the proposed
treatment plan. To achieve the most objective determination, Action has an
independent panel of physicians available to assist in medical recommendations
for complicated cases.
Large case management is the process by which medical case managers
intensively manage serious illness and catastrophic injuries which typically
result in repeated and/or high-cost utilization. Large case management insures
that the patient receives cost-effective, integrated and well-coordinated care
and that the client will achieve a favorable return for their investment in the
large case management process. Action has created an innovative approach to
large case management. In effect, the program consists of three parts: a case
evaluation that develops a specific cost-to-savings ratio and a plan of action
if the case is accepted, actual hands-on case management by medical
professionals, and a 30-day post-monitoring segment designed to detect
post-case complications.
The Worker's Compensation Large Case Management program deals with
catastrophic and long-term disability as a result of a worker's compensation
accident or injury. Highly skilled medical specialists provide appropriate
treatment, lowering indemnity costs via an early return to work, and reducing
the possibility of litigation.
Action's high risk pregnancy program, which focuses on early
identification and intervention of high risk pregnancies, is receiving
acceptance with Action's current client base. The program, Great Expectations,
provides prescreening, identification, on-going education and hands-on
perinatal case management to bring the high risk babies to term, thereby
preventing the "million dollar baby." Great Expectations also provides
BABYTALK, a 24-hour maternity wellness toll-free telephone line. The entire
program is monitored by one of the most recognized groups of perinatologists in
the country.
SALES/MARKETING
Using an innovative database, Action markets its services to insurance
brokers/consultants, insurance carriers, third party administrators,
self-insured employers, government employee groups and multi-employer trusts.
Currently, Action operates with offices in Phoenix, Arizona and
Thousand Oaks, California. At the end of the 1993 fiscal year, Action acquired
a large block of business on the East Coast. Future expansion plans include
the Pacific Northwest and the Midwest.
Action's marketing philosophies are target market oriented, and all
marketing functions complement each other. Typically, Action enters into a
standard service contract with a client for a period of two years. Action
currently has approximately 92 clients. The loss of any one client would not
have an adverse material effect on Action. Action's charges to its clients are
based on the type of service provided and on the number of participants.
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EMPLOYEES
Action has 13 employees, comprised of its president, 2 operations
managers, 6 licensed nurses engaged in utilization management, 1 customer
service representative, 2 clerical and administrative employees and 1
information systems manager. Action also has a network of conferring
physicians and contract registered nurses who are compensated on an hourly or
per visit basis when requested by Action to render consulting services.
COMPETITION
Action competes in a highly fragmented market with national and local
firms specializing in utilization management and with third party
administrators who have implemented their own internal utilization management
services. Action also competes indirectly with health maintenance
organizations and preferred provider organizations seeking to control health
care costs. Most of Action's competitors are significantly larger than Action.
Action competes on the basis of its innovative, cost-effective programs and on
its commitment to high-quality service. With the recent installation of a
sophisticated software system, Action's fees are competitive with other health
care management providers.
III. Leasing Operations
DESCRIPTION OF BUSINESS
In October, 1993, the Company began to sell and lease temporary
security storage containers ("containers") and trailer vans ("vans"). In
August, 1994, the Company formed NSC to continue the leasing operations as a
100% owned subsidiary. The containers are used ocean cargo containers,
previously used for secure overseas shipment of packaged goods. The Company
purchases the containers from various vendors and refurbishes them at its own
fabricating facility or by using various outside contractors. The Company
patches, sands, repaints and installs locking units on the containers before
transferring them to the leasing offices. The containers are 8-1/2 feet high
and 20 or 40 feet long. The vans were previously used for ground
transportation of goods. The vans are 8 feet high and 20 to 52 feet long.
METHOD OF DISTRIBUTION
NSC currently sells or leases the containers and vans through five
offices located in Arizona and Texas. Offices in Colorado and Louisiana are
scheduled to open in December 1995. At the customer's request, NSC will
contract or use its own equipment to deliver the container to the customer's
site and complete the set up. Pricing of the product is dependent upon the
competition and demand within each geographical area.
SOURCES AND AVAILABILITY OF PRODUCTS
NSC has not experienced, and does not anticipate, any problems in
purchasing its containers or trailer vans.
PATENTS, TRADEMARKS AND LICENSES
NSC does not own any materially significant patents, licenses,
franchises, trademarks or concessions. NSC does not currently sell or grant
franchises.
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GOVERNMENT CONTRACTS
None of NSC's business is subject to renegotiation of profits or
termination of contracts at the election of the Government.
COMPETITION
The container leasing business is relatively untapped in most areas.
Competition consists primarily of small, individually owned companies that
concentrate on container sales.
RESEARCH AND DEVELOPMENT
During the year, the amount NSC has spent on research and development
was immaterial.
CUSTOMERS
NSC sells or leases the containers directly to any business with a
need for additional storage space. Typical customers include retail stores,
construction companies, and educational and government institutions. NSC
experiences seasonal upturns during holiday periods, when retailers require
storage space for extra merchandise. The terms of the leases generally range
from one month to three years, with an average rental period of six months.
There is increasing demand throughout the business community for security
storage due to increasing theft and vandalism. NSC is not dependent upon any
one customer.
ENVIRONMENTAL CONTROLS
To the best of the Company's knowledge, NSC is not affected by any
federal, state or local regulations which have been enacted or adopted
regarding the discharge of materials into the environment or otherwise relating
to the protection of the environment.
EMPLOYEES
NSC has 45 employees. Of these, 1 is the president, 1 is the director
of operations, 1 is the director of container development, 5 are branch
managers, 9 are sales representatives, 20 are hourly production workers, and 8
are office and clerical workers.
FOREIGN OPERATIONS
NSC does not have any foreign operations.
IV. Real Estate Development
DESCRIPTION OF BUSINESS
Sun Built was organized in December, 1991, to develop manufactured
housing subdivisions and to sell manufactured homes in established
subdivisions. Homes sold by Sun Built are manufactured by the Company at the
Company's existing manufacturing plants. The average size of these homes
ranges from 576 to 1,984 square feet, with retail selling prices ranging from
$26,000 to $87,000, excluding the land. Within the environment of the
residential development market, competition is intense. Pricing of the product
is dependent upon the competition and demand within each geographical area.
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METHOD OF DISTRIBUTION
Sun Built sells the manufactured homes directly to the consumer. The
customers are responsible for obtaining financing through their own sources, or
Sun Built can assist in finding a source for them. All sales are either
financed through third parties or paid for by cash. Sun Built distributes its
products through fully developed subdivisions in which Sun Built either has an
agreement to sell the homes or may have a percentage of ownership.
There is no warranty issued with the manufactured homes other than the
Manufacturer's Limited Warranty. The manufacturer warrants structural
components for 12 months and nonstructural components for 90 days.
SOURCES AND AVAILABILITY OF PRODUCTS
Sun Built has not experienced, and does not anticipate, any problems
in purchasing its manufactured homes, as units are produced by the Company.
PATENTS, TRADEMARKS AND LICENSES
Sun Built does not own any materially significant patents, licenses,
franchises, trademarks or concessions. Sun Built does not sell or grant
franchises.
GOVERNMENT CONTRACTS
None of Sun Built's business is subject to renegotiation of profits or
termination of contracts at the election of the Government.
COMPETITION
Competition in the residential subdivision building market is intense.
Sun Built competes with a large number of firms, many of which have
substantially greater financial resources. To date, the sales of manufactured
homes have all been made in Arizona.
RESEARCH AND DEVELOPMENT
During the last fiscal year, the amount Sun Built has spent on
research and development was immaterial.
ENVIRONMENTAL CONTROLS
To the best of the Company's knowledge, Sun Built is not affected by
any federal, state or local regulations which have been enacted or adopted
regarding the discharge of materials into the environment or otherwise relating
to the protection of the environment.
EMPLOYEES
Sun Built has 11 employees. Of these, 1 is the director of
operations, 2 are project managers, 2 are servicepeople, 4 are salespeople,
and 2 are office and clerical workers.
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FOREIGN OPERATIONS
Sun Built does not have any foreign operations.
ITEM 2: PROPERTIES
I. Manufactured Housing
The Company's executive and accounting offices are located at 301 East
Bethany Home Road, Suites C-178 and C-275, Phoenix, Arizona. In November,
1993, the Company entered into a 30-month lease for 6,632 square feet of space
at this location. Lease payments for this space are $6,936 per month.
The Company's manufacturing offices are located at 1001 N. Central
Avenue, Suite 800 Phoenix, Arizona. In November, 1992, the Company entered
into a 63-month lease for 8,800 square feet of office space. The Company
entered into an amendment to the lease in May 1993 and June 1993, for an
additional 1,327 and 1,068 square feet, respectively. Lease payments for this
space are $8,164 per month.
The Company entered into a 5-year lease in February, 1993, consisting
of approximately 188,000 square feet which are primarily production facilities
with some office space, located at 1366 S. Litchfield Road, Goodyear, Arizona.
In December, 1993, The Company added 5,860 square feet to the lease. The
Company produces manufactured homes on this property. The cost of the lease is
$18,423 per month. The Company has three 5-year options it may exercise on
this property.
The Company acquired the manufacturing facilities located at 2502 W.
Durango, Phoenix, Arizona in August, 1988. On this property are buildings
totaling approximately 75,000 square feet, which are primarily production
facilities with some office space. The Company produces manufactured homes on
this property. The loan on this property is amortized over a 13 year term. A
payment of $8,070, plus interest at prime plus 1%, is due monthly, with the
balance due and payable in August, 2002. Debt secured by the property totaled
$1,250,913 and $1,308,396 at September 30, 1995 and 1994, respectively.
The Company leases approximately 4.7 acres of property at 1700 S. 27th
Avenue, Phoenix, Arizona. The property is used as a holding yard for finished
homes until they are shipped to dealers. The original terms of the lease run
from February 1, 1994 to January 31, 1999, with monthly rent at $1,721. The
lease provides for two 5-year extension options, and a purchase option of
$256,000 at the effective date of the lease, escalating at 4% per year.
The Company owns manufacturing facilities located at 3502 W. Lower
Buckeye Road, Phoenix, Arizona. On this property are buildings which contain
approximately 60,000 square feet, primarily production facilities with some
office space. The Company produces recreational and residential homes on this
property. There is no mortgage on this property.
All of the properties on which the Company's plants are located
contain sufficient room to expand production, if necessary. The Company
believes its plants, equipment and offices are in good condition and are
adequate for the Company's foreseeable business requirements.
II. Health Care Management
Action's principal office is located at 301 East Bethany Home Road,
Suite C-278, Phoenix, Arizona and consists of approximately 2,459 square feet
of space. In July of 1993, Action entered into a 36 month lease with monthly
lease payments of $2,572.
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Action operates a satellite office located at Conejo Business Center,
123 Hodencamp Road, Suite 102, Thousand Oaks, California. The office consists
of roughly 1,530 square feet of space. In July ,1992, Action entered into a
5-year lease for the space commencing October 1, 1992 at a lease rate of $2,142
per month, with 3 months free rent commencing the second month of the lease.
III. Leasing Operations
NSC's Phoenix branch is located at 2229 W. Roosevelt, Phoenix,
Arizona. In June, 1994, NSC entered into a 3-year lease, commencing September
1, 1994 for a 108,000 square foot lot with a 2,100 square foot building.
Monthly lease payments are $2,500. NSC uses the property for its leasing and
sales office, and to store unleased containers.
NSC subleases space at 7440 Stiles Rd, El Paso, Texas, for its leasing
and sales office. The sublease commenced August 1, 1994, terminates on June
30, 1997, and requires rent payments of $1,000 per month. NSC also leases
property at 423 W. Langdon, Hutchins, Texas, used to store unleased containers.
The monthly rent is $1,000 on month-to-month terms.
In June, 1994 NSC became the assignee of a lease for premises at 1819
W. Northwest Highway, Dallas, Texas. The property consists of approximately
8.16 acres of land with office/warehouse space. NSC uses the property for
its leasing and sales office, as well as for storage of unleased containers and
trailer vans. The lease terminates on December 31, 1995 and requires rent
payments of $4,000 per month.
NSC entered into a 5-year lease, commencing August 1, 1994 for
approximately 2.25 acres of fenced-in land with a 2,400 square foot building
and a 2,800 square foot building. The property is located at 13390 I.H. 35
South, Bexar County, Texas. One of the buildings is used as a leasing and
sales office for NSC's San Antonio branch. The other building is used for
repair and maintenance of containers. The land is used to store unleased
containers. Monthly rent on the property totals $2,250. NSC has an option to
renew the lease for an additional 5-year term.
NSC relocated its Houston branch to 11827 Eastex Freeway, Houston,
Texas. The property consists of approximately 8.81 acres of land, which will
be used for storage of unleased containers. NSC purchased a modular office
building to use as a leasing and sales office at this location. The lease term
of the property is 36 months, commencing December 1, 1995, with monthly rent of
$4,000.
NSC's Houston branch was formerly located at 12350 Amelia, Houston,
Texas. NSC leased a building and a 2.055 acre tract of land. The lease
continues through June 10, 1999. Rent on the property is $1,200 per month.
Also in Houston, NSC leases a building and a one acre tract of land in
the James Hamilton Survey No. 53 in Harris County, Texas. On these premises,
NSC refurbishes and stores purchased containers before they are transferred to
the leasing branches. Current monthly rent is $1,900 and increases to $2,000
per month in August 1996. The lease commenced August 1, 1994 and terminates
July 31, 1997.
In November, 1995, NSC entered into a lease to rent property at 15960
East Colfax Avenue, Aurora, Colorado. NSC will be opening a leasing and sales
location there in December 1995. The lease is effective December 1, 1995 and
expires November 30, 2000. Monthly rent is $2,250.
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IV. Real Estate Development
One of Sun Built's sales offices is located at 519 W. Parkwood Circle,
Green Valley, Arizona, in a model home at its Canyon View subdivision. The
home is 1,120 square feet. The home and land were purchased by Sun Built for
$65,306.
Another sales office is located at 12200 E. Highway 69, Dewey,
Arizona, in a model home in the Villages at Lynx Creek subdivision. The home
is 1,384 square feet. Sun Built does not pay rent for use of the space.
ITEM 3: LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders of the Company
during the fourth quarter of the 1995 fiscal year.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Registrant's stock is sold Over the Counter, NASDAQ symbol: CVCO.
The following quotations reflect inter-dealer prices without related mark-up or
mark-down or commission and may not necessarily represent actual transactions.
All prices have been adjusted (rounded to nearest 1/8) to reflect a
three-for-two stock split that went into effect in December, 1994.
Year Ended September 30, 1995
Bid Asked
--- -----
High Low High Low
---- --- ---- ---
First Quarter 13-5/6 10-5/6 14-1/2 11-1/2
Second Quarter 12 9-3/4 13 10-1/4
Third Quarter 11-3/4 8-1/2 12-3/4 9
Fourth Quarter 10-3/8 8-3/4 11-1/4 9-3/4
Year Ended September 30, 1994
Bid Asked
--- -----
High Low High Low
---- --- ---- ---
First Quarter 10-1/8 7-7/8 10-7/8 8-3/8
Second Quarter 13-7/8 10 14-7/8 10-5/8
Third Quarter 12-3/8 10-1/8 13-1/8 11
Fourth Quarter 11-5/8 11 12-3/8 11-1/2
(The source of the above quotation is NASDAQ.)
(b) The following table sets forth the approximate number of holders of
record of each class of equity securities of the Company as of September 30,
1995:
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Title of Class Number of Record Holders
-------------- ------------------------
Five Cent ($.05) Par
Value Common Stock 267
The method of computation chosen is based on the number of record
holders.
(c) During the past two years, the Company has paid no dividends and has
no expectations of paying dividends during the 1996 fiscal year. In
conjunction with a mortgage note, future dividends must be approved by the
lending institution.
ITEM 6: SELECTED FINANCIAL DATA
Five Year Summary of Financial Data
Years Ended September 30,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Results for the year:
Net sales $113,708,362 92,061,563 56,915,815 42,413,487 37,156,087
Net income from
continuing operations $ 4,533,532 3,928,852 1,515,276 1,231,236 823,837
Income per share from
continuing operations $ 1.34 1.16 .45 .36 .24
Year end position:
Total assets $ 51,811,939 41,878,513 30,703,330 25,875,595 20,889,140
Long term obligations $ 13,970,960 6,013,047 7,853,985 7,209,131 7,636,365
Net stockholders' equity $ 22,383,195 18,145,544 11,467,392 9,325,115 7,640,756
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company ended 1995 with working capital of $8,249,230 comparable
to the $8,371,218 at the end of 1994. During the year the Company borrowed $8
million from lines of credit to fund working capital needs and additions to
assets under lease and property, plant and equipment.
Cash outflows in 1995 included capital expenditures of $13.6 million.
The Company increased its NSC lease fleet by $11.3 million and spent $2.3
million on property, plant and equipment additions, of which $700,000 went to
plant expansion and equipment upgrades at one of the manufacturing facilities.
Approximately $350,000 and $600,000 was spent on land and delivery equipment
for NSC, respectively. The Company also invested another $1.2 million into its
partnerships which are developing manufactured housing subdivisions.
In June 1995, NSC arranged a $15 million line of credit to support
its lease fleet expansion. The lending institution advanced $8,000,000 and the
Company used $6.5 million of these funds to repay its lines of credit.
The Company has a $3 million bank line of credit that may be used from
time to time to fund working capital needs. Long term cash requirements, other
than normal operating expenses, are anticipated for plant expansions and
computer system upgrades. NSC has $7,000,000 of additional funding available
from a financial
13
14
institution for expansion of its lease fleet. The Company believes that its
existing cash, available lines of credit, and cash generated from operations
will be sufficient to meet capital expenditure and debt service requirements.
During the past three years, inflation has not had a significant
impact on the Company's operations. The Company has demonstrated its ability
to reduce the manufacturing costs of its products through engineering changes
and effective price negotiations, and has been able to adjust the selling price
of its products in reaction to changing costs.
RESULTS OF OPERATIONS
1995 Compared to 1994
Sales for 1995 were $113,708,362, an increse of $21,646,799 (23.5%)
over 1994. The new leasing subsidiary provided 23 percent of the increase, $5
million in revenues. The manufacturing operations accounted for the remaining
increase. Plant expansions and upgrades to machinery allowed production levels
to increase at all facilities. The manufacturing facility added in May 1993
had the most significant favorable impact.
Gross profit margins increased to 18.9 percent compared to 18.4
percent in 1994. Margins in the manufacturing operations decreased from 18.2
percent in 1994 to 17.4 percent in 1995. The Company offered a series of low
cost , low margin special floor plans in the spring. The decrease in
manufacturing margins was more than offset by the leasing operations
achievement of a 51.4 percent gross profit margin.
Selling, general and administrative expenses increased overall by
$2,996,824 (a 29% increase). Most of the increase was due to expansion of the
leasing operations in 1995. The $533,149 increase in interest expense reflects
increased finance costs incurred from the Company's use of its lines of credit.
In 1995, net income was $4,237,651 or $1.25 per share, compared to
$6,605,678 or $1.95 per share in 1994. The decrease in net income was a direct
result of the sale of discontinued operations in 1994. Income from continuing
operations in 1995 was $4,533,532 or $1.34 per share, an increase of $604,680
or $.18 per share. Income from discontinued operations and from the gain on
the sale of CVC in 1994 was $404,507 and $2,272,319, respectively, compared to
a loss from discontinued operations in 1995 of $295,881.
1994 Compared to 1993
The Company's 1994 net sales increased $35,145,748 (61.8%) over 1993.
Approximately $30 million of the increase was directly attributable to the
Company's new manufacturing facility, which began production in May, 1993.
During 1994, this manufacturing facility expanded its production through
installation of a second assembly line. The overall increase in manufactured
housing sales was reflective of the continued growth experienced in the
industry over the past three years. The Company had been able to increase its
market share of manufactured homes in Arizona to over 35 percent. With the new
manufacturing facility and aggressive marketing and dealer support, the Company
should continue this trend.
Gross profit margin is comparable between years (18.4% in 1994, 18.9%
in 1993), allowing the increase in sales to be a direct improvement to the
bottom line. Selling, general and administrative expenses increased $2,393,350
from 1993 to 1994. This increase resulted from the sales growth, which
warranted increased staffing and sales and marketing programs. Increased
expenses were recognized in all operations. The 30% increase in operating
expenses, in comparison to a 62% increase in sales, exemplified the Company's
continuing efforts to control costs and improve profitability
14
15
Interest expense increased $164,067 in 1994 over 1993. The covertible
note and the Company's use of its line of credit led to increased finance
costs. The finance costs were partially offset by interest income earned on
invested proceeds from the sale of CVC.
In 1994, net income was $6,605,678 or $1.95 per share, an increse of
$4,455,972 or $1.31 per share over 1993. The reason for the large increase was
primarily due to the sale of discontinued operations. In 1994, income from
continuing operations was $3,928,852 or $1.16 per share, compared to $1,515,276
or $.45 per share in 1993. Income from discontinued operations was $404,507 in
1994, compared to $634,430 in 1993. The gain on the sale of CVC Leasing was
$2,272,319 in 1994.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements
Page
----
Report of Independent Public Accountants 16
Consolidated Financial Statements:
Consolidated Balance Sheets - September 30, 1995 and 1994 17
Consolidated Statements of Earnings -
Years Ended September 30, 1995, 1994 and 1993 19
Consolidated Statements of Cash Flows -
Years Ended September 30, 1995, 1994 and 1993 20
Notes to Consolidated Financial Statements 21
Note: Schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or
related notes.
15
16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cavco Industries:
We have audited the accompanying consolidated balance sheets of CAVCO
INDUSTRIES, INC. (an Arizona corporation) and subsidiaries as of September 30,
1995 and 1994, and the related consolidated statements of earnings and cash
flows for the three years in the period ended September 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Cavco Industries, Inc. and
subsidiaries as of September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Phoenix, Arizona,
November 22, 1995
16
17
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1995 and 1994
Assets
1995 1994
------------ ----------
Current Assets
Cash and cash equivalents $ 8,140,730 9,006,600
Receivables
Trade accounts, net of $280,000 and $125,000 3,164,862 4,605,736
reserve for uncollectible accounts in
1995 and 1994, respectively
Notes 511,302 433,804
Other 509,369 1,153,036
----------- ----------
Total receivables 4,185,533 6,192,576
----------- ----------
Inventories
Held for sale or lease 80,438 2,287,635
Manufacturing:
Work in process 807,949 823,582
Raw materials 2,971,581 2,314,623
Real estate held for sale 6,133,089 4,524,240
----------- ----------
Total inventories 9,993,057 9,950,080
---------- ----------
Prepaid expenses 834,713 461,515
Deferred tax charge 552,981 480,369
----------- ----------
Total current assets 23,707,014 26,091,140
----------- ----------
Notes receivable, net of current portion 1,162,415 1,425,243
Property, plant and equipment, at cost 14,285,539 12,164,077
Less accumulated depreciation 4,666,351 3,634,192
----------- ----------
Net property, plant and equipment 9,619,188 8,529,885
----------- ----------
Assets under lease 14,285,700 3,728,294
Less accumulated depreciation 596,007 133,617
----------- ----------
Net assets under lease 13,689,693 3,594,677
----------- ----------
Marketable securities 84,426 61,599
Investment in partnerships 2,534,703 1,546,724
Other assets 1,014,500 629,245
----------- ----------
$51,811,939 41,878,513
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
17
18
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1995 and 1994
Liabilities and Stockholders' Equity
1995 1994
----------- ----------
Current liabilities
Notes payable $ 1,022,864 1,654,490
Current installments of long term debt 2,444,248 1,875,189
Accounts payable 5,009,125 5,092,187
Accrued expenses 6,939,129 6,472,376
Income taxes 42,418 2,625,680
----------- ----------
Total current liabilities 15,457,784 17,719,922
----------- ----------
Long term debt, excluding current installments 12,692,661 5,413,980
Other liabilities - 97,309
Deferred income taxes 1,278,299 501,758
Stockholders' equity:
Common stock, $.05 par value; 8,000,000 shares
authorized; 3,382,977 shares issued and
outstanding in 1995 and 1994 169,149 169,149
Capital in excess of par value 312,054 312,054
Retained earnings 21,901,992 17,664,341
----------- ----------
Net stockholders' equity 22,383,195 18,145,544
----------- ----------
$51,811,939 41,878,513
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
18
19
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years Ended September 30, 1995, 1994 and 1993
1995 1994 1993
------------- ---------- ----------
Net sales $ 113,708,362 92,061,563 56,915,815
Cost of sales 92,213,840 75,103,512 46,183,666
------------- ---------- ----------
Gross profit 21,494,522 16,958,051 10,732,149
Selling, general and administrative expenses 13,316,823 10,319,999 7,926,649
------------- ---------- ----------
Operating income 8,177,699 6,638,052 2,805,500
------------- ---------- ----------
Other income (expense):
Interest income 287,385 175,957 40,707
Interest expense (1,047,650) (514,501) (350,434)
Miscellaneous 158,098 156,444 130,403
------------- ---------- ----------
(602,167) (182,100) (179,324)
------------- ---------- ----------
Income from continuing operations before income taxes 7,575,532 6,455,952 2,626,176
Income taxes 3,042,000 2,527,100 1,110,900
------------- ---------- ----------
Income from continuing operations 4,533,532 3,928,852 1,515,276
Discontinued operations:
Income (loss) from operations of CVC Leasing
division (less applicable taxes of ($194,000),
$260,800 and $465,800 for 1995, 1994 and 1993,
respectively) (295,881) 404,507 634,430
Gain on sale of CVC Leasing division (less
applicable taxes of $1,465,000) - 2,272,319 -
------------- ---------- ----------
Net income $ 4,237,651 6,605,678 2,149,706
============= ========== ==========
Income per share from continuing operations $ 1.34 1.16 .45
Income (loss) per share from operations of discontinued
division (.09) .12 .19
Income per share from gain on sale of division - .67 -
------------- ---------- ----------
Net income per share $ 1.25 1.95 .64
============= ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
19
20
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended September 30, 1995, 1994 and 1993
1995 1994 1993
------------ ----------- ----------
Cash flows from operating activities:
Net income $ 4,237,651 6,605,678 2,149,706
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of CVC Leasing division - (3,737,319) -
Depreciation and amortization expense 1,727,696 1,375,533 1,030,450
Provision for deferred income taxes 703,929 (455,900) 202,800
Gain on sales of assets under lease (389,409) (118,512) (254,596)
Change in assets and liabilites:
(Increase) decrease in receivables 1,440,874 (581,448) 397,563
(Increase) decrease in manufacturing and
leasing inventories (641,325) (3,739,014) (1,008,311)
(Increase) decrease in real estate held for sale (1,067,249) (2.833.311) 140,076
(Increase) decrease in prepaid expenses (373,198) 117,989 (359,662)
(Increase) decrease in other assets (241,244) (481,330) 92,138
Increase (decrease) in accounts payable (83,062) 1,305,794 2,114,013
Increase (decrease) in accrued expenses 466,753 2,252,398 1,218,195
Increase (decrease) in income taxes (2,583,262) 2,313,896 181,228
Increase (decrease) in lease deposits
and other liabilities (97,309) 190,682 (583)
------------ ----------- ----------
Net cash provided by operating activities 3,100,845 2,215,136 5,903,017
------------ ----------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,292,217) (1,962,510) (2,570,729)
Proceeds from sales of property, plant and
equipment 111,254 - -
Additions to assets under lease (11,292,377) (8,182,092) (2,173,901)
Proceeds from sales of assets under lease 2,713,985 773,288 13,599
Increase in notes receivable - (78,500) (77,000)
Proceeds from collections on notes receivable 1,352,273 420,328 393,320
Additions to investment in partnerships (1,212,979) (1,298,172) (248,552)
Net proceeds from sale of CVC Leasing division - 10,464,504 -
------------ ----------- ----------
Net cash provided by (used for)
investing activities (10,620,061) 136,846 (4,663,263)
------------ ----------- ----------
Cash flows from financing activities:
Borrowing under lines of credit 7,989,543 7.442,376 2,369,315
Repayment of lines of credit (8,621,169) (6,990,149) (4,889,559)
Proceeds from long-term debt 8,603,857 5,598,713 2,973,715
Repayment of long-term debt (1,318,885) (775,126) (1,654,622)
------------ ----------- ----------
Net cash provided by (used for) financing
activities 6,653,346 5,275,814 (1,201,151)
------------ ----------- ----------
Increase (decrease) in cash and cash equivalents (865,870) 7,627,796 38,603
Cash and cash equivalents at beginning of year 9,006,600 1,378,804 1,340,201
------------ ----------- ----------
Cash and cash equivalents at end of year $ 8,140,730 9,006,600 1,378,804
============ =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
20
21
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995, 1994, and 1993
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements of Cavco Industries,
Inc. (the Company) for 1995, 1994 and 1993 include the
accounts of Cavco Industries, Inc. and its subsidiaries,
Action Healthcare Management Services, Inc. (Action), Sun
Built Homes, Inc. (Sun Built) and National Security
Containers, Inc. (NSC). The Company owns 93% of Action and
100% of Sun Built and NSC. In accordance with ARB 51, all
losses applicable to the minority interest of Action have been
charged to the parent. All material intercompany transactions
have been eliminated in the consolidation.
(b) Inventories
Inventories are stated at the lower of cost or market (net
realizable value). Cost is determined by using standard cost
(which approximates actual cost on a first-in, first-out
basis) for finished goods and work-in process and actual cost
on a first-in, first-out basis for raw materials.
(c) Product Warranty
The Company's products carry a one-year warranty on structural
components to the original retail customer. The Company also
warrants certain nonstructural components for 90 days. The
warranty covers defective materials and workmanship. The
Company's experience allows it to reasonably estimate the
amount of warranty expense expected to be incurred for
products sold. Warranty expense for the years ended September
30, 1995, 1994 and 1993 was $1,946,297, $1,664,204, and
$1,021,471, respectively.
(d) Real Estate Held for Sale
Real estate held for sale consists primarily of land purchased
by Sun Built and homes manufactured by the Company for sale in
residential subdivisions. Sun Built capitalizes certain
interest costs incurred with developing the land, and such
interest will be included in cost of sales as property is sold
to the buyer. The amount of interest capitalized during the
years ended September 30, 1995 and 1994 was $127,732 and
$33,992, respectively.
In most cases, the customer obtains financing from an outside
source and pays cash for the purchase. In accordance with
rules established by Statement of Financial Accounting
Standards No. 66 (Accounting for Sales of Real Estate),
revenues are recognized upon close of sale, when the property
has transferred to the buyer.
21
22
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(e) Investment in Partnerships
In November, 1992, the Company formed a limited liability
corporation (LLC) with another company for the purpose of
developing a manufactured housing subdivision. The Company is
a 50% partner in the LLC and accounts for its investment on
the equity method. The Company's investment in the LLC was
$2,275,313 and $1,321,724 at September 30, 1995 and 1994,
respectively.
Sun Built is a 50% partner in a LLC formed in August, 1994, to
develop a manufactured housing subdivision. Sun Built
accounts for its investment on the equity method. Its
investment was $259,390 and $225,000 at September 30, 1995 and
1994, respectively.
(f) Revenue Recognition
The Company recognizes product revenue upon shipment of
product. Revenue from services is recognized when services
are performed. Lease income is recognized over the terms of
the leases.
(g) Statement of Cash Flows
For purpose of these statements, cash and cash equivalents
include cash on hand and cash in short-term investments with
original maturities of less than three months (primarily money
market funds).
Information that does not result in cash receipts or cash
payments in the period, but which affects the financing and
investing activities of the Company is included in
supplemental disclosures as follows.
Supplemental Disclosures of Non-cash Investing and Financing
Activities:
In 1995, the Company sold $523,276 of lease assets for notes
receivable. The Company purchased $541,600 of real estate
held for sale, financed by long term debt. Inventory held for
sale or lease of $2,207,197 was transferred into assets under
lease.
In 1994, the Company sold $1,015,133 of lease assets for notes
receivable. The Company purchased $470,118 of lease assets
financed by notes payable. The Company purchased $818,784 of
real estate held for sale, assuming $414,384 in notes payable
and financing $404,400 by long term debt. Also in 1994, the
Company sold its CVC Leasing division. See Note 14 for detail
of non-cash items.
In 1993, the Company sold $1,021,176 of lease assets for notes
receivable. The Company sold $90,750 of real estate held for
sale by issuing notes receivable. The Company purchased
automotive equipment for $114,819, financed by long term debt.
22
23
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(g) Statement of Cash Flows
Supplemental Disclosures of Cash Flow information:
1995 1994 1993
---- ---- ----
Cash paid during the year for:
Interest $ 1,020,766 1,109,739 1,010,087
========= ========= =========
Income Taxes $ 2,540 2,394,904 1,192,621
========= ========= =========
(h) Accounting Statements
The Financial Accounting Standards Board has issued a
Statement of Financial Accounting Standards ("SFAS"), No.
121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," which the Company
will be required to implement effective for the fiscal year
ending September 30, 1997. SFAS No. 121 requires that
long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount
of the asset may not be recoverable. If the sum of the
expected future cash flows (undiscounted and without interest
charges) from an asset to be held and used is less than the
carrying value of the asset, an impairment loss must be
recognized in the amount of the difference between the
carrying value and fair value. Assets to be disposed of must
be valued at the lower of carrying value or fair value less
costs to sell. Management of the Company believes that, if
SFAS No. 121 were implemented currently, no impairment loss
would be recognized.
(2) Notes Receivable
Notes receivable include amounts due under finance leases ($1,633,607
and $1,758,774 at September 30, 1995 and 1994, respectively) and
amounts due from sales of real estate held for sale ($16,610 and
$51,773 at September 30, 1995 and 1994, respectively). The finance
leases are secured by the related assets under lease, and the notes on
real estate sales are secured by deeds of trust. Also included in
notes receivable is the balance on a line of credit extended to a
dealer ($23,500 and $48,500 at September 30, 1995 and 1994,
respectively).
The aggregate maturities of the notes receivable for the five years
subsequent to September 30, 1995 are as follows:
1995 $ 511,302
1996 442,701
1997 316,324
1998 144,931
1999 110,679
Thereafter 147,780
----------
$1,673,717
==========
(3) Marketable Investment Securities
At September 30, 1995 and 1994, the noncurrent portfolios of
marketable investment securities are carried at the lower of aggregate
cost or market. Change in market value is recognized as investment
income (or loss) and is included in miscellaneous income in the
consolidated statement of earnings. Income recognized in 1995 and
1994 was $23,807 and $49,647, respectively.
23
24
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Property, Plant and Equipment
Depreciation of property, plant and equipment is provided over the
estimated useful lives of the respective assets on a straight-line
basis. Leasehold improvements are amortized on a straight-line basis
over their estimated useful lives or the terms of the respective
leases, whichever is shorter. Repair and maintenance costs are
expensed as incurred. A summary of property, plant and equipment, at
cost, follows:
Average September
Depreciable ----------------------------
Lives (Years) 1995 1994
-------------- ---- ----
Land - $ 2,455,801 2,088,994
Buildings 15-30 2,115,744 2,082,239
Plant equipment 5-10 3,035,233 3,098,417
Office equipment 3-10 1,909,801 1,820,034
Automotive equipment 3 1,868,784 903,864
Building and leasehold improvements 3-20 2,892,126 2,161,751
Construction in progress - 8,050 8,778
----------- ----------
$14,285,539 12,164,077
=========== ==========
(5) Notes Payable
The Company has a $4,000,000 revolving line of credit with a bank,
with an interest rate of prime plus 1/2%, expiring on January 31,
1996. This line of credit is secured by the Company's inventories and
accounts receivable. During the year, the Company obtained additional
lines of credit from the bank to temporarily fund working capital
needs.
Sun Built has a $1,000,000 line of credit with a financial
institution, with an interest rate of prime plus 1%, expiring in
January 1996. This line of credit is secured by certain real estate
held for sale. Sun Built has obtained a temporary increase in its
credit limit to $1,375,000.
During the year NSC utilized a temporary line of credit to fund
additions to assets under lease. The maximum borrowed during the year
was $2,750,000 at an average interest rate of 9.40%. The line was
paid off in June 1995. There was no outstanding balance at September
30, 1995.
Also included in notes payable in 1994 was $470,118, due for purchases
of storage containers for NSC's lease fleet. The notes were paid off
during 1995.
24
25
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Notes Payable (continued)
Pertinent information with respect to the bank lines of credit is as
follows:
Company line of credit: September 30,
-----------------------------------------
1995 1994 1993
---- ---- ----
Outstanding balance at year
end - - -
Interest rate at year end 9.25% 8.25% 6.5%
Maximum credit available 4,000,000 3,500,000 2,500,000
Maximum borrowing during
the year 3,750,000 3,500,000 2,500,000
Average outstanding
borrowings (a) 1,220,000 1,539,726 1,389,000
Average yearly interest rate (a) 9.5% 7.3% 6.7%
(a) The average outstanding borrowings during the periods were
calculated by dividing the weighted average daily balance by
365. The average yearly interest rate during the period was
calculated by dividing the interest expense by the average
outstanding borrowings.
Sun Built line of credit: September 30,
---------------------------------------
1995 1994 1993
---- ---- ----
Outstanding balance at year
end 1,022,864 1,184,372 317,761
Interest rate at year end 9.75% 9.5% 7.75%
Maximum credit available 1,375,000 1,184,372 1,000,000
Maximum borrowing during
the year 1,360,570 1,184,372 412,219
Average outstanding
borrowings (b) 1,178,397 597,614 339,283
Average interest rate for year (b) 10.32% 8.15% 7.4%
(b) Average outstanding borrowings during the periods were
calculated by dividing the month-end balances (including
beginning of year) by 13. Average yearly interest rates were
calculated by dividing the interest expense by the average
outstanding borrowings.
25
26
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Long-Term Debt
A summary of long-term debt is as follows:
September 30,
------------------------------------
1995 1994
---- ----
Convertible note trust, interest payable
quarterly at 8%, unsecured, balance due
and payable in April, 1999. (See (a) below) $4,100,000 4,100,000
Notes payable to a financial institution,
due in monthly installments of $133,333 plus
interest at 9.06%, secured by assets under
lease and accounts receivable. The note is
amortized over a 5-year period and is due and
payable in July, 2000. (See (b) below). 7,599,981 -
Mortgage note payable, due in monthly
installments of $8,070 plus interest at
prime plus 1%, (9.75% at September 30,
1995) secured by deed of trust on real estate.
The mortgage is amortized over a 13-year
term, with the balance due and payable in
August, 2002. (See (b) below). 1,250,913 1,308,396
Notes payable to a title company, due in
monthly installments of $6,818 including
interest at 10%, secured by real estate
held for sale, balances due and payable
ranging from February 1997 to June 1998. 589,268 313,125
Note payable to bank, due in monthly
installments of $19,259 including interest
at 9.755%, secured by certain plant equipment,
due and payable in September, 1998. 584,598 -
Note payable to bank, due in monthly
installments of $27,778 plus interest at
prime plus 1/2%, (9.25% at September 30,
1995) secured by certain plant equipment,
due and payable in September, 1996. 361,088 694,433
Note payable due in monthly installments
of $2,601 including interest at a rate of
9%, secured by a deed of trust. The note
is amortized over a 30-year term and is
due and payable in July, 2011. 293,009 297,599
26
27
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Long-Term Debt (continued)
September 30,
-------------------------------------------
1995 1994
---- ----
Note payable due in monthly installments
of $3,416 including interest at a rate of
13% secured by a deed of trust. The note
is amortized over a 15-year term and is
due and payable in November, 2000. 153,663 173,272
Note payable to bank, due in monthly
installments of $9,587 including interest
at 7.55%, secured by certain office equipment,
due and payable in September, 1996. 116,184 215,357
Notes payable to finance companies, due
in monthly installments totaling $9,019, in-
cluding interest at various rates ranging be-
tween 6.6% and 11.5%, balances due and
payable ranging from November, 1995 to
October, 1998, secured by automotive and
office equipment. 88,205 186,987
----------- ----------
15,136,909 7,289,169
Less current portion 2,444,248 1,875,189
----------- ----------
Long term debt, net of current portion $12,692,661 $5,413,980
=========== ==========
(a) At any time during the term of the note, all or any portion of
the principal balance is convertible, at the Company's option,
into shares of the Company's common stock at $16 per share
(post stock split), if the stock price exceeds $20 per share
(post stock split) for a period of at least 20 trading days.
The Company also has an option to prepay up to one half of the
outstanding principal balance of the loan after October, 1995.
Payment after October, 1995 can be made in stock, at $16 per
share (post stock split), if the stock price exceeds $16 per
share (post stock split) for a period of at least 20 trading
days.
(b) Certain of the Company's loan agreements require compliance
with financial covenants, the most significant of which
specify a minimum current ratio, minimum owner's equity,
working capital, debt coverage ratio, debt service coverage
ratio, and minimum tangible net worth. The agreements also
state that any dividends to stockholders must be approved by
the lending institution. At September 30, 1995, the Company
was not in compliance with the covenant related to debt
service coverage ratio for one of the subsidiaries. The
Company obtained a waiver from the bank.
27
28
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Long-Term Debt (continued)
The aggregate maturities of long-term debt for the five years
subsequent to September 30, 1995 are as follows:
1996 $ 2,444,248
1997 2,122,336
1998 2,355,904
1999 5,836,817
2000 1,341,456
Thereafter 1,036,148
-----------
$15,136,909
===========
(7) Income Taxes
Prior to January 1, 1989, Cavco Industries, Inc. owned less than 80
percent of the stock of Action and therefore filed separate tax
returns for Action. Accordingly, the tax benefit of the net operating
loss was not utilized on a consolidated basis. The net operating loss
expiring in 2002 is available to offset future taxable income in
Action. In 1994, $54,362 of that net operating loss carryforward was
used to offset Action's taxable income. For income tax purposes at
September 30, 1995, Action has a net operating loss carryforward of
approximately $521,000 remaining. For 1995 and 1993, the consolidated
taxable income reflected a loss of $198,629 and $677,468,
respectively, related to Action.
Components of income tax expense are as follows:
Current Deferred Total
------- -------- -----
1995: Federal $1,683,500 552,800 2,236,300
State 460,500 151,200 611,700
---------- ------- ---------
$2,144,000 704,000 2,848,000
========= ======= =========
1994: Federal $3,696,400 (357,900) 3,338,500
State 1,012,400 (98,000) 914,400
---------- -------- ---------
$4,708,800 (455,900) 4,252,900
========== ======== =========
1993: Federal $1,024,100 174,500 1,198,600
State 349,800 28,300 378,100
---------- ------- ---------
$1,373,900 202,800 1,576,700
========== ======= =========
28
29
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Income Taxes (continued)
Income tax expense amounted to $2,848,000 for the year ended September
30, 1995 (an effective rate of 40.1%), $4,252,900 for the year ended
September 30, 1994 (an effective rate of 39.2%), and $1,576,700 for
the year ended September 30, 1993 (an effective rate of 42.3%). The
actual tax expense differs from the "expected" tax expense (computed
by applying the U.S. Federal corporate tax rates to earnings before
income tax) as follows:
1995 1994 1993
---- ---- ----
Federal corporate tax rate 34.0% 34.0 34.0
State income taxes, net of
federal income tax benefit 6.1 6.1 6.1
Other - (0.9) 2.2
---- ---- ----
Effective tax rate 40.1% 39.2 42.3
==== ==== ====
Deferred tax assets and liabilities represent the estimated future tax
effects attributable to timing differences in the recognition of
revenue and expense items for financial statement and tax return
purposes. The source of these differences and the tax effect of each
are set forth as follows:
September 30,
------------------------------------------
1995 1994
---- ----
Current:
Accrued warranty expense $ 355,104 290,695
Reserve for uncollectible accounts 110,924 49,125
Deferred rent 48,011 87,229
Accrued vacation and holiday 40,471 31,950
Accrued bonuses 15,067 15,771
Accrued state tax deduction (16,596) 5,599
----------- ---------
Deferred tax charge $ 552,981 480,369
=========== =========
Long-term:
Excess of tax over book
depreciation (1,310,517) (576,368)
Loss in partnership (43,827) (12,552)
Advance rents received (16,709) 2,563
Excess of tax over book amortization
of intangibles 30,862 14,229
Excess of book gain over tax gain
on sale of assets 61,892 61,399
Loss on marketable securities - 8,971
----------- ---------
Deferred tax liability $(1,278,299) $(501,758)
=========== =========
(8) Employee Benefit Plans
The Company's profit sharing plan is a defined contribution plan which
covers all employees completing two years of service. After two years
of service have been completed, employees begin participation on the
first day of the sixth month or the first day of the plan year,
whichever is earlier. Participants are 100% vested after two years in
the Plan. The Plan was designed to comply with the requirements of
ERISA. Contributions to the Plan are determined annually by
29
30
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Employee Benefit Plans (continued)
the Board of Directors. The Company contributed $100,000 to the Plan
for the year ended September 30, 1995, $200,000 for 1994 and $150,000
for 1993.
The Company adopted a 401(k) plan in January, 1995. All employees are
eligible to participate after completing four months of service, and
may begin participation on the following January 1 or July 1,
whichever is earlier. Participants may defer up to 15% of annual
compensation (subject to limits set by the Internal Revenue Service)
to contribute to the 401(k) plan. The Company matches 25% of the
employee's contribution, up to 6% of his or her compensation. The
Company contributed $68,924 to the 401(k) plan for the year ended
September 30, 1995.
(9) Stockholders' Equity
The number of shares used in computing earnings per common share was
3,382,977 for 1995, 1994 and 1993. The number of shares reflects a
three-for-two stock split effective December, 1994. Fully diluted
earnings per share are the same as primary earnings per share.
Changes in stockholders' equity accounts between years are summarized
below:
Unrealized loss on non-current
Retained earnings marketable investment securities
----------------- --------------------------------
Balance September 30, 1992 $ 8,908,957 (65,045)
Net income 2,149,706 -
Net unrealized loss - (7,429)
----------- -------
Balance September 30, 1993 11,058,663 (72,474)
Net income 6,605,678 -
Net recognized loss - 72,474
----------- ------
Balance September 30, 1994 17,664,341 -
Net income 4,237,651 -
----------- ------
Balance September 30, 1995 $21,901,992 -
=========== ======
(10) Financing Arrangements and Commitments
The Company is contingently liable under terms of repurchase
agreements covering dealer floor plan financing arrangements. These
arrangements, which are customary in the industry, provide for the
repurchase of products sold to dealers in the event of default on
payments by the dealer. The risk of loss is spread over numerous
dealers and financing institutions and is further reduced by the
resale value of repurchased units. The Company has not incurred any
significant losses from these arrangements since inception.
During 1995 and 1994, the Company entered into financing arrangements
whereby certain dealers would be assisted in obtaining financing for
purchases of Cavco manufactured homes. The Company has guaranteed the
flooring lines extended to the dealers by the financing institutions.
The Company's maximum liability to financial institutions was
$6,500,000 in 1995 and $2,475,000 in 1994.
30
31
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Financing Arrangements and Commitments (continued)
The Company is the guarantor on a loan agreement which allowed the LLC
(see Note 1) to borrow $3,750,000 from investors. The loan is paid
out over five years, based on scheduled sales of lots. The amount
guaranteed by the Company has been offset by proceeds received on the
lot sales, leaving a balance of $3,177,285 at September 30, 1995.
(11) Leases
The Company occupies certain land and office buildings and uses
certain equipment under lease arrangements classified as operating
leases. Real estate taxes, insurance and maintenance expenses are
obligations of the Company.
At September 30, 1995, future minimum lease payments due under
noncancellable operating leases, excluding executory costs, are as
follows:
Year Ending
September 30 Amount
------------ ------
1996 $ 864,500
1997 686,087
1998 276,243
1999 94,094
2000 26,606
----------
Total $1,947,530
==========
Total rental expense for 1995, 1994 and 1993 was $1,051,884, $902,332
and $551,025 respectively.
(12) Industry Segment Information
The Company operates principally in four industries: Manufactured
Housing, Leasing, Health Care Management and Real Estate Development.
Operations are conducted in Arizona and, to a much lesser extent, in
Nevada, Colorado, Idaho, California, Utah, Washington, New Mexico,
Georgia, Pennsylvania, Oregon, Texas and Canada. Operating profit
consists of total revenue less cost of sales and operating expenses.
None of the following have been included in the computation of gross
operating profit: general corporate expenses, non-operating income
and expenses and income taxes. Identifiable assets are those assets
used in the operations of each industry segment. General corporate
assets primarily consist of cash, temporary investments, deferred tax
benefits and other current assets. Information with respect to
industry segments as of September 30, 1995, 1994 and 1993 is set forth
on the following page.
31
32
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Industry Segment Information (continued)
Real Estate
Manufactured Leasing Health Care Development General
Housing Operations Management Operations Corporate Total
------- ---------- ---------- ---------- --------- -----
1995
----
Sales to unaffiliated
customers $ 103,560,443 5,037,282 1,026,230 4,084,407 - 113,708,362
Operating profit (loss) 9,439,956 421,795 (136,610) 15,213 (1,562,655) 8,177,699
Identifiable assets 11,914,234 19,416,794 590,635 7,026,052 12,864,224 51,811,939
Depreciation and
amortization 674,658 786,370 50,266 35,678 180,724 1,727,696
Capital expenditures 1,089,116 12,438,891 28,080 28,507 - 13,584,594
1994
----
Sales to unaffiliated
customers $ 85,969,747 - 1,465,525 4,626,291 - 92,061,563
Operating profit (loss) 7,692,540 - 114,146 177,379 (1,346,013) 6,638,052
Identifiable assets 10,501,021 13,175,553 677,843 5,448,625 12,075,471 41,878,513
Depreciation and
amortization 521,786 661,824 45,563 29,049 117,311 1,375,533
Capital expenditures 1,181,074 8,665,060 26,998 137,846 133,624 10,144,602
1993
----
Sales to unaffiliated
customers $ 53,356,661 - 589,443 2,969,711 - 56,915,815
Operating profit (loss) 4,193,014 - (553,999) 281,043 (1,114,558) 2,805,500
Identifiable assets 9,708,746 15,663,167 448,918 1,313,708 3,568,791 30,703,330
Depreciation and
amortization 347,702 571,832 43,367 15,818 51,731 1,030,450
Capital expenditures 1,940,910 2,398,130 114,490 1,584 404,335 4,859,449
Sales to one manufactured housing customer amounted to $18,129,289, or
15.5% of sales for the year ended September 30, 1995. Sales to two
manufactured housing customers amounted to $17,388,700 and $10,999,677
(18.9% and 11.9% of sales, respectively) for the year ended September
30, 1994. Sales to two manufactured housing customers amounted to
$8,955,898 and $8,211,982 (15.7% and 14.4% of sales, respectively) for
the year ended September 30, 1993.
32
33
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Accrued Expenses
A summary of accrued expenses follows:
September 30,
---------------------------------------------------
1994 1994
---- ----
Wages $ 964,821 979,735
Sales promotion programs 2,427,033 1,960,261
Accrued warranty 896,372 739,683
Industrial insurance 1,308,813 944,383
Other 1,342,090 1,848,314
---------- ---------
$6,939,129 6,472,376
========== =========
(14) Discontinued Operations
On August 1, 1994, the Company sold the relocatable mobile and modular
commercial structures and related buildings and equipment of its
leasing division (CVC) for $20.1 million, to an unrelated company.
Approximately $8.0 million was used to pay off notes payable
associated with the assets sold; a $1.2 million note receivable
remains due from the purchaser; net cash proceeds totalled $10.9
million. The net value of assets sold, plus other costs related to
the sale, amounted to $16.4 million, resulting in a net gain of $3.7
million.
Net income (loss) from CVC leasing operations is included in the
consolidated statements of income under "discontinued operations".
Revenues from such operations were $2,072,569 for 1995, $8,253,530 for
1994, and $7,732,534 for 1993. Revenues in 1995 were produced from
the sales of jobs that were in progress when the division was sold.
Assets and liabilities related to CVC remaining on the balance sheet
as of September 30, 1995 include trade accounts receivable ($378,406),
balance remaining from purchaser of CVC ($509,369), and rent due on
CVC properties ($121,191). Assets and liabilities related to CVC
remaining on the balance sheet as of September 30, 1994 include trade
accounts receivable ($2,636,925), balance remaining from purchaser of
CVC ($1,153,036), customer deposits ($218,988), inventory and assets
under lease ($1,637,084), accounts payable ($327,400), rent due on CVC
properties ($221,956), and other accrued expenses ($383,723).
(15) Supplemental Financial Data (unaudited)
Selected quarterly financial data for the years ended September 30,
1995 and 1994 is set forth on the following page. Earnings per share
were adjusted to reflect the three-for-two stock split. Amounts
differ from amounts previously reported on the Company's Form 10-Q's
due to elimination of discontinued operations of the Company's CVC
Leasing division.
33
34
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Supplemental Financial Data (continued)
First Second Third Fourth
----- ------ ----- ------
1995
----
Net sales $30,140,661 28,506,700 25,914,959 29,146,042
Gross profit $ 6,042,484 4,984,232 3,972,700 6,495,106
Net income from
continuing operations $ 1,628,149 956,026 499,164 1,450,193
Income per share from
continuing operations $ .48 .28 .15 .43
1994
----
Net sales $21,219,830 24,247,343 22,188,008 24,406,382
Gross profit $ 3,519,340 4,003,622 3,645,492 5,789,597
Net income from
continuing operations $ 860,622 882,837 704,522 1,480,871
Income per share from
continuing operations $ .25 .26 .21 .44
34
35
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS
There were no disagreements with accountants on accounting and
financial disclosure matters.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors and executive officers as required
by Items 401 and 405 of Regulation S-K is set forth in the Company's Notice of
Information Statement, which will be filed with the Securities and Exchange
Commission not later than 120 days after September 30, 1995, and by this
reference is incorporated herein.
ITEM 11: EXECUTIVE COMPENSATION
The information regarding executive compensation required by Item 402
of Regulation S-K is set forth in the Company's Notice of Information
Statement, which will be filed with the Securities and Exchange Commission not
later than 120 days after September 30, 1995, and by this reference is
incorporated herein.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is set forth in
the Company's Notice of Information Statement, which will be filed with the
Securities and Exchange Commission not later than 120 days after September 30,
1995, and by this reference is incorporated herein.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related
transactions as required by Item 404 of Regulation S-K is set forth in the
Company's Notice of Information Statement, which will be filed with the
Securities and Exchange Commission not later than 120 days after September 30,
1995, and by this reference is incorporated herein.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List the Following Documents Filed as a Part of the Report:
1. Financial statements - See Index to Consolidated
Financial Statements at Item 8 of this Form 10-K.
2. Financial statement schedules - See Index to
Consolidated Financial Statements at Item 8 of this
Form 10-K.
3. Exhibits - See Exhibit Index.
35
36
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 of the registrant and in the undersigned, thereunto duly
authorized.
Cavco Industries, Inc.
President and
By: /s/ A.R. Ghelfi Chief Executive Officer 12/26/95
------------------------- ---------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates authorized.
President, Chief
By: /s/ A.R. Ghelfi Executive Officer, 12/26/95
------------------------- Director ---------------
A.R. Ghelfi Date
Senior Vice President,
By: /s/ Ruth Smith Secretary, Director 12/19/95
------------------------- ---------------
Ruth Smith Date
Vice President,
By: /s/ Robert Ward Principal Financial and 12/20/95
------------------------- Accounting Officer ---------------
Robert Ward Date
Executive Vice
By: /s/ William R. Blandin President, Director 12/20/95
------------------------- ---------------
William R. Blandin Date
36
37
EXHIBIT INDEX
Exhibit No. Description Page
- - ----------- ----------- ----
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession - not applicable.
(3) Articles of Incorporation and By-Laws
Original articles of incorporation and by-laws and amendments to
the articles of incorporation and bylaws were previously filed with Form 10 and
are incorporated herein by reference.
(4) Instruments defining the rights of security holders, including indentures
Certain rights of security holders are set forth in the Articles
of Incorporation and By-Laws previously filed with Form 10 and
incorporated herein by reference.
(9) Voting Trust Agreement - not applicable.
(10) Material Contracts
Previous Material Contracts have been filed with Form 10,
previous Form 10-K's and previous Form 8-K's and are
incorporated herein by reference.
(11) Statement re computation of per share earnings set forth in
financial statements in this Form 10-K.
(12) Statements re computation of ratios - not applicable.
(13) Annual Reports to Security Holders, Form 10-Q or Quarterly
Report to Security Holders
The Annual Report and Forms 10-Q were previously filed in
a timely manner and are incorporated herein by reference.
Attached find the quarterly reports issued to security holders 39
(18) Letter re change in accounting principles - not applicable.
(21) Subsidiaries of the registrant
Action Healthcare Management Services, Inc. - incorporated
in Arizona in March, 1987.
Sun Built Homes, Inc. - incorporated in Arizona in
December, 1991.
National Security Containers, Inc. - incorporated in
Arizona in August, 1994.
37
38
(22) Published report regarding matters submitted to vote of security
holders - not applicable.
(24) Power of Attorney - not applicable.
(27) Financial Data Schedule 44
(28) Information from Reports Furnished to State Insurance Authorities -
not applicable.
(99) Additional Exhibits - not applicable.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
year ended September 30, 1995
38