ITEM 1. BUSINESS
General Cavalier Homes, Inc. (the "Company"), incorporated in 1984, is a Delaware corporation with its executive offices located at Highway 41 North and 32 Wilson Boulevard, Addison, Alabama 35540. Effective December 31, 1997, the Company completed a merger (the "Merger") involving Belmont Homes, Inc. ("Belmont"), pursuant to which the Company issued 7,555,121 shares of its common stock in exchange for Belmont's common stock and Belmont became a wholly owned subsidiary of the Company. The Merger was accounted for as a pooling of interests and, accordingly, the Company's 1997 consolidated financial statements have been restated to include the results of operations and cash flows of Belmont. The information herein is presented on a combined basis. Unless otherwise indicated by the context, references in this report to the "Company" or to "Cavalier" include the Company, its subsidiaries, divisions of these subsidiaries and their respective predecessors, if any.
Cavalier is engaged in the production, sale, financing and insuring of manufactured homes. The Company has chosen to build its distribution system around exclusive independent dealers, which the Company believes gives it many of the same efficiencies and market presence that captive retail centers provide to other companies. At December 31, 1999, Cavalier had a total of 290 dealer locations participating in its Exclusive Dealer Program, including sixteen Company-owned retail locations. In addition, the Company markets its homes through approximately 800 non-exclusive independent dealer locations in 28 states.
The Company designs and manufactures a wide range of homes with a focus on serving the low- to medium-priced manufactured housing market in the South Central and South Atlantic regions of the United States. The Company's homes are sold under 87 brand names, normally include appliances, may be furnished and are comprised of one or more floor sections. At December 31, 1999, the Company operated 19 home manufacturing facilities, one plant that manufactures laminated wall board, and three material and supply distribution locations. Cavalier also participates in joint ventures with other manufactured housing companies for lumber distribution and the manufacture of roof trusses and cabinet doors.
Through its financial services segment, the Company purchases qualifying retail installment sales contracts for manufactured homes sold through its exclusive dealer network and sells various commissioned insurance products to exclusive dealers and their retail customers. During 1998, the business focus of Cavalier Acceptance Corporation ("CAC"), the Company's finance subsidiary, changed from building, holding and servicing a portfolio of loans to purchasing loans from its dealers that are subsequently resold to another financial institution, without recourse (provided that the transferred loan was properly originated by the dealer and purchased by CAC. CAC does not retain the servicing function and does not earn interest income on those resold loans.
Revenue, operating profit, identifiable assets and other financial data of the Company's industry segments for the three years ended December 31, 1999 are contained in Note 12 of Notes to Consolidated Financial Statements in Part II.
Home Manufacturing Operations At December 31, 1999, the Company, through six wholly owned subsidiaries, owned or leased nineteen manufacturing facilities (excluding idled facilities) engaged in the production of manufactured homes. Because of deteriorating market conditions, Cavalier idled a total of five home manufacturing facilities, including three subsequent to the end of 1999, that built primarily single section homes to consolidate production into other plants. See "Item 2.
ITEM 2. PROPERTIES
The following table sets forth the location and approximate square footage for each principal facility of the Company, separated by segment, as of December 31, 1999:
(a) Certain of the facilities listed as owned are financed under industrial development bond issues, including the Adrian, Buccaneer, Cavalier Homes of Alabama (2), and Riverchase facilities. Not included in this table is the Georgia facility for which construction is not complete.
(b) During 1999, the Company purchased two of these manufacturing facilities that were previously leased.
In general, the manufacturing facilities are in good condition and are operated at capacities which range from approximately 28% to 93%, excluding six idled facilities in Addison and Winfield, Alabama, Bigelow, Arkansas, Belmont and Clarksdale, Mississippi, and Mineral Wells, Texas, and the facility in Adrian, Georgia, which began production in March 1999.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are engaged in various legal proceedings that are incidental to and arise in the course of its business. Certain of the cases filed against the Company and its subsidiaries and companies engaged in businesses similar to it allege, among other things, breach of contract and warranty, product liability, personal injury and fraudulent, deceptive or collusive practices in connection with their businesses. These kinds of suits are typical of suits that have been filed in recent years, and they sometimes seek certification as class actions, the imposition of large amounts of compensatory and punitive damages and trials by jury. The outcome of many of the cases in which the Company is involved or may in the future become involved cannot be predicted with any degree of reliability, and the potential exists for unanticipated material adverse judgments against the Company and its respective subsidiaries.
In addition, Belmont has been sued by three former shareholders (the "Plaintiffs") of Belmont Homes, Inc., an Alabama corporation which originally owned the initial Belmont manufacturing facility ("BHIA"), in the Circuit Court of Madison County, Alabama (Case Number CV 97-2297). The defendants are BHIA, Belmont (as a successor in interest of BHIA), BHI, Inc., as a successor to Belmont Homes, Inc., a Mississippi corporation ("BHI"), the Estate of Jerold Kennedy (the former President and Chief Executive Officer of Belmont), J. M. Page, and certain other unnamed and unidentified individual officers, employees, agents and directors of BHIA, Belmont and BHI, alleging breach of fiduciary duties, misrepresentation, deceit, suppression and civil conspiracy. The Plaintiffs state that they owned a majority of the stock in BHIA and sold such stock in February of 1989. In addition to certain other allegations, the Plaintiffs claim that Mr. Kennedy, along with others who allegedly conspired with him, misrepresented and omitted certain facts to them regarding his attempts to hire a production manager, that Belmont later hired the production manager, and that the Plaintiffs would not have sold their stock in BHIA in the absence of these alleged misrepresentations and omissions. Additionally, the Plaintiffs claim that the defendants intentionally depreciated the market value of the stock of BHIA. In their complaint, the Plaintiffs request an unspecified amount of compensatory and punitive damages and/or equitable relief, including a constructive trust. The Company is aware that these same plaintiffs have also filed a separate claim against the Estate of Mr. Kennedy in the probate court of Franklin County, Alabama (Case Number 97-051), alleging essentially the same facts and seeking substantial compensatory damages and punitive damages and a constructive trust over the stock in the various Belmont entities owned by Mr. Kennedy`s estate. The Circuit Court of Madison County, Alabama, has transferred the Madison County action to the Circuit Court of Franklin County, Alabama. The Circuit Court of Franklin County has granted summary judgment in favor of the defendants on all counts asserted in the plaintiff's complaint. The plaintiffs have appealed this decision, and the appeal is currently pending before the Alabama Court of Civil Appeals. The outcome of this litigation and its effect on the Company cannot presently be determined, and the possibility exists for an adverse resolution of the litigation which could have a material adverse effect on the results of operations and financial condition of the Company in the quarter and year in which any such adverse resolution occurs. *
In September 1998, the Company and certain of its subsidiaries, along with a number of other manufactured housing producers, the Manufacturing Housing Institute, and the Manufactured Housing Association for Regulatory Reform, were named as defendants in a lawsuit purporting to be brought on behalf of all Kentucky residents who own manufactured homes produced by the defendants. The complaint was filed in the Commonwealth of Kentucky Pendleton Circuit Court, Case No. 98-CI-00143, and alleges that the defendants engaged in wrongful conduct and fraudulent misrepresentation and concealment, and that manufactured housing units are unsafe and/or dangerous for residential use because their design allegedly makes them more susceptible to fire. The plaintiffs seek compensatory and punitive damages, a requirement to retrofit manufacturing housing units with sprinkler systems, and other equitable and legal relief. The Commonwealth of Kentucky Pendleton Circuit Court granted defendants' motion to dismiss during the second quarter of 1999. The plaintiffs have appealed the dismissal, and the appeal is currently pending before the Kentucky Court of
- -------- See Safe Harbor Statement on page 31. *
Appeals. The outcome of this litigation and its effect on the Company cannot presently be determined, however, and the possibility exists for an adverse resolution of the litigation, which could have a material adverse effect on the results of operations and financial condition of the Company. *
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the shareholders during the last quarter of the fiscal year.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK-HOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "CAV". The following table sets forth, for each of the periods indicated, the reported high and low closing sale prices per share on the NYSE for the Company's common stock and the cash dividends paid per share in such periods. All adjusted prices of the Company's common stock have been rounded to the nearest one-eighth of one dollar.
As of March 17, 2000, the Company had approximately 400 shareholders of record and 5,200 beneficial holders of its common stock, based upon information in securities position listings by registered clearing agencies upon request of the Company's transfer agent.
Cavalier has paid regular quarterly dividends since 1989. The amount of the quarterly dividend was last increased to $0.04 per share in October 1998. The payment of dividends on the Company's common stock will be determined by the Board of Directors of the Company in light of conditions then existing, including the earnings of the Company and its subsidiaries, their funding requirements and financial conditions, certain loan restrictions and applicable laws and governmental regulations. The Company's present loan agreement contains restrictive covenants which, among other things, limit the aggregate dividend payments and purchases of treasury stock to 50% of the Company's consolidated net income for the two most recent fiscal years. Given current industry conditions, the Company cannot give assurances that it will pay dividends in the future in the same manner as it has in the past.
- -------- See Safe Harbor Statement on page 31. *
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data regarding the Company for the periods indicated. The statement of income data, the balance sheet data, and other data of the Company for each of the five years ended December 31, 1999, have been derived from the consolidated financial statements of the Company. The Company's audited financial statements as of December 31, 1999 and 1998, and for each of the years in the three-year period ended December 31, 1999, including the notes thereto and the related report of Deloitte & Touche LLP, independent auditors, are included elsewhere in this report. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements (including the Notes thereto) and the other financial information contained elsewhere in this report, and with the Company's consolidated financial statements and the notes thereto appearing in the Company's previously filed Annual Reports on Form 10-K.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Industry and Company Outlook Cavalier Homes, Inc. and its subsidiaries are engaged in the production, sale, financing, and insuring of manufactured housing. The manufactured housing industry is cyclical and seasonal and is influenced by many of the same economic and demographic factors that affect the housing market as a whole. During most of the 1990s, the manufactured housing industry experienced significant growth, which the Company attributes in part to a reduction in alternative housing, increased availability of retail financing, increased consumer confidence and continuing strength in the national economy during much of that time. As a result, the number of retail dealerships, manufacturing capacity and wholesale shipments expanded significantly, which consequently created slower retail turnover, higher retail inventory levels and increased price competition. Inventory oversupply at the retail level had a significant impact on wholesale shipments during 1999. The Manufactured Housing Institute ("MHI") reported that floor shipments declined 4.3% for 1999 as compared to 1998. The rate of decline in floor shipments accelerated throughout the year, as MHI reported 12.2% fewer shipments in the last six months of 1999 versus the same period in 1998 and 18.2% lower floor shipments in December 1999 compared to December 1998. The industry has also been impacted by the loss of some lenders from the manufactured housing retail and wholesale financing markets and tightening of credit standards by those remaining. In response to deteriorating market conditions, manufacturers have closed or idled some of their manufacturing facilities and retail dealers have closed some locations.
Industry conditions significantly impacted Cavalier's financial results during 1999. The Company is uncertain at this time as to the extent and duration of these developments and as to what effect these factors will have on the Company's future sales and earnings. * The Company currently believes these conditions will continue to adversely affect the Company's financial performance at least through the first half of 2000. * The Company is experiencing a significant decline in sales in the first quarter of 2000 as compared to the first quarter of 1999 and expects to incur a substantial loss for the quarter. * The Company also believes that, due to these industry conditions, the possibility exists for some additional retail dealer failures and additional loss of wholesale and retail lenders, which could adversely affect the Company. * Because of deteriorating market conditions, Cavalier has idled a total of five home manufacturing facilities, including three subsequent to the end of 1999, that built primarily single section homes to consolidate production into other plants. In 1999, the Company recorded a pre-tax impairment charge of $4.0 million ($2.5 million after tax, or $.14 per diluted share) to write-down the value of assets of the idled plants. The Company expects to continue to monitor the need for further plant consolidations, idlings and/or closings and to evaluate other potential cost savings options identified through a company-wide analysis designed to mitigate the impact of current market conditions. * The Company can give no assurance as to which one or more of these options, if any, it may ultimately adopt.
- -------- See Safe Harbor Statement on page 31. *
Results of Operations The following table (dollars in thousands) summarizes certain financial and operating data including, as applicable, the percentage of total revenue:
1999 compared to 1998 Revenue Total revenue for 1999 was $587,800 compared to $614,070 for 1998.
Home manufacturing net sales for 1999 compared to 1998 decreased 7%, or $42 million, to $556 million, net of intercompany eliminations of $17 million. Home shipments decreased 8.2%, with floor shipments decreasing by 6.1%. During 1999, 53% of the Company's homes sold were multi-section homes compared to 49% for the previous year. The expansion of the Company's multi-section product base is in response to increasing consumer demand for multi-section homes as compared to single section homes. Actual shipments of homes for 1999 were 22,377 versus 24,387 in 1998. The Company attributes the decrease in sales and shipments to the increasingly competitive conditions in the industry described above. Approximately 88% of Cavalier's shipments were to its core market of 11 states, where the Company's floor shipments for 1999 declined 6.5% as compared to 1998. For 1999, MHI reported an 8.7% decline in floor shipments in these 11 states. Additionally, the Company's inventory at all retail locations increased, based
on twelve month trailing sales, from 151 days a year ago to 165 days at year end. The average price of homes sold rose to $25,600 in 1999 from $24,700 in 1998. The increase in the average selling price was primarily due to price increases instituted by the Company associated with rising prices in raw materials and an increase in the shipment of multi-section homes. The Company's exclusive dealer program expanded by 53 locations since December 31,1998, bringing the total to 290 at December 31, 1999, including 16 company-owned stores. Sales to exclusive dealers represented 55% of total sales in 1999 versus 40% in 1998.
Revenue in 1999 from the financial services segment approximated 1998 revenue. During 1999, Cavalier Acceptance Corporation ("CAC") purchased installment loan contracts of $47 million and sold $61 million of installment contracts. In 1998, CAC purchased contracts of $27 million and sold installment contracts totaling $46 million. During 1998, the focus of CAC's business changed from building, holding and servicing a portfolio of loans to purchasing loans from its dealers, which are then resold to another financial institution, without recourse (provided that the transferred loan was properly originated by the dealer and purchased by CAC). CAC does not retain the servicing function and does not earn the interest income on these resold loans.
Revenue from the retail segment was $21 million for 1999, of which 76% of the units sold were Cavalier product. In 1998, retail revenue was $7 million, of which 64% of the units sold were Cavalier product. At December 31, 1999, the Company operated 16 retail locations as compared to 5 at December 31, 1998.
Other revenue consists mainly of revenue from the Company's wholesale supply and component manufacturing businesses, which sell primarily to the Company's home manufacturing segment. Revenue from external customers increased 86%, or $2 million, for 1999 compared to 1998. This increase is due primarily to the addition of a supply company.
Gross Profit Gross profit is derived by deducting cost of sales from total revenue. Gross profit was $110 million, or 18.8% of total revenue, in 1999 versus $117 million, or 19.1% of total revenue, in 1998. During 1999, the Company experienced tightened supply from its traditional vendors of certain types of raw materials, including sheetrock, insulation and lumber, required for production of its homes. The Company obtained these products from other vendors and purchased substitute products, which resulted in higher than normal costs. Due to the competitive industry conditions, some of these costs were not recoverable through price increases.
Selling, General and Administrative Selling, general and administrative expenses during 1999 were $103 million or 17.5% of total revenue, versus $88 million or 14.3% in 1998, an increase of $15 million. Of this increase, $1.9 million is related to expanded sales and marketing efforts, including PowerHouse promotions, and recruiting, set-up and maintenance of the exclusive dealer network. Additionally, selling, general and administrative expenses increased $2.0 million due to higher costs for employee benefits, $0.8 million for increased warranty service activities and $3.1 million for the start-up costs associated with implementing an enterprise-wide management information system. Other factors contributing to the increase in selling, general and administrative expenses are (1) costs of $3.4 million associated with operating new retail locations and the continued development of a retail infrastructure, (2) costs associated with the expansion of the supply distribution business of $1.6 million, (3) $2.8 million of costs associated with repurchased inventory, (4) $0.9 million increase in loan loss reserve, and (5) $0.3 million in costs of opening an additional home manufacturing facility. These costs were partially offset by a reduction in incentive compensation of $4.1 million.
Impairment charge for idled facilities Because of deteriorating market conditions, Cavalier has idled a total of five home manufacturing facilities, including three subsequent to the end of 1999, that built primarily single section homes to consolidate production into other plants. In 1999, the Company recorded a pre-tax impairment charge of $4.0 million ($2.5 million after tax, or $.14 per diluted share) to write-down the value of assets of the idled plants.
Operating Profit Operating profit is derived by deducting cost of sales and selling, general and administrative expenses from total revenue. Operating profit declined $26 million to $4 million in 1999 from $30 million in 1998.
Home manufacturing operating profit declined $18 million, before intercompany eliminations, due primarily to lower sales, increased raw material prices, increased selling, general and administrative expenses and the impairment charge for idled facilities. Financial services operating profit decreased $2 million due principally to increased selling, general and administrative expenses, consisting primarily of prepayment and repossession costs and payroll costs due to the addition of area sales personnel. The retail segment's operating loss increased $1.5 million due to the operation of start-up retail locations, the continued development of a retail infrastructure and the competitive conditions currently prevailing in the industry. Other operating profit declined $1.8 million, before intercompany eliminations, due mainly to the costs associated with the start-up of a new supply company.
Other Income (Expense) Interest expense increased to $2 million in 1999 from $1 million in 1998 due to the increase in notes payable under retail floor plan agreements and amounts outstanding under Industrial Development Revenue Bond Issues.
Other, net, is primarily comprised of interest income (unrelated to financial services), gains or losses on sales of assets, equity earnings in investments accounted for on the equity basis of accounting and applicable allocation of minority interest. The decrease of $0.7 million in 1999 to $1.7 million from $2.4 million in 1998 was primarily due to decreased interest income earned due to lower average cash balances during 1999 as compared to 1998.
Net Income Net income declined $17 million to $2 million in 1999 from $19 million in 1998 which the Company attributes to lower sales, increased raw materials prices and selling, general and administrative expenses, the impairment charge and the other industry factors discussed above. Diluted net income per share was $0.12 in 1999, compared to $0.93 per share in 1998.
1998 compared to 1997 Revenue Home manufacturing net sales for 1998 as compared to 1997 increased by 8%, or $44 million, net of intercompany elimination of $5 million, with home shipments increasing by 3.3%. During 1998, 49% of the Company's homes sold were multi-section homes compared to 42% for the previous year. As the sale of multi-section homes continued to increase, the number of floors sold in 1998 increased 8.5% from 1997. The expansion of the Company's multi-section product base is in response to increasing consumer demand for multi-section homes. At year end, the exclusive dealer distribution system had grown to 237 exclusive dealer locations, including five Company-owned retail locations. Sales to exclusive dealers represented 40% of total 1998 sales compared to 30% in 1997. The Company attributes the strong growth in its Exclusive Dealer Program to dealer acceptance of the program's benefits and the introduction of the program to the Belmont group of dealers. Actual shipments of homes during 1998 were 24,387 versus 23,602 in 1997. The average price of homes sold rose to $24,700 in 1998 from $23,500 in 1997. The increase in the average selling price was primarily due to price increases instituted by the Company associated with rising prices in raw materials and an increase in the shipment of multi-section homes.
Revenue from the financial services segment increased $0.7 million in 1998 as compared to 1997 primarily due to a gain on the sale of a significant portion of CAC's loan portfolio in 1998 and the subsequent periodic resale of loans. In 1998, the effect of the portfolio sale on financial services revenue was a reduction in interest income earned of $1.4 million, offset by the gain on sale of loans of $2 million. During 1998, the business focus of CAC changed from building, holding and servicing a portfolio of loans to purchasing loans from its dealers that are subsequently resold to another financial institution, without recourse (provided that the transferred loan was properly originated by the dealer and purchased by CAC). CAC does not retain the servicing function and does not earn interest income on these resold loans. During 1998, CAC purchased contracts totaling $27 million as compared to $18 million in 1997.
Revenue from the retail segment was $7 million for 1998, of which 64% of the units sold were Cavalier product. The Company did not own any retail sales centers in 1997. At December 31, 1998, the Company operated 5 retail locations.
Other revenue consists mainly of revenue from the Company's wholesale supply and component manufacturing businesses, which sell primarily to the Company's home manufacturing segment. Revenue from external customers increased 28%, or $0.6 million, for 1998 compared to 1997. This increase is due primarily to the addition of a supply company.
Gross Profit Gross profit is derived by deducting cost of sales from total revenue. Gross profit was $117 million, or 19.1% of total revenue, in 1998 versus $97 million, or 17.3% of total revenue, in 1997. The Company believes an increase in total revenue and cost savings due to increased purchasing and other efficiencies after the Belmont merger are responsible for a significant portion of this increase.
Selling, General and Administrative Selling, general and administrative expenses during 1998 were $88 million, or 14.3% of total revenue, compared to $73 million, or 12.9% of total revenue, in 1997, an increase of $15 million as compared to 1997. Of this increase, $4.5 million is related to broadened sales and marketing efforts, including recruiting, set-up and maintenance of the exclusive dealer network, and the continued development of a retail infrastructure. Additionally, selling, general and administrative expenses increased $1.4 million due to higher costs for employee benefits, primarily health insurance, $1 million for increased warranty service activities and $0.7 million for the start-up costs associated with implementing an enterprise-wide management information system. Other factors contributing to the increase in selling, general and administrative expenses are the costs associated with retail acquisitions, opening an additional home manufacturing facility and the expansion of the supply distribution business.
Operating Profit Operating profit is derived by deducting cost of sales and selling, general and administrative expenses from total revenue. Operating profit improved $13 million to $30 million in 1998 from $17 million in 1997. Home manufacturing operating profit improved $2.5 million due to an increase in sales and cost savings associated with increased purchasing and other efficiencies after the Belmont merger. Financial services operating profit improved $0.2 million due to a gain on the sale of a significant portion of CAC's loan portfolio, offset by reduced interest income on the portion of the portfolio sold. Additionally, operating profit improved due to the absence of a $7.4 million non-recurring merger charge in 1997.
Other Income (Expense) Interest expense decreased in 1998 from 1997 due to the March 1998 retirement of the financial services debt which was paid with the proceeds from the sale of a portion of CAC's loan portfolio, as well as the payoff in September 1997 of debt that had been used to support the 1996 Bellcrest acquisition, offset by floor plan interest in 1998 incurred in connection with the Company-owned retail sales locations.
Other, net, is primarily comprised of interest income (unrelated to financial services), gains or losses on sales of assets, equity earnings in investments accounted for on the equity basis of accounting and applicable allocation of minority interest. The increase of $1.1 million in 1998 as compared to 1997 was primarily due to increased interest income on earnings from the cash proceeds from the sale of a portion of CAC's loan portfolio.
Net Income Net income improved $8.5 million to $18.7 million in 1998 from $10.2 million in 1997 due primarily to an increase in total revenue, the cost savings associated with increased purchasing and other efficiencies after the Belmont merger and the absence of the non-recurring merger charge of $6.5 million net of taxes.
Liquidity and Capital Resources
Operating activities during 1999 used net cash of $6.5 million. Inventory at December 31, 1999, increased $11.3 million from 1998 due primarily to the expansion of the retail segment from five company-owned stores at the end of 1998 to 16 at the end of 1999.
Net cash totaling $4.4 million was paid during the first half of 1999 in connection with acquisitions of seven retail locations, an insurance agency, a premium finance company and a supply company.
The Company's 1999 capital expenditures were $24.5 million, as compared to $14.7 million in 1998. Capital expenditures during 1999 included normal property, plant and equipment additions and replacements and the continued expansion and modernization of certain of the Company's manufacturing facilities. Additionally, during January 1999, the Company purchased, for a total of $3.4 million, two Alabama manufacturing facilities that were previously leased, and renovated a Georgia manufacturing facility at a cost of $1.7 million that was placed in operation at the end of the first quarter. Approximately $3.5 million of the cost of implementing a new enterprise-wide management information system has been capitalized in 1999. Due to current market conditions, construction of an additional manufacturing facility in Georgia, for which the Company capitalized $2.4 million in early 1999, has been temporarily slowed. In addition to the periodic resale of loans, the Company's finance subsidiary, CAC, sold $16 million of its existing installment contracts portfolio to another financial institution.
The 1999 increase in long-term debt of $6.6 million is primarily due to the assumption of an industrial development revenue bond in the amount of $0.8 million related to the Alabama facilities acquired and proceeds from two other industrial development bonds of $7.0 million for the Georgia facilities. Notes payable increased $11.4 million due to the increase in retail floor plan financing as a result of the acquisition or opening of additional retail locations.
The Company purchased 1,779,000 shares of treasury stock during 1999 for $15.7 million. The Company has authorization to acquire up to 1.4 million additional shares under the program.
As of December 31, 1998, the Company had working capital of $42 million compared to $28 million at the end of 1997, an increase of $14 million. The 1998 increase in working capital and the decreases in long-term debt and the debt to equity ratio were due to the sale of a portion of CAC's installment loan portfolio, of which a portion of the proceeds were used to retire approximately $14 million in debt and approximately $13 million was invested in short-term assets. Operating
activities provided cash of $37 million in 1998. The Company's capital expenditures were approximately $15 million in 1998. Capital expenditures during 1998 included normal property, plant and equipment additions and replacements, the continued expansion and modernization of certain of the Company's manufacturing facilities, as well as the purchase of a Texas manufacturing facility that was previously leased, land adjacent to a North Carolina and a Georgia manufacturing facility, and an additional manufacturing facility in Georgia placed in operation in the first quarter of 1999. The Company initiated a stock repurchase program during the latter part of 1998 of which 852,600 shares were purchased during 1998 for approximately $8 million.
The Company entered into a credit agreement with its primary lender in February 1994 and later amended it in March 1996 and June 1998. The credit facility presently consists of a $35 million revolving, warehouse and term-loan agreement. The credit facility contains a revolving line of credit which provides for borrowings (including letters of credit) of up to 80% and 50% of the Company's eligible (as defined) accounts receivable and inventories, respectively, up to a maximum of $10 million. Interest is payable under the revolving line of credit at the bank's prime rate, or, if elected by the Company, the 90-day LIBOR Rate plus 2.5%. The warehouse and term-loan agreements contained in the credit facility provide for borrowings of up to 80% of the Company's eligible (as defined) installment sales contracts, up to a maximum of $25 million. Interest on the term notes is fixed for a period of five years from issuance at a rate based on the weekly average yield on five-year treasury securities averaged over the preceding 13 weeks, plus 1.95%, with a floating rate for the remaining two years (subject to certain limits) equal to the bank's prime rate plus 0.75%. The warehouse component of the credit facility provides for borrowings of up to $25 million with interest payable at the bank's prime rate, or, if elected by the Company, the 90-day LIBOR Rate plus 2.5%. However, in no event may the aggregate outstanding borrowings under the warehouse and term-loan agreement exceed $25 million. Under the credit facility, no amounts were outstanding at December 31, 1999 and December 31, 1998.
The credit facility contains certain restrictive covenants which limit, among other things, the Company's ability to (i) make dividend payments and purchases of treasury stock in an aggregate amount which exceeds 50% of consolidated net income for the two most recent years, (ii) mortgage or pledge assets which exceed, in the aggregate, $1 million, (iii) incur additional indebtedness, including lease obligations, which exceed in the aggregate $10 million and (iv) make capital expenditures in excess of $14 million. In addition, the credit facility contains certain financial covenants requiring the Company to maintain on a consolidated basis certain defined levels of net working capital (at least $3.5 million), tangible net worth (which must increase at least $2 million per year, subject to a carryover for increases in excess of $2 million in the prior year), debt to equity ratio (not to exceed 2 to 1) and cash flow to debt service ratio (not less than 1.5 to 1). The credit facility also requires CAC to comply with certain specified restrictions and financial covenants. The Company has obtained appropriate waiver letters to the extent it was in violation of certain covenants at December 31, 1999.
On February 29, 2000, the Company received a commitment from its primary bank to extend its Credit Facility through April 2002. The renewal increases the amount available under the revolving line of credit to $35 million (an increase from $10 million), provided that the aggregate amounts outstanding under the revolving note and term loans do not exceed $35 million, eliminates the warehouse feature of the Credit Facility and provides for the ability to convert the amount advanced under the revolving line to a term loan. Interest is payable under the terms of the renewal at the bank's prime rate less 0.5%, or, if elected by the Company, the 90-day LIBOR Rate plus 2.0%. The principal modifications to the financial covenants under the commitment letter are as follows: (i) the net working capital requirement increased from at least $3.5 million to at least $15 million, (ii) a minimum current ratio requirement of 1.17 to 1was added, (iii) the sum of consolidated tangible net worth plus treasury stock purchases must be at least $90 million and (iv) the ratio of consolidated cash flow to debt service of not less than 1.5 to 1was amended to not less than 1.75 to 1. Other terms and restrictive covenants are substantially similar to the expiring agreement.
Since its inception, CAC has been restricted in the amounts of loans it could purchase based on underwriting standards, as well as the availability of working capital and funds borrowed under its credit line with its primary lender. In February 1998, CAC entered into an agreement with another lender providing for the periodic resale of a portion of CAC's loans that meet established criteria and without recourse (provided that the transferred loan was properly originated by the dealer and purchased by CAC). In March 1998 and in June 1999, CAC sold, under the retail finance agreement, a substantial portion of its existing portfolio of loans on those dates. The effect of these transactions on net income was to reduce the amount of financial services revenue from interest income on these portions of the portfolio, offset by reduced interest expense on debt retired in March 1998 and earnings on the remaining proceeds. The Company may sell a substantial portion of its remaining installment loan portfolio in fiscal year 2000, in addition to the periodic sale of installment contracts purchased by CAC in the future. * The Company believes the periodic sale of installment contracts under the retail finance agreement will reduce requirements for both working capital and borrowings, increase the Company's liquidity, reduce the Company's exposure to interest rate fluctuations and enhance the ability of CAC to increase its volume of loan purchases. * There can be no assurance, however, that additional sales will be made under this agreement, or that CAC and the Company will be able to realize the expected benefits from such agreement. *
The Company currently believes existing cash and funds available under the credit facility, together with cash provided by operations, will be adequate to fund the Company's operations and plans for the next twelve months. In order to provide additional funds for continued pursuit of the Company's business plans and for operations, the Company may incur, from time to time, additional short and long-term bank indebtedness or other forms of financing and may issue, in public or private transactions, its equity and debt securities, the availability and terms of which will depend upon market and other conditions. * The Company may engage in other transactions, such as selling or securitizing all or portions of its installment loan portfolio, that are designed to facilitate the ability of the Company to originate an increased volume of loans and to reduce the Company's exposure to interest rate fluctuations and has entered into such a transaction pursuant to the retail finance agreement, as further described above. * There can be no assurance that such possible additional financing, or the aforementioned potential transactions involving the Company's installment loan portfolio, will be available on terms acceptable to the Company. It is possible that a future lack of financing or a prolonged downturn in industry conditions could cause the Company to curtail or otherwise alter its current business plans and operating strategies. *
Impact of Inflation The Company generally has been able to increase its selling prices to offset increased costs, including the costs of raw materials. Sudden increases in costs as well as price competition, however, can affect the ability of the Company to increase its selling prices. As discussed above, in 1999, the Company experienced tightened supply of certain types of raw materials, which resulted in some higher costs that were not recoverable through price increases. For a further discussion of this matter, see "1999 Compared to 1998 - Gross Profit." The Company believes that the relatively moderate rate of inflation over the past several years has not had a significant impact on its sales or profitability, but can give no assurance that this trend will continue in the future. *
Impact of Accounting Statements In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133,as amended, is required to be adopted for years beginning after June 15, 2000. The Company is currently evaluating SFAS 133 and has not yet determined its impact on the Company's consolidated financial statements.
Year 2000 Compliance By October 1999, the Company implemented what it considered to be critical modifications to its computer systems and software products, identified through its assessment of Year 2000 issues. Cost incurred to complete the assessment and
- -------- See Safe Harbor Statement on page 31.
implementation of Year 2000 issues was $0.9 million, which was within the reported estimated range of $0.8 million and $1.2 million as an expense, in addition to approximately $0.2 million of capital expenditures. No critical problems associated with the Year 2000 issue have been encountered and minor issues have been corrected as discovered without significant disruption to the Company's processes and without implementation of the Company's contingency plan.
The Company's Year 2000 program included testing each computer system and microprocessor in use, identifying significant third parties' Year 2000 compliance, converting Company systems to Year 2000 compliant versions of software products and equipment and developing a contingency plan.
Market Risk Market risk is the risk of loss arising from adverse changes in market prices and interest rates. The Company is exposed to interest rate risk inherent in its financial instruments. The Company is not currently subject to foreign currency or commodity price risk. The Company manages its exposure to these market risks through its regular operating and financing activities.
The Company is exposed to market risk related to investments held in a non-qualified trust used to fund benefits under its deferred compensation plan. These investments totaled $3.1 million at December 31, 1999. Due to the long-term nature of the benefit liabilities that these assets fund, the Company currently considers its exposure to market risk to be low. The Company does not believe that a decline in market value of these investments would result in a material near term funding of the trust or exposure to the benefit liabilities funded.
The Company purchases retail installment contracts from its exclusive dealers, at fixed interest rates, in the ordinary course of business, and periodically resells certain of these loans to a financial institution under the terms of the retail finance agreement discussed above. The periodic resale of installment contracts reduces the Company's exposure to interest rate fluctuations, as the majority of contracts are held for a short period of time. Additionally, the Company has installment loans receivable in its portfolio of $9.5 million, which may be sold during 2000. The Company's portfolio consists of fixed rate contracts with interest rates generally ranging from 9.0% to 14.0% and an average original term of 269 months at December 31, 1999. The Company estimated the fair value of its installment contracts receivable using discounted cash flows and interest rates offered by CAC on similar contracts at December 31, 1999.
The Company has notes payable under retail floor plan agreements and an Industrial Development Revenue Bond issue that are exposed to changes in interest rates. Since these borrowings are floating rate debt, an increase in short-term interest rates would adversely affect interest expense. The Company may retire this debt if interest rates were to increase significantly. Additionally, the Company has five Industrial Development Revenue Bond issues at fixed interest rates. The estimated fair value of outstanding borrowings approximated carrying value at December 31, 1999. The Company estimated the fair value of its debt instruments using rates at which the Company believes it could have obtained similar borrowings at that time. The Company also has the ability to incur debt under its credit facility which provides for interest at the bank's prime rate for the revolving and warehouse line of credit and at fixed rates for a certain period of time for the term notes. The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates at December 31, 1999.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
Our disclosure and analysis in this Annual Report on Form 10-K contain some forward-looking statements. Forward looking statements give our current expectations or forecasts of future events, including statements regarding trends in the industry and the business, financing and other strategies of Cavalier. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They generally are designated with an asterisk (*) and use words such as "estimates," "projects," "intends," "believes," "anticipates," "expects," "plans," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. These forward-looking statements include statements involving known and unknown assumptions, risks, uncertainties and other factors which may cause our actual results, performance or achievements to differ from any future results, performance, or achievements expressed or implied by such forward-looking statements or words. In particular, such assumptions, risks, uncertainties and factors include those associated with the following:
o the cyclical and seasonal nature of the manufactured housing industry and the economy generally; o limitations in Cavalier's ability to pursue its business strategy; o changes in demographic trends, consumer preferences and Cavalier's business strategy; o changes and volatility in interest rates and the availability of capital and consumer and dealer financing; o the ability to attract and retain quality independent dealers, executive officers and other personnel; o competition; o contingent repurchase and guaranty obligations; o uncertainties regarding Cavalier's retail financing activities; o integrating the business operations and achieving the benefits of the Belmont merger and other acquisitions; o the potential unavailability and price increases for raw materials; o the potential unavailability of manufactured housing sites; o regulatory constraints; o the potential for additional warranty claims; o litigation; and o potential volatility in our stock price.
Any or all of our forward-looking statements in this report, in the 1999 Annual Report to Stockholders and in any other public statements we make may turn out to be wrong. These statements may be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors listed above will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially.
We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our future filings with the Securities and Exchange Commission or in any of our press releases. Also note that, under the heading Risk Factors, we have provided a discussion of factors that we think could cause our actual results to differ materially from expected and historical results. Other factors besides those listed could also adversely affect Cavalier. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Selected Quarterly Financial Data (Unaudited)
The table below sets forth certain unaudited quarterly financial data for the two years ended December 31, 1999 and 1998. The Company believes that the following quarterly financial data includes all adjustments necessary for a fair presentation, in accordance with generally accepted accounting principles. The following quarterly financial data should be read in conjunction with the other financial information contained elsewhere in this report. The operating results for any interim period are not necessarily indicative of results for a complete year or for any future period.
CAVALIER HOMES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements and Schedule
Independent Auditor's Report 4
Consolidated Balance Sheets 5
Consolidated Statements of Income 7
Consolidated Statements of Stockholders' Equity 8
Consolidated Statements of Cash Flows 39
Notes to Consolidated Financial Statements 40
Schedule -
II - Valuation and Qualifying Accounts 55
Schedules I, III, IV and V have been omitted because they are either not required or are inapplicable.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Cavalier Homes, Inc.:
We have audited the accompanying consolidated balance sheets of Cavalier Homes, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial schedule listed in the index of Item 8. The financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. The 1997 consolidated financial statements give retroactive effect to the merger of the Company and Belmont Homes, Inc., which has been accounted for as a pooling of interests as described in Note 2 to the consolidated financial statements.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cavalier Homes, Inc. and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP - -------------------------- Birmingham, Alabama February 29, 2000
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------------
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------------
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------------
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------------
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
CAVALIER HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the accounts of Cavalier Homes, Inc. and its wholly-owned and majority-owned subsidiaries (collectively, the "Company"). The Company's minority ownership interests in various joint ventures are accounted for using the equity method and are included in other assets in the accompanying consolidated balance sheets. Intercompany transactions have been eliminated in consolidation. See Note 12 for information related to the Company's business segments.
Nature of Operations - The Company designs and produces manufactured homes which are sold to a network of dealers located primarily in the South Central and South Atlantic regions of the United States. In addition, through its financial services segment, the Company offers retail installment sale financing and related insurance products for manufactured homes sold through the Company's exclusive dealer locations and company-owned retail locations. The Company's retail segment operates retail sales locations which offer the Company's homes, financing and insurance products to retail customers.
Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments - The carrying value of the Company's cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because of the short-term maturity of those instruments. Additional information concerning the fair value of other financial instruments is disclosed in Notes 4 and 6.
Cash Equivalents - The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Inventories - Inventories are stated at the lower of cost (first-in, first-out method) or market.
Property, Plant and Equipment - Property, plant and equipment is stated at cost and depreciated primarily over the estimated useful lives of the related assets using the straight-line method. Maintenance and repairs are expensed as incurred. The Company paid $337, $388 and $270 in 1999, 1998 and 1997, respectively, for construction of plant facilities, and paid $3.4 million in 1999 to exercise purchase options on two previously leased facilities, to companies among whose owners are certain officers, directors or stockholders of the Company.
Goodwill - Goodwill represents the excess of the purchase price over the fair value of the net assets acquired and is being amortized over the expected periods to be benefited, 15 to 25 years, using the straight-line method.
Impairment of Long-Lived Assets - The Company evaluates the recoverability of long-lived assets primarily using forecasted undiscounted cash flows, supplemented if necessary by an independent appraisal of fair value.
Revenue Recognition - Sales of manufactured homes to independent dealers are recorded as of the date the home is shipped to the dealer. All sales are final and without recourse except for the contingency described in Note 11. For Company-owned retail locations, revenue is recorded upon transfer of title to the retail home buyer. Interest income on installment contracts receivable is recognized using the interest method.
Product Warranties - The Company provides the retail home buyer a one-year limited warranty covering defects in material or workmanship in home structure, plumbing and electrical systems. A liability is provided for estimated future warranty costs relating to homes sold, based upon management's assessment of historical experience factors and current industry trends.
Allowance for Losses on Installment Contracts - The Company has provided an allowance for estimated future losses resulting from retail financing activities of Cavalier Acceptance Corporation ("CAC"), a wholly-owned subsidiary, primarily based upon management's assessment of historical experience and current economic conditions.
Insurance - The Company's workmen's compensation (prior to February 1, 1999), product liability and general liability insurance coverages (with the exception of two subsidiaries, whose insurance is provided under fully insured policies) are provided under incurred loss, retrospectively rated premium plans. Under these plans, the Company incurs insurance expense based upon various rates applied to current payroll costs and sales. Annually, such insurance expense is adjusted by the carrier for loss experience factors subject to minimum and maximum premium calculations. Refunds or additional premiums are estimated and recorded when sufficiently reliable data is available. During 1999, the Company's workmen's compensation coverage was converted to a fully insured policy.
Net Income Per Share - The Company reports two separate net income per share numbers, basic and diluted. Both are computed by dividing net income by the weighted average shares outstanding (basic) or weighted average shares outstanding assuming dilution (diluted) as detailed below (in thousands of shares):
Options and warrants that could potentially dilute basic net income per share in the future were not included in the computation of diluted net income per share because to do so would have been antidilutive. Antidilutive options and warrants (in thousands of shares) were 2,602, 642, and 1,399 for 1999, 1998, and 1997, respectively.
Recent Accounting Pronouncement - In June 1998, Statement of Financial Accounting Standards ("SFAS") 133, Accounting for Derivative Instruments and Hedging Activities was issued. As amended, SFAS 133 is required to be adopted for years beginning after June 15, 2000. The Company is currently evaluating SFAS 133 and has not yet determined its impact on the Company's consolidated financial statements.
Reclassifications - Certain amounts from the prior periods have been reclassified to conform to the 1999 presentation.
2. BUSINESS COMBINATION AND ACQUISITIONS The Company acquired various retail lots during 1999 and 1998. These acquisitions were accounted for as purchases with the excess purchase price over net assets acquired recorded as goodwill. Collectively, these acquisitions were not material to the consolidated financial statements.
On December 31, 1997, Belmont Homes, Inc. ("Belmont") was merged with and into a subsidiary of Cavalier Homes, Inc. ("Cavalier"), and 7,555,121 shares of Cavalier's common stock were issued in exchange for all of the outstanding common stock of Belmont. The merger was accounted for as a pooling of interests, and, accordingly, the accompanying 1997 financial statements were restated to include the results of operations and cash flows of Belmont.
Revenues and net income for the separate companies and the combined amounts presented in the 1997 consolidated financial statements are as follows (excluding non-recurring merger and related costs):
Revenues: Cavalier $ 336,343 Belmont 224,845 --------- Combined $ 561,188 ========= Net income: Cavalier $ 10,428 Belmont 5,688 --------- Combined $ 16,116 =========
Certain amounts from Belmont's prior financial statements were reclassified to conform to Cavalier's presentation.
In connection with the merger, Cavalier recorded charges of $7.4 million in the quarter ended December 31, 1997. These charges are non-recurring and include $2.5 million from the earn-out provision contained in the Stock Purchase Agreement between Belmont and the shareholders of Bellcrest, $0.9 million for severance costs associated with the consolidation of certain administrative functions, $3.1 million for printing, investment banking, legal, accounting and other fees, and $0.9 million for other costs associated with combining and realigning the operations of the two companies.
3. IMPAIRMENT CHARGE FOR IDLED FACILITIES
During 1999, because of deteriorating market conditions, the Company recorded a noncash impairment charge of $4.0 million in connection with the idling of five home manufacturing plants to consolidate manufacturing into other plants. The write-down to estimated fair value was based primarily on independent appraisals of fair value.
4. INSTALLMENT CONTRACTS RECEIVABLE
CAC finances retail sales through the purchase of installment contracts from a portion of the Company's exclusive dealers, at fixed interest rates, in the ordinary course of business, and periodically resells certain of the loans to a financial institution under the terms of a retail finance agreement. Standard loan programs require minimum down payments, ranging from 0% to 20% of the purchase price of the home, on all installment contracts based on the creditworthiness of the borrower. In addition, CAC requires the borrower to maintain adequate insurance on the home throughout the life of the contract. Contracts are secured by the home which is subject to repossession by CAC upon default by the borrower.
CAC's portfolio consists of fixed rate contracts with interest rates generally ranging from 9% to 14% and from 8.0% to 13.0% at December 31, 1999 and 1998, respectively. The average original term of the portfolio was approximately 269 and 216 months at December 31, 1999 and 1998, respectively. During 1998, CAC entered into an agreement to sell, without recourse (provided that the transferred loan was properly originated by the dealer and purchased by CAC), contracts in its portfolio that meet specified credit criteria. Under this agreement, CAC sold $60,558 and $45,804 contracts receivable and realized a gain of $2,257 and $2,048 for the years ended December 31, 1999 and 1998, respectively.
At December 31, 1999, estimated principal payments under installment contracts receivable are as follows:
Year Ending December 31, 2000 $ 143 2001 160 2002 178 2003 199 2004 223 Thereafter 8,547 ------- Total $ 9,450 =======
Activity in the allowance for losses on installment contracts was as follows:
1999 1998 1997
Balance, beginning of year $ 760 $ 1,272 $ 941 Provision for losses 2,192 1,042 1,329 Charge-offs, net (1,296) (1,554) (998) -------- -------- -------- Balance, end of year $ 1,656 $ 760 $ 1,272 ======== ======== ========
At December 31, 1999 and 1998, the estimated fair value of installment contracts receivable was $8,402 and $26,211, respectively. These fair values were estimated using discounted cash flows and interest rates offered by CAC on similar contracts at that time.
5. INVENTORIES
Inventories consisted of the following:
1999 1998
Raw materials $ 27,363 $ 26,224 Work-in-process 3,513 3,697 Finished goods 19,244 8,882 --------- --------- Total $ 50,120 $ 38,803 ========= =========
During 1999, 1998, and 1997, the Company purchased raw materials of approximately $20,166, $12,413 and $10,592, respectively, from joint ventures in which the Company owns a minority interest and from a company in which a stockholder and director of the Company is also a stockholder.
6. CREDIT ARRANGEMENTS
The Company has a $35,000 revolving, warehouse and term-loan agreement (the "Credit Facility") with its primary bank, whose president is a director of the Company. The Credit Facility contains a revolving line of credit which provides for borrowings (including letters of credit) of up to 80% and 50% of the Company's eligible accounts receivable and inventories, respectively, up to a maximum of $10,000. Interest is payable under the revolving line of credit at the bank's prime rate (8.50% and 7.75% at December 31, 1999 and 1998, respectively) or, if elected by the Company, the 90-day LIBOR rate plus 2.5% (8.50% and 7.57% at December 31, 1999 and 1998, respectively). No amounts were outstanding under the revolving line of credit at December 31, 1999 and 1998.
The warehouse and term-loan agreement contained in the Credit Facility provide for borrowings of up to 80% of the Company's eligible installment sale contracts, up to a maximum of $25,000. Interest on term notes is fixed for a period of five years from issuance at a rate based on the weekly average yield on five-year treasury securities averaged over the preceding 13 weeks, plus 1.95%, and floats for the remaining two years at a rate (subject to certain limits) equal to the bank's prime rate plus .75%. The warehouse component of the Credit Facility provides for borrowings of up to $25,000 with interest payable at the bank's prime rate or, if elected by the Company, the 90-day LIBOR rate plus 2.5%. However, in no event may the aggregate outstanding borrowings under the warehouse and term-loan agreement exceed $25,000. No amounts were outstanding under the warehouse and term-loan portion of the Credit Facility at December 31, 1999 and 1998.
The Credit Facility contains certain restrictive and financial covenants, which, among other things, limit the aggregate of dividend payments and purchases of treasury stock to 50% of consolidated net income for the two most recent years, restrict the Company's ability to pledge assets, incur additional indebtedness and make capital expenditures, and require the Company to maintain certain defined financial ratios. At December 31, 1999, the Company was in violation of certain covenants; however, appropriate waiver letters have been obtained from the lender. Amounts outstanding under the Credit Facility are secured by the accounts receivable and inventories of the Company, loans purchased and originated by CAC, and the capital stock of certain of the Company's consolidated subsidiaries.
On February 29, 2000, the Company received a commitment from its primary bank to extend its Credit Facility through April 2002. The renewal increases the amount available under the revolving line of credit to $35,000 (an increase from $10,000), provided that aggregate amounts outstanding under the revolving note and term loans do not exceed $35,000, eliminates the warehouse feature of the Credit Facility, provides for more favorable interest rates, and modifies certain financial covenants to be more restrictive.
The Company has $15,562 and $4,163 of notes payable under retail floor plan agreements at December 31, 1999 and 1998, respectively. The notes are collateralized by certain inventories and bear interest at the prime rate.
The Company has amounts outstanding under six Industrial Development Revenue Bond issues ("Bonds") of $11,337 and $4,052 at December 31, 1999 and 1998, respectively. Four of the bond issues bear interest at variable rates ranging from 4.0% to 5.4% and mature at various dates through April 2009. One of the bond issues is payable in equal monthly installments and bears interest at 75% of the prime rate and matures in 2005. One of the bond issues is payable in equal quarterly principal payments with interest payable at 6.75% and matures in 2004. The bonds are collateralized by certain plant facilities. At December 31, 1999, restricted bond proceeds of $1,725 were not disbursed and are reflected as a non-current asset in the consolidated balance sheets.
At December 31, 1999, principal repayment requirements on long-term debt are as follows:
Year Ending December 31,
2000 $ 1,119 2001 1,167 2002 1,215 2003 1,254 2004 1,461 Thereafter 5,121 --------- Total 11,337 Less current portion 1,119 --------- Long-term debt $ 10,218 =========
The estimated fair value of outstanding borrowings approximated carrying value at December 31, 1999 and 1998. These estimates were determined using rates at which the Company believes it could have obtained similar borrowings at that time.
Cash paid for interest during the years ended December 31, 1999, 1998 and 1997 was $1,480, $776 and $1,445, respectively.
7. STOCKHOLDERS' EQUITY
The Company has adopted a Stockholder Rights Plan with the terms and conditions of the plan set forth in a Rights Agreement dated October 23, 1996 between the Company and its Rights Agent. Pursuant to the plan, the Board of Directors of the Company declared a dividend of one Right (as defined in the Rights Agreement) for each share of the Company's outstanding common stock to stockholders of record on November 6, 1996. One Right is also associated with each share of the Company's outstanding common stock issued after November 6, 1996, until the Rights become exercisable, are redeemed or expire. The Rights, when exercisable, entitle the holder to purchase a unit of 0.80 one-hundredth share of Series A Junior Participating Preferred Stock, par value $.01, at a purchase price of $80 per unit. Upon certain events relating to the acquisition of, or right to acquire, beneficial ownership of 20% or more of the Company's outstanding common stock by a third party, or a change in control of the Company, the Rights entitle the holder to acquire, after the Rights are no longer redeemable by the Company, shares of common stock of the Company (or, in certain cases, securities of an acquiring person) for each Right held at a significant discount. The Rights will expire on November 6, 2006, unless redeemed earlier by the Company at $.01 per Right under certain circumstances.
Pursuant to a common stock repurchase program approved by the Company's Board of Directors, a total of 2.6 million shares has been purchased at a cost of approximately $24 million. At December 31, 1999, the Company may acquire up to 1.4 million additional shares under the program.
8. INCENTIVE PLANS
Dealership Stock Option Plan -
o Effective December 31, 1999, the Company cancelled its Dealership Stock Option Plan (the "Dealer Plan") to eligible independent dealerships. The Dealer Plan allowed
for 562,500 options to be issued at a price equal to the fair market value on the date of grant, and these options were earned based on the amount of contracts funded through CAC during the year. Options granted under the Plan are immediately exercisable and expire three years from the grant date. Since these options have been granted to persons other than employees, the Company adopted the recognition and measurement provisions of SFAS 123, Accounting for Stock-Based Compensation.
Employee and Director Plans:
o The Company has a Key Employee Stock Incentive Plan (the "1996 Plan") which provides for the granting of both incentive and non-qualified stock options. Additionally, the 1996 Plan provides for stock appreciation rights and awards of both restricted stock and performance shares. Options are granted at prices and terms determined by the compensation committee of the Board of Directors. The 1996 Plan also provides for an additional number of common shares to be reserved for issuance each January 1, through January 1, 2001, equal to 1.5% of the number of the common shares outstanding on that date. Options granted under the 1996 Plan are generally exercisable six months after the grant date and expire ten years from the date of grant.
o The Company also has a Non-employee Director Plan under which 625,000 shares of the Company's common stock were reserved for grant to non-employee directors at fair market value on the date of such grant. Options are granted upon the director's initial election and automatically on an annual basis thereafter. Options granted under the plan are generally exercisable six months after the grant date and expire ten years from the date of grant.
o The Company has an Employee Stock Purchase Plan under which 625,000 shares of the Company's common stock may be issued to eligible employees at a price equal to the lesser of 85% of the market price of the stock as of the first or last day of the payment periods (as defined). Employees may elect to have a portion of their compensation withheld, subject to certain limits, to purchase the Company's common stock.
o The Company has a Deferred Compensation and Flexible Option Plan (the "Deferred Plan") which provides for deferral of a portion of certain key employees' earnings plus a Company match. Upon the occurrence of a distributable event, the employee will receive the greater of cash at a fixed annual return or shares of the Company's common stock credited to his account valued at fair market value. The Company funds benefits under the Deferred Plan through cash contributions and through the issuance of a stock option to a trust at an exercise price equal to fair market value on the date of the grant. Under the Deferred Plan, there are 500,000 shares of Company common stock available for issuance. At December 31, 1999, the Company had recorded plan investments of $3,133 and a deferred compensation liability of $3,557.
Compensation expense recorded in connection with these plans for the years ended December 31, 1999 and 1998 was not material.
On January 17, 1997, substantially all employee stock options then exerciseable at a price of $12.00 or higher were repriced to an exercise price of $10.625. In addition, on January 17, 1997, an option issued under the 1993 Non-employee Director's Plan to purchase 25,000 shares at $15.40 per share was canceled and reissued for 17,250 shares at $10.625 per share.
During 1998, the Company revised the Dividend Reinvestment Plan to increase the shares available under the Plan to 500,000 and to eliminate the optional cash payment feature of the Plan. Participants in the Plan may purchase additional shares of the Company's common stock by reinvesting the cash dividends on all, or part, of their shares. The purchase price of the stock will be the higher of 95% of the average daily
high and low sale prices of the Company's common stock on the four trading days including and preceding the Investment Date (as defined) or 95% of the average high and low sales prices on the Investment Date.
The Company applied Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee and director plans. Accordingly, no compensation expense has been recognized for these plans except where the exercise price was less than the fair value on the date of grant. Had compensation cost been determined based on the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS 123, the Company's net income and net income per share would approximate the pro forma amounts below:
1999 1998 1997
Net income: As reported $ 2,150 $ 18,655 $10,247 Pro forma $ 1,029 $ 16,506 $ 8,661
Basic net income per share: As reported $ 0.12 $ 0.94 $ 0.52 Pro forma $ 0.06 $ 0.83 $ 0.44
Diluted net income per share: As reported $ 0.12 $ 0.93 $ 0.51 Pro forma $ 0.06 $ 0.82 $ 0.43
The fair value of options granted were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
1999 1998 1997
Dividend yield 1.90% 1.56 % 1.13 % Expected volatility 40.10% 40.49 % 43.94 % Risk free interest rate 5.27% 5.52 % 6.12 % Expected lives 9.0 years 5.0 years 3.0 years
The effects of applying SFAS 123 in this pro forma disclosure may not be indicative of future amounts, and additional awards in future years are anticipated.
With respect to options exercised, the income tax benefits resulting from compensation expense allowable under federal income tax regulations in excess of the expense reflected in the Company's financial statements have been credited to additional paid-in-capital. These benefits, which totaled $28 (1999), $90 (1998), and $-0- (1997), represent a noncash financing transaction for purposes of the consolidated statements of cash flows.
Information regarding all of the Company's stock option plans is summarized below:
Stock options available for future grants at December 31, 1999 were 704,565 under all of the Company's various stock option plans.
The following table summarizes information concerning stock options outstanding at December 31, 1999:
9. INCOME TAXES
Provision for income taxes consist of:
1999 1998 1997 Current: Federal $ 5,337 $ 12,469 $ 9,574 State 750 2,238 921 -------- --------- -------- 6,087 14,707 10,495 -------- --------- -------- Deferred: Federal (4,140) (1,337) (2,368) State (544) (743) (35) -------- --------- --------- (4,684) (2,080) (2,403) -------- --------- --------- Total $ 1,403 $ 12,627 $ 8,092 ======== ========= =========
Total income tax expense for 1999, 1998, and 1997 is different from the amount that would be computed by applying the expected federal income tax rate of 35% to income before income taxes. The reasons for this difference are as follows:
Deferred tax assets and liabilities are based on the expected future tax consequences of temporary differences between the book and tax bases of assets and liabilities. The approximate tax effects of temporary differences at December 31, 1999 and 1998 were as follows:
Cash paid for income taxes for the years ended December 31, 1999, 1998 and 1997 was $11,835, $12,250 and $10,632, respectively.
10. EMPLOYEE BENEFIT PLANS
The Company has self-funded group medical plans which are administered by third party administrators. The Plans have reinsurance coverage limiting liability for any individual employee loss to a maximum of $100, with an aggregate limit of losses in any one year based on the number of covered employees. Incurred claims identified under the Company's incident reporting system and incurred but not reported claims are funded or accrued based on estimates that incorporate the Company's past experience, as well as other considerations such as the nature of each claim or incident, relevant trend factors and advice from consulting actuaries. The Company has established self insurance trust funds for payment of claims and makes deposits to the trust funds in amounts determined by consulting actuaries. The cost of these plans to the Company was $8,022, $5,517 and $4,693 for years ended December 31, 1999, 1998 and 1997, respectively.
The Company sponsors employee 401(k) retirement plans covering all employees who meet participation requirements. Employee contributions are limited to a percentage of compensation as defined in the Plans. The amount of the Company's matching contribution is discretionary as determined by the Board of Directors. Company contributions amounted to $1,071, $623 and $545 for the years ended December 31, 1999, 1998 and 1997, respectively.
11. COMMITMENTS AND CONTINGENCIES
Operating Leases:
Two of the Company's manufacturing facilities are leased under separate operating lease agreements (the "Related Leases") with partnerships or companies among whose owners are certain officers, directors or stockholders of the Company. The Related Leases require monthly payments ranging from $6 to $13 and provide for lease terms ending from July 2000 to April 2004 as well as renewal option periods. The Related Leases also contain purchase options whereby the Company can purchase the respective manufacturing facility for $850 and $1,125 at any time during the lease terms.
Additionally, the Company is obligated under various operating lease agreements with varying monthly payments and expiration dates through June 2017. Total rent expense under operating leases was $1,191, $1,353 and $1,418 for the years ended December 31, 1999, 1998 and 1997, respectively, including rents paid to related parties of $354 (1999), $865 (1998) and $817 (1997).
Future minimum rents payable under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 1999 are as follows:
Year Ending December 31,
2000 $ 891 2001 661 2002 585 2003 404 2004 183 Thereafter 154 -------- Total $ 2,878 ======== Contingent Liabilities and Other:
a. The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for retailers of its products. These arrangements, which are customary in the industry, provide for the repurchase of products sold to retailers in the event of default on payments by the retailer. The risk of loss under these agreements is spread over numerous retailers. The price the Company is obligated to pay generally declines over the period of the agreement and is further reduced by the resale value of repurchased homes. The estimated potential obligations under such agreements approximated $273,000 at December 31, 1999. The Company has an allowance for losses of $3,464 (1999) and $1,201 (1998) based on prior experience and market conditions.
b. Under the insurance plans described in Note 1, the Company was contingently liable at December 31, 1999 for future retrospective premium adjustments up to a maximum of approximately $14,456 in the event that additional losses are reported related to prior years.
c. The Company is engaged in various legal proceedings that are incidental to and arise in the course of its business. Certain of the cases filed against the Company and other companies engaged in businesses similar to the Company allege, among other things, breach of contract and warranty, product liability, personal injury and fraudulent, deceptive or collusive practices in connection with their businesses. These kinds of suits are typical of suits that have been filed in recent years, and they sometimes seek certification as class actions, the imposition of large amounts of compensatory and punitive damages and trials by jury. In the opinion of management, the ultimate liability, if any, with respect to the proceedings in which the Company is currently involved is not presently expected to have a material adverse effect on the Company. However, the potential exists for unanticipated material adverse judgments against the Company.
d. The Company and certain of its equity partners have guaranteed certain debt for companies in which the Company owns various equity interests. The guarantees are limited to various percentages of the outstanding debt up to a maximum guaranty of $3,985. At December 31, 1999, $9,121 was outstanding under the various guarantees, of which the Company had guaranteed $3,076.
12. SEGMENT INFORMATION
The Company's reportable segments are organized around products and services. Through its Home manufacturing segment, the Company's 11 divisions, which are aggregated for reporting purposes, design and manufacture homes which are sold in the United States to a network of dealers which includes Company owned retail locations. Through its Financial services segment, the Company offers retail installment sale financing and related insurance products for manufactured homes sold through the Company's exclusive dealer network and Company-owned retail locations. The Company's retail segment is comprised of company owned retail lots that derive their revenues from home sales to individuals. Included in the "other" category are component manufacturers who sell their products to the manufacturing segment of the Company as well as other manufacturers. The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that intercompany profits, transactions and balances have not been eliminated. The Company's determination of segment operating profit does not reflect other income (expenses) or income taxes.
The Financial services segment's operating profit includes net interest income of $1,968, $2,987, and $3,283 and gains from the sale of installment contracts of $2,257, $2,048 and $-0- for the years ended December 31, 1999, 1998, and 1997, respectively.
Identifiable assets for the General corporate category include $1,604, $1,447, and $1,264 of investment in equity method investees at December 31, 1999, 1998 and 1997, respectively. General corporate operating income includes equity in the net income of investees accounted for by the equity method of $397, $250, and $296 for the years ended December 31, 1999, 1998 and 1997, respectively.
CAVALIER HOMES INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 1999, 1998 and 1997 (Dollars in Thousands)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
For a description of the directors and executive officers of the Company, see "Election of Directors," "Executive Officers and Principal Stockholders," and "Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 16, 2000, which are incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
For a description of the Company's executive compensation, see "Election of Directors," "Executive Officers and Principal Stockholders," "Executive Compensation" (other than the "Report of the Compensation Committee on Executive Compensation" and the "Performance Graph"), "Compensation Committee Interlocks and Insider Participation," and "Certain Relationships and Related Transactions" of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 16, 2000, which are incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
For a description of the security ownership of management and certain beneficial owners, see "Executive Officers and Principal Stockholders" of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 16, 2000, which are incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain relationships and related transactions of the Company, see "Compensation Committee Interlocks and Insider Participation," and "Certain Relationships and Related Transactions" of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 16, 2000, which are incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The financial statements contained in this report and the page on which they may be found are as follows:
2. The financial statement schedules required to be filed with this report and the pages on which they may be found are as follows:
3. The exhibits required to be filed with this report are listed below. The Company will furnish upon request any of the exhibits listed upon the receipt of $15.00 per exhibit, plus $.50 per page, to cover the cost to the Company of providing the exhibit.
(3) Articles of Incorporation and By-laws.
* (a) The Composite Amended and Restated Certificate of Incorporation of the Company, filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
* (b) The Certificate of Designation of Series A Junior Participating Preferred Stock of Cavalier Homes, Inc. as filed with the Office of the Delaware Secretary of State on October 24, 1996 and filed as Exhibit A to Exhibit 4 to the Company's Registration Statement on form 8-A filed on October 30, 1996.
* (c) The Amended and Restated By-laws of the Company, filed as Exhibit 3(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 27, 1997, and the amendments thereto filed as Exhibit 3(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 1997 and as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 25, 1998.
(4) Instruments Defining the Rights of Security Holders, Including Indentures.
* (a) Articles four, six, seven, eight and nine of the Company's Amended and Restated Certificate of Incorporation, as amended, included in Exhibit 3(a) above.
* (b) Article II, Sections 2.1 through 2.18; Article III, Sections 3.1 and 3.2; Article IV, Sections 4.1 and 4.3; Article VI, Sections 6.1 through 6.5; Article VIII, Sections 8.1 and 8.2; and Article IX of the Company's Amended and Restated By-laws, included in Exhibit 3(c) above.
* (c) Rights Agreement between Cavalier Homes, Inc. and ChaseMellon Shareholder Services, LLC, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated October 30, 1996.
(10) Material contracts
* (a) Rights Agreement between Cavalier Homes, Inc. and ChaseMellon Shareholder Services, LLC, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated October 30, 1996.
(b) Lease Agreement dated April 1, 1999, between Development Authority of Johnson County, Georgia and Bellcrest Homes, Inc. regarding the lease of the manufacturing facility located in Adrian, Georgia.
* (c) Lease Agreement with Option to Purchase between John H. Beard and Alexander P. Beard, Trustees under the Will of Bryce Parker Beard, and BRC Components, Inc. dated March 4, 1999, filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1999.
* (d) Sub-lease Agreement with Option to Purchase between Winfield Industrial Development Association, Inc and Buccaneer Homes of Alabama, Inc. dated May 9, 1994, filed as Exhibit 10(k) to Amendment No. 1 to the Company's Registration Statement on Form S-2 (Registration No. 33-78644).
* (e) Lease Agreement dated March 1, 1997, between the City of Winfield and Buccaneer Homes, a division of Cavalier Manufacturing, Inc., filed as Exhibit 10(aa) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
* (f) Lease Agreement between the Industrial Development Board of the Town of Addison and Jerry F. Wilson, Robert Lowell Burdick and John W Lowe, dated as of June 1, 1984, filed as Exhibit 10(j) to the Company's Registration Statement on Form S-1, Registration No. 33-3525, dated February 21, 1986.
(g) Assignment and Assumption Agreement by and among the Estate of Jerry F. Wilson, Robert Lowell Burdick, John W Lowe, Cavalier Manufacturing, Inc. and Cavalier Real Estate Co., Inc., dated January 13, 1999, regarding the lease of the manufacturing facility located in Addison, Alabama.
(h) Lease Agreement between the Industrial Development Board of the Town of Addison and the Winston County Industrial Development Association, dated as of February 1, 1994, regarding the lease of the manufacturing facility located in Addison, Alabama.
* (i) Lease Agreement between The Industrial Development Board of the Town of Addison and Cavalier Homes of Alabama, a division of Cavalier Manufacturing, Inc., dated November 1, 1997, filed as Exhibit 10(yy) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
(j) Lease Agreement dated April 1, 1999, between Crisp County-Cordele Industrial Development Authority and Cavalier Industries, Inc. regarding the lease of the manufacturing facility located in Cordele, Georgia.
* (k) Lease Agreement dated October 16, 1996, between Virginia Cary L. McDonald and Star Industries, Inc. regarding the lease of the manufacturing facility located in Robbins, North Carolina, filed as Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
* (l) Assignment and Assumption Agreement between Star Industries, Inc. and Cavalier Industries, Inc. regarding the lease of the manufacturing facility located in Robbins, North Carolina, filed as Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
* (m) Lease Agreement with Option to Purchase between Marion County Industrial Development Corporation, Inc and Quality Housing Supply, Inc. dated May 9, 1994, filed as Exhibit 10(l) to Amendment No. 1 to the Company's Registration Statement on Form S-2 (Registration No. 33-78644).
* (n) Commercial Sub-Lease and Agreement between Perfect Panels, Inc. and Quality Housing Supply, Inc., dated July 1, 1996, filed as Exhibit 10(zz) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
* (o) Lease Agreement dated March 1, 1995, between the Industrial Development Board of the City of Haleyville, Alabama and Wheel House Properties, Inc., as assigned to and assumed by Star Industries, Inc. on January 11, 1996, and as further assigned to and assumed by Cavalier Manufacturing, Inc. in December 1996, filed as Exhibit 10(bb) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
* (p) Lease Agreement between City of Mineral Wells, Texas and Cavalier Homes of Texas dated February 27, 1996, filed as Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
(q) Lease Agreement dated June 1, 1997, between Graham Industrial Association, Inc. and Cavalier Manufacturing, Inc. regarding the lease of the manufacturing facility located in Graham, Texas.
(r) Lease Agreement dated November 1, 1997, between Greenstar, L.L.C. and The Colonial Group, regarding the lease of an administrative facility in Greensboro, North Carolina.
(s) Addendum to Lease Agreement dated January 18, 1999, between Greenstar, L.L.C. and The Colonial Group, regarding the lease of an administrative facility in Greensboro, North Carolina.
(t) Assignment and Assumption Agreement dated April 29, 1999, between The Colonial Group and Cavalier Homes, Inc. regarding the lease of the administrative facility in Greensboro, North Carolina.
* (u) Revolving, Warehouse and Term Loan Agreement among the Company and First Commercial Bank dated February 17, 1994, filed as Exhibit 10(u) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
* (v) Amendments to the Revolving, Warehouse and Term Loan Agreement among the Company and First Commercial Bank dated March 14, 1996, filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.
* (w) Second Amendment to the Revolving Warehouse and Term Loan Agreement among Cavalier Homes, Inc. and First Commercial Bank, dated June 1, 1998, filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 26, 1998.
* (x) Assumption Agreement dated as of January 2, 1997, by and among the Company, First Commercial Bank and certain subsidiaries of the Company, filed as Exhibit 10(q) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
* (y) Assumption Agreement among Cavalier Homes, Inc. and First Commercial Bank, dated June 1, 1998, filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 26, 1998.
(z) Commitment Letter and Addendum among Cavalier Homes, Inc., Cavalier Acceptance Corporation and First Commercial Bank, dated February 29, 2000. * (aa) Guaranty Agreement between First Commercial Bank and Cavalier Homes, Inc. dated July 15, 1997, relating to guaranty of payments by Lamraft, LP filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 1997. 10-K for the year ended December 31, 1998.
* (bb) Amendment to the Limited Credit Guaranty Agreement between First Commercial Bank and Cavalier Homes, Inc., executed as of March 24, 1999, relating to guaranty of payments by Lamraft, LP filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1999.
* (cc) Guaranty Agreement between First Commercial Bank and Cavalier Homes, Inc., dated as of September 1, 1999, relating to guaranty of payments by Lamraft, LP, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 1999.
* (dd) Guaranty Agreement between First Commercial Bank and Cavalier Homes, Inc. dated July 15, 1997, relating to guaranty of payments by Hillsboro Manufacturing, LP filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 1997.
* (ee) Amendment to the Limited Credit Guaranty Agreement between First Commercial Bank and Cavalier Homes, Inc. executed as of March 24, 1999, relating to guaranty of payments by Hillsboro Manufacturing, LP filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1999.
* (ff) Guaranty Agreement between First Commercial Bank and Cavalier Homes, Inc. dated July 15, 1997, relating to guaranty of payments by Woodperfect of Texas, LP filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 1997.
* (gg) Amendment to the Limited Credit Guaranty Agreement between First Commercial Bank and Cavalier Homes, Inc. executed March 24, 1999, relating to guaranty of payments by Woodperfect of Texas, LP filed as Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1999.
(hh) Release of Guarantor and Amendment to Guaranty Agreements among First Commercial Bank, Patriot Homes, Inc., Cavalier Homes, Inc., Southern Energy Homes, Inc. and Lee Roy Jordan, dated as of December 31, 1999.
* (ii) Guaranty Agreement between SouthTrust Bank and Cavalier Homes, Inc. dated as of July 27, 1998, relating to guaranty of payments by Woodperfect, Ltd., filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 1999.
* (jj) Agreement dated March 10, 1998, by and between Cavalier Acceptance Corporation and Green Tree Financial Servicing Corporation, filed as Exhibit 10(xx) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
* (kk) Amended and Restated Finance Agreement among Cavalier Manufacturing, Inc., Cavalier Acceptance Corporation and certain related entities and Green Tree Financial Corp. and certain related entities, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 27, 1998.
* (ll) Manufactured Home Loan Purchase Agreement dated as of June 30, 1999, by and between Cavalier Acceptance Corporation and Green Tree Financial Corporation and certain of its affiliates, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1999.
* ** (mm) Cavalier Homes, Inc. 1988 Nonqualified Stock Option Plan, as amended, filed as Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
* ** (nn) Cavalier Homes, Inc. 1993 Amended and Restated Nonqualified Stock Option Plan, filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
* ** (oo) Cavalier Homes, Inc. Executive Incentive Compensation Plan, filed as an Appendix to the Company's definitive Proxy Statement for the Annual Meeting of Stockholders held May 15, 1996.
* ** (pp) Amendment to Cavalier Homes, Inc. Executive Incentive Compensation Plan, filed as Exhibit 10(ii) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1997.
* ** (qq) Cavalier Homes, Inc. Employee Stock Purchase Plan, filed as an Appendix to the Company's definitive Proxy Statement for the Annual Meeting of Stockholders held May 15, 1996.
* ** (rr) Cavalier Homes, Inc. Key Employee Stock Incentive Plan, filed as an Appendix to the Company's definitive Proxy Statement for the Annual Meeting of Stockholders held May 15, 1996.
* ** (ss) Amendment to Cavalier Homes, Inc. Key Employee Stock Incentive Plan, filed as Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1997.
* ** (tt) Amendment to Cavalier Homes, Inc. Key Employee Stock Incentive Plan, effective December 30, 1997, filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
* ** (uu) Amendment to Cavalier Homes, Inc. Key Employee Stock Incentive Plan, effective January 23, 1998, filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
* ** (vv) Amendment to Cavalier Homes, Inc. Key Employee Stock Incentive Plan, effective October 20, 1998, filed as Exhibit 10(l) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
* ** (ww) Cavalier Homes, Inc. Amended and Restated Nonemployee Directors Stock Option Plan, filed as an Appendix to the Company's definitive Proxy Statement for the Annual Meeting of Stockholders held May 15, 1996.
* ** (xx) Amendment to Cavalier Homes, Inc. Amended and Restated Nonemployee Directors Plan filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
* ** (yy) Amendment to Cavalier Homes, Inc. Amended and Restated Nonemployee Directors Plan, filed as Exhibit 10(n) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
* (zz) Cavalier Homes, Inc. Amended and Restated Dividend Reinvestment Plan, filed as Appendix A to the Prospectus appearing in the Company's Post-Effective Amendment No. 1 to Form S-3, Registration No. 333-48111, filed on September 29, 1998.
* (aaa) Cavalier Homes, Inc. Amended and Restated Dealership Stock Option Plan filed as Appendix A to the Company's Registration Statement on Form S-3, Amendment No. 2, Registration No. 33-62487, dated June 18, 1998.
* ** (bbb) Cavalier Homes, Inc. Deferred Compensation Plan, effective April 1, 1998, filed as Exhibit 10(d) to the Quarterly Report on Form 10-Q for the quarter ended June 26, 1998.
* ** (ccc) Cavalier Homes, Inc. Flexible Option Plan filed as Exhibit 4(e) to the Company's Registration Statement on Form S-8, Registration No. 333-57743, dated June 28, 1998.
* ** (ddd) Belmont Homes, Inc. 1994 Incentive Stock Plan, filed as an Exhibit to the Belmont Homes, Inc. Registration Statement on Form S-1, Registration No. 33-87868.
* ** (eee) Belmont Homes, Inc. 1994 Non-Qualified Stock Option Plan for Non-Employee Directors, filed as an Exhibit to the Belmont Homes, Inc. Registration Statement on Form S-1, Registration No. 33-87868.
* (fff) Form of Indemnification Agreement between Belmont Homes, Inc. and the Directors and Executive Officers of Belmont Homes, Inc., filed as Exhibit 10.2 to Belmont Homes, Inc. Current Report on Form 8-K filed on September 8, 1997.
* (ggg) Form of Indemnification Agreement by and between Cavalier Homes, Inc. and each member of its Board of Directors, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 25, 1998.
* (hhh) Split dollar Agreement dated May 15, 1998, by and between the Company and Jerry F. Wilson, Jr. as Trustee of the David Allen Roberson Family Trust, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 26, 1998.
* ** (iii) Retention and Severance Agreement, dated August 26, 1998, by and between Cavalier Homes, Inc. and Barry B. Donnell, filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 25, 1998.
* ** (jjj) Retention and Severance Agreement, dated August 26, 1998, by and between Cavalier Homes, Inc. and David A. Roberson, originally filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 25, 1998 and filed as 10(ggg) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 in order to correct a typographical error.
* ** (kkk) Retention and Severance Agreement, dated August 26, 1998, by and between Cavalier Homes, Inc. and Michael R. Murphy, filed as Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 25, 1998.
* (lll) Stock Purchase Agreement dated October 25, 1996, among Belmont Homes, Inc., Bellcrest Holding Co., Inc., G. Hiller Spann, Joe H. Bell, James M. Birdwell and Delroy Dailey, Jr., filed as an exhibit to Belmont Homes, Inc. Current Report on Form 8-K filed November 13, 1996, File No. 0-26142.
* (mmm) First Amendment to Stock Purchase Agreement between Belmont Homes, Inc. And the former shareholders of Bellcrest Homes, Inc. filed as Exhibit 10.1 to Belmont Homes, Inc. Current Report on Form 8-K filed on September 8, 1997.
* (nnn) The Agreement and Plan of Merger dated August 14, 1997, by and among the Company, Crimson Acquisition Corp. and Belmont Homes, Inc., filed as Exhibit 2 to the Company's Current Report on Form 8-K dated August 19, 1997.
* (ooo) Amendment No. 1 to the Agreement and Plan of Merger referenced in Exhibit 10(nn) above filed as Exhibit 10(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 1997.
(11) Statement re Computation of Per Share Earnings.
(21) Subsidiaries of the Registrant.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule - ----------------------------------------- * Incorporated by reference herein. ** Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K. None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAVALIER HOMES, INC. -------------------- Registrant
By: /s/ DAVID A. ROBERSON ----------------------- Its President
Date: March 30, 2000
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.
INDEX
Exhibit Number
(10) Material Contracts (b) Lease Agreement dated April 1, 1999, between Development Authority of Johnson County, Georgia and Bellcrest Homes, Inc. regarding the lease of the manufacturing facility located in Adrian, Georgia.
(g) Assignment and Assumption Agreement by and among the Estate of Jerry F. Wilson, Robert Lowell Burdick, John W Lowe, Cavalier Manufacturing, Inc. and Cavalier Real Estate Co., Inc., dated January 13, 1999, regarding the lease of the manufacturing facility located in Addison, Alabama.
(h) Lease Agreement between the Industrial Development Board of the Town of Addison and the Winston County Industrial Development Association, dated as of February 1, 1994, regarding the lease of the manufacturing facility located in Addison, Alabama.
(j) Lease Agreement dated April 1, 1999, between Crisp County-Cordele Industrial Development Authority and Cavalier Industries, Inc. regarding the lease of the manufacturing facility located in Cordele, Georgia.
(q) Lease Agreement dated June 1, 1997, between Graham Industrial Association, Inc. and Cavalier Manufacturing, Inc. regarding the lease of the manufacturing facility located in Graham, Texas.
(v) Lease Agreement dated November 1, 1997, between Greenstar, L.L.C. and The Colonial Group, regarding the lease of an administrative facility in Greensboro, North Carolina.
(s) Addendum to Lease Agreement dated January 18, 1999, between Greenstar, L.L.C. and The Colonial Group, regarding the lease of an administrative facility in Greensboro, North Carolina.
(x) Assignment and Assumption Agreement dated April 29, 1999, between The Colonial Group and Cavalier Homes, Inc. regarding the lease of the administrative facility in Greensboro, North Carolina.
(z) Commitment Letter and Addendum among Cavalier Homes, Inc., Cavalier Acceptance Corporation and First Commercial Bank, dated February 29, 2000.
(hh)Release of Guarantor and Amendment to Guaranty Agreements among First Commercial Bank, Patriot Homes, Inc., Cavalier Homes, Inc., Southern Energy Homes, Inc. and Lee Roy Jordan, dated as of December 31, 1999.
(11) Statement Re Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedule (Filed as an EDGAR exhibit only)