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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
For the Fiscal Year Ended September 30, 1996 Commission File 0-8822
CAVCO INDUSTRIES, INC.
An Arizona Corporation No. 86-0214910
1001 North Central, 8th Floor, Phoenix, AZ 85004
Registrant's Telephone No. (602) 256-6263
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
- ------------------- -------------------
None None
Securities 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. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of November 30, 1996 was $28,035,371.
As of November 30, 1996, the issuer had 3,387,968 shares of its five
cent ($.05) par value Common Stock outstanding.
The Exhibit Index is located on Page .
The total number of pages is .
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PART I
ITEM 1: BUSINESS
RECENT DEVELOPMENTS: PROPOSED MERGER.
On December 4, 1996, Cavco Industries, Inc. ("Cavco" or the "Company")
entered into an Agreement and Plan of Merger ("Merger Agreement") by and among
Cavco, Centex Real Estate Corporation ("CREC"), MFH Holding Company, a Nevada
corporation (the "Holding Company"), MFH Acquisition Company, an Arizona
corporation and wholly-owned subsidiary of the Holding Company (the "Merger
Subsidiary") and certain shareholders of Cavco, Al R. Ghelfi, the Chairman of
Cavco, his spouse, Janet M. Ghelfi, and Janal Limited Partnership, an Arizona
limited partnership ("Janal") (the "Shareholder Parties"). The purpose of the
transactions contemplated by the Merger Agreement is to effect the acquisition
by CREC, through its ownership of shares in the Holding Company, of
approximately 78% of the equity interest in Cavco, with the remaining
approximately 22% equity interest to be retained by the Shareholder Parties
through their ownership of shares in the Holding Company. If the transactions
contemplated by the Merger Agreement are consummated, all shares of Cavco Common
Stock held by shareholders of Cavco other than the Shareholder Parties, together
with 1,047,288 shares of Cavco Common Stock held by the Shareholder Parties,
will be converted into the right to receive $26.75 in cash (or in the case of
shareholders who exercise appraisal rights, the amount determined under
applicable law). Consummation of the transactions contemplated by the Merger
Agreement is subject to certain conditions, including the approval of a majority
of the outstanding shares of Cavco common stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Part II of
this Form 10-K for additional information concerning the transactions
contemplated by the Merger Agreement.
(a) GENERAL
Cavco is the largest manufacturer of residential and recreational
manufactured 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 August 1994, the Company sold the
relocatable commercial modular structures business of CVC and 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 utilization management and other health care services. The Company owned
approximately 93% of Action's stock. The Company sold the assets of Action on
September 30, 1996.
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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 1001 N. Central, 8th Floor,
Phoenix, Arizona 85004. Its telephone number is (602) 256-6263.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates principally in three industries: manufactured housing,
leasing, and real estate development. Information with respect to net sales,
operating profit (loss) and identifiable assets by industry segment is set forth
in Note 11 of 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
manufactured housing. Cavco's manufactured housing products are manufactured in
one of three facilities located in Arizona and transported in one or more
sections for installation utilizing their own chassis on either temporary or
permanent foundations. Although Cavco's manufactured housing products are
designed to be transportable, fewer than five percent are ever moved from their
original site after installation.
The Company is subject to the regulations of federal and state agencies
which dictate building codes for manufactured housing. In manufacturing its
homes, Cavco implements efficient assembly line techniques and uses materials
similar to those 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; roof construction utilizes asphalt shingles or galvanized steel.
Cavco's housing products are distributed under various trademarks, with
models available in a variety of floorplans ranging in size of approximately
399 square feet for a recreational/retirement park home to a range of 546
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. The Company offers numerous options and customizes
models to meet the needs of different geographical areas. Retail prices of
the Company's homes range from $19,000 to $100,000. The average price of a
recreational/retirement park home is approximately $28,000, and the average
price of a residential home is approximately $40,000.
METHOD OF DISTRIBUTION
The Company sells its manufactured homes through a network of independent
dealers and generally does not sell products directly to the general public,
except for sales in certain subdivisions developed by the Company's Sun Built
subsidiary. See "Description of Business -- Real Estate Development." The retail
prices of the Company's manufactured homes are set by
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individual dealers and not by the Company. Many of the Company's independent
dealers operate more than one retail outlet. The Company presently has
approximately 200 outlets in 10 states, Canada and Japan, of which there are
approximately 103 in Arizona, 27 in New Mexico, 20 in Colorado, 15 in Utah, 6 in
Texas, 4 each in Nevada and Washington, 3 in California, 2 in Idaho, 1 in
Oregon, 7 in Canada and 8 in Japan. Most of the Company's dealers sell competing
products, although from time to time the Company also may enter into exclusive
agreements with certain dealers.
The Company's dealers finance their purchase of manufactured homes through
floor plan financing arrangements with third-party lenders. Generally, the
Company receives a commitment from the dealer's lender for each order, which is
earmarked for the home ordered, identified by its serial number. The Company
then manufactures the home and ships it to the dealer. The dealer is responsible
for all shipping costs. Payment is due from the third party floor plan lender
upon the dealer's notice of delivery and acceptance of the product. The length
of time it takes to manufacture and ship a home after an order is placed varies
according to the Company's backlog.
The Company is contingently liable under terms of repurchase agreements
with the third party lenders that provide 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 offset by the resale value of repurchased
units. The Company has not incurred any significant losses from these
arrangements since its inception.
The Company extends a limited warranty to original retail purchasers of
manufactured housing products. The Company warrants structural components for 12
months and nonstructural components for 90 days. The Company's warranty does not
extend to installation, setup or appliances. Appliances are warranted by their
original manufacturer.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company has not experienced any material difficulty in purchasing its
raw materials or component parts. The Company buys wood, wood products,
aluminum, steel, tires, hardware, windows and doors from manufacturers and
distributors located primarily in California and Arizona. Approximately 39
percent of the unit cost of the Company's manufactured homes is attributable to
raw wood products. The majority of the other component parts of the Company's
homes are purchased manufactured components.
PATENTS, TRADEMARKS AND LICENSES
The Company does not own any material patents, licenses, franchises,
trademarks or concessions in connection with its manufactured housing business.
The Company does not sell or grant franchises to its dealers.
SEASONALITY
The Company's manufactured housing business is not seasonal.
INVENTORY
The Company does not maintain a significant finished product inventory.
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CUSTOMERS
The Company currently has approximately 200 independent dealer outlets. No
dealer exceeded 10% of the Company's sales volume for the year ended September
30, 1996. The Company does not believe that the loss of any dealer would have a
material adverse effect on the Company.
BACKLOG
The Company's backlog of firm orders for manufactured homes as of September
30, 1996 was approximately $11,500,000 (710 floors) as compared with September
30, 1995, when the backlog was approximately $19,300,000. The Company currently
requires approximately six to eight weeks to fill an order. The Company
presently anticipates that the entire backlog at September 30, 1996 will be
filled during the 1997 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.
COMPETITION
The Company sells its manufactured housing products through independent
dealers located in the states of Arizona, New Mexico, Colorado, Utah, Texas,
Nevada, Washington, California, Idaho, Oregon, as well as Canada and Japan. The
Company estimates that there are approximately 7 other manufacturers competing
for a significant share of the Arizona market. The Company believes that its
business represents an approximate 31% share of the Arizona market and a small
share of the market in such other states. The largest competitors of the Company
are Fleetwood Enterprises, Palm Harbor Homes, Inc., Schult Homes Corporation and
Champion Enterprises, Inc. Most of these competitors have manufacturing
facilities in Arizona and all have significantly greater financial,
manufacturing and marketing resources than Cavco. The Company believes that
competition in the manufactured housing industry is being affected by
consolidation and by increasing competition from geographically diversified
companies and vertically integrated competitors that combine manufacturing
operations with other complementary services and operations, such as a retail
sales network, mortgage financing, insurance and other services. The Company
believes the principal factors affecting competition in the manufactured housing
market are price, product quality and reliability, reputation and 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 approximately 1,056 people in its manufacturing
segment. Of these, 93 are salaried managerial, office and clerical workers; 946
are hourly production workers, and 17 are commissioned salespeople.
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FOREIGN OPERATIONS
The Company does not have any foreign operations.
II. LEASING OPERATIONS
DESCRIPTION OF BUSINESS
The Company sells and leases security storage containers ("containers") and
trailer vans ("vans") through its NSC 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 its patented locking units on
the containers before transferring them to its leasing branch offices. The vans
are purchased from various transportation companies usually through brokers,
transported to the Company's leasing branches and refurbished at its own
facilities or using outside contractors. Generally, the vans leased by the
Company are used for ground transportation of goods.
METHOD OF DISTRIBUTION
NSC currently sells or leases containers and vans directly to customers
through nine offices located in Arizona, Texas, Colorado, Louisiana and
Tennessee. At the customer's request, NSC will contract or use its own equipment
to deliver the container or van to the customer's site. Pricing is dependent
upon competition and demand within each geographical area.
SOURCES AND AVAILABILITY OF PRODUCTS
NSC has not experienced, and does not anticipate, any significant
difficulty in purchasing containers or trailer vans in sufficient quantity to
supply its business.
PATENTS, TRADEMARKS AND LICENSES
NSC owns a patent on a single lever locking system designed to secure its
containers. The patent expires in June 2014.
GOVERNMENT CONTRACTS
None of NSC's business is subject to renegotiation of profits or
termination of contracts at the election of the government.
COMPETITION
Competition in the container and van leasing business in the Company's
markets consists primarily of privately owned companies that concentrate on
container sales. The Company believes that the principal factors affecting
competition in the leasing business are price and service.
RESEARCH AND DEVELOPMENT
During the year, the amount NSC has spent on research and development was
immaterial.
CUSTOMERS; SEASONALITY
NSC sells or leases containers and vans 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
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one month to three years, with an average rental period of six months. The
Company believes that there is increasing demand throughout the business
community for secure storage due to increasing theft and vandalism. The business
of NSC is not dependent upon any one customer.
ENVIRONMENTAL CONTROLS
The Company believes that compliance with federal, state and local
environmental protection regulations will not have a material adverse effect on
the capital expenditures, earnings or competitive position of NSC.
EMPLOYEES
NSC has approximately 71 employees. Of these, approximately 6 are
executives or managers, 10 are branch managers, 14 are sales representatives, 29
are hourly production and transportation workers, and 12 are office and clerical
workers.
FOREIGN OPERATIONS
NSC does not have any foreign operations.
III. REAL ESTATE DEVELOPMENT
DESCRIPTION OF BUSINESS
The Company organized its Sun Built subsidiary in December 1991, to develop
manufactured housing subdivisions, purchase developed lots and to sell
manufactured homes in established subdivisions. The Company has generally sought
to acquire land with the intent to complete the sale of housing units within 36
to 60 months from the date of acquisition. Generally, this involves acquiring
land that is properly zoned and is either ready for development or already
developed. 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 1,800 square feet, with retail selling prices ranging from $30,200
to $86,800, excluding the land. Competition is intense in the residential
development market. Pricing is dependent upon competition and demand within each
geographical area.
METHOD OF DISTRIBUTION
Sun Built sells lots in its subdivisions and manufactured homes directly to
the consumer. Sun Built does not provide financing to its customers, but may
from time to time assist customers in obtaining third party lender financing.
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.
SOURCES AND AVAILABILITY OF PRODUCTS
Sun Built has not experienced, and does not anticipate, any problems in
purchasing its manufactured homes, all of which 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.
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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
Sun Built competes with a large number of firms, most of which have
substantially greater financial, marketing and development resources than Sun
Built. To date, all of Sun Built's development and sale of lots and manufactured
homes has been made in Arizona. The residential housing industry is essentially
a local business and is intensely competitive. The industry is cyclical and is
affected by changes in local economic conditions, long-term and short-term
interest rates, federal mortgage financing programs and, to a lesser extent,
changes in property taxes and energy costs, federal income tax laws and various
demographic factors. The Company believes the main competitive factors affecting
Sun Built's operations are price, location, quality and design of homes,
availability and cost of land, development and product acquisition cost,
marketability and reputation.
RESEARCH AND DEVELOPMENT
During the last fiscal year, the amount Sun Built 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
the capital expenditures, earnings or competitive position of Sun Built.
EMPLOYEES
Sun Built has 2 employees: 1 project manager and 1 salesperson.
FOREIGN OPERATIONS
Sun Built does not have any foreign operations.
ITEM 2: PROPERTIES
I. MANUFACTURED HOUSING
The Company's executive, accounting and engineering offices are located at
1001 N. Central Avenue, Suite 800, Phoenix, Arizona. In June, 1996, the Company
entered into a 5-year lease for 20,188 square feet of office space.
Approximately 5,000 square feet is occupied by offices of NSC. Lease payments
total $18,506 per month for the first two years, $18,926 for the third year, and
$19,347 for the fourth and fifth years. The Company may exercise two 5-year
options on the property.
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 1300 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
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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
$1,154,068 and $1,250,913 at September 30, 1996 and 1995, 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.
In September, 1996 the Company purchased approximately 22 acres of land
located at 80 Don Luis Trijello Blvd., Belen, New Mexico. The Company is
building a 140,000 square foot production facility on this property, which will
include 8,000 square feet of office space. Total construction costs will
approximate $4.8 million. The facility will be used to produce manufactured
homes. Production is scheduled to begin in fiscal 1997, under a newly formed
subsidiary, Cavco Industries of New Mexico, Inc.
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. LEASING OPERATIONS
NSC's executive and accounting offices are located at 1001 N. Central
Avenue, Suite 800, Phoenix, Arizona. See first paragraph of Manufactured Housing
section above.
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
2.5 acre 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's Tucson branch is located at 7011 N. Camino Martin, Tucson, Arizona.
In October, 1996 NSC entered into a 3-year lease. Monthly lease payments are
$915. NSC uses the property for its leasing and sales office, and to store
unleased containers.
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NSC has a leasing and sales location on rented property at 15960 East
Colfax Avenue, Aurora, Colorado. The lease is effective December 1, 1995 and
expires November 30, 2000. Monthly rent is $2,250. NSC uses the property for its
leasing and sales office, and to store unleased containers.
In January, 1996 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 and 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, 2000 and requires rent
payments of $4,500 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 office
building and a 2,800 square foot maintenance building. The property is located
at 13390 I-35 South, Von Orney, 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 also used to store unleased
containers and trailer vans. 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 and trailer vans. 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 May, 1995, NSC purchased 8 acres of land at 7180 Copper Queen, El Paso,
Texas. The Company constructed a maintenance facility on the property for
refurbishment and repair of its lease fleet. The facility is approximately 7,500
square feet and includes 2,688 square feet of office and warehouse space.
NSC leases a 10 acre parcel of land at Lot #D, Block 4, Copperfield
Industrial Park, El Paso, Texas. The Company uses the land for storage of its
trailer vans. Monthly rent payments are $4,400. The lease commenced in November,
1996 and terminates in May, 1997, at which point it continues on a
month-to-month basis.
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III. REAL ESTATE DEVELOPMENT
A Sun Built sales office is located at 496 W. Windham Blvd., Green Valley,
Arizona, in a model home at its Canyon View subdivision. The home is 1,010
square feet. The home and land were purchased by Sun Built for approximately
$91,000.
ITEM 3: LEGAL PROCEEDINGS
The Company is subject to certain legal proceedings and claims that arise
in the conduct of its business. In the opinion of management, the amount of
liability, if any, as a result of these claims and proceedings is not likely to
have a material effect on the financial condition or results of operations of
the Company.
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 1996 fiscal year.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Registrant's stock is traded over the counter through the National
Association of Securities Dealers under the symbol CVCO. The following
quotations reflect inter-dealer prices without retail 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 effective December 1994.
Year Ended September 30, 1996
Bid Asked
--- -----
High Low High Low
---- --- ---- ---
First Quarter 12-1/8 9-3/4 12-3/4 10-1/2
Second Quarter 14-3/4 11-1/2 15-1/4 12-1/4
Third Quarter 18 13 18-1/4 13-3/4
Fourth Quarter 19-3/4 13-5/8 20-3/8 14-3/8
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
(The source of the above quotation is NASDAQ.)
(b) As of September 30, 1996, there were approximately 241 record holders of the
Company's Common Stock.
The Company has never paid dividends and has no plans to pay dividends
in the foreseeable future in the event that the transactions contemplated by the
Merger Agreement are not consummated for any reason. Certain financial covenants
in loan agreements to which the Company is a party restrict the payment of
dividends. See Note 5 of Notes to Consolidated Financial Statements. In the
event that the transactions contemplated by the Merger Agreement are
consummated, or alternatively, in the event that the Merger Agreement is
terminated in certain circumstances, the Shareholder Parties and CREC have
entered into certain agreements to cause the Company to pay dividends in certain
circumstances. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Part II of this Form 10-K.
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ITEM 6: SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein. The selected financial data presented below have
been derived from the Company's consolidated financial statements which have
been audited by Arthur Andersen LLP, independent public accountants, whose
report covering the consolidated balance sheets as of September 30, 1996 and
1995 and the related consolidated statements of earnings and cash flows for each
of the three years in the period ended September 30, 1996 also is included
elsewhere herein. The consolidated statement of earnings data for the years
ended September 30,1993 and 1992 and the consolidated balance sheet data as of
September 30, 1994, 1993, and 1992 are derived from audited financial statements
not included herein.
Five Year Summary of Financial Data
Years Ended September 30,
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Earnings Statement Data:
Net sales $130,105,136 112,682,132 90,596,038 56,326,371 41,622,896
Net income from
continuing operations $ 6,932,958 4,643,662 3,897,192 1,897,160 1,371,055
Income per share from
continuing operations $ 2.05 1.37 1.15 .56 .41
Balance Sheet Data:
Total assets $ 65,445,890 51,811,939 41,878,513 30,703,330 25,875,595
Long term obligations $ 17,149,739 13,970,960 6,013,047 7,853,985 7,209,131
Net stockholders' equity $ 28,670,656 22,383,195 18,145,544 11,467,392 9,325,115
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS: PROPOSED MERGER
On December 4, 1996, Cavco entered into the Merger Agreement by and
among Cavco, CREC, the Holding Company, the Merger Subsidiary and the
Shareholder Parties. The Shareholder Parties are Al R. Ghelfi, the Chairman of
Cavco, his spouse, Janet M. Ghelfi and Janal, an Arizona limited partnership.
The general partners of Janal are trusts of which Al R. Ghelfi and Janet M.
Ghelfi are the sole trustees. Janal is the holder of 1,650,000 shares of Cavco
common stock, representing approximately 48.7% of the outstanding shares. Al R.
Ghelfi and Janet M. Ghelfi individually hold, as their community property, an
additional 180,729 shares of Cavco common stock, representing approximately
5.32% of the outstanding shares.
The purpose of the Merger Agreement is to effect the acquisition by
CREC, through its ownership of shares in the Holding Company, of approximately
78% of the equity interest in Cavco, with the remaining approximately 22% equity
interest to be retained by the Shareholder Parties through their ownership of
shares in the Holding Company. If the transactions contemplated by the Merger
Agreement are consummated, all shares of Cavco Common Stock held by shareholders
of Cavco other than the Shareholder Parties, together with 1,047,288 shares of
Cavco Common Stock held by the Shareholder Parties, will be converted into the
right to receive $26.75 in cash (or in the case of shareholders who exercise
appraisal rights, the amount determined under applicable law), as more
particularly described below.
Consummation of the transactions set forth in the Merger Agreement is
conditioned, among other things, upon the Merger Agreement being approved and
adopted by the holders of a majority of the outstanding shares of Cavco Common
Stock, expiration of applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act, absence of any injunction or certain other legal
matters restraining or prohibiting such transactions, the truth and accuracy of
certain representations and warranties, compliance with certain covenants
contained in the Merger Agreement and other usual and customary closing
conditions.
If the transactions contemplated by the Merger Agreement are
consummated, the Merger Subsidiary will merge with and into Cavco (the
"Merger"), the Shareholder Parties will contribute 783,441 shares of Cavco
Common Stock to the Holding Company in exchange for Holding Company shares, and
all other shares of Cavco Common Stock (other than shares held by shareholders
who exercise appraisal rights under Arizona law) will be converted into the
right to receive $26.75 per share in cash (the "Merger Consideration"). In
exchange for Holding Company shares, CREC will contribute cash to the Holding
Company in an amount sufficient to pay the Merger Consideration and any amounts
payable to dissenting shareholders. Each Merger Subsidiary share that is
outstanding will be converted into the right to receive one share of common
stock in Cavco, as the surviving corporation, and the corporate existence of the
Merger Subsidiary will cease.
Upon consummation of the transactions contemplated by the Merger
Agreement, Cavco, as the surviving corporation, will be a wholly owned
subsidiary of the Holding Company. CREC will hold approximately 78% of the
common stock of the Holding Company, and the Shareholder Parties will hold the
remaining approximately 22% of such common stock. CREC, the Holding Company and
the Shareholder Parties have agreed to enter into a Shareholders'
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Agreement upon consummation of the Merger, pursuant to which all of their shares
will be subject to certain transfer restrictions, and the shares held by the
Shareholder Parties will be subject to certain put options (beginning in 2000)
and certain call options (beginning in 2002) whereby CREC may acquire all of the
Shareholder Parties' interest in the Holding Company on the terms and conditions
set forth therein (the "Holding Company Shareholders' Agreement"). The Holding
Company Shareholders' Agreement also provides for certain rights of the
Shareholder Parties and CREC to designate directors, super-majority board
approval requirements for significant actions and transactions and agreements
relating to the payment of dividends. The descriptions set forth in this Report
of the transactions contemplated by the Merger Agreement and the proposed
Holding Company Shareholders' Agreement are qualified in their entirety by
reference to the Merger Agreement, a copy of which is incorporated herein by
reference as an Exhibit to this Report, and to the Holding Company Shareholders'
Agreement, a copy of which is attached as Exhibit D to the Merger Agreement.
The Merger Agreement provides that the Merger Agreement may be
terminated by the parties in certain circumstances, including by mutual consent,
or by either party in the event of (i) regulatory, governmental or judicial
actions restraining or prohibiting the transaction, (ii) failure to obtain the
required shareholder approval, (iii) a material violation or breach by the other
party of the representations, warranties and covenants contained in the Merger
Agreement, or (iv) failure to consummate the Merger by December 31, 1997. In
addition, either party may terminate the Merger Agreement in the event the Board
of Directors of Cavco shall have authorized Cavco to enter into an agreement
with a third party with respect to an alternative acquisition proposal meeting
certain conditions specified in the Merger Agreement, as summarized below.
Cavco has agreed that, upon execution of the Merger Agreement and until
the transactions contemplated thereby have been consummated (or until the Merger
Agreement is terminated), neither Cavco nor its representatives will initiate
any contact with, solicit, encourage or enter into or continue any discussions,
negotiations, understandings or agreements with any third parties with respect
to any other acquisition proposal or disclose any non-public information
regarding Cavco or any of its businesses to such third parties. Notwithstanding
the foregoing, to the extent that the Board of Directors of Cavco (or a
committee thereof) reasonably determines based on the advice of its counsel that
it is required to do so by virtue of its fiduciary obligations under applicable
law, the Company may furnish and discuss non-public information concerning Cavco
or its businesses in response to unsolicited requests therefor and may
participate in discussions and negotiations and enter into agreements regarding
an alternative transaction, provided certain conditions are met. In general,
Cavco may furnish and discuss such information with any third party the Board of
Directors reasonably determines is financially qualified to consummate a
proposed transaction and may enter into negotiations with such a third party if
(i) the consideration to be paid to the shareholders other than the Shareholder
Parties under the alternative transaction exceeds by at least $1,000,000 the
amount payable to such shareholders under the Merger Agreement; (ii) the
alternative transaction is not subject to any conditions or limitations which
make it not likely to be consummated; (iii) the terms and conditions of the
alternative transaction are no less favorable to such shareholders than the
transactions contemplated by the Merger Agreement, (iv) Cavco shall have timely
notified CREC of the alternative transaction and (v) CREC shall not have
delivered to Cavco a counteroffer topping such alternative transaction by at
least $1,000,000 in consideration to the shareholders other than the Shareholder
Parties (a "Topping Offer"). In general, Cavco may enter into an agreement with
a third party with respect to such transaction if (i) the foregoing
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conditions are met, (ii) the third party offer has not been materially and
adversely modified, (iii) at least ten days shall have passed since CREC was
notified, and CREC shall not have responded with a Topping Offer and (iv) Cavco
has paid to CREC certain termination fees and expenses described below.
The Merger Agreement provides for payment to CREC by Cavco of a
termination fee of $2,500,000 and reimbursement of certain expenses in an amount
up to $300,000 in the event that the Merger Agreement is terminated by Cavco in
order to accept an alternative proposal from a third party as described above,
or if the Merger Agreement is terminated for any other reason, other than (i) by
mutual consent; (ii) certain governmental actions restraining or prohibiting the
transaction; (iii) because the Merger has not been consummated by December 31,
1997 and CREC elects to terminate; or (iv) because Cavco and the Shareholder
Parties have elected to terminate due to a material violation or breach by CREC.
The Merger Agreement also provides for the payment to Cavco by CREC of a
termination fee and reimbursement of expenses, in the same amounts, in the event
that the Merger Agreement is terminated because (i) the Merger has not been
consummated by December 31, 1997 and CREC elects to terminate, or (ii) Cavco and
the Shareholder Parties elect to terminate due to a material violation or breach
by CREC.
The foregoing descriptions of certain provisions of the Merger
Agreement are qualified in their entirety by reference to the Merger Agreement,
a copy of which is incorporated herein by reference as an Exhibit to this
Report.
As stated above, one of the conditions for consummation of the
transactions set forth in the Merger Agreement is the approval of the holders of
a majority of the outstanding shares of Cavco common stock. On December 4, 1996,
the Shareholder Parties entered into a Voting Agreement with CREC, whereby the
Shareholder Parties agreed to vote all 1,830,729 shares of Cavco common stock
owned by them (representing approximately 54% of the total shares presently
outstanding) in favor of the Merger Agreement and against any inconsistent
transactions. In addition, the Shareholder Parties have agreed to restrict their
ability to sell or transfer any such shares or to grant any proxies or to enter
into any other voting arrangements with respect to such shares. The descriptions
set forth in this Report of the terms of the Voting Agreement are qualified in
their entirety by reference to the Voting Agreement, a copy of which is
incorporated herein by reference as an Exhibit to this Report.
Also on December 4, 1996, the Shareholder Parties entered into a Stock
Purchase Agreement with CREC, whereby the parties have agreed that in the event
the Merger Agreement is terminated for any reason other than (i) by mutual
consent, (ii) because the Merger has not been consummated by December 31, 1997
and CREC elects to terminate, or (iii) because of a material violation or breach
by CREC, the Shareholder Parties will sell to CREC, and CREC will purchase from
the Shareholder Parties, an aggregate of 1,047,288 shares of Cavco Common Stock
(representing approximately 31% of the total shares presently outstanding) (the
"Subject Share Purchase"). If the transactions contemplated by the Stock
Purchase Agreement are consummated, the Shareholder Parties and CREC have agreed
to enter into a Shareholders' Agreement with regard to their shares of Cavco
Common Stock (the "Cavco Shareholders' Agreement") and to use their best efforts
to cause the Company to become a party thereto. The Cavco Shareholders'
Agreement provides for certain transfer restrictions on the Cavco Common Stock
held by CREC and the Shareholder Parties and provides that such shares will be
subject to certain put options (beginning in 2000) and certain call options
(beginning in 2002) whereby CREC may acquire all of the Shareholder Parties'
Cavco common stock on the terms and
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conditions set forth therein. The Cavco Shareholders' Agreement also provides
certain agreements among the Shareholder Parties and CREC with respect to the
election of directors, super-majority board approval requirements for
significant actions and transactions and agreements relating to the payment of
dividends. The descriptions set forth in this Report of the terms of the Stock
Purchase Agreement and the proposed Cavco Shareholders' Agreement are qualified
in their entirety by reference to the Stock Purchase Agreement, a copy of which
is incorporated herein by reference as an Exhibit to this Report and to the
Cavco Shareholders' Agreement, the form of which is attached as Exhibit B to the
Stock Purchase Agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended fiscal 1996 with working capital of $9,381,984 compared
to $8,168,792 at the end of fiscal 1995. The Company's cash position improved as
a result of cash generated from operations and the receipt of proceeds from its
long term funding source for additions to NSC's lease fleet.
Uses of cash 1996 included capital expenditures of $13.8 million, increases
in notes receivable of $.4 million and additions to investments in partnerships
of $.1 million. The Company increased its NSC lease fleet by $11.8 million and
spent $2 million on property, plant and equipment additions. Property, plant and
equipment additions include $590,000 spent on land and a building for NSC's El
Paso location. Another $210,000 was used to purchase delivery vehicles for NSC.
The Company also spent approximately $520,000 on various computer programs,
network and communication systems.
The Company has a $4 million revolving bank line of credit that may be used
from time to time to fund working capital needs. The Company borrowed and repaid
$800,000 on this line during the year. Available borrowings are subject to a
borrowing base formula based on inventories and accounts receivable. The Company
had no amounts outstanding under the line of credit at the end of fiscal 1996.
Sun Built has a $1,400,000 line of credit that is used to finance purchases of
manufactured homes for its subdivisions. Repayments are made from proceeds on
the sales of the homes. During fiscal 1996, Sun Built borrowed $1,977,776 and
repaid $2,296,958 on its line of credit and approximately $700,000 remained
available for borrowing at the end of fiscal 1996. NSC has a $15 million line of
credit arrangement to support its lease fleet expansion. The lending institution
advanced $7,000,000 during 1996. The Company repaid $2,333,323 on this line
during 1996. The remaining $1,036,216 of long term debt repayments in fiscal
1996 were for mortgages and other loans of the Company. The Company received
$1.2 million of proceeds from the sale of lease fleet units and $1.7 million of
proceeds from collections on notes receivable in the normal course of its
business during fiscal 1996.
The Company plans capital expenditures in fiscal 1997 of approximately $4.8
million budgeted for construction of a new manufacturing facility in Belen, New
Mexico, to be financed in part through industrial revenue bond financing
currently under negotiation. The Company also plans to invest up to $500,000 in
fiscal 1997 for computer software and system hardware upgrades. The Company
believes that its existing cash, available borrowings, lines of credit, and cash
generated from operations will be sufficient to meet capital expenditure, debt
service and other liquidity requirements for the next fiscal year.
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During the past three years, inflation has not had a significant impact on the
Company's operations. The Company has demonstrated its ability to adjust 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 response to changing costs.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Sales for fiscal 1996 were $130,105,136, an increase of $17,423,004 or
15.5% over the $112,682,132 reported for 1995. Manufacturing operations
accounted for $11.3 million of the increase primarily as a result increased
capacity due to plant expansion, improved productivity and improved market
conditions. The leasing subsidiary contributed $3.3 million of the increase, as
a result of expanding its lease fleet and adding 4 new branch locations. The
real estate development subsidiary provided $2.8 million of the increase, as a
result of completion of development activity, increased sales at its
subdivisions and the sale of 50 homes to a customer in December 1995.
Gross profit margins increased to 21.0% compared to 18.8 percent in 1995.
Margins in the manufacturing operations increased to 19.2% in 1996 from 17.4% in
1995. Improved efficiencies and higher sales volumes lended to this increase. In
addition, prior year margins were unfavorably affected by a low margin
manufactured home model offered in the spring of 1995. The leasing operations
achieved a 50.1% gross margin in fiscal 1996, compared to 51.4% in fiscal 1995.
The real estate development operations had a gross margin of 15.4% in fiscal
1996, compared to 14.4% in fiscal 1995.
Selling, general and administrative expenses increased overall by
$2,298,858, or 18%, in fiscal 1996. Approximately $1.4 million of the increase
is attributable to the leasing operations, due to increases in wages, rent and
other office costs as the subsidiary continues to develop its corporate office
and open additional branch locations. Selling, general and administrative
expense increases of $720,965, in the manufactured housing segment resulted
primarily from increased employee bonuses, which are based on the pre-tax
operating profits of the Company. The $594,502 increase in interest expense in
fiscal 1996 reflects increased finance costs incurred for expansion of the lease
fleet.
In fiscal 1996, net income was $6,237,461 or $1.84 per share, compared to
$4,237,651 or $1.25 per share in fiscal 1995, an increase of approximately 47%.
The increase in net income was a result of improved sales and gross margins and
increased efficiencies. Income from continuing operations in fiscal 1996 was
$6,932,958 or $2.05 per share, an approximately 49% increase of $2,289,296 or
$.68 per share, over the $4,643,662, or $1.37 per share, reported in fiscal
1995. Losses from discontinued operations in fiscal 1996 totaled $695,497
($339,942 from Action, $355,555 from CVC), compared to $406,011 in 1995
($110,130 from Action, $295,881 from CVC).
FISCAL 1995 COMPARED TO FISCAL 1994
Sales for fiscal 1995 were $112,682,132, an increase of $22,086,094, or
24.4% sales of $90,596,038 in fiscal 1994. The leasing subsidiary provided
approximately $5,000,000 in sales, or 23% of the increase. The manufactured
housing operations accounted for the remaining
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increase. Plant expansions and upgrades to machinery allowed production levels
to increase at all facilities. The new manufacturing facility added in May 1993
had the most significant favorable impact.
Gross profit margins increased to 18.8% in fiscal 1995, compared to 18.1%
in fiscal 1994. Margins in the manufactured housing operations decreased from
18.2% in fiscal 1994 to 17.4% in fiscal 1995, primarily due to the Company's
offering of a series of low cost, low margin special floor plans in the spring.
The decrease in manufacturing margins was more than offset in fiscal 1995 by the
achievement of a 51.4% gross profit margin in the leasing operations.
Selling, general and administrative expenses increased overall by
$3,064,564, or 31%, in fiscal 1995. Most of the increase was due to expansion of
the leasing operations in fiscal 1995. The $542,237 increase in interest expense
reflects increased finance costs incurred from the Company's use of its lines of
credit.
In fiscal 1995, net income was $4,237,651 or $1.25 per share, compared to
$6,605,678 or $1.95 per share in fiscal 1994, a decrease of approximately 36%.
The decrease in net income was a result of the gain from the sale of
discontinued leasing operations in fiscal 1994. Income from continuing
operations in fiscal 1995 was $4,643,662 or $1.37 per share, an approximately
19% increase of $746,470 or $.22 per share, over the $3,897,192, or $1.15 per
share, reported in fiscal 1994. Income from discontinued operations and from the
gain on the sale of discontinued leasing operations in fiscal 1994 was $436,167
and $2,272,319, respectively, compared to a loss from discontinued operations in
1995 of $406,011.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements
Page
----
Report of Independent Public Accountants 20
Consolidated Financial Statements:
Consolidated Balance Sheets - September 30, 1996 and 1995 21
Consolidated Statements of Earnings -
Years Ended September 30, 1996, 1995 and 1994 23
Consolidated Statements of Cash Flows -
Years Ended September 30, 1996, 1995 and 1994 24
Notes to Consolidated Financial Statements 25
Note: Schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or
related notes.
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20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cavco Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CAVCO
INDUSTRIES, INC. (an Arizona corporation) and subsidiaries as of September 30,
1996 and 1995, and the related consolidated statements of earnings and cash
flows for the three years in the period ended September 30, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Phoenix, Arizona,
December 4, 1996.
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CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1996 and 1995
Assets
1996 1995
----------- -----------
Current Assets
Cash and cash equivalents $13,298,107 8,140,730
Receivables
Trade accounts, net of $969,000 and $280,000
reserve for uncollectible accounts in
1996 and 1995, respectively 2,412,340 3,164,862
Notes, net of $332,000 reserve in 1996 627,241 511,302
Other 145,714 509,369
----------- -----------
Total receivables 3,185,295 4,185,533
----------- -----------
Inventories
Manufacturing:
Work in process 852,716 807,949
Raw materials 3,869,300 2,971,581
Real estate held for sale 6,156,056 6,133,089
----------- ---------
Total inventories 10,878,072 9,912,619
----------- -----------
Prepaid expenses 619,791 834,713
Deferred tax charge 1,026,214 552,981
----------- -----------
Total current assets 29,007,479 23,626,576
----------- -----------
Notes receivable, net of current portion 1,501,685 1,162,415
Property, plant and equipment, at cost 15,241,264 14,285,539
Less accumulated depreciation 5,246,987 4,666,351
----------- ---------
Net property, plant and equipment 9,994,277 9,619,188
----------- -----------
Assets under lease 22,188,592 14,366,138
Less accumulated depreciation 876,594 596,007
----------- -----------
Net assets under lease 21,311,998 13,770,131
----------- -----------
Investment in partnerships 2,644,075 2,534,703
Other assets 986,376 1,098,926
----------- ---------
$65,445,890 51,811,939
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1996 and 1995
Liabilities and Stockholders' Equity
1996 1995
----------- -----------
Current liabilities
Notes payable $ 703,682 1,022,864
Current installments of long term debt 3,409,763 2,444,248
Accounts payable 4,990,907 5,009,125
Accrued expenses 7,957,659 6,939,129
Income taxes 2,563,484 42,418
----------- -----------
Total current liabilities 19,625,495 15,457,784
----------- -----------
Long term debt, excluding current installments 15,479,607 12,692,661
Deferred income taxes 1,670,132 1,278,299
Stockholders' equity
Common stock, $.05 par value; 8,000,000 shares
authorized; 3,387,968 and 3,382,968 shares
issued and outstanding in 1996 and 1995,
respectively 169,399 169,149
Capital in excess of par value 361,804 312,054
Retained earnings 28,139,453 21,901,992
----------- -----------
Net stockholders' equity 28,670,656 22,383,195
----------- ----------
$65,445,890 51,811,939
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
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CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years Ended September 30, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ------------
Net sales $130,105,136 112,682,132 90,596,038
Cost of sales 102,801,345 91,469,469 74,238,342
------------ ------------ ------------
Gross profit 27,303,791 21,212,663 16,357,696
Selling, general and administrative expenses 15,197,212 12,898,354 9,833,790
------------ ------------ ------------
Operating income 12,106,579 8,314,309 6,523,906
------------ ------------ ------------
Other income (expense):
Interest income 519,802 287,385 175,957
Interest expense (1,590,054) (995,552) (453,315)
Miscellaneous 521,431 152,940 156,444
------------ ------------ ------------
(548,821) (555,227) (120,914)
------------ ------------ ------------
Income from continuing operations before income taxes 11,557,758 7,759,082 6,402,992
Income taxes 4,624,800 3,115,420 2,505,800
------------ ------------ ------------
Income from continuing operations 6,932,958 4,643,662 3,897,192
------------ ------------ ------------
Discontinued operations:
Income (loss) from operations of Action (less
income taxes of ($188,200), ($73,420) and
$21,300 for 1996, 1995 and 1994, respectively) (282,202) (110,130) 31,660
Loss on sale of Action (less income taxes of
($38,500)) (57,740) -- --
Income (loss) from operations of CVC Leasing (less
income taxes of ($237,100), ($194,000) and
$260,800 for 1996, 1995 and 1994, respectively) (355,555) (295,881) 404,507
Gain on sale of CVC (less income taxes of $ 1,465,000) -- -- 2,272,319
------------ ------------ ------------
Net income $ 6,237,461 4,237,651 6,605,678
============ ============ ============
Income per share from continuing operations $ 2.05 1.37 1.15
Income (loss) per share from operations of
discontinued Action subsidiary (.08) (.03) .01
Loss per share from sale of Action subsidiary (.02) -- --
Income (loss) per share from operations of
discontinued CVC division (.11) (.09) .12
Income per share from gain on sale of CVC division -- -- .67
------------ ------------ ------------
Net income per share $ 1.84 1.25 1.95
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
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CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended September 30, 1996, 1995 and 1994
1996 1995 1994
------------ ----------- ----------
Cash flows from operating activities:
Net income $ 6,237,461 6,605,678
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 1,818,825 1,727,696
Provision for losses on receivables 688,675 280,000 --
Provision for deferred income taxes (81,400) 703,929 (455,900)
(Gain) loss on sales of assets under lease 1,278,990 (389,409) (118,512)
Change in assets and liabilities:
(Increase) decrease in receivables 63,847 1,160,874 (581,448)
(Increase) decrease in manufacturing inventories (942,486) (641,325) (3,739,014)
(Increase) decrease in real estate held for sale 99,033 (1,067,249) (2,833,311)
(Increase) decrease in prepaid expenses 214,922 (373,198) 117,989
(Increase) decrease in other assets 17,777 (241,244) (481,330)
Increase (decrease) in accounts payable (18,218) (83,062) 1,305,794
Increase (decrease) in accrued expenses 1,018,530 466,753 2,252,398
Increase (decrease) in income taxes 2,521,066 (2,583,262) 2,313,896
Increase (decrease) in lease deposits
and other liabilities -- (97,309) 190,682
------------ ----------- ----------
Net cash provided by operating activities 12,917,022 3,100,845 2,215,136
------------ ----------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,014,579) (2,292,217) (1,962,510)
Proceeds from sales of property, plant and
equipment 297,466 111,254 --
Additions to assets under lease (11,782,166) (11,292,377) (8,182,092)
Proceeds from sales of assets under lease 1,231,099 2,713,985 773,288
Increase in notes receivable -- (78,500)
Proceeds from collections on notes receivable 1,676,128 1,352,273 420,328
Additions to investment in partnerships (109,372) (1,212,979) (1,298,172)
Net proceeds from sale of CVC Leasing division -- -- 10,464,504
------------ ----------- ----------
Net cash provided by (used for)
investing activities (11,120,924) (10,620,061) 136,846
------------ ----------- ----------
Cash flows from financing activities:
Borrowing under lines of credit 2,777,776 7,989,543 7.442,376
Repayment of lines of credit (3,096,958) (8,621,169) (6,990,149)
Proceeds from long-term debt 7,000,000 8,603,857 5,598,713
Repayment of long-term debt (3,369,539) (1,318,885) (775,126)
Proceeds from issuance of common stock 50,000 -- --
------------ ----------- ----------
Net cash provided by financing activities 3,361,279 6,653,346 5,275,814
------------ ----------- ----------
Increase (decrease) in cash and cash equivalents 5,157,377 (865,870) 7,627,796
Cash and cash equivalents at beginning of year 8,140,730 9,006,600 1,378,804
------------ ----------- ----------
Cash and cash equivalents at end of year $ 13,298,107 8,140,730 9,006,600
============ =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996, 1995, and 1994
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements of Cavco Industries, Inc.
(the Company) for 1996, 1995 and 1994 include the accounts of
Cavco Industries, Inc. and its wholly-owned subsidiaries, Sun
Built Homes, Inc. (Sun Built) and National Security Containers,
Inc. (NSC). In July, 1996 the Company formed a new subsidiary,
Cavco Industries of New Mexico, Inc. The Company is building a
manufacturing facility, which is scheduled to begin production in
fiscal 1997. 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, 1996, 1995 and 1994 was
$2,017,788, $1,946,297 and $1,664,204, 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, 1996 and 1995 was $56,997 and $127,732, 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.
(e) Investment in Partnerships
In November, 1992, the Company formed PDG/Prescott Development
Group, L.L.C., a limited liability company, 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 $2,370,461 and $2,275,313 at September 30, 1996 and 1995,
respectively.
25
26
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(e) Investment in Partnerships (continued)
In August, 1994, Sun Built formed Rural Southwest, L.L.C., a
limited liability company, with another company. Sun Built is a
50% owner 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 $273,614 and
$259,390 at September 30, 1996 and 1995, 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 1996, the Company sold $1,238,182 of lease assets for notes
receivable. The Company purchased $122,000 of real estate held for
sale, financed by long term debt. Also in 1996, the Company sold
the majority of the assets of its Action subsidiary and received
a $442,000 note.
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 13 for detail of non-cash
items.
Supplemental disclosure of Cash Flow information:
1996 1995 1994
---- ---- ----
Cash paid during the year for:
Interest $1,622,675 1,020,766 1,109,739
Income Taxes $1,720,234 2,540,433 2,394,904
26
27
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(h) Depreciation of Assets Under Lease
During 1996 the Company completed a review of its depreciation
estimates for assets under lease. The Company determined that the
actual lives of the assets were generally longer than the useful
lives used for depreciation purposes. The Company also recognized
that the assets retained a salvage value. Therefore, the Company
extended the estimated useful lives of the assets under lease and
incorporated a salvage value. The effect of this change in
estimate reduced depreciation expense for the year ended September
30, 1996 by $531,366 and increased net income from continuing
operations by approximately $318,800, or $.09 per share.
(i) Accounting Statements
The Financial Accounting Standards Board has issued 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 material impairment loss would be recognized.
(j) Use of 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, disclosure of contingent assets and
liabilities at September 30, 1996 and 1995, and the reported
amounts of revenues and expenses during the three years in the
period ended September 30, 1996. Actual results could differ from
those estimates.
(j) Reclassifications
Certain amounts from prior years' financial statements have been
reclassified to conform to the current year presentation.
(2) Accounts and Notes Receivable
Notes receivable include amounts due under finance leases ($1,780,686 and
$1,633,607 at September 30, 1996 and 1995, respectively) and amounts due
from sales of real estate held for sale ($200,000 and $16,610 at September
30, 1996 and 1995, 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 ($38,240 and $23,500 at September 30,
1996 and 1995, respectively) and the $110,000 net book value of a note
receivable ($442,000 less a reserve of $332,000) related to the sale of
Action in 1996.
27
28
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes for Consolidated Financial Statements
(2) Notes Receivable (continued)
The aggregate maturities of the notes receivable for the five years
subsequent to September 30, 1996 are as follows:
1997 $ 959,241
1998 612,326
1999 259,555
2000 179,351
2001 144,446
Thereafter 306,007
----------
$2,460,926
==========
The Company's customer base is widely dispersed geographically. No single
customer accounts for over 10% of the receivables balance at September 30,
1996.
(3) 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
Depreciable September 30,
Lives (Years) 1996 1995
-------------- ---- ----
Land - $ 2,759,158 2,455,801
Buildings 15-30 2,500,201 2,115,744
Plant equipment 5-10 3,287,115 3,035,233
Office equipment 3-10 1,596,623 1,909,801
Automotive equipment 3 1,693,223 1,868,784
Building and leasehold improvements 3-20 3,001,618 2,892,126
Construction in progress - 403,326 8,050
----------- ----------
$15,241,264 14,285,539
=========== ==========
(4) 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, 1997. This line of
credit is secured by the Company's inventories and accounts receivable.
Sun Built has a $1,400,000 line of credit with a financial institution, with
an interest rate of prime plus 1%, expiring in January 1997. This line of
credit is secured by certain real estate held for sale.
28
29
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Notes Payable (continued)
During 1995 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.
Pertinent information with respect to the bank lines of credit is as
follows:
Company line of credit: September 30,
------------------------------------------
1996 1995 1994
---- ---- ----
Outstanding balance at year end -- -- --
Interest rate at year end 8.75% 9.25% 8.25%
Maximum credit available 4,000,000 4,000,000 3,500,000
Maximum borrowing during year 800,000 3,750,000 3,500,000
Average outstanding borrowings (a) 10,959 1,220,000 1,539,726
Average yearly interest rate (a) 9.25% 9.5% 7.3%
(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,
-----------------------------------------------
1996 1995 1994
---- ---- ----
Outstanding balance at year end 703,682 1,022,864 1,184,372
Interest rate at year end 9.75% 9.75% 9.5%
Maximum credit available 1,400,000 1,375,000 1,184,372
Maximum borrowing during year 1,389,364 1,360,570 1,184,372
Average outstanding borrowings (b) 1,062,850 1,178,397 597,614
Average interest rate for year (b) 9.16% 10.32% 8.15%
(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.
29
30
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-Term Debt
A summary of long-term debt is as follows:
September 30,
---------------------------
1996 1995
---- ----
Notes payable to a financial
institution, due in monthly
installments of $216,667 plus
interest ranging from 8.63% to
9.06%, secured by assets under lease
and related accounts receivable of
NSC. The notes are amortized over a
five year period and are due and
payable in July 2000, January 2001
and October 2001. (See (b) below). $12,266,658 7,599,981
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
Mortgage note payable, due in
monthly installments of $8,070 plus
interest at prime plus 1%, (9.25% at
September 30,1996) 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). 1,154,068 1,250,913
Notes payable to a title company,
due in monthly installments of
$5,555 including interest at 10%,
secured by real estate held for
sale, balances due and payable
ranging from March 1997 to January
1999. 489,459 589,268
Note payable to bank, due in monthly
installments of $19,259 including
interest at 9.755%, secured by plant
equipment, due and payable in
September, 1998. 402,522 584,598
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. 287,989 293,009
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. 131,347 153,663
30
31
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-Term Debt (continued)
Notes payable to finance companies, due
in monthly installments totaling $2,447,
including interest at various rates ranging
between 6.6% and 11.5%, balances due and
payable ranging from January 1997 to October
1998, secured by automotive and office
equipment. 29,584 88,205
Note payable to bank, due in monthly
installments of $27,778 plus interest
at prime plus 1/2%, (8.75% at September 30,
1996) secured by plant equipment, due and
payable in October, 1996. 27,743 361,088
Note payable to bank, paid in Sept. 1996. -- 116,184
18,889,370 15,136,909
Less current portion 3,409,763 2,444,248
----------- ----------
Long term debt, net of current portion $15,479,607 12,692,661
=========== ==========
(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, if the
trading price of Common Stock exceeds $20 per share for a period
of at least 20 trading days prior to the conversion. The Company
also has an option to prepay up to one half of the outstanding
principal balance of the loan after October, 1995. Such prepayment
can be made in Common Stock, at $16 per share, if the stock price
exceeds $16 per share for a period of at least 20 trading days
prior to the payment date. See Note 16 of Notes to Consolidated
Financial Statements -- "Subsequent Events."
(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, 1996, the Company was not in compliance with the
covenant related to debt service coverage ratio for one of its
subsidiaries. The Company obtained a waiver from the bank.
The aggregate maturities of long-term debt for the five years subsequent to
September 30, 1996 are as follows:
1997 $ 3,409,763
1998 3,685,009
1999 7,350,292
2000 2,608,159
2001 911,427
Thereafter 924,720
-----------
$18,889,370
===========
31
32
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Income Taxes
Components of income tax expense are as follows:
Current Deferred Total
------- -------- ------
1996: Federal $3,202,500 63,900 3,266,400
State 877,100 17,500 894,600
---------- -------- ---------
$4,079,600 81,400 4,161,000
========== ======== =========
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
========== ======== =========
Income tax expense amounted to $4,161,000 for the year ended September 30,
1996 (an effective rate of 40.0%) $2,848,000 for the year ended September
30, 1995 (an effective rate of 40.1%) and $4,252,900 for the year ended
September 30, 1994 (an effective rate of 39.2%). 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:
1996 1995 1994
---- ---- ----
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 (0.1) -- (0.9)
---- ---- ----
Effective tax rate 40.0 % 40.1 39.2
==== ==== ====
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
components of the Company's deferred income tax benefits and liabilities
follows:
September 30,
-----------------------
1996 1995
---- ----
Current:
Accrued warranty expense $ 404,545 355,104
Reserve for uncollectible accounts 515,272 110,924
Deferred rent 17,723 48,011
Accrued vacation and holiday 47,382 40,471
Accrued bonuses 21,438 15,067
Accrued state tax deduction 19,854 (16,596)
---------- -------
Deferred tax charge $1,026,214 552,981
========== =======
32
33
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Income Taxes (continued)
Long-term:
Excess of tax over book
depreciation $(1,774,067) (1,310,517)
Loss in partnership (33,221) (43,827)
Advance rents received (16,709)
Excess of tax over book amortization
of intangibles 57,806 30,862
Excess of book gain over tax gain
on sale of assets 61,892 61,892
Loss on marketable securities 17,458 --
----------- ----------
Deferred tax liability $(1,670,132) (1,278,299)
=========== ==========
(7) Employee Benefit Plans
The Company's profit sharing plan is a defined contribution plan which
covers all employees. 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 immediately upon entry into the Plan. The Plan was designed to comply
with the requirements of ERISA. Contributions to the Plan are determined
annually by the Board of Directors. The Company contributed $100,000 and
$200,000 to the Plan for the years ended September 30, 1995 and 1994,
respectively. There was no contribution to the Plan for the year ended
September 30, 1996.
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 and contribute up to 15% of annual
compensation (subject to limits set by the Internal Revenue Service) 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 $120,631 to the
401(k) plan for the year ended September 30, 1996 and $68,924 for the year
ended September 30, 1995.
(8) Stockholders' Equity
The number of shares used in computing earnings per common share was
3,383,173 for 1996 and 3,382,968 for 1995 and 1994. 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.
In August 1995, the Company entered into a qualified stock option purchase
agreement with an employee. The agreement allows the employee to purchase up
to 50,000 shares of the Company's Common Stock at $10 per share (fair market
value at the date of the grant). The options vest at 10% per year, beginning
on September 1, 1996. In September 1996, the employee exercised his vested
options and purchased 5000 shares for $50,000.
33
34
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) 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 offset by the resale value of repurchased units. The Company has not
incurred any significant losses from these arrangements since inception.
During 1996 and 1995, 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 $500,000 in 1996
and $6,500,000 in 1995.
The Company is the guarantor on a loan agreement which allowed PDG/Prescott
Development Group, L.L.C. formed in November, 1992 (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
$2,720,145 and $3,177,285 at September 30, 1996 and 1995, respectively.
(10) 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, 1996, future minimum lease payments due under
noncancellable operating leases, excluding executory costs, are as follows:
Year Ending
September 30 Amount
------------ ------
1997 $ 902,414
1998 492,837
1999 246,848
2000 139,767
2001 29,208
----------
Total $1,811,074
==========
Total rental expense for 1996, 1995 and 1994 was $1,112,787, $1,051,884 and
$902,332, respectively.
(11) Industry Segment Information
The Company operates principally in three industries: Manufactured Housing,
Leasing, and Real Estate Development. Operations are conducted in Arizona
and, to a much lesser extent, the Company operates or sells to dealers for
resale in Nevada, Colorado, Idaho, California, Utah, Washington, New Mexico,
Oregon, Texas, Canada and Japan. 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.
34
35
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Industry Segment Information (continued)
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, 1996,
1995 and 1994 is set forth as follows:
Manufactured Leasing Real Estate General
Housing Operations Develop't Corporate Total
------- ---------- --------- --------- -----
1996
Sales to unaffiliated
customers $114,833,294 8,315,739 6,906,103 -- 130,105,136
Operating profit (loss) 13,052,622 650,242 262,198 (1,858,483) 12,106,579
Identifiable assets 12,090,632 28,309,303 7,164,970 17,880,985 65,445,890
Depreciation and amortization 732,204 840,783 25,118 220,720 1,818,825
Capital expenditures 485,464 13,262,338 -- 48,943 13,796,745
1995
Sales to unaffiliated
customers $103,560,443 5,037,282 4,084,407 -- 112,682,132
Operating profit (loss) 9,439,956 421,795 15,213 (1,562,655) 8,314,309
Identifiable assets 11,914,234 19,416,794 7,026,052 13,454,859 51,811,939
Depreciation and amortization 674,658 786,370 35,678 230,990 1,727,696
Capital expenditures 1,089,116 12,438,891 28,507 28,080 13,584,594
1994
Sales to unaffiliated
customers $ 85,969,747 -- 4,626,291 -- 90,596,038
Operating profit (loss) 7,692,540 -- 177,379 (1,346,013) 6,523,906
Identifiable assets 10,501,021 13,175,553 5,448,625 12,753,314 41,878,513
Depreciation and amortization 521,786 661,824 29,049 162,874 1,375,533
Capital expenditures 1,181,074 8,665,060 137,846 160,622 10,144,602
No customers accounted for more than 10% of sales for the year ended
September 30, 1996. 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.
Results for leasing operations in 1994, under CVC Leasing, are included in
discontinued operations. Leasing operations for 1995 and 1996 reflect the
results of NSC.
35
36
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Accrued Expenses
A summary of accrued expenses follows:
September 30,
---------------------------
1996 1995
---- ----
Wages $1,126,611 964,821
Sales promotion programs 2,923,682 2,427,033
Accrued warranty 1,021,172 896,372
Industrial insurance 1,422,566 1,308,813
Property taxes 458,113 326,315
Other 1,005,515 1,015,775
---------- ---------
$7,957,659 6,939,129
========== =========
(13) Discontinued Operations
On August 1, 1994, the Company sold the relocatable mobile and modular
commercial structures and related buildings and equipment of its CVC
leasing division 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 was due from the purchaser; net cash
proceeds totaled $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 $15,000 for 1996, $2,072,569 for 1995 and
$8,253,530 for 1994. Revenues in 1995 and 1996 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, 1996 include trade accounts receivable ($280,322), balance
remaining from purchaser of CVC ($72,568) and rent due on CVC properties
($44,738). 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).
On September 30, 1996, the Company sold the accounts receivable, related
service contracts and office equipment of its subsidiary, Action Healthcare
Management Systems, Inc. (Action), to an unrelated company for $442,000.
The net value of assets sold, plus other costs related to the sale,
amounted to $538,240, resulting in a pretax loss of $96,240. The purchaser
issued a $442,000 note to the Company, to be paid over 10 years, at an
interest rate of 8%, balance due and payable in March 2005.
Net income (loss) from Action is included in the consolidated statements of
income under "discontinued operations". Revenues from Action were $576,991
for 1996, $1,026,230 for 1995 and $1,465,525 for 1994. Other than the
$442,000 note receivable from the purchaser, there are no material assets
or liabilities related to Action remaining on the balance sheet as of
September 30, 1996.
36
37
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, receivables, accounts
payable, accrued expenses and other payables approximate fair value because
of the short maturity of these financial instruments. Notes payable bear
interest at market rates, therefore the carrying amounts of the outstanding
borrowings approximate fair value.
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instruments. These
estimates are subjective in nature and involve uncertainties and judgment
and therefore cannot be determined with precision. Changes in assumptions
could significantly affect these estimates.
(15) Supplemental Financial Data (unaudited)
Selected quarterly financial data for the years ended September 30, 1996
and 1995 is set forth below. Earnings per share were adjusted to reflect
the three-for-two stock split effective December 1994. Amounts differ from
amounts previously reported on the Company's Form 10-Q Reports due to
reclassification of discontinued operations of the Company's Action
subsidiary.
First Second Third Fourth
----- ------ ----- ------
1996
Net sales $30,689,331 33,341,439 33,016,732 33,057,634
Gross profit $ 6,484,942 6,126,555 5,930,941 8,761,353
Net income from
continuing operations $ 1,722,501 1,355,685 1,424,925 2,429,847
Income per share from
continuing operations $ . 51 .40 .42 .72
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
(16) Subsequent Events
On December 5, 1996, the Company announced that it has entered into a
Merger Agreement which provides for the sale of approximately 78% of the
equity interest in the Company to an unrelated company. The Merger
Agreement has been approved by the Boards of Directors of both companies.
The Merger Agreement is subject to approval by Cavco shareholders, certain
regulatory filings and other conditions. The Company expects the Merger to
be completed by the end of its second fiscal quarter. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for additional information concerning the transactions contemplated by the
Merger Agreement.
In November 1996, the Company made a cash prepayment of $2,050,000 of the
$4,100,000 unpaid principal balance of the Convertible Note due April 1,
1999, as permitted by the terms of the Note. See Note 5 above.
37
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39
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with the Company's independent accountants
on accounting and financial disclosure matters.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's directors and executive officers as of September 30, 1996 are
as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
- ---- --- --------
Al R. Ghelfi 57 Chairman of the Board, Chief Executive
Officer, Director
Brent Ghelfi 35 Executive Vice President and Chief
Operating Officer, Director
Ruth Smith 66 Secretary and Director
Robert Wold 78 Director
William Blandin 47 Director
Stephen H. Kleemann 52 Director
Robert Ward 46 Vice President, Treasurer and Chief
Financial Officer
Wendell Hargis 41 Vice President of Manufacturing Operations
James Samuel Parlette 43 Vice President of Sales and Marketing
AL R. GHELFI is the Chairman of the Board of Directors and served as
President and Chief Executive Officer of the Company from 1974 through October
1996. In 1968, when the Company was formed, through 1973, Mr. Ghelfi was Vice
President, Secretary and Treasurer of the Company. He has served as a Director
since inception. He works full-time for the Company. Mr. Ghelfi is also the
Chairman of the Board of Directors of Sun Built and NSC. Al Ghelfi is the father
of Brent Ghelfi.
BRENT GHELFI served as Executive Vice President and Chief Operating
Officer during fiscal 1996 and was named President and Chief Executive Officer
of Cavco in October 1996. Mr. Ghelfi has served as a Director of the Company
since February 1995. He previously served the Company as Vice President and
General Counsel. He has been employed by the Company since January 1995 and
works full time for the Company. In addition to his duties as President and
Chief Executive Officer for Cavco, he is also the President of Sun Built. Prior
to joining Cavco, he was a partner with the Phoenix law firm of Meyer,
Hendricks, Victor, Osborn &
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40
Maledon, specializing in corporate litigation and labor law. He was with the law
firm for more than six years. Brent Ghelfi is the son of Alfred R. Ghelfi.
RUTH SMITH has been the Secretary and a Director of the Company since
1974. She came to the Company in 1968 and, except for one year, has been with
the Company since that time. She now works part-time for the Company.
ROBERT WOLD has been a Director of the Company since 1991. Mr. Wold is
the president of Manufactured Housing Counselors, Inc., a management consulting
firm specializing in manufactured buildings. The Company retains Manufactured
Housing Counselors, Inc. as an operations consultant.
WILLIAM R. BLANDIN has been a Director of the Company since 1985. He
also served as Executive Vice President of the Company from 1984 through October
1996.
STEPHEN H. KLEEMANN has been a Director of the Company since 1984. Mr.
Kleemann is a principal in Kleemann Capital Management, Inc., a financial
consulting company in Santa Barbara, California. The Company retains Kleemann
Capital Management, Inc. as a financial consultant.
ROBERT WARD is Vice President, Treasurer and Chief Financial Officer of
the Company. He has been employed by the Company since 1978. He works full-time
for the Company. He became Treasurer of the Company in 1984 and Vice President
and Chief Financial Officer in 1990. Mr. Ward also serves as Secretary,
Treasurer and a director of Sun Built and NSC.
WENDELL HARGIS was named Executive Vice President of the Company in
October 1996. He has been employed by the Company since 1988 and held the
position of Vice President of Manufacturing Operations from 1992 through October
1996. He works full-time for the Company.
JAMES SAMUEL PARLETTE is the Vice President of Sales and Marketing, a
position he has held since March 1996. Formerly the General Sales Manager of the
Company's Litchfield division, Mr. Parlette has been with the Company since
1993. Prior to joining Cavco, Mr. Parlette was a division manager for Universal
Forest Products at its Chandler, Arizona division from 1988 to 1993 and a
general sales manager for Palm Harbor Homes, Inc. at its Austin, Texas facility
from 1982 to 1988.
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ITEM 11: EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth information with respect to the cash
compensation paid by the Company and its subsidiaries, as well as other
compensation, during the Company's last three fiscal years, to the Company's
Chief Executive Officer and each of the Company's four other most highly
compensated executive officers ("Named Executive Officers") in all capacities in
which they serve.
SUMMARY COMPENSATION TABLE
Annual Compensation
- ----------------------------------------------------------------------------------------------------------
Securities All Other
Fiscal Year Underlying Compensation
Name and Principal Position Ended Salary ($) Bonus ($) Options (#) ($)(1)
- ----------------------------------------------------------------------------------------------------------
Al R. Ghelfi 1996 149,932 384,420 112,369(2)
Chairman, Chief Executive 1995 146,276 281,407
Officer, Director 1994 146,276 514,823 49,412
51,723
William R. Blandin 1996 200,000 128,596
Executive Vice President, 1995 79,420 495,324 6,347
Director 1994 70,928 635,009 13,573
12,220
Robert Ward 1996 54,725 308,311 12,706
Vice President, Treasurer, 1995 53,341 225,584 11,430
Chief Financial Officer 1994 53,341 222,726
8,976
Brent Ghelfi
Vice President-General 1996 78,000 391,144 4,754
Counsel, Chief Operating Officer 1995 52,500 149,064 --
Wendell Hargis 1996 72,700 467,663 50,000 28,618(3)
Vice President of 1995 70,928 247,434 9,283
Manufacturing Operations 1994 70,928 301,538 6,776
Samuel Parlette 1996 69,000 190,248 5,893
Vice President of 1995 40,000 95,588 --
Sales and Marketing 1994 40,000 94,143 --
- ---------------------
(1) Includes profit sharing and 401(k) contributions, medical insurance
payments, travel allowances, personal use of Company vehicles and charges for
the portion of group life insurance premium paid by the Company.
(2) Includes $61,873 premiums on insurance policies with a $12,000,000 death
benefit, paid by the registrant, in which the executive officer will receive an
interest in cash surrender value under the policy.
(3) Includes $20,500 premiums on an insurance policy with a $60,000 death
benefit, paid by the registrant, in which the executive officer will receive an
interest in cash surrender value under the policy.
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OPTION GRANTS, EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information regarding stock
option grants to the Named Executive Officers:
OPTION GRANTS
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------
POTENTIAL
REALIZABLE
PERCENT OF VALUE AT
TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE OR FOR OPTION TERM($)(3)
OPTIONS FISCAL BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#) YEAR ($/SHARE)(2) DATE 5% 10%
- ---- ----------- ---- --------- ---- -- --
Wendell Hargis 50,000(1) 100% $10.00 08/18/05 $314,448 $796,873
- --------------------
(1) The options granted are incentive stock options issued in fiscal 1995,
effective as of August 18, 1995 under the Company's 1985 Incentive Stock Option
Plan (the "Plan"). Ten percent of these options become exercisable on August 18
in each year, beginning August 18, 1996. Under the Plan, the Company has the
right to accelerate the vesting of these options in connection with certain
mergers and other transactions, including but not limited to the Merger, in
which case the options are cancelled if not exercised within 30 days. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments: Proposed Merger."
(2) The exercise price per share was equal to the fair market value of the
Common Stock on the date of grant, as determined by the Board of Directors.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains are
based on assumed rates of stock appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration date and
are not presented to forecast possible future appreciation, if any, in the price
of the Common Stock. The gains shown are net of the option exercise price, but
do not include deductions for taxes or other expenses associated with the
exercise of the options or the sale of the underlying shares. The actual gains,
if any, on the stock option exercise will depend on the future performance of
the Common Stock, the optionee's continued employment through applicable vesting
periods and the date on which the options are exercised.
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43
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
NAME EXERCISE (#) REALIZED($)(1) END (#) AT FISCAL YEAR END ($)(2)
- ---------------------------------------------------------------------------------------------------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
Wendell Hargis 5,000 $49,390 0/45,000 $0/$427,500
- --------------------
(1) The "Value Realized" reflects the appreciation on the date of exercise,
based on the excess of the fair market value of the shares on the date of
exercise over the exercise price. These amounts do not necessarily reflect cash
realized upon the sale of those shares, as an executive officer may keep the
shares exercised, or sell them at a different time and price.
(2) The "Value" set forth in this column is based on the difference between the
fair market value at September 30, 1996 ($19.50 per share bid price as reported
by the National Association of Securities Dealers) and the option exercise
price, multiplied by the number of shares underlying the option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert Wold, a member of the Company's compensation committee, is President of
Manufactured Housing Counselors, Inc., a management consulting firm specializing
in manufactured buildings, which is retained by the Company as an operations
consultant. The Company paid approximately $40,000 to Manufactured Housing
Counselors, Inc. for consulting services in fiscal 1996. Stephen H. Kleemann, a
member of the Company's compensation committee, is a principal in a financial
consulting company known as Kleemann Capital Management, Inc., which is retained
by the Company as a financial consultant. The Company paid approximately $48,000
to Kleemann Capital Management, Inc. for consulting services in fiscal 1996.
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44
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On December 4, 1996, Cavco and Al Ghelfi, the Chairman of Cavco, agreed
to enter into a Consulting Agreement, which will become effective upon the
consummation of the transactions contemplated by the Merger Agreement or
alternatively, upon consummation of the Subject Share Purchase, as the case may
be. The term of the Consulting Agreement is five years; however, either party
may accelerate the expiration date if CREC acquires all of the Shareholder
Parties' Cavco common stock. During the term of the Consulting Agreement, Al
Ghelfi has agreed to provide consulting services requested by the Board of
Directors of Cavco in connection with its business. Upon effectiveness of the
Consulting Agreement, Al Ghelfi will be entitled to receive consulting fees,
reimbursement of expenses and certain group benefits, on the terms and
conditions specified in the Consulting Agreement. The Consulting Agreement also
provides that Al Ghelfi will not engage in certain activities competitive with
the business of Cavco for a period of three (3) years following termination of
the Consulting Agreement in certain circumstances. The description set forth in
this Report of the terms of the Consulting Agreement is qualified in its
entirety by reference to the Consulting Agreement, a copy of which is
incorporated herein by reference as an Exhibit to this Report.
On December 4, 1996, Cavco and Brent Ghelfi, the President and Chief
Executive Officer of Cavco, agreed to enter into a five-year Employment
Agreement, which will become effective upon consummation of the transactions
contemplated by the Merger Agreement or alternatively, upon consummation of the
Subject Share Purchase, as the case may be. During the term of the Employment
Agreement, Brent Ghelfi has agreed to continue to serve as Chief Executive
Officer of the Company, subject to the direction of the Board of Directors. Upon
effectiveness of the Employment Agreement, Brent Ghelfi will be entitled to
receive salary and cash bonuses, reimbursement of expenses, and other specified
individual and group benefits, pursuant to the terms and conditions set forth in
the Employment Agreement, and in addition, will be entitled to receive certain
options to purchase shares of common stock of Centex Corporation, the parent
company of CREC. The Employment Agreement also provides that Brent Ghelfi will
not engage in certain activities competitive with the business of Cavco for a
period of three (3) years following termination of the Employment Agreement in
certain circumstances. The description set forth in this Report of the terms of
the Employment Agreement is qualified in its entirety by reference to the
Employment Agreement, a copy of which is incorporated herein by reference as an
Exhibit to this Report.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II of this Report for additional information concerning the
transactions contemplated by Merger Agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the 1996 fiscal year, Wendell Hargis, then Executive Vice
President of Manufacturing Operations, exercised an option to purchase 5,000
shares of Cavco Common Stock. A beneficial ownership report on Form 4 was not
timely filed to report the exercise of such option. See "Executive
Compensation." In February 1995, Brent Ghelfi was elected Vice President and
Wendell Hargis was elected Vice President of Manufacturing Operations of the
Company and in March 1996, James Samuel Parlette was elected Vice President of
Sales and Marketing of the Company. An initial statement of beneficial ownership
on Form 3 was not timely filed to report any of these events.
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ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of November 29, 1996, with respect
to beneficial ownership of the Company's Common Stock by each person, including
any "group" as that term is used in Section 13(d) of the Securities Exchange Act
of 1934, who is known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock.
Amount and Nature
Name and Address of Beneficial of Beneficial Percent of
Title of Class Owner Ownership Class(1)
- -------------- ------------------------------ ----------------- ----------
$.05 Par Value Al R. Ghelfi 1,830,729 shares(2) 54.04%
Common Stock 5655 N. Camelback Canyon Dr.
Phoenix, AZ 85018
$.05 Par Value Stephen H. Kleemann 272,025 shares 8.03%
Common Stock 526 Via Sinuosa
Santa Barbara, CA 93110
$.05 Par Value FMR Corp. 238,550 shares(3) 7.04%
Common Stock 82 Devonshire St.
Boston, MA 02109
(b) SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of November 29, 1996,
with respect to beneficial ownership of the Company's Common Stock by each Named
Executive Officer, each director, and all directors and officers as a group.
Amount and Nature
Name and Address of Beneficial of Beneficial Percent of
Title of Class Owner Ownership Class(1)
- -------------- ------------------------------ ----------------- ----------
$.05 Par Value Al R. Ghelfi 1,830,729 shares(2) 54.04%
Common Stock 5655 N. Camelback Canyon Dr.
Phoenix, AZ 85018
$.05 Par Value Ruth Smith 42,340 shares(4) 1.25%
Common Stock 19016 N. 88th Dr.
Peoria, AZ 85382
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46
$.05 Par Value Stephen H. Kleemann 272,025 shares 8.03%
Common Stock 526 Via Sinuosa
Santa Barbara, CA 93110
$.05 Par Value Wendell Hargis 5,000 shares(5) *
Common Stock 1711 N. Lindsay Rd.
Mesa, AZ 85213
$.05 Par Value Robert Ward 3,750 shares *
Common Stock 2953 E. Blackhawk Dr.
Phoenix, AZ 85024
$.05 Par Value All Executive Officers and 2,153,844 shares 63.57%
Common Stock Directors as a Group (9 persons)
- --------------------
* Represents less than 1% of outstanding shares.
(1 Based on 3,387,968 shares of the Company's $.05 par value common stock issued
and outstanding.
(2) Represents (i) 1,650,000 shares held by Janal Limited Partnership, the sole
general partners of which are trust in which Al Ghelfi and his spouse, Janet M.
Ghelfi, are the sole trustees, and (ii) 180,729 shares held by Al Ghelfi and
Janet M. Ghelfi as community property.
(3) As reported on the February 14, 1996 Schedule 13G filed by FMR Corp.
(4) 38,840 of the shares shown are held in joint tenancy with spouse, Robert J.
Smith.
(c) CHANGES IN CONTROL
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -Recent Developments: Proposed Merger" in Part II of this
Form 10-K, incorporated herein by reference, for a description of arrangements
known to the Company the operation of which may at a subsequent date result in a
change of control of the Company
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Recent Developments: Proposed Merger" in Part II of
this Form 10-K and "Executive Compensation -- Employment Contracts, Termination
of Employment and Change-in-Control Arrangements" and " -- Compensation
Committee Interlocks and Insider Participation" in Part III of this Form 10-K,
incorporated herein by reference.
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PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Annual Report on
Form 10-K:
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 - The following Exhibits are filed herewith or
incorporated herein by reference. The Company hereby agrees to
furnish supplementally to the Commission a copy of any schedule
omitted from any such Exhibit.
Exhibit No. Description
2.1 Agreement and Plan of Merger dated as of December 4,
1996, among Centex Real Estate Corporation, a Nevada
corporation, MFH Holding Company, a Nevada corporation,
MFH Acquisition Company, an Arizona corporation, Cavco
Industries, Inc., an Arizona corporation, Al R. Ghelfi,
Janet M. Ghelfi and Janal Limited Partnership, an
Arizona limited partnership, incorporated herein by
reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated December 12, 1996 and filed
with the Commission on December 16, 1996 (File No.
0-8822) (the "1996 Form 8-K").
3.1 Articles of Incorporation of the Company and amendments
to the Articles of Incorporation attached as an Exhibit
to the Company's Form 10 dated September 30, 1978,
incorporated herein by reference.
3.2 Bylaws of the Company and amendments to Bylaws attached
as an Exhibit to the Company's Form 10 dated September
10, 1978, incorporated herein by reference.
3.3. Amended Articles of Incorporation and Bylaws dated
March, 1981 attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended
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48
September 30, 1981, incorporated herein by reference.
3.4 Amended Articles of Incorporation and Bylaws dated
April, 1992 attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended September 30, 1992,
incorporated herein by reference.
3.5 Amended Articles of Incorporation and Bylaws dated
November 1994, attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended September 30, 1994,
incorporated herein by reference.
10.1(2) 1985 Incentive Stock Option Plan, dated August 18,
1985, attached as an Exhibit to the Company's Form 10-K
for the fiscal year ended September 30, 1985,
incorporated herein by reference.
10.2 PDG/Prescott Development Group, L.L.C. Operating
Agreement attached as an Exhibit to the Company's Form
10-K for the fiscal year ended September 30, 1993,
incorporated herein by reference.
10.3 PDG/Prescott Development Group, L.L.C. Loan Agreement,
attached as an Exhibit to the Company's Form 10-K for
the fiscal year ended September 30, 1993, incorporated
herein by reference.
10.4 PDG/Prescott Development Group, L.L.C. Irrevocable
Guarantee attached as an Exhibit to the Company's Form
10-K for the fiscal year ended September 30, 1993,
incorporated herein by reference.
10.5 Cavco Convertible Note Trust Agreement, Loan Agreement
and Promissory Note dated April 12, 1994 attached as an
Exhibit to the Company's Form 10-K for the fiscal year
ended September 30, 1994, incorporated herein by
reference.
10.6(1)(2) Incentive Stock Option Agreement between the Company
and Wendell Hargis dated August 18, 1995.
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49
10.7(1) Asset Purchase Agreement dated September 20, 1996
between Action Healthcare Management Services, Inc. and
Vanilla, Inc.
10.8(1)(2) Form of Indemnification Agreement between the Company
and each of its directors dated as of December 2, 1996.
10.9(2) Consulting Agreement dated as of December 4, 1996, by
and between Cavco Industries, Inc., an Arizona
corporation, and Al R. Ghelfi, incorporated herein by
reference to Exhibit 99.3 to the 1996 Form 8-K.
10.10(2) Employment Agreement dated as of December 4, 1996, by
and between Cavco Industries, Inc., an Arizona
corporation, and Brent M. Ghelfi, incorporated herein
by reference to Exhibit 99.4 to the 1996 Form 8-K.
10.11(1) Standard Industrial Lease - Multi-Tenant dated February
1, 1993 by and between Loral Corporation and Cavco
Industries, Inc.
21(1) Subsidiaries of the registrant
27 Financial Data Schedule
99.1 Voting Agreement dated as of December 4, 1996, between
Centex Real Estate Corporation, a Nevada corporation,
and Al R. Ghelfi, Janet M. Ghelfi and Janal Limited
Partnership, an Arizona limited partnership,
incorporated herein by reference to Exhibit 99.1 to the
1996 Form 8-K.
99.2 Stock Purchase Agreement dated as of December 4, 1996,
between Centex Real Estate Corporation, a Nevada
Corporation, and Al R. Ghelfi, Janet M. Ghelfi and
Janal Limited Partnership, an Arizona limited
partnership, incorporated herein by reference to
Exhibit 99.2 to the 1996 Form 8-K.
- -------------------------
(1) Filed herewith
(2) Management contract or compensatory plan
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50
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
year ended September 30, 1996.
(c) Exhibits
The list of Exhibits required by Item 601 of Regulation S-K is
included in Item 14(a)(3) above.
(d) Financial Statement Schedules
See Item 14(a)(2) above.
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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, this 27th day of
December, 1996.
Cavco Industries, Inc.
By: /s/ Brent Ghelfi
--------------------------------
Brent Ghelfi, President and
Chief Executive Officer
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 indicated:
By: /s/ Al Ghelfi Chairman of the Board, December 27, 1996
---------------------------- Director
Al Ghelfi
By: /s/ Brent Ghelfi President, Chief
---------------------------- Executive Officer, December 27, 1996
Brent Ghelfi Director
By: /s/ Ruth Smith Senior Vice President, December 27, 1996
---------------------------- Secretary, Director
Ruth Smith
By: /s/ Robert Ward Vice President,
---------------------------- Principal Financial and December 27, 1996
Robert Ward Accounting Officer
By: /s/ William Blandin Director December 27, 1996
----------------------------
William Blandin
By: /s/ Stephen Kleemann Director December 27, 1996
-----------------------------
Stephen Kleemann
By: /s/ Robert Wold Director December 27, 1996
-----------------------------
Robert Wold
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EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
2.1 Agreement and Plan of Merger dated as of December 4,
1996, among Centex Real Estate Corporation, a Nevada
corporation, MFH Holding Company, a Nevada
corporation, MFH Acquisition Company, an Arizona
corporation, Cavco Industries, Inc., an Arizona
corporation, Al R. Ghelfi, Janet M. Ghelfi and Janal
Limited Partnership, an Arizona limited partnership,
incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated December
12, 1996 and filed with the Commission on December 16,
1996 (File No. 0-8822) (the "1996 Form 8-K").
3.1 Articles of Incorporation of the Company and
amendments to the Articles of Incorporation attached
as an Exhibit to the Company's Form 10 dated September
30, 1978, incorporated herein by reference.
3.2 Bylaws of the Company and amendments to Bylaws
attached as an Exhibit to the Company's Form 10 dated
September 10, 1978, incorporated herein by reference.
3.3. Amended Articles of Incorporation and Bylaws dated
March, 1981 attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended September 30,
1981, incorporated herein by reference.
3.4 Amended Articles of Incorporation and Bylaws dated
April, 1992 attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended September 30,
1992, incorporated herein by reference.
3.5 Amended Articles of Incorporation and Bylaws dated
November 1994, attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended September 30,
1994, incorporated herein by reference.
10.1 1985 Incentive Stock Option Plan, dated August 18,
1985, attached as an Exhibit to the Company's Form
10-K for the fiscal year ended September 30, 1985,
incorporated herein by reference.
10.2 PDG/Prescott Development Group, L.L.C. Operating
Agreement attached as an Exhibit to the Company's Form
10-K for the fiscal year ended September 30, 1993,
incorporated herein by reference.
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53
Exhibit No. Description Page
- ----------- ----------- ----
10.3 PDG/Prescott Development Group, L.L.C. Loan Agreement,
attached as an Exhibit to the Company's Form 10-K for
the fiscal year ended September 30, 1993, incorporated
herein by reference.
10.4 PDG/Prescott Development Group, L.L.C. Irrevocable
Guarantee attached as an Exhibit to the Company's Form
10-K for the fiscal year ended September 30, 1993,
incorporated herein by reference.
10.5 Cavco Convertible Note Trust Agreement, Loan Agreement
and Promissory Note dated April 12, 1994 attached as
an Exhibit to the Company's Form 10-K for the fiscal
year ended September 30, 1994, incorporated herein by
reference.
10.6(1)(2) Incentive Stock Option Agreement between the Company
and Wendell Hargis dated August 18, 1995.
10.7(1) Asset Purchase Agreement dated September 20, 1996
between Action Healthcare Management Services, Inc.
and Vanilla, Inc.
10.8(1)(2) Form of Indemnification Agreement between the Company
and each of its directors dated as of December 2,
1996.
10.9(2) Consulting Agreement dated as of December 4, 1996, by
and between Cavco Industries, Inc., an Arizona
corporation, and Al R. Ghelfi, incorporated herein by
reference to Exhibit 99.3 to the 1996 Form 8-K.
10.10(2) Employment Agreement dated as of December 4, 1996, by
and between Cavco Industries, Inc., an Arizona
corporation, and Brent M. Ghelfi, incorporated herein
by reference to Exhibit 99.4 to the 1996 Form 8-K.
10.11(1) Standard Industrial Lease - Multi-Tenant dated February
1, 1993 by and between Loral Corporation and Cavco
Industries, Inc.
21(1) Subsidiaries of the registrant
27 Financial Data Schedule
99.1 Voting Agreement dated as of December 4, 1996, between
Centex Real Estate Corporation, a Nevada corporation,
and Al R. Ghelfi, Janet M. Ghelfi and Janal Limited
Partnership, an Arizona limited partnership,
incorporated herein by reference to Exhibit 99.1 to
the 1996 Form 8-K.
99.2 Stock Purchase Agreement dated as of December 4, 1996,
between Centex Real Estate Corporation, a Nevada
Corporation,
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Exhibit No. Description Page
- ----------- ----------- ----
and Al R. Ghelfi, Janet M. Ghelfi and Janal Limited
Partnership, an Arizona limited partnership,
incorporated herein by reference to Exhibit 99.2 to
the 1996 Form 8-K.
- ------------------------
(1) Filed herewith
(2) Management contract or compensatory plan
54