UNITED
STATES
SECURITIES
& EXCHANGE COMMISSION
Washington,
D.C. 20549
__________________________
FORM
10-K
(Mark
One)
x
|
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the fiscal year ended December 31,
2008
OR
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period from
_________________ to ________________
Commission
File Number 1-9792
Cavalier
Homes, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
|
63-0949734
(IRS
Employer
Identification
No.)
|
32
Wilson Boulevard 100, Addison, Alabama 35540
(Address
of principal executive offices) (Zip Code)
(256)
747-9800
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
Common
Stock, $0.10 Par Value
|
|
Name
of each exchange on which registered
NYSE
Alternext U.S.
|
Securities
registered pursuant to section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
¨
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
¨
No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
Accelerated Filer
¨
|
Accelerated
Filer
¨
|
Non-Accelerated
Filer
¨
|
Smaller
Reporting Company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
The
aggregate market value of the voting common equity held by non-affiliates
computed by reference to the closing price of such stock on the American Stock
Exchange as of June 28, 2008, was $27,486,436.
The
number of shares outstanding of the registrant's common stock as of February 13,
2009, was 17,598,380
Documents
Incorporated by Reference
Part III
of this report incorporates by reference certain portions of the Registrant's
Proxy Statement for its Annual Meeting of Stockholders to be held May 18,
2009.
ANNUAL
REPORT ON FORM 10-K
FOR
THE YEAR ENDED DECEMBER 31, 2008
Table
of Contents
ANNUAL
REPORT ON FORM 10-K
FOR
THE YEAR ENDED DECEMBER 31, 2008
PART
I
Overview
Cavalier
Homes, Inc., incorporated in 1984, is a Delaware corporation with its executive
offices located at 32 Wilson Boulevard 100, Addison, Alabama 35540. Unless
otherwise indicated by the context, references in this report to the terms “we,”
“us,” “our,” “Company,” or “Cavalier” include Cavalier Homes, Inc., its
subsidiaries, divisions of these subsidiaries and their respective predecessors,
if any. Cavalier is engaged in the production and sale of manufactured
homes.
The
steady decline in the number of homes sold in the manufactured housing industry
since 1999 continued in 2008. The crises in the credit markets and overall
economic conditions have created a very challenging environment in which we
operate. To address these issues, we reduced headcount and non-labor costs
across the Company to achieve positive operating results for the
year.
In 2007,
we entered into contracts, as amended, totaling approximately $31,100 to build
and deliver a total of 650 homes to the Mississippi Emergency Management Agency
(“MEMA”) under the Alternative Housing Pilot Program as part of that state's
ongoing efforts to provide permanent and semi-permanent housing for residents
displaced by Hurricane Katrina. We recorded revenue of $14,000 and $17,100 on
homes shipped to MEMA during 2008 and 2007, respectively.
Recent
Developments
In
January 2009, we entered into a definitive agreement to sell our financial
services subsidiary, excluding installment contracts held for investment.
Retained assets will be transferred to a newly formed subsidiary. With the
completion of this sale, currently scheduled to close by March 1, 2009, we will
no longer purchase qualifying retail installment sales contracts for
manufactured homes, offer land/home and mortgage products, or sell commissioned
insurance products to retail purchasers of manufactured and modular homes. The
operating results for our financial services segment has been accounted for as
discontinued operations in the consolidated financial statements included in
this Annual Report. Cavalier now has one reportable segment: home
manufacturing.
In late
2008, the three primary national floor plan lenders announced plans to terminate
or significantly modify their floor plan programs to the manufactured housing
industry. These changes are expected to further restrict credit available to
dealers that purchase our products and, ultimately, to reduce the number of
homes purchased by retail home buyers from independent dealers. In 2009, we
expect to use some of our cash to provide financing under various floor plan
programs, including a program by one of the national floor plan lenders that
requires manufacturers to advance funds to that lender in consideration for that
lender providing financing to dealers to purchase our products. Future changes
in the credit markets for manufactured housing are uncertain at this time and
may continue to impact our industry in the upcoming year. See further discussion
in Item 1A. Risk Factors.
Home
Manufacturing
At
December 31, 2008, we owned five home manufacturing facilities (excludes idled
facilities) engaged in the production of manufactured homes, one plant that
manufactures laminated wallboard and one cabinet manufacturing/assembly
operation with two locations. See “Item 2. Properties”. Our operating home
manufacturing facilities normally function on a single-shift, five-day week
basis with the approximate annual capacity to produce 13,000 floors depending on
model mix and geographic demand.
The
management of each of our home manufacturing divisions typically consists of a
president or general manager, a production manager, a controller, a service
manager, a purchasing manager and a quality control manager. These mid-level
management personnel manage our home manufacturing operations, and typically
participate in an incentive compensation system based upon their respective
operation’s profitability.
The
following table sets forth certain sales information for 2008, 2007, and
2006:
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For
the Years Ended December 31,
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2008
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2007
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2006
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Number
of homes sold (wholesale shipments):
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|
|
|
|
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|
|
|
|
|
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Floor
shipments:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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HUD-Code
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6,076
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96
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%
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7,378
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|
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91
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%
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8,261
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|
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91
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%
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Modular
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253
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|
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4
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%
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729
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9
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%
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840
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|
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|
9
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%
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Total
floor shipments
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6,329
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|
|
|
100
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%
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8,107
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|
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|
100
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%
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9,101
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|
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100
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%
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|
|
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|
|
|
|
|
|
|
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|
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Home
shipments:
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|
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|
|
|
|
|
|
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|
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Single-section
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1,566
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40
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%
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1,460
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31
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%
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1,669
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31
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%
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Multi-section
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2,372
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|
60
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%
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3,300
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|
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|
69
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%
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3,678
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|
69
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%
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Total
home shipments
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3,938
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|
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|
100
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%
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4,760
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|
|
100
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%
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5,347
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100
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%
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We design
and manufacture 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. In recent years, we have implemented
plans to standardize parts and specifications to facilitate our ability to
interchange production between home manufacturing facilities and to better
manage both order backlog and delivery cost. In 2008, we began to move
product/model management, engineering, and service/warranty functions to the
operating divisions in order to reduce cost and shorten response times to
customers.
Construction
of a home begins by welding steel frame members together and attaching axles,
wheels and tires. The frame is then moved through the plant, stopping at a
number of workstations where various components and sub-assemblies are attached.
Certain sub-assemblies, such as floors, cabinets, ceilings and wall systems, are
assembled at offline workstations. Sheetrock is used on a frequent basis for
wall construction, which increases manufacturing time. It takes approximately
two to six days to complete construction of a home, depending on the particular
size and options. The completed home is sold ready for connection to
customer-supplied utilities. We believe the efficiency gained in producing many
homes of similar design in a controlled manufacturing environment affords us
faster completion time, greater consistency to specifications, and more
predictable costs than a traditional site-built home.
The
principal raw materials we purchase are steel, lumber, panels, sheetrock, vinyl
siding, roofing materials, insulating materials, electrical supplies,
appliances, roof trusses, plumbing fixtures, floor covering, and windows.
Currently, we maintain approximately two to three weeks' inventory of raw
materials. Our inability to obtain materials used in the production of our
homes, whether due to material shortages, destruction of manufacturing
facilities, or other events, could affect our ability to meet or maintain
production requirements.
Our
component manufacturing/assembly subsidiaries provide most of the laminated
wallboards and cabinets for our home manufacturing facilities. Additionally,
certain of our home manufacturing facilities currently purchase lumber and roof
trusses from a joint venture in which we own an interest. We believe prices we
obtain for these products from this joint venture are competitive with our other
sources of supply.
Because
the cost of transporting a manufactured home is significant, there is a
practical limit to the distance between a manufacturing facility and our
dealers. We believe that the location of our manufacturing facilities in
multiple states allows us to serve more dealers in more markets. We generally
arrange, at the dealer's expense, for the transportation of finished homes to
dealers using independent trucking companies. Dealers are responsible for
placing the home on site, combining of multi-section homes, making utility
connections and providing and installing certain accessory items and
appurtenances, such as decks, air conditioning, carports and
foundations.
Products
Our homes
include both single-section and multi-section models, with the substantial
majority of such products being “HUD-Code homes” which are manufactured homes
that meet the specifications of the National Manufactured Home Construction and
Safety Standards Act of 1974, as amended, and administered by the U.S.
Department of Housing and Urban Development (“HUD”). Additionally, we produce
multi-section modular homes, which are constructed to either local or regional
building codes. The sections of some of the modular homes we produce are built
on wooden floor systems and transported on carriers that are subsequently
removed when positioned at the home site. Single-section homes are typically 16
feet wide and 80 feet in length and contain approximately 1,140 square feet. The
multi-section models consist of two or more floor sections that are
joined at
the home site, vary in length from 48 to 80 feet, and contain approximately
1,173 to 2,280 square feet. We provided specialized homes for FEMA’s (Federal
Emergency Management Agency) disaster relief efforts in 2005 and to MEMA in
2007. Disaster relief products provided to FEMA were single-section homes 14
feet wide and 60 feet in length and contained approximately 900 square feet.
Products delivered to MEMA were two bedroom single-section homes 16 feet wide
and 62 feet long with approximately 728 square feet and three bedroom
single-section homes 16 feet wide and 70 feet long with approximately 840 square
feet.
We
currently offer approximately 250 different models of manufactured homes,
including modular homes, with a variety of décors that are marketed under
multiple brand names. The homes typically include a living room, dining area,
kitchen, two to four bedrooms and two or three bathrooms. Each home contains a
cook top/range and oven, refrigerator, water heater and central heating.
Customers also may choose from available options including gas appliances, style
and color of kitchen cabinets, various décor packages, recessed frames for use
with permanent foundations and wind load and thermal options for use in certain
geographic areas.
Our
product development and engineering personnel design homes in consultation with
operating management, sales representatives and dealers. They also evaluate new
materials and construction techniques and use computer-aided and other design
methods in a continuous program of product development, design and enhancement.
Our product development activities do not require significant capital
investments.
Our
production backlog decreased to approximately $2,800 at December 31, 2008
compared to approximately $14,500 at December 31, 2007 due to the decrease in
the manufactured housing industry in 2008 and the completion of MEMA units
included in the prior year backlog. Our inventory levels, taking into account
the number of operating facilities, are historically lower at year-end during
the idle period and return to normal levels at the end of the first quarter of
each year.
Independent
Dealer Network, Sales and Marketing
At
December 31, 2008, we had 51 participating dealer locations selling our homes
under our exclusive dealer program, which included a Company-owned retail
location. In addition, we market our homes through approximately 239 active
non-exclusive independent dealer locations.
Our
independent exclusive dealers market and sell only homes manufactured by us,
while our independent non-exclusive dealers typically will choose to offer the
products of other manufacturers in addition to ours. The number of independent
exclusive dealers and the percentage of our sales represented by them are
summarized in the following table:
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As
of December 31,
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2008
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2007
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2006
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Number
of independent exclusive dealer locations
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50
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62
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71
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Number
of independent non-exclusive dealer locations
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239
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283
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262
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Percentage
of manufactured home sales (excluding MEMA/FEMA)
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56
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%
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|
48
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%
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58
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%
|
A
majority of the decrease in exclusive dealer locations from 2006 to 2008
represents dealers who transferred to a Cavalier dealer program other than our
exclusive dealer program.
Approximately
94% of our sales in 2008 (excluding MEMA) were to dealers operating sales
centers in our core states as follows: Louisiana – 22.8%, North Carolina –
13.8%, Alabama – 12.6%, Mississippi – 9.8%, South Carolina – 8.0%, Georgia –
7.8%, Arkansas – 6.1%, Missouri – 4.5%, Tennessee – 3.5%, Oklahoma – 2.9% and
Kentucky – 2.5%.
Generally,
we have written agreements with our independent dealers, which may be terminated
at any time by either party, with or without cause, after a short notice period.
We do not have any control over the operations of, or financial interests in,
any of our independent dealers, including any of our independent exclusive
dealers. The largest independent dealer accounted for approximately 10.1% of
sales in 2008, excluding MEMA-related sales. During 2008 and 2007, MEMA homes
accounted for 8.4% and 8.1%, respectively, of total sales.
We
believe that our independent dealer network enables us to avoid the substantial
investment in management, capital and overhead associated with company-owned
sales centers. To enable dealers to maximize retail market penetration and
enhance customer service, typically only one dealer within a given market area
distributes a particular product line of ours. We believe our strategy of
selling homes through independent dealers helps to ensure that our homes are
competitive with those of other manufacturers in terms of consumer
acceptability, product design, quality and price. Accordingly, a component of
our business
strategy
is to continually strengthen our dealer relations. We believe our relations with
our independent dealers, including our independent exclusive dealers, are
good.
Our sales
force is generally organized based on a geographic region with a regional sales
manager and sales representatives who are compensated primarily on a commission
basis. The sales representatives are charged with the day-to-day servicing of
the needs of our independent dealers, including our exclusive dealers. We market
our homes through product promotions, participation in regional manufactured
housing shows, displays at our facilities, and advertisements in local media and
trade publications. As of December 31, 2008, we maintained a sales force of 28
full-time salesmen and three full-time general sales managers.
Wholesale
Dealer Financing and Repurchase Obligations
In
accordance with manufactured housing industry practice, our dealers finance a
majority of their purchases of manufactured homes through wholesale “floor plan”
financing arrangements. Under a typical floor plan financing arrangement, a
financial institution provides the dealer with a loan for the purchase price of
the home and maintains a security interest in the home as collateral. The
financial institution that provides financing to the dealer customarily requires
us to enter into a separate repurchase agreement with the financial institution
under which we are obligated, upon default by the dealer, to repurchase the
financed homes at a declining price based upon our original invoice date and
price. A portion of purchases by dealers are pre-sold to retail customers and
are paid through retail financing commitments.
The risk
of loss under repurchase agreements is lessened by the fact that (i) sales of
our manufactured homes are spread over a relatively large number of independent
dealers, the largest of which accounted for approximately 10.1% of sales in
2008, excluding MEMA-related homes, (ii) the price we are obligated to pay under
such repurchase agreements declines based on predetermined amounts over the
period of the agreement (generally 9 to 24 months), and (iii) historically, we
have been able to resell homes repurchased from lenders. As of December 31,
2008, the maximum amount for which we are contingently liable under such
agreements was approximately $45,000 for which we had a recorded reserve for
repurchase commitments of $1,141. See “Item 7. Management’s Discussion and
Analysis: Critical Accounting Estimates.”
During
2008, the three primary national floor plan lenders announced plans to
discontinue their programs for the manufactured housing industry or made
significant changes to their program offerings. The changes were a direct result
of difficulties in the credit markets, including the ability for these lenders
to obtain the funds they need to operate these types of lending programs.
Without alternative sources of funding or new lenders, changes in these programs
will result in a further decrease in the number of home shipments in the
manufactured housing industry as a whole. In 2009, we expect to use some of our
available cash to provide inventory financing for dealers that purchase our
products under one or more programs.
Quality
Control, Warranties and Service
We
believe the quality in materials and workmanship, continuous refinement in
design and production procedures as well as price and other market factors, are
important elements in the market acceptance of manufactured homes. We maintain a
quality control inspection program at various production stages. Our
manufacturing facilities and the plans and specifications of our HUD-Code
manufactured homes have been approved by a HUD-designated agency. An
independent, HUD-approved third-party regularly inspects our HUD-Code
manufactured homes for compliance during construction. Modular product is also
inspected and/or certified on a state-by-state basis.
We
generally provide the initial retail homebuyer with a one-year limited warranty
against manufacturing defects in the home's construction. Warranty services
after the sale are performed, at our expense, by our personnel, dealers or
independent contractors. Additionally, direct warranties often are provided by
the manufacturers of specific components and appliances.
We
generally employ a full-time service manager at each of our home manufacturing
divisions and at December 31, 2008, employed 68 full-time service personnel to
provide administrative and on-site service and to correct production
deficiencies that are attributable to the manufacturing process. Warranty
service constitutes a significant cost to us, and our management continues to
place emphasis on diagnosing potential problem areas to help minimize costly
field repairs. At December 31, 2008, we had established a reserve for future
warranty claims of $10,100 relating to homes sold, based upon management’s
assessment of historical experience factors and current industry
trends.
Competition
The
manufactured housing industry is highly competitive, characterized by low
barriers to entry and severe price competition. Competition is based primarily
on price, product features and quality, reputation for service quality, depth of
field inventory,
delivery
capabilities, warranty repair service, dealer promotions, merchandising, and
terms and availability of dealer (wholesale) and retail (consumer) financing. We
also compete with other manufacturers, some of which maintain their own retail
sales centers, for quality independent dealers. In addition, our manufactured
homes compete with other forms of low-cost housing, including site-built,
prefabricated, modular homes, apartments, townhouses and condominiums. The
selection by retail buyers of a manufactured home rather than an apartment or
other alternative forms of housing is significantly affected by their ability to
obtain satisfactory financing. We face direct competition from numerous
manufacturers, many of which possess greater financial, manufacturing,
distribution and marketing resources.
According
to the Manufactured Housing Institute’s (“MHI”) December 2008 Monthly Economic
Report, there were 61 manufacturers of manufactured homes which operated 170
facilities compared to 65 manufacturers which operated 196 facilities in
December 2007. Our market share industry wide was 4.5% in 2008 and 2007. In our
core states, our market share was 10.0% at December 31, 2008 and 9.5% at
December 31, 2007. In 2008, our core states consisted of Alabama, Arkansas,
Georgia, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Oklahoma,
South Carolina and Tennessee.
Regulation
Our
businesses are subject to a number of federal, state and local laws, regulations
and codes. Construction of manufactured housing is governed by the National
Manufactured Home Construction and Safety Standards Act of 1974, as amended, and
regulations issued thereunder by HUD, which have established comprehensive
national construction standards. The HUD regulations cover all aspects of
manufactured home construction, including structural integrity, fire safety,
wind loads, thermal protection and ventilation. Such regulations preempt state
and local regulations on such matters. We cannot presently determine what, if
any, legislation may be adopted by Congress or state or local governing bodies,
or the effect any such legislation may have on us or the manufactured housing
industry.
Our
manufacturing facilities and the plans and specifications of our manufactured
homes have been approved by a HUD-designated agency. An independent, HUD
approved third-party regularly checks our manufactured homes for compliance
during construction. Failure to comply with HUD regulations could expose us to a
wide variety of sanctions, including closing our manufacturing facilities. We
believe our manufactured homes meet or surpass all present HUD
requirements.
HUD has
promulgated regulations with respect to structural design, wind loads and energy
conservation. Our operations were not materially affected by the regulations;
however, HUD and other state and local governing bodies have these and other
regulatory matters under continuous review, and we cannot predict what effect
(if any) additional regulations promulgated by HUD or other state or local
regulatory bodies would have on us or the manufactured housing
industry.
Certain
components of manufactured and modular homes are subject to regulation by the
U.S. Consumer Product Safety Commission, which is empowered to ban the use of
component materials believed to be hazardous to health and to require the repair
of defective components. Manufactured, modular and site-built homes are
typically built with compressed board, wood paneling and other products that
contain formaldehyde resins. HUD regulates the allowable concentration of
formaldehyde in certain products used in manufactured homes and requires
manufacturers to warn purchasers concerning formaldehyde associated risks. We
currently use materials in our manufactured homes that we believe meet HUD
standards for formaldehyde emissions and otherwise comply with HUD and other
applicable government regulations in this regard.
The
transportation of manufactured homes on highways is subject to regulation by
various federal, state and local authorities. Such regulation may prescribe size
and road use limitations and impose lower than normal speed limits and various
other requirements.
Our
manufactured homes are subject to local zoning and housing regulations. A number
of states require manufactured home producers to post bonds to ensure the
satisfaction of consumer warranty claims. A number of states have adopted
procedures governing the installation of manufactured homes. Utility connections
are subject to state and local regulation.
We are
subject to the Magnuson-Moss Warranty Federal Trade Commission Improvement Act,
which regulates the descriptions of warranties on products. The description and
substance of our warranties are also subject to a variety of state laws and
regulations.
Our
operations are subject to federal, state and local laws and regulations relating
to the generation, storage, handling, emission, transportation and discharge of
materials into the environment. We currently do not believe we will be required
under existing environmental laws and enforcement policies to expend amounts
which will have a material adverse effect on our results of operations or
financial condition. However, the requirements of such laws and enforcement
policies have generally become
stricter
in recent years. Accordingly, we are unable to predict the ultimate cost of
compliance with environmental laws and enforcement policies.
A variety
of federal laws affect the financing of manufactured homes, including the
financing activities conducted by our financial services subsidiary (CIS
Financial Services, Inc., or “CIS”). While we have entered into a contract to
sell CIS to a third party, we must continue to comply with federal laws, and
will remain subject to liability with respect to our previous operations. The
Consumer Credit Protection Act (Truth-in-Lending) and Regulation Z promulgated
thereunder require substantial disclosures to be made in writing to a consumer
with regard to various aspects of the particular transaction, including the
amount financed, the annual percentage rate, the total finance charge,
itemization of the amount financed and other matters. The Equal Credit
Opportunity Act and Regulation B promulgated thereunder prohibit discrimination
against any credit applicant based on certain prohibited bases, and also require
that certain specified notices be sent to credit applicants whose applications
are denied. The Fair Credit Reporting Act promulgated thereunder regulates how
customer credit reports are obtained and handled. The Federal Trade Commission
has adopted or proposed various trade regulation rules to specify and prohibit
certain unfair credit and collection practices and also to preserve consumers'
claims and defenses. The Government National Mortgage Association (“GNMA”)
specifies certain credit underwriting requirements in order for installment
manufactured home sale contracts to be eligible for inclusion in a GNMA program.
HUD also has promulgated substantial disclosure and substantive regulations and
requirements in order for a manufactured home installment sale contract to
qualify for insurance under the Federal Housing Authority (“FHA”) program, and
the failure to comply with such requirements and procedures can result in loss
of the FHA guaranty protection. In addition to the extensive federal regulation
of consumer credit matters, many states also have adopted consumer credit
protection requirements that may impose significant requirements for consumer
credit lenders. For example, many states require that a consumer credit finance
company such as CIS obtain certain regulatory licenses or permits in order to
engage in such business in that state, and many states also set forth a number
of substantive contractual limitations regarding provisions that permissibly may
be included in a consumer contract, as well as limitations upon the permissible
interest rates, fees and other charges that may be imposed upon a consumer. Our
failure to comply with the requirements of federal or state law pertaining to
consumer credit could result in the invalidity of the particular contract for
the affected consumer, civil liability to the affected customers, criminal
liability and other adverse results. The sale of insurance products is subject
to various state insurance laws and regulations, which govern allowable charges
and other insurance practices.
Employees
As of
December 31, 2008, we had 1,012 employees, of whom 790 were engaged in home
manufacturing and supply distribution, 31 in sales, 68 in warranty and service,
95 in general administration, and 28 in finance services activities. At
year-end, none of our employees were covered by a collective bargaining
agreement. Management considers our relations with our employees to be
good.
Available
Information
Additional
information regarding our executive officers and Board of Directors may be
obtained in the Proxy Statement relating to our 2009 Annual Meeting of
Stockholders. In addition, we periodically file reports and other information
with the Securities and Exchange Commission (“SEC”) under the Securities
Exchange Act of 1934. The public may read and copy any materials at the SEC’s
Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1.800.SEC.0330. The public reports, proxy and information statements
filed with the SEC of electronic filers can be accessed via the SEC’s Internet
website (http://www.sec.gov). Additionally, the public may request copies of our
documents by calling our Investor Relations at 256.747.9800; or by visiting our
website at http://www.cavhomesinc.com. We make available, free of charge,
through the Investor Relations portion of our website, our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the SEC.
If you
are interested in making an investment in Cavalier, you should carefully
consider the following risk factors concerning our business, in addition to the
other information contained in this Annual Report on Form 10-K:
Our
industry suffers from a lack of third-party financing, and our financial
condition and results of operations could be negatively affected if additional
third-party financing for the purchases of our homes does not become
available.
Third-party
lenders generally provide consumer financing for manufactured home purchases.
Our sales depend in large part on the availability and cost of financing for
manufactured home purchasers and dealers as well as our own retail location. The
availability and cost of such financing is further dependent on the number of
financial institutions participating in the industry, the departure of financial
institutions from the industry, the financial institutions' lending practices,
and the strength of the credit markets generally, governmental policies and
other conditions, all of which are beyond our control. Throughout the past ten
years the industry has been impacted significantly by reduced financing
available at both the wholesale and retail levels, with several lenders exiting
the marketplace or limiting their participation in the industry, coupled with
more restrictive credit standards and increased home repossessions which
re-enter home distribution channels and limit wholesale shipments of new homes.
The changes announced in the last quarter of 2008 by the three primary national
floor plan lenders will further restrict financing available for the
manufactured housing industry. The much-anticipated infusion of new and
competitive lending capacity, which we believe is essential to support demand at
higher levels, has not yet materialized. Until there is substantial entry of
finance resources to the manufactured housing market, we believe a meaningful
expansion for the industry will be delayed. Unfavorable changes in the
availability and terms of financing in the industry will have a material adverse
effect on our results of operations or financial condition.
The
manufactured housing industry is both cyclical and seasonal in nature, and the
industry as a whole has declined significantly over the past ten
years.
The
manufactured housing industry is highly cyclical and seasonal and has
experienced wide fluctuations in aggregate sales in the past, resulting in the
failure of many manufacturing concerns. Many of the same national and regional
economic and demographic factors that affect the broader housing industry also
affect the market for manufactured homes. Historically, most sectors of the home
building industry, including the manufactured housing industry, have been
affected by the following, among other things:
|
·
|
changes
in general economic conditions;
|
|
·
|
levels
of consumer confidence;
|
|
·
|
employment
and income levels;
|
|
·
|
housing
supply and demand;
|
|
·
|
availability
of alternative forms of housing;
|
|
·
|
availability
of wholesale (dealer) financing;
|
|
·
|
availability
of retail (consumer) financing;
|
|
·
|
the
level and stability of interest rates;
and
|
|
·
|
the
availability of raw materials.
|
MHI
reported that from 1983 to 1991, aggregate domestic shipments of manufactured
homes declined 42%. According to industry statistics, after a ten-year low in
floor shipments in 1991, the industry recovered significantly. Between 1992 and
1998, floor shipments increased each year, although the growth rate gradually
slowed. Shipments have declined each year from 1999 through 2008, except for a
6% increase in 2005 due to industry-wide orders by FEMA as part of that agency’s
hurricane disaster relief efforts.
During
much of the 1990s, the manufactured housing industry experienced increases in
both the number of retail dealers and manufacturing capacity, which we believe
ultimately created slower retail turnover, higher dealer inventories and
increased price competition. Some manufactured housing wholesale and retail
lenders have discontinued business in the industry, and some of the remaining
lenders have raised interest rates and tightened credit standards. In 2008,
national floor plan lenders announced plans to discontinue or change their
lending programs for the manufactured housing industry, which will, absent
acceptable alternatives, further restrict available lending to our industry. We
believe these conditions reflect that the manufactured housing industry is
continuing in a down cycle, which has had a material adverse effect on our
results of operations and financial condition. Sales in the manufactured housing
industry are also seasonal in nature, with sales of homes traditionally stronger
in April through October and weaker during the first and last part of the
calendar year. While seasonality did not significantly impact our business from
1992 through 1996, when industry shipments were steadily increasing, the
continued tightening of competitive conditions seems to signal a return to the
industry's traditional seasonal patterns. Approximately 94% of our sales in 2008
were to dealers operating sales centers in our core states. We cannot predict
how long the tightening of competitive and industry conditions will last, or
what the extent of their impact will be on our future results of operations and
financial condition.
Our
business strategy includes plans to grow our business in a competitive
environment, and we may not be able to sustain profitability if we fail to
maintain and strengthen our market share.
Our
current business strategies are to:
|
·
|
control
costs in light of currently prevailing industry
conditions;
|
|
·
|
improve
manufacturing cost efficiencies;
|
|
·
|
attempt
to generate an increase in sales in an increasingly competitive
environment;
|
|
·
|
improve
brand management and penetration;
|
|
·
|
maintain
consistent profitability;
|
|
·
|
develop
our exclusive and independent dealer
network;
|
|
·
|
eliminate
redundant products to streamline production in an effort to reduce costs;
and
|
|
·
|
manage
product/model management, engineering, and service/warranty at the
operating division in order to reduce our costs and shorten response times
to customers.
|
Downturns
in shipments in the manufactured housing industry and a decline in the demand
for our homes have had a material adverse effect on us. Our ability to execute
our business strategy depends on a number of factors, including the
following:
|
·
|
general
economic and industry conditions;
|
|
·
|
the
availability of capital and
financing;
|
|
·
|
the
availability and terms of wholesale and retail financing from lenders in
the manufactured housing industry;
|
|
·
|
our
ability to control costs if industry production capacity decreases below
current levels;
|
|
·
|
competition
from other companies in our
industry;
|
|
·
|
our
ability to attract, retain or sell to additional independent dealers,
especially exclusive dealers;
|
|
·
|
the
availability of semi-skilled workers in the areas in which our
manufacturing facilities are
located;
|
|
·
|
the
ability of our independent dealers to compete under current industry
conditions;
|
|
·
|
the
ability to produce modular and HUD-Code products within the same
manufacturing plants; and
|
|
·
|
market
acceptance of product offerings.
|
There are
other factors in addition to those listed above, many of which are beyond our
control. We cannot assure investors that our business strategy will be
successful. If our strategy is unsuccessful, this may have a material adverse
effect upon our results of operations or financial condition.
Industry
inventories of completed homes can vary, which may impact retail demand and our
ability to sell additional homes at current prices.
Changes
in the level of retail inventories in the manufactured housing industry, either
up or down, can have a significant impact on our operating results. For example,
due to the rapid expansion of the retail distribution network in the
manufactured housing industry that occurred in much of the 1990's, there was an
imbalance between industry retail inventories and consumer demand for
manufactured homes. The deterioration in the availability of retail financing,
along with competition from repossessed homes, extended the inventory adjustment
period beyond what was originally expected. If these trends were to continue, or
if retail demand were to weaken further, the inventory overhang could result in
even greater intense price competition, further pressure profit margins within
the industry, and have a material adverse effect on us. The inventory of
Cavalier manufactured homes at all retail locations decreased in 2008 to $65,300
from $84,700 in 2007. Significant unfavorable developments or further
deterioration within the industry would undoubtedly have an adverse impact on
our operating results.
We
depend on independent dealers for substantially all retail sales of our
manufactured homes, and the failure or market exit of a significant number of
these dealers could negatively affect our financial condition and results of
operations.
We depend
on independent dealers for substantially all retail sales of our manufactured
homes. Typically only one dealer within a given market area distributes a
particular brand of ours. Our relationships with our dealers are cancelable on
short notice by either party. The manufactured housing industry has experienced
a trend of increasing competition for quality independent dealers. In addition,
a number of dealers in the industry are experiencing difficulty in the current
market conditions, as a number of retail dealers have failed and more dealers
may fail before the current downturn ends. While we believe that our relations
with our independent dealers are generally good, we cannot assure our investors
that we will be able to maintain these relations, that these dealers will
continue to sell our homes, that these dealers will be successful, or that we
will be able to attract and retain quality independent dealers.
Competition
from other manufactured housing providers may adversely affect our
profitability.
The
production and sale of manufactured homes is a highly competitive industry,
characterized by low barriers to entry and severe price competition. Competition
is based primarily on the following factors:
|
·
|
product
features and quality;
|
|
·
|
reputation
for service quality;
|
|
·
|
depth
of field inventory;
|
|
·
|
warranty
repair service;
|
|
·
|
terms
and availability of wholesale (dealer) and retail (consumer)
financing.
|
In
addition, we compete with other manufacturers, some of which maintain their own
retail sales centers, for independent dealers. Manufactured homes also compete
with other forms of low-cost housing, including site-built, prefabricated and
modular homes, apartments, townhouses and condominiums. We face direct
competition from numerous manufacturers, many of which possess greater
financial, manufacturing, distribution and marketing resources. As a result of
these competitive conditions, we may not be able to sustain past levels of sales
or profitability.
We
sell a majority of our homes to dealers who finance the purchases under floor
plan arrangements, which require us to enter into contingent repurchase
agreements to repurchase the homes from the lender in certain
circumstances.
Manufactured
housing companies customarily enter into repurchase and other recourse
agreements with lending institutions, which have provided wholesale floor plan
financing to dealers. A majority of our sales are made to dealers located
primarily in the South Central and South Atlantic regions of the United States
pursuant to repurchase agreements with lending institutions. These agreements
generally provide that we will repurchase our products from the lending
institutions at a declining price based upon our original invoice date and price
in the event such product is repurchased upon a dealer's default. The risk of
loss under repurchase agreements is lessened by the fact that (i) sales of our
manufactured homes are spread over a relatively large number of independent
dealers; (ii) the price that we are obligated to pay under such repurchase
agreements generally declines over the period of the agreement and also declines
during such period based on predetermined amounts; and (iii) we have been able
to resell homes repurchased from lenders. While we have established a reserve
for possible repurchase losses, we cannot assure investors that we will not
incur material losses in excess of these reserves in the future.
Our
decisions regarding credit risk could be inaccurate and our reserve for credit
losses could be inadequate, which could adversely affect our financial condition
and results of operations.
With the
sale of our financing services subsidiary, our exposure to credit losses on
installment contracts will be eliminated, except for credit risks related to
installment contracts held for investment, which we will retain in this
transaction. We maintain a reserve for estimated credit losses on installment
sale contracts and mortgage loans we own to provide for future losses based on
our historical loss experience, current economic conditions and portfolio
performance. It is difficult to predict with any certainty the appropriate
reserves to establish, and we cannot assure investors that we will not
experience losses that exceed our loss reserves and have a material adverse
effect on our results of operations and financial condition. Volatility or a
significant change in interest rates might also materially affect our business,
results of operations or financial condition.
We
obtain our raw materials from a limited number of suppliers, and unavailability
or price increases in raw materials could have a material adverse effect on our
financial condition and results of operations.
The
availability and pricing of raw materials used in the production of homes may
significantly affect our operating costs. Sudden increases in demand for these
construction materials caused by natural disasters or other market forces, which
may occur in the event of major hurricanes, can greatly increase the costs of
materials or limit the availability of such materials. Increases in costs cannot
always be reflected immediately in prices, especially in competitive times, and,
consequently, may adversely impact our profitability. Further, a reduction in
the availability of raw materials also may affect our ability to meet or
maintain production requirements.
We obtain
a substantial amount of our supply of laminated wallboard from a wholly-owned
subsidiary, and obtain a majority of our supply of cabinetry from another
wholly-owned subsidiary. We depend upon these subsidiaries for a significant
portion of the materials used to construct portions of our manufactured homes.
The inability of either of these subsidiaries to provide laminated wallboard or
cabinetry to us, whether due to materials shortages, destruction of
manufacturing facilities or other events, may affect our ability to meet or
maintain production requirements.
If
manufactured housing sites are limited by zoning laws or other local regulation,
our financial condition and results of operations could be materially adversely
affected.
Any
limitation on the growth of the number of sites for placement of manufactured
homes or on the operation of manufactured housing communities could adversely
affect the manufactured housing business. Manufactured housing communities and
individual home placements are subject to local zoning ordinances and other
local regulations relating to utility service and construction of roadways. In
the past, property owners often have resisted the adoption of zoning ordinances
permitting the location of manufactured homes in residential areas, which we
believe has adversely affected the growth of the industry. We cannot assure
investors that manufactured homes will receive widespread acceptance or that
localities will adopt zoning ordinances permitting the location of manufactured
home areas. The inability of the manufactured home industry to gain such
acceptance and zoning ordinances could have a material adverse effect on our
financial condition or results of operations.
We
are dependent on the services of our management team, and the unexpected loss of
key officers may adversely affect our operations.
Our
success depends highly upon the personal efforts and abilities of our current
executive officers. Specifically, we rely on the efforts of our President and
Chief Executive Officer, Bobby Tesney, our Executive Vice President, Barry
Mixon, and our Vice President, Chief Financial Officer and Secretary-Treasurer,
Michael R. Murphy. The loss of the services of one or more of these individuals
could have a material adverse effect upon our business. We do not have
employment or non-competition agreements with any of our executive officers. Our
ability to continue to work through the industry's current downturn will depend
upon our ability to retain, and attract if necessary, experienced management
personnel.
We
are subject to extensive regulation affecting the production and sale of
manufactured housing, which could adversely affect our
profitability.
We are
subject to a variety of federal, state and local laws and regulations affecting
the production and sale of manufactured housing. We suggest you refer to the
section above under the heading “Regulation” for a description of many of these
laws and regulations. Our failure to comply with such laws and regulations could
expose us to a wide variety of sanctions, including closing one or more
manufacturing facilities. Governmental bodies have regulatory matters affecting
our operations under continuous review and we cannot predict what effect, if
any, additional laws and regulations promulgated by HUD would have on us or the
manufactured housing industry. Failure to comply with laws or regulations
applicable to or affecting us, or the passage in the future of new and more
stringent laws affecting us, may adversely affect our financial condition or
results of operations.
We
must comply with extensive environmental regulation, and failure in our
compliance efforts could result in damages, expenses or liabilities that
individually or in the aggregate would have a material adverse affect on our
financial condition and results of operations.
Federal,
state and local laws and regulations relating to the generation, storage,
handling, emission, transportation and discharge of materials into the
environment govern our operations. In addition, third parties and governmental
agencies in some cases have the power under such laws and regulations to require
remediation of environmental conditions and, in the case of governmental
agencies and entities, to impose fines and penalties. The requirements of such
laws and enforcement policies have generally become stricter in recent years.
Accordingly, we cannot assure investors that we will not be required to incur
response costs, remediation expenses, fines, penalties or other similar damages,
expenses or liabilities, or to incur operational shut-downs, business
interruptions or similar losses, associated with compliance with environmental
laws and enforcement policies that either individually or in the aggregate would
have a material adverse effect on our results of operations or financial
condition.
Our
liability for estimated warranties may be inadequate, which could materially and
adversely affect our business, financial condition and results of
operations.
We are
subject to warranty claims in the ordinary course of business. Although we
maintain reserves for such claims, which to date have been adequate, there can
be no assurance that warranty expense levels will remain at current levels or
that such
reserves
will continue to be adequate. A large number of warranty claims exceeding our
current warranty expense levels could have a material adverse effect on our
results of operations.
None
The
following table sets forth the location and approximate square footage of our
facilities as of December 31, 2008:
Locations
|
|
Use
(Number of home
manufacturing
lines)
|
|
Approximate
Square Footage
|
|
Owned
(a) or Leased
|
Home
Manufacturing – operating
|
|
|
|
|
|
|
Addison,
Alabama
|
|
Manufacturing
facilities (2)
|
|
458,000
|
|
Owned
|
Hamilton,
Alabama
|
|
Manufacturing
facility (1)
|
|
200,000
|
|
Owned
|
Millen,
Georgia
|
|
Manufacturing
facility (1)
|
|
179,000
|
|
Owned
|
Nashville,
North Carolina
|
|
Manufacturing
facility (1)
|
|
182,000
|
|
Owned
|
Home
Manufacturing – idled (b)
|
|
|
|
|
|
|
Conway,
Arkansas
|
|
Manufacturing
facility
|
|
222,000
|
|
Owned
|
Cordele,
Georgia (c)
|
|
Manufacturing
facility
|
|
179,000
|
|
Owned
|
Shippenville,
Pennsylvania
|
|
Manufacturing
facility
|
|
120,000
|
|
Owned
|
Winfield,
Alabama
|
|
Manufacturing
facility
|
|
134,000
|
|
Owned
|
Component
& Supply Companies
|
|
|
|
|
|
|
Hamilton,
Alabama
|
|
Manufacturing
facility
|
|
60,000
|
|
Owned
|
Haleyville,
Alabama (2 facilities)
|
|
Manufacturing
facilities
|
|
169,000
|
|
Owned
|
Financial
Services
|
|
|
|
|
|
|
Hamilton,
Alabama (d)
|
|
Administrative
office
|
|
9,000
|
|
Owned
|
General
Corporate
|
|
|
|
|
|
|
Addison,
Alabama
|
|
Administrative
office
|
|
10,000
|
|
Owned
|
Wichita
Falls, Texas
|
|
Administrative
office
|
|
1,000
|
|
Leased
|
(a) Certain
of the facilities listed as owned were financed under industrial development
bonds.
(b)
|
Certain
of the idled facilities are leased to third parties under leasing
arrangements, which, in one case, includes an option to
purchase.
|
(c)
|
This
property was sold on February 13, 2009 and has been classified as held for
sale in our consolidated balance sheet as of December 31,
2008.
|
(d)
|
In
connection with the sale of our financial services subsidiary, this
property will be leased to the
purchaser.
|
In
general, our manufacturing facilities are in good condition and are operated at
capacities which ranged from approximately 32% to 70% in 2008.
During
2008, we reported in our Quarterly Reports on Form 10-Q three
formaldehyde-related actions filed in the United States District Court for the
Eastern District of Louisiana against us and others seeking class action status.
The court subsequently denied class action status in each of these suits.
Accordingly, we intend to treat these actions and any others which may arise in
the same manner as we have treated litigation incidental to our business in the
past.
Litigation
is subject to uncertainties and we cannot predict the probable outcome or the
amount of liability of individual litigation matters with any level of
assurance. We are engaged in various legal proceedings that are incidental to
and arise in the course of our business. Certain of the cases filed against us
and other companies engaged in businesses similar to ours 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. Our liability under some of this litigation is covered in whole or in part
by insurance. Anticipated legal fees and other losses, in excess of insurance
coverage, associated with these lawsuits are accrued at the time such cases are
identified or when additional information is available such that losses are
probable and reasonably estimable. In the opinion of management,
the
ultimate liability, if any, with respect to the proceedings in which we are
currently involved is not presently expected to have a material adverse effect
on our results of operations, financial position or liquidity.
No
matters were submitted to the stockholders during the last quarter of the fiscal
year.
Our
common stock trades on the NYSE Alternext US (previously, the American Stock
Exchange) 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
for our common stock:
|
|
Closing
Sales Prices
|
|
|
High
|
|
Low
|
Year
ended December 31, 2008:
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
1.80
|
|
|
$
|
0.89
|
|
Third
Quarter
|
|
|
2.49
|
|
|
|
1.90
|
|
Second
Quarter
|
|
|
2.60
|
|
|
|
1.51
|
|
First
Quarter
|
|
|
1.95
|
|
|
|
1.52
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2007:
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
3.15
|
|
|
$
|
1.80
|
|
Third
Quarter
|
|
|
4.91
|
|
|
|
3.21
|
|
Second
Quarter
|
|
|
5.03
|
|
|
|
4.35
|
|
First
Quarter
|
|
|
5.00
|
|
|
|
3.85
|
|
As of
February 13, 2009, we had 287 stockholders of record and approximately 3,000
beneficial holders of our common stock, based upon information in securities
position listings by registered clearing agencies upon request of our transfer
agent. The closing price of our common stock on the NYSE Alternext US was $1.70
per share as of February 13, 2009.
We
discontinued payments of dividends in 2000. The future payment of dividends on
our common stock will be determined by our Board of Directors in light of
conditions then existing, including our earnings, our funding requirements and
financial conditions, certain loan restrictions and applicable laws and
governmental regulations. Our present loan agreement contains restrictive
covenants, which, among other things, limits the aggregate dividend payments and
purchases of treasury stock to 50% of our consolidated net income for the two
most recent fiscal years.
Performance
Graph
The
following indexed graph compares the yearly percentage change in our cumulative
total stockholder return on our common stock with the cumulative total return of
(i) the Standard and Poor's 500 Stock Index and (ii) a group of public
companies, each of which is engaged in the business of designing, producing and
selling manufactured homes. The companies in the industry group included in the
index are Champion Enterprises, Inc., Fleetwood Enterprises, Inc., Nobility
Homes, Inc., Palm Harbor Homes, Inc., and Skyline Corporation.
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
Cavalier
Homes Inc.
|
|
$
|
100.00
|
|
|
$
|
197.65
|
|
|
$
|
216.44
|
|
|
$
|
139.60
|
|
|
$
|
65.44
|
|
|
$
|
35.91
|
|
S&P
500
|
|
$
|
100.00
|
|
|
$
|
110.88
|
|
|
$
|
116.33
|
|
|
$
|
134.70
|
|
|
$
|
142.10
|
|
|
$
|
89.53
|
|
Peer
Group
|
|
$
|
100.00
|
|
|
$
|
132.98
|
|
|
$
|
138.16
|
|
|
$
|
104.05
|
|
|
$
|
87.55
|
|
|
$
|
19.33
|
|
Common
Stock Purchases
The
following table sets forth the repurchases of our common stock during the fourth
quarter in the months indicated.
Period
|
|
Total
Number of Shares Purchased
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(1)
|
|
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
|
09/28/08
– 11/01/08
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
831,200
|
|
11/02/08
– 11/29/08
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
831,200
|
|
11/30/08
– 12/31/08
|
|
|
831,200
|
|
|
$
|
1.09
|
|
|
|
831,200
|
|
|
|
–
|
|
Totals
|
|
|
831,200
|
|
|
$
|
1.09
|
|
|
|
831,200
|
|
|
|
|
|
(1)
|
Pursuant
to a common stock repurchase program approved by our Board of Directors in
1998, a total of 831,200 shares were purchased in December 2008 at a cost
of $931. A cumulative total of 4,000,000 shares were authorized for
repurchase and were purchased under this program at a cost of $25,773,
which included the purchase of 3,168,800 shares during the four year
period ended December 31, 2001 for total cost of $24,842. We retired
2,151,500 of the repurchased shares at December 31, 1999, with the
remaining shares being recorded as treasury stock. During 2006, we
reissued 34,000 treasury shares upon the exercise of stock options. We
have no continuing authority to repurchase shares of our common stock
pursuant to the foregoing program.
|
Securities
Authorized for Issuance under Equity Compensation Plans
The
equity compensation plan information contained in Item 12 of Part III of this
Annual Report is incorporated herein by reference.
The
following table sets forth our selected consolidated financial data for the
periods indicated. The statement of operations data and other data for each of
the years in the five year period ended December 31, 2008 have been derived from
our consolidated financial statements. Our audited financial statements as of
December 31, 2008 and 2007, and for each of the years in the three-year period
ended December 31, 2008, including the notes thereto and the related reports of
our independent registered public accountants 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 our
consolidated financial statements and the notes thereto appearing in our
previously filed Annual Reports on Form 10-K.
|
|
Years
Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
(in
thousands, except per share amounts)
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
164,405
|
|
|
$
|
206,884
|
|
|
$
|
224,602
|
|
|
$
|
269,031
|
|
|
$
|
209,297
|
|
Cost
of sales
|
|
|
134,507
|
|
|
|
181,920
|
|
|
|
189,175
|
|
|
|
219,435
|
|
|
|
172,244
|
|
Gross
profit
|
|
|
29,898
|
|
|
|
24,964
|
|
|
|
35,427
|
|
|
|
49,596
|
|
|
|
37,053
|
|
Selling,
general, and administrative
|
|
|
26,992
|
|
|
|
34,684
|
|
|
|
36,201
|
|
|
|
37,317
|
|
|
|
32,512
|
|
Restructuring
and impairment charges
|
|
|
--
|
|
|
|
267
|
|
|
|
--
|
|
|
|
143
|
|
|
|
--
|
|
Operating
income (loss)
|
|
|
2,906
|
|
|
|
(9,987
|
)
|
|
|
(774
|
)
|
|
|
12,136
|
|
|
|
4,541
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(488
|
)
|
|
|
(672
|
)
|
|
|
(1,150
|
)
|
|
|
(1,323
|
)
|
|
|
(1,141
|
)
|
Other,
net
|
|
|
501
|
|
|
|
314
|
|
|
|
1,298
|
|
|
|
835
|
|
|
|
554
|
|
|
|
|
13
|
|
|
|
(358
|
)
|
|
|
148
|
|
|
|
(488
|
)
|
|
|
(587
|
)
|
Income
(loss) from continuing operations before income taxes and equity in
earnings of equity-method investees
|
|
|
2,919
|
|
|
|
(10,345
|
)
|
|
|
(626
|
)
|
|
|
11,648
|
|
|
|
3,954
|
|
Income
tax provision (benefit)
|
|
|
(61
|
)
|
|
|
(221
|
)
|
|
|
665
|
|
|
|
(27
|
)
|
|
|
(82
|
)
|
Equity
in earnings of equity-method investees
|
|
|
96
|
|
|
|
971
|
|
|
|
805
|
|
|
|
775
|
|
|
|
980
|
|
Income
(loss) from continuing operations
|
|
|
3,076
|
|
|
|
(9,153
|
)
|
|
|
(486
|
)
|
|
|
12,450
|
|
|
|
5,016
|
|
Income
(loss) from discontinued operations, net of income taxes and gain on
disposal of $439 (2005)
|
|
|
273
|
|
|
|
634
|
|
|
|
658
|
|
|
|
(1,535
|
)
|
|
|
(1,775
|
)
|
Net
income (loss)
|
|
$
|
3,349
|
|
|
$
|
(8,519
|
)
|
|
$
|
172
|
|
|
$
|
10,915
|
|
|
$
|
3,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
0.17
|
|
|
$
|
(0.50
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.69
|
|
|
$
|
0.28
|
|
From
discontinued operations
|
|
|
0.01
|
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
(0.09
|
)
|
|
|
(0.10
|
)
|
Net
income (loss)
|
|
$
|
0.18
|
|
|
$
|
(0.46
|
)
|
|
$
|
0.01
|
|
|
$
|
0.60
|
|
|
$
|
0.18
|
|
Weighted
average shares outstanding
|
|
|
18,342
|
|
|
|
18,378
|
|
|
|
18,335
|
|
|
|
18,119
|
|
|
|
17,880
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
0.17
|
|
|
$
|
(0.50
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.68
|
|
|
$
|
0.28
|
|
From
discontinued operations
|
|
|
0.01
|
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
(0.09
|
)
|
|
|
(0.10
|
)
|
Net
income (loss)
|
|
$
|
0.18
|
|
|
$
|
(0.46
|
)
|
|
$
|
0.01
|
|
|
$
|
0.59
|
|
|
$
|
0.18
|
|
Weighted
average shares outstanding
|
|
|
18,353
|
|
|
|
18,378
|
|
|
|
18,470
|
|
|
|
18,357
|
|
|
|
18,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
$
|
380
|
|
|
$
|
2,177
|
|
|
$
|
1,995
|
|
|
$
|
1,410
|
|
|
$
|
786
|
|
Working
capital
|
|
$
|
24,662
|
|
|
$
|
20,762
|
|
|
$
|
25,347
|
|
|
$
|
24,216
|
|
|
$
|
12,967
|
|
Total
assets
|
|
$
|
80,795
|
|
|
$
|
91,377
|
|
|
$
|
96,706
|
|
|
$
|
132,821
|
|
|
$
|
98,230
|
|
Long-term
debt
|
|
$
|
959
|
|
|
$
|
3,678
|
|
|
$
|
4,512
|
|
|
$
|
7,631
|
|
|
$
|
11,400
|
|
Stockholders’
equity
|
|
$
|
52,596
|
|
|
$
|
49,984
|
|
|
$
|
58,400
|
|
|
$
|
57,845
|
|
|
$
|
45,167
|
|
Overview
Cavalier
Homes, Inc. and its subsidiaries produce and sell manufactured housing. Unless
otherwise indicated by the context, references to the terms “we,” “us,” “our,”
“Company,” or “Cavalier” include Cavalier Homes, Inc., its subsidiaries,
divisions of these subsidiaries and their respective predecessors, if any. 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.
The
steady decline in the number of homes sold in the manufactured housing industry
since 1999 continued in 2008. The crises in the credit markets and overall
economic conditions have created a very challenging environment in which we
operate. To address these issues, we reduced headcount and non-labor costs
across the Company to achieve positive operating results for the
year.
In 2007,
we entered into contracts, as amended, totaling approximately $31,100 to build
and deliver a total of 650 homes to the Mississippi Emergency Management Agency
(“MEMA”) under the Alternative Housing Pilot Program as part of that state's
ongoing efforts to provide permanent and semi-permanent housing for residents
displaced by Hurricane Katrina. We recorded revenue of $14,000 and $17,100 on
homes shipped during 2008 and 2007, respectively.
Recent
Developments
In
January 2009, we entered into a definitive agreement to sell our financial
services subsidiary, excluding installment contracts held for investment.
Retained assets will be transferred to a newly formed subsidiary. With the
completion of this sale, currently scheduled to close by March 1, 2009, we will
no longer purchase qualifying retail installment sales contracts for
manufactured homes, offer land/home and mortgage products, or sell commissioned
insurance products to retail purchasers of manufactured and modular homes. The
operating results for our financial services segment has been accounted for as
discontinued operations in the consolidated financial statements included in
this Annual Report. Cavalier now has one reportable segment: home
manufacturing.
In late
2008, the three primary national floor plan lenders announced plans to terminate
or significantly modify their floor plan programs to the manufactured housing
industry. These changes are expected to further restrict credit available to
dealers that purchase our products and, ultimately, to reduce the number of
homes purchased by retail home buyers from independent dealers. In 2009, we
expect to use some of our cash to provide financing under various floor plan
programs, including a program by one of the national floor plan lenders that
requires manufacturers to advance funds to that lender in consideration for that
lender providing financing to dealers to purchase our products. Future changes
in the credit markets for manufactured housing are uncertain at this time and
may continue to impact our industry in the upcoming year. See further discussion
in Item 1A. Risk Factors.
Industry/Company
Shipments and Market Share
Based on
information provided by MHI, wholesale floor shipments of HUD-Code homes were
down 77% cumulatively from the year ended December 31, 1999 through December 31,
2008 as shown by the data in the following table:
|
|
Floor
Shipments
|
|
|
|
Nationwide
|
|
|
Cavalier’s
Core 11 States
|
|
Year
|
|
Industry
|
|
|
Increase
(decrease) from prior
year
|
|
|
Cavalier
|
|
|
Increase
(decrease) from prior
year
|
|
|
Market
Share
|
|
|
Industry
|
|
|
Increase
(decrease) from prior
year
|
|
|
Cavalier
|
|
|
Increase
(decrease) from prior
year
|
|
|
Market
Share
|
|
1999
|
|
|
582,498
|
|
|
|
|
|
|
34,294
|
|
|
|
|
|
|
5.9
|
%
|
|
|
284,705
|
|
|
|
|
|
|
30,070
|
|
|
|
|
|
|
10.6
|
%
|
2000
|
|
|
431,787
|
|
|
|
(25.9
|
)%
|
|
|
18,590
|
|
|
|
(45.8
|
)%
|
|
|
4.3
|
%
|
|
|
199,276
|
|
|
|
(30.0
|
)%
|
|
|
15,941
|
|
|
|
(47.0
|
)%
|
|
|
8.0
|
%
|
2001
|
|
|
342,321
|
|
|
|
(20.7
|
)%
|
|
|
21,324
|
|
|
|
14.7
|
%
|
|
|
6.2
|
%
|
|
|
149,162
|
|
|
|
(25.1
|
)%
|
|
|
17,884
|
|
|
|
12.2
|
%
|
|
|
12.0
|
%
|
2002
|
|
|
304,370
|
|
|
|
(11.1
|
)%
|
|
|
21,703
|
|
|
|
1.8
|
%
|
|
|
7.1
|
%
|
|
|
124,127
|
|
|
|
(16.8
|
)%
|
|
|
18,039
|
|
|
|
0.9
|
%
|
|
|
14.5
|
%
|
2003
|
|
|
240,180
|
|
|
|
(21.1
|
)%
|
|
|
12,411
|
|
|
|
(42.8
|
)%
|
|
|
5.2
|
%
|
|
|
87,265
|
|
|
|
(29.7
|
)%
|
|
|
10,584
|
|
|
|
(41.3
|
)%
|
|
|
12.1
|
%
|
2004
|
|
|
232,824
|
|
|
|
(3.1
|
)%
|
|
|
10,772
|
|
|
|
(13.2
|
)%
|
|
|
4.6
|
%
|
|
|
88,958
|
|
|
|
1.9
|
%
|
|
|
8,912
|
|
|
|
(15.8
|
)%
|
|
|
10.0
|
%
|
2005
|
|
|
246,750
|
|
|
|
6.0
|
%
|
|
|
10,648
|
|
|
|
(1.2
|
)%
|
|
|
4.3
|
%
|
|
|
105,508
|
|
|
|
18.6
|
%
|
|
|
9,905
|
|
|
|
11.1
|
%
|
|
|
9.4
|
%
|
2006
|
|
|
206,822
|
|
|
|
(16.2
|
)%
|
|
|
8,261
|
|
|
|
(22.4
|
)%
|
|
|
4.0
|
%
|
|
|
86,748
|
|
|
|
(17.8
|
)%
|
|
|
7,774
|
|
|
|
(21.5
|
)%
|
|
|
9.0
|
%
|
2007
|
|
|
163,761
|
|
|
|
(20.8
|
)%
|
|
|
7,378
|
|
|
|
(10.7
|
)%
|
|
|
4.5
|
%
|
|
|
69,115
|
|
|
|
(20.3
|
)%
|
|
|
6,568
|
|
|
|
(15.5
|
)%
|
|
|
9.5
|
%
|
2008
|
|
|
135,338
|
|
|
|
(17.4
|
)%
|
|
|
6,076
|
|
|
|
(17.6
|
)%
|
|
|
4.5
|
%
|
|
|
58,145
|
|
|
|
(15.9
|
)%
|
|
|
5,789
|
|
|
|
(11.9
|
)%
|
|
|
10.0
|
%
|
During
2008, our floor shipments decreased 17.6% as compared to 2007, while industry
wide shipments decreased 17.4%, with our market share in 2008 remaining 4.5%. In
our core states, our market share in 2008 increased to 10.0% from 9.5% in
2007.
Industry
Finance Environment
A major
factor that impacts the manufactured housing industry is the availability of
credit and the tightening/relaxation of credit standards. The industry has been
impacted significantly by reduced financing available at both the wholesale and
retail levels, with several lenders exiting the marketplace or limiting their
participation in the industry. In late 2008, the three major national floor plan
lenders announced plans to discontinue or modify their programs, which will
negatively impact the amount of funds available to dealers in the manufactured
housing industry. The overall credit markets and financial institutions continue
to experience problems related to sub-prime mortgages and to macro economic
conditions. More restrictive credit standards will impact the ability of home
buyers to obtain financing and the downturn in the real estate markets have
increased home repossessions. We believe these factors have impacted the
manufactured housing industry, particularly modular housing. We believe a
meaningful expansion for our industry will be delayed until there is substantial
entry of finance resources to the manufactured housing market.
Raw
Materials Cost and Gross Margin
In 2008,
our gross margin increased in large part due to increases in our unit sale
prices to offset the increase in material costs as noted below, our efforts in
cost reduction initiatives, improvements in production efficiencies, and the
full benefit of the closure of two plants/manufacturing lines in the last half
of 2007. We experienced production inefficiencies in 2007 as a result of the
complex design and product specifications of the MEMA homes, which did not occur
in 2008. We also experienced significant increases in raw material costs in
2008, particularly with steel, steel-based products, and shingles, as well as
moderate increases in other material groups during the first half of the year.
Our ability to increase unit sales prices with escalating material costs allowed
us to improve gross margins during the last half of the year. Commodity prices
generally remained stable or moderately stable throughout the last half of the
year, and we are hopeful this trend will continue in 2009 unless another major
natural disaster or other disruption significantly increases the demand for
these materials. We expect pricing challenges on certain material groups in
2009. While we seek to offset rising costs through increasing our selling
prices, sudden increases in raw material costs, coupled with dealers’ order
backlogs, can affect the timing and our ability to pass on these cost increases.
We are uncertain at this time as to the impact increased costs will have on our
future revenue and earnings.
Capacity
and Overhead Cost
Our
plants operated at capacities ranging from 32% to 70% in 2008. We will continue
to monitor the relationship between demand and capacity and may take additional
steps to adjust our capacity or enhance our operations based on our views of the
industry and its general direction.
Outlook
We will
continue to focus on operating activities to improve manufacturing efficiencies,
increase gross margins, reduce costs overall, and improve liquidity. We believe
this internal focus was instrumental in the positive results we achieved in
2008. We also believe general economic issues, rising unemployment, and the
current credit and financial market crisis, all point to continuing weakness in
the manufactured housing market. In 2009, we expect to use some of our available
cash to provide inventory financing for dealers that purchase our products under
one or more programs. Further deterioration in overall economic conditions that
affect consumer purchases, availability of adequate financing sources, increases
in repossessions or dealer failures and increases in material prices could
affect our results of operations.
Results
of Operations
The
following table summarizes certain financial and operating data, including, as
applicable, the percentage of total revenue:
|
|
For
the Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
164,405
|
|
|
|
100.0
|
%
|
|
$
|
206,884
|
|
|
|
100.0
|
%
|
|
$
|
224,602
|
|
|
|
100.0
|
%
|
Cost
of sales
|
|
|
134,507
|
|
|
|
81.8
|
|
|
|
181,920
|
|
|
|
87.9
|
|
|
|
189,175
|
|
|
|
84.2
|
|
Gross
profit
|
|
|
29,898
|
|
|
|
18.2
|
|
|
|
24,964
|
|
|
|
12.1
|
|
|
|
35,427
|
|
|
|
15.8
|
|
Selling,
general and administrative
|
|
|
26,992
|
|
|
|
16.4
|
|
|
|
34,684
|
|
|
|
16.8
|
|
|
|
36,201
|
|
|
|
16.1
|
|
Restructuring
and impairment charges
|
|
|
--
|
|
|
|
--
|
|
|
|
267
|
|
|
|
0.1
|
|
|
|
--
|
|
|
|
--
|
|
Operating
income (loss)
|
|
|
2,906
|
|
|
|
1.8
|
|
|
|
(9,987
|
)
|
|
|
(4.8
|
)
|
|
|
(774
|
)
|
|
|
(0.3
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(488
|
)
|
|
|
(0.3
|
)
|
|
|
(672
|
)
|
|
|
(0.3
|
)
|
|
|
(1,150
|
)
|
|
|
(0.5
|
)
|
Other,
net
|
|
|
501
|
|
|
|
0.3
|
|
|
|
314
|
|
|
|
0.1
|
|
|
|
1,298
|
|
|
|
0.5
|
|
|
|
|
13
|
|
|
|
--
|
|
|
|
(358
|
)
|
|
|
(0.2
|
)
|
|
|
148
|
|
|
|
--
|
|
Income
(loss) before income taxes and equity in earnings of equity-method
investees
|
|
|
2,919
|
|
|
|
1.8
|
|
|
|
(10,345
|
)
|
|
|
(5.0
|
)
|
|
|
(626
|
)
|
|
|
(0.3
|
)
|
Income
tax provision (benefit)
|
|
|
(61
|
)
|
|
|
--
|
|
|
|
(221
|
)
|
|
|
(0.1
|
)
|
|
|
665
|
|
|
|
0.3
|
|
Equity
in earnings of equity-method investees
|
|
|
96
|
|
|
|
0.1
|
|
|
|
971
|
|
|
|
0.5
|
|
|
|
805
|
|
|
|
0.4
|
|
Income
(loss) from continuing operations
|
|
|
3,076
|
|
|
|
1.9
|
|
|
|
(9,153
|
)
|
|
|
(4.4
|
)
|
|
|
(486
|
)
|
|
|
(0.2
|
)
|
Income
from discontinued operations, net of income taxes
|
|
|
273
|
|
|
|
0.1
|
|
|
|
634
|
|
|
|
0.3
|
|
|
|
658
|
|
|
|
0.3
|
|
Net
income (loss)
|
|
$
|
3,349
|
|
|
|
2.0
|
%
|
|
$
|
(8,519
|
)
|
|
|
(4.1
|
)%
|
|
$
|
172
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
Operating
Summary Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor
shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUD-Code
|
|
|
6,076
|
|
|
|
96.0
|
%
|
|
|
7,378
|
|
|
|
91.0
|
%
|
|
|
8,261
|
|
|
|
90.8
|
%
|
Modular
|
|
|
253
|
|
|
|
4.0
|
|
|
|
729
|
|
|
|
9.0
|
|
|
|
840
|
|
|
|
9.2
|
|
Total
floor shipments
|
|
|
6,329
|
|
|
|
100.0
|
%
|
|
|
8,107
|
|
|
|
100.0
|
%
|
|
|
9,101
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
shipments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-section
|
|
|
1,566
|
|
|
|
39.8
|
%
|
|
|
1,460
|
|
|
|
30.7
|
%
|
|
|
1,669
|
|
|
|
31.2
|
%
|
Multi-section
|
|
|
2,372
|
|
|
|
60.2
|
|
|
|
3,300
|
|
|
|
69.3
|
|
|
|
3,678
|
|
|
|
68.8
|
|
Wholesale
home shipments
|
|
|
3,938
|
|
|
|
100.0
|
|
|
|
4,760
|
|
|
|
100.0
|
|
|
|
5,347
|
|
|
|
100.0
|
|
Shipments
to company-owned retail locations
|
|
|
(21
|
)
|
|
|
(0.5
|
)
|
|
|
(43
|
)
|
|
|
(0.9
|
)
|
|
|
(157
|
)
|
|
|
(2.9
|
)
|
MEMA/FEMA
shipments
|
|
|
(292
|
)
|
|
|
(7.4
|
)
|
|
|
(358
|
)
|
|
|
(7.5
|
)
|
|
|
(419
|
)
|
|
|
(7.8
|
)
|
Shipments
to independent retailers
|
|
|
3,625
|
|
|
|
92.1
|
%
|
|
|
4,359
|
|
|
|
91.6
|
%
|
|
|
4,771
|
|
|
|
89.3
|
%
|
Retail
home shipments
|
|
|
22
|
|
|
|
0.5
|
|
|
|
45
|
|
|
|
0.9
|
|
|
|
169
|
|
|
|
3.1
|
|
Home
shipments other than MEMA/FEMA
|
|
|
3,647
|
|
|
|
92.6
|
|
|
|
4,404
|
|
|
|
92.5
|
|
|
|
4,940
|
|
|
|
92.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
$
|
380
|
|
|
|
|
|
|
$
|
2,177
|
|
|
|
|
|
|
$
|
1,995
|
|
|
|
|
|
Home
manufacturing facilities (operating)
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
Independent
exclusive dealer locations
|
|
|
50
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
2008
Compared to 2007
Revenue
Total
revenue for 2008 was $164,405, decreasing $42,479, or 20.5%, from 2007 revenue
of $206,884. Wholesale home shipments were 3,938 in 2008 as compared to 4,760 in
2007, decreasing 17.3%, with floor shipments decreasing by 21.9%. Single-section
home shipments, as a percentage of total shipments, increased to 39.8% in 2008
from 30.7% in 2007. Home shipments in 2008 and 2007 included 292 and 358,
respectively, of single-section homes shipped to MEMA compared with 419
single-section homes shipped to FEMA in 2006 in support of hurricane disaster
relief. Our overall decline in sales is attributable to the decline in industry
wide wholesale home sales. Inventory of our product at all retail locations
decreased 22.9% to approximately $65,300 at December 31, 2008 from $84,700 at
December 31, 2007.
Gross
Profit
Gross
profit was $29,898 or 18.2% of total revenue for 2008, versus $24,964, or 12.1%
of total revenue in 2007. The $4,934 increase in gross profit and 610 basis
points increase in gross margin is due to a number of factors, including (i)
increases in our unit sales prices in the current year and the impact of product
sales mix, (ii) improvements in manufacturing efficiencies and
capacity
utilization, particularly during the last half of 2008, (iii) difficulties
associated with the manufacturing start-up of the MEMA products in 2007, which
did not recur in 2008, and (iv) the full benefit of the closure of two
plants/manufacturing lines in the last half of 2007, which reduced overall fixed
manufacturing costs. Our average wholesale sales price per unit in 2008
decreased to approximately $41,000 from $42,200 in 2007 due primarily to the
change in product mix, which reflects an increase in single-section homes and a
decline in multi-section homes in 2008. Excluding MEMA home shipments, our
average wholesale sales price per unit in 2008 decreased to approximately
$40,400 from $41,700 in 2007. We experienced price increases in 2008 compared to
the same period in 2007 in certain raw materials due primarily to higher oil
prices, which were offset by increases in our selling prices. With the
subsequent decline in oil prices, we received notifications from some suppliers
of price decreases in certain raw material components.
Selling,
General and Administrative
Selling,
general and administrative expenses (“SG&A”) for 2008 were $26,992, or 16.4%
of total revenue, versus $34,684 or 16.8% of total revenue in 2007, a decrease
of $7,692 or 22.2%. SG&A costs decreased between these periods as a result
of our continuing focus to reduce costs, including (i) lower advertising and
promotion costs, including show related expenses, totaling $1,884, (ii) a
decrease in salaries, wages and payroll benefits of $4,030, net of severance
costs that increased $130 between the two years, and (iii) a net decrease in
other SG&A expenses totaling $1,778 primarily as a result of overall
cost-control measures. Severance/termination charges were $708 and $578 in 2008
and 2007, respectively. Severance charges in 2008 included $519 related to the
termination of employment of our former President and Chief Executive Officer.
SG&A expenses included retrospective liability insurance credits of $403 and
$287 in 2008 and 2007, respectively.
Other
Income (Expense)
Interest
expense decreased in 2008 to $488 from $672 in 2007 due to lower levels of
outstanding debt. Long-term debt decreased in 2008 by $2,846 from $4,512 to
$1,666.
Other,
net is comprised primarily of interest income, which decreased $75 due to lower
interest rates on higher levels of invested cash balances. Other, net increased
$187 as a result of a $250 loss on the sale of net assets of two retail
locations in 2007, which did not occur in 2008.
Income
Tax Provision (Benefit)
We
recorded an income tax benefit from continuing operations of $61 in 2008 that
includes $87 for state income taxes payable by certain subsidiaries, $8 of
interest related to uncertain tax positions, and $3 for federal income taxes,
net of the tax provision of $159 allocated to discontinued operations. As of
December 31, 2008, we maintained a valuation allowance of $16,042 against our
deferred tax assets. The valuation allowance may be reversed to income in future
periods to the extent that the related deferred income tax assets are realized
or the valuation allowance is otherwise no longer needed. The net decrease in
the valuation allowance in 2008 relates primarily to the utilization of net
operating loss carryforwards.
We
recorded an income tax benefit from continuing operations of $221 in 2007 that
includes $66 for state income taxes payable by certain subsidiaries, $16 of
interest pursuant to the provisions of FIN 48, and $89 for federal income taxes,
net of the tax provision of $392 allocated to discontinued operations. As of
December 31, 2007, we maintained a valuation allowance of $17,783 against our
deferred tax assets.
Equity
in Earnings of Equity-Method Investees
Our
equity in earnings of equity-method investees was $96 for 2008 as compared to
$971 for 2007. The income for 2007 includes a gain of $123 on the sale of our
ownership interest in one of the equity-method investees (WoodPerfect, Ltd.) to
a joint venture partner.
Income
from discontinued operations, net of income taxes
In
November 2008, we announced our intent to sell our financial services
subsidiary, and subsequent to year-end, we entered into a stock purchase
agreement to sell this subsidiary, CIS Financial Services, Inc. (“CIS”), with an
expected closing date of March 1, 2009. As a result, we have accounted for the
operations of CIS as discontinued operations in the accompanying statements of
operations. Revenues from CIS totaled $2,844 (2008) and $3,697 (2007) and income
from discontinued operations was $273 (2008) and $634 (2007), net of a provision
for income taxes of $159 and $392, respectively. For 2008, we purchased
contracts of $32,328 and sold installment contracts totaling $39,845. For 2007,
we purchased contracts of $54,475 and sold installment contracts totaling
$53,004. We expect to record a gain on this sale during the first quarter of
2009.
Net
Income (Loss)
Our net
income for 2008 was $3,349, or $0.18 per diluted share, compared to a net loss
of $8,519, or $0.46 per diluted share, in 2007.
2007
Compared to 2006
Revenue
Total
revenue for 2007 was $206,884, decreasing $17,718, or 7.9%, from 2006 revenue of
$224,602. Home shipments from continuing operations were 4,760 in 2007 as
compared to 5,347 in 2006, decreasing 11.0%, with floor shipments decreasing by
10.9%. Single-section home shipments, as a percentage of total shipments,
decreased slightly to 30.7% in 2007 from 31.2% in 2006. Home shipments in 2007
included 358 single-section homes shipped to MEMA compared with 419
single-section homes shipped to FEMA in 2006 as part of that agency’s hurricane
disaster relief. Our overall decline in sales is attributable to the decline in
industry wide wholesale home sales. Inventory of our product at all retail
locations decreased 3.1% to approximately $84,700 at December 31, 2007 from
$87,400 at year end 2006.
Gross
Profit
Gross
profit was $24,964 or 11.1% of total revenue for 2007, versus $35,427, or 15.8%
of total revenue in 2006. The $10,463 decrease in gross profit and 470 basis
points decrease in gross margin is due to a number of factors, including (i)
production inefficiencies in early 2007 on new product introductions and the
manufacturing complexities we experienced on the MEMA homes, (ii) the decrease
in units sold, and (iii) increased raw material prices. Our average wholesale
sales price per unit in 2007 increased to approximately $42,200 from $41,000 in
2006 due primarily to higher selling prices on the MEMA homes. Excluding
MEMA/FEMA home shipments, our average wholesale sales price per unit in 2007
decreased to approximately $41,700 from $41,800 in 2006. We experienced pricing
pressure on all petrochemical-based raw materials in 2007 and other steel and
copper related raw materials also continued to increase on a monthly basis,
which negatively impacted gross profit. In general, commodity materials remained
stable throughout the year.
Selling,
General and Administrative
Selling,
general and administrative expenses (“SG&A”) during 2007 were $34,684, or
16.8% of total revenue, versus $36,201 or 16.1% of total revenue in 2006, a
decrease of $1,517 or 4.2%. We began detailed reviews in the last half of 2007
of our operating structure, manufacturing plants and spending. Two manufacturing
lines were closed (one line in Millen, Georgia at the end of the third quarter
and the Winfield, Alabama facility at the end of the fourth quarter). Personnel
headcount reductions, including early retirements, were implemented in December
2007 resulting in severance/termination charges totaling $578. The overall
decrease in SG&A included (1) a $1,710 decrease in salaries and employee
benefit costs (excluding the severance/termination charge), (2) a decrease of
$600 in advertising and sales promotions costs, primarily sales incentive
compensation, and (3) a decline in other general and administrative costs
totaling $825. These decreases were offset by an increase in general corporate
insurance of $1,025 due to a net decrease of $1,009 in retrospective liability
insurance credits.
Restructuring
and Impairment Charges
In
connection with the closure or consolidation of the two manufacturing lines
noted above, we recorded restructuring and impairment charges totaling $267 in
2007. Of this amount, restructuring charges of $176 relate to one-time employee
benefits recorded for employee terminations and impairment charges of $91 relate
to the write-down of idled equipment.
Other
Income (Expense)
Interest
expense decreased in 2007 to $672 from $1,150 in 2006 primarily due to lower
levels of borrowings. Additional principal payments during 2006 from proceeds of
sales of certain properties contributed to the overall decrease in interest
expense. Long-term debt decreased in 2007 by $1,226 from $5,738 to
$4,512.
Other,
net is comprised primarily of interest income and gains related to cost-method
investments. Other, net decreased $984 due to a decrease in interest income
earned in 2007 of $346 on lower invested cash balances, a decrease in gains on
cost-method investments of $388, and a loss of $250 on the sale of net assets of
two retail locations on March 30, 2007.
Income
Tax Provision (Benefit)
We
adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes
, (“FIN 48”) on January 1, 2007. As a result of the implementation
of FIN 48, we recognized an increase in the liability for unrecognized income
taxes payable of approximately $192, which was accounted for as a decrease to
the January 1, 2007 balance of retained earnings.
We
recorded an income tax benefit from continuing operations of $221 in 2007 that
includes $66 for state income taxes payable by certain subsidiaries, $16 of
interest pursuant to the provisions of FIN 48, and $89 for federal income taxes,
net of the tax provision of $392 allocated to discontinued operations. As of
December 31, 2007, we maintained a valuation allowance of $17,783 against our
deferred tax assets.
In 2006,
we recorded an income tax provision from continuing operations of $665, which
included (1) a federal income tax benefit totaling $351 for carry back of the
2006 net operating loss to 2005, (2) state income taxes payable of $71, (3)
additional state income tax payable of $225 related to a state audit that
occurred in 2006, reduced by $153 accrued in a prior year, (4) an increase in
the valuation allowance for deferred tax assets of $927, and (5) a deferred
income tax provision of $387 for normal operating activities, including
adjustments to state tax net operating loss carryforwards, net of the tax
provision of $355 allocated to discontinued operations.
Equity
in Earnings of Equity-Method Investees
Our
equity in earnings of equity-method investees was $971 for 2007 as compared to
$805 for 2006. The income for 2007 includes a gain of $123 on the sale of our
ownership interest in one of the equity-method investees (WoodPerfect, Ltd.) to
a joint venture partner. See Note 13 to Notes to Consolidated Financial
Statements for further discussion.
Income
from discontinued operations, net of income taxes
Revenue
from discontinued operations increased for 2007 to $3,697 compared to $3,335 in
2006, and income from discontinued operations was $634 (2007) and $658 (2006),
net of a provision for income taxes of $392 and $355, respectively. For 2007, we
purchased contracts of $54,475 and sold installment contracts totaling $53,004.
For 2006, we purchased contracts of $42,916 and sold installment contracts
totaling $44,589.
Net
Income (Loss)
Our net
loss for 2007 was $8,519, or $0.46 per diluted share, compared to net income of
$172, or $0.01 per diluted share, in 2006.
Liquidity
and Capital Resources
|
|
As
of December 31,
|
|
|
2008
|
|
2007
|
|
2006
|
Cash,
cash equivalents, and certificates of deposit
|
|
$
|
31,198
|
|
|
$
|
22,043
|
|
|
$
|
25,967
|
|
Working
capital
|
|
$
|
24,662
|
|
|
$
|
20,906
|
|
|
$
|
25,347
|
|
Current
ratio
|
|
|
1.9
to 1
|
|
|
|
1.6
to 1
|
|
|
|
1.8
to 1
|
|
Long-term
debt
|
|
$
|
959
|
|
|
$
|
3,678
|
|
|
$
|
4,512
|
|
Ratio
of long-term debt to equity
|
|
|
<
0.1 to 1
|
|
|
|
0.1
to 1
|
|
|
|
0.1
to 1
|
|
Installment
loan portfolio
|
|
$
|
3,543
|
|
|
$
|
9,844
|
|
|
$
|
12,265
|
|
2008
Cash
increased $9,155 to $31,198 at December 31, 2008 from $22,043 at December 31,
2007. Cash flows from discontinued operations have not been separately disclosed
in the statement of cash flows. Operating activities provided net cash of
$8,552, including $5,187 from discontinued operations, primarily due to the
following:
(a)
|
a
total of $5,887 due to net income excluding certain non-cash items,
including depreciation, provision for credit and accounts receivable
losses, stock-based compensation, gain on disposal of property, plant and
equipment, and other, net (equity in earnings of equity-method
investees),
|
(b)
|
a
decrease in inventory totaling $5,184,
and
|
(c) the
net sale of installment contracts purchased for resale of $3,623,
(d)
|
offset
by an increase in accounts receivable of $(373),
and
|
(e)
|
decreases
in accounts payable ($2,057), amounts payable under dealer incentive
programs ($841), accrued compensation and related withholdings ($359), and
other assets and liabilities ($2,550), which generally represent timing
differences in payments.
|
Capital
expenditures were $351 during 2008 primarily for normal property, plant and
equipment additions. We used $600 of cash related to notes and installment
contracts purchased for investments. Proceeds from the sale of property, plant
and equipment totaled $109. Cash provided by other investing activities
represents cash distributions from equity method investees of $231 and cash
received on the surrender of life insurance policies totaling $223.
The
decrease in long-term debt for 2008 was due to scheduled and additional
principal payments totaling $2,875. Net repayments under our retail floor plan
agreement were $257 in 2008. As of December 31, 2008, $253 was outstanding under
the retail floor plan agreement. Cash used to purchase treasury stock totaled
$931.
Working
capital at year end increased by $3,756 to $24,662.
The
decrease in the installment loan portfolio at December 31, 2008 is due to our
decision to reduce the level of loans held for investment and the impact of a
general decline in the economy. With the anticipated sale of the financial
services subsidiary in March 2009, we will no longer purchase installment
contracts. However, we will retain installment contracts held for investment
with a net book value of $1,661 at December 31, 2008.
2007
Cash
decreased $3,924 to $22,043 at December 31, 2007 from $25,967 at December 31,
2006. Operating activities related to discontinued operations provided cash of
$57 in 2007. Operating activities used net cash of $6,035 primarily due
to:
(a)
|
a
total of $6,278 due to the net loss excluding certain non-cash items,
including depreciation, provision for credit and accounts receivable
losses, stock-based compensation, loss on disposal of property, plant and
equipment, impairment charge and other, net (equity in earnings of
equity-method investees),
|
(b)
|
an
increase in accounts receivable of $723 due primarily to outstanding MEMA
invoices at year-end,
|
(c)
|
an
increase in inventory, net of the impact from the sale of two retail
locations in March 2007 totaling $522,
and
|
(d) the
net purchase of installment contracts of $506,
(e)
|
offset
by increases in accounts payable ($972), amounts payable under dealer
incentive programs ($578), accrued compensation and related withholdings
($155), and other assets and liabilities ($666), which generally represent
timing differences in payments.
|
Our
capital expenditures were $2,177 during 2007 primarily for normal property,
plant and equipment additions and replacements, including additions to improve
safety. The additions also include amounts under programs at one of our plants
to provide improved manufacturing techniques for modular products and to
increase overall productivity. We used $1,145 of cash related to notes and
installment contracts purchased for investments. Proceeds from the sale of
property, plant and equipment totaled $71. Cash provided by other investing
activities represents cash distributions from equity method investees of $784
and net proceeds from the sale of one equity-method investment of
$3,012.
The
decrease in long-term debt for 2007 was due to scheduled principal payments of
$1,226. Borrowings under our retail floor plan agreement were $1,200 in 2007. A
total of $1,793 outstanding under the retail floor plan agreement as of March
30, 2007 was assumed by the purchaser of two Alabama retail sales centers. As of
December 31, 2007, $510 was outstanding under the retail floor plan agreement.
Proceeds of stock options exercised generated cash of $50 in 2007.
Working
capital at year end decreased by $4,441 to $20,906.
The
decrease in the installment loan portfolio at December 31, 2007 is primarily
from our decision to reduce the level of loans held for investment. On December
31, 2007, we completed the sale of $2,320 of this investment with cash received
in early January 2008.
2006
Cash
increased $11,588 to $25,967 at December 31, 2006 from $14,379 at December 31,
2005. Operating activities related to discontinued operations provided cash of
$1,225 in 2006. Operating activities provided net cash of $32,314 primarily due
to:
(a)
|
a
decrease in accounts receivable of $37,554 from collection of receivables
related to FEMA disaster relief
homes,
|
(b)
|
an
inventory decrease of $5,048, which represents finished homes we delivered
in early 2006 to FEMA, and
|
(c)
|
the
net purchase of installment contracts of
$1,925,
|
(d)
|
offset
by decreases in accounts payable ($4,073), amounts payable under dealer
incentive programs ($4,046), accrued compensation and related withholdings
($3,456), and other assets and liabilities ($3,505), all of which
decreased primarily as a result of the FEMA activity at the end of 2005
that did not recur in 2006.
|
Our
capital expenditures were $1,995 during 2006 primarily for normal property,
plant and equipment additions and replacements as well as capital expenditures
incurred in conjunction with reopening the Winfield, Alabama facility in 2005.
Additionally, we had $1,555 of proceeds from the sale of property, plant and
equipment, including the sale of a previously leased facility in Adrian,
Georgia. Cash provided by other investing activities represents cash
distributions from equity method investees of $622 and proceeds from the sale of
stock of a cost method investment totaling $495.
The
$17,750 we borrowed in the fourth quarter of 2005 under our revolving line of
credit to fund short term cash needs related to FEMA home shipments was repaid
in full in the first quarter of 2006. The decrease in long-term debt for 2006
was due to scheduled principal payments of $1,493 and $1,898 of additional
principal payments using proceeds from the property sale transaction mentioned
above. The borrowings under our retail floor plan agreement decreased $887 to
$1,103 at December 31, 2006. Proceeds of stock options exercised generated cash
of $148 in 2006.
Working
capital at year end increased by $1,131 to $25,347.
The
decrease in the installment loan portfolio at December 31, 2006 is primarily
from sales of loans outstanding as of December 31, 2005, including land/home
loans. Included in the installment loan portfolio at December 31, 2006 was
$5,457 of land/home loans. At December 31, 2005, the Company had $6,972
land/home loans in its portfolio.
General
Liquidity and Debt Agreements
Historically,
we have funded our operating activities with cash flows from operations
supplemented by available cash on hand and, when necessary, funds from our
Credit Facility. During the industry downturn, we benefited from the proceeds
from sales of idle facilities as a replacement source of funds due to net
operating losses. Currently, we have two previously idled facilities that are
being marketed for sale. We completed the sale of one of these facilities on
February 13, 2009 for a gross purchase price of $2,975 to be paid in cash at
closing, and the gain on the sale of this facility will be recorded in the first
quarter of 2009. However, we cannot predict when or at what amount the remaining
facility will ultimately be sold.
We have a
credit agreement with our primary lender (the “Credit Facility”), which has been
amended from time to time with a current maturity date of April 2009. The Credit
Facility is comprised of (i) a revolving line of credit that provides for
borrowings (including letters of credit) up to $17,500 and (ii) a real estate
term loan, which are cross-secured and cross-defaulted. No amounts were
outstanding under the revolving line of credit as of December 31, 2008 or
December 31, 2007.
The
amount available under the revolving line of credit is equal to the lesser of
(i) $17,500 or (ii) an amount based on defined percentages of accounts and notes
receivable and inventories reduced by the sum of $2,500 and any outstanding
letters of credits. At December 31, 2008, $2,585 was available under the
revolving line of credit after deducting letters of credit of
$3,773.
The
applicable interest rates under the revolving line of credit are based on
certain levels of tangible net worth as noted in the following table. Tangible
net worth at December 31, 2008 was $52,595.
Tangible
Net Worth
|
|
Interest
Rate
|
above
$62,000
|
|
Prime
less 0.50%
|
$62,000
–
$56,500
|
|
Prime
|
$56,500
–
$38,000
|
|
Prime
plus 0.75%
|
below
$38,000
|
|
Prime
plus 1.25%
|
The
bank’s prime rate was 3.25% and 7.25% at December 31, 2008 and December 31,
2007, respectively.
The real
estate term loan agreement contained in the Credit Facility provided for initial
borrowings of $10,000, of which $490 and $2,737 was outstanding on December 31,
2008 and December 31, 2007, respectively. Interest on the term note is fixed for
a period of five years from September 2008 at 7.0% and may be adjusted in
September 2013.
The
Credit Facility contains certain restrictive and financial covenants which,
among other things, limit our ability without the lender’s consent to (i) make
dividend payments and purchases of treasury stock in an aggregate amount which
exceeds 50% of consolidated net income for the two most recent years, (ii)
mortgage or pledge assets which exceed in the aggregate $1,000, (iii) incur
additional indebtedness, including lease obligations, which exceed in the
aggregate $1,000, excluding floor plan notes payable which cannot exceed $3,000
and (iv) make annual capital expenditures in excess of $5,000. In addition, the
Credit Facility contains certain financial covenants requiring us (i) to
maintain on a consolidated basis certain defined levels of liabilities to
tangible net worth ratio (not to exceed 1.5 to 1), (ii) to maintain a current
ratio, as defined, of at least 1.1 to 1, (iii) maintain minimum cash and cash
equivalents of $5,000, (iv) achieve an annual cash flow to debt service ratio of
not less than 1.35 to 1 for the year ended December 31, 2008, and (v) achieve an
annual minimum profitability of $100. The Credit Facility also requires CIS to
comply with certain specified restrictions and financial covenants. At December
31, 2008, we were in compliance with our debt covenants. In November 2008, the
lender granted us a waiver to purchase treasury stock totaling
$931.
We have
two Industrial Development Revenue Bond issues (“Bonds”) with outstanding
amounts totaling $1,155 and $1,775 at December 31, 2008 and December 31, 2007,
respectively. One bond issue bearing interest at 5.25% will mature in April
2009. The second bond issue with annual installments payable through 2013
provides for monthly interest payable at a variable rate currently at 1.80% as
determined by a remarketing agent. The real estate term loan and the Bonds are
collateralized by substantially all of our plant facilities and
equipment.
We had
$253 and $510 of notes payable under a retail floor plan agreement at December
31, 2008 and December 31, 2007, respectively. The notes are collateralized by
certain retail new home inventories and bear interest rates ranging from prime
to prime plus 2.5% but not less than 6% based on the age of the
home.
We
entered into a capital lease transaction during 2008 related to machinery and
equipment we acquired with an initial cost of $29. At December 31, 2008, $21 was
outstanding under the capital lease obligation.
In prior
years, CIS primarily purchased installment contracts for resale with the amount
of such loans it could purchase limited based on underwriting standards, as well
as the availability of working capital and funds borrowed under its credit line
with its primary lender. With the completion of the sale of CIS, currently
anticipated on or before March 1, 2009, we will no longer purchase installment
contracts.
We
believe existing cash and funds available under the Credit Facility, together
with cash provided by operations, will be adequate to fund our operations and
plans for the next twelve months. If it is not, or if we are unable to remain in
compliance with our covenants under our Credit Facility, we would seek to
maintain or enhance our liquidity position and capital resources through
modifications to or waivers under the Credit Facility, incurrence of additional
short or long-term indebtedness or other forms of financing, asset sales,
restructuring of debt, and/or the sale of equity or debt securities in public or
private transactions, the availability and terms of which will depend on various
factors and market and other conditions, some of which are beyond our
control.
Cash to
be provided by operations in the coming year is largely dependent on sales
volume. Our manufactured homes are sold mainly through independent dealers who
generally rely on third-party lenders to provide floor plan financing for homes
purchased. In addition, third-party lenders generally provide consumer financing
for manufactured home purchases. Our sales depend in large part on the
availability and cost of financing for manufactured home purchasers and dealers
as well as our own retail location. The availability and cost of such financing
is further dependent on the number of financial institutions participating in
the industry, the departure of financial institutions from the industry, the
financial institutions’ lending practices, the strength of the credit markets in
general, governmental policies, and other conditions, all of which are beyond
our control. Throughout the past nine years the industry has been impacted
significantly by reduced financing available at both the wholesale and retail
levels, with several lenders exiting the marketplace or limiting their
participation in the industry, coupled with more restrictive credit standards
and increased home repossessions which re-enter home distribution channels and
limit wholesale shipments of new homes. This tightening of credit standards
continued in 2008 as a response to the crisis in the credit markets and resulted
in changes by the national floor plan lenders to modify terms of their program
offerings or to curtail funds available for these programs. We expect these
changes to further limit financing available to independent dealers and end
consumers, which may further reduce manufactured home sales. We are currently
exploring various alternatives to the current crisis in wholesale floor plan
lending for our independent dealers to enable them to purchase our products.
Some of these alternatives may require the use of our cash and we may incur
additional debt. Additional unfavorable changes in these factors and terms of
financing in the industry may have a material adverse effect on our results of
operations or financial condition.
Off-Balance
Sheet Arrangements
Our
material off-balance sheet arrangements consist of repurchase obligations and
letters of credit. Each of these arrangements is discussed below under
Contractual Obligations and Commitments.
Contractual
Obligations and Commitments
(dollars in
thousands)
The
following table summarizes our contractual obligations at December 31, 2008. For
additional information related to these obligations, see Notes 7 and 12 of Notes
to Consolidated Financial Statements. This table excludes long-term obligations
for which there is no definite commitment period. Our debt consists primarily of
fixed rate debt. However, there is one bond that has a variable interest rate.
We estimated the interest payments due for this bond using 1.80%, the applicable
rate at December 31, 2008. We do not have any contractual purchase obligations,
and historically, have not entered into contracts committing us to purchase
specified quantities of materials or equipment.
|
|
Payments
Due by Period
|
Description
(a)
|
|
Total
|
|
Less
than 1 year
|
|
1-3
years
|
|
4-5
years
|
|
After
5 years
|
Industrial
development revenue bond issues
|
|
$
|
1,155
|
|
|
$
|
655
|
|
|
$
|
365
|
|
|
$
|
135
|
|
|
$
|
--
|
|
Real
estate term loan
|
|
|
490
|
|
|
|
42
|
|
|
|
145
|
|
|
|
115
|
|
|
|
188
|
|
Capital
lease obligation
|
|
|
21
|
|
|
|
10
|
|
|
|
11
|
|
|
|
--
|
|
|
|
--
|
|
Interest
|
|
|
209
|
|
|
|
57
|
|
|
|
96
|
|
|
|
36
|
|
|
|
20
|
|
Operating
lease obligations
|
|
|
324
|
|
|
|
310
|
|
|
|
14
|
|
|
|
--
|
|
|
|
--
|
|
Total
contractual cash obligations
|
|
$
|
2,199
|
|
|
$
|
1,074
|
|
|
$
|
631
|
|
|
$
|
286
|
|
|
$
|
208
|
|
(a)
|
The
liability for uncertain tax positions, which totaled $255 at December 31,
2008, has been excluded from the above table because we are unable to
determine the periods in which these liabilities will be
paid.
|
The
following table summarizes our contingent commitments at December 31, 2008,
including contingent repurchase obligations and letters of credit. For
additional information related to these contingent obligations, see Note 12 of
Notes to Consolidated Financial Statements and Critical Accounting Estimates
below. Contingent insurance plans’ retrospective premium adjustments are
excluded from this table as there is no definite expiration period (see Critical
Accounting Estimates below).
|
|
Payments
Due by Period
|
|
|
Total
|
|
Less
than 1 year
|
|
1-3
years
|
|
4-5
years
|
|
After
5 years
|
Repurchase
obligations (1)
|
|
$
|
45,000
|
|
|
$
|
12,100
|
|
|
$
|
32,900
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Letters
of credit (2)
|
|
|
3,773
|
|
|
|
3,773
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Total
commitments
|
|
$
|
48,773
|
|
|
$
|
15,873
|
|
|
$
|
32,900
|
|
|
$
|
--
|
|
|
$
|
--
|
|
(1)
|
For
a complete description of the contingent repurchase obligation, see
Critical Accounting Estimates – Reserve for Repurchase Commitments.
Although the commitments outstanding at December 31, 2008 have a finite
life, these commitments are continually replaced as we continue to sell
our manufactured homes to dealers under repurchase and other recourse
agreements with lending institutions which have provided wholesale floor
plan financing to dealers. The cost (net recoveries) of these contingent
repurchase obligations to us was $126 (2008), $(181) (2007) and $430
(2006). We have a reserve for repurchase commitments of $1,141 (2008) and
$1,131 (2007) based on prior experience and an evaluation of dealers’
current financial conditions.
|
(2)
|
We
have provided letters of credit to providers of certain of our surety
bonds and insurance policies. While the current letters of credit have a
finite life, they are subject to renewal at different amounts based on the
requirements of the insurance carriers. The outstanding letters of credit
reduce amounts available under our Credit Facility. We have recorded
insurance expense based on anticipated losses related to these
policies.
|
Critical
Accounting Estimates
We follow
certain significant accounting policies when preparing our consolidated
financial statements as summarized in Note 1 of Notes to Consolidated Financial
Statements. The preparation of our financial statements in conformity with U.S.
generally accepted accounting principles requires us to make estimates and
assumptions that affect the amounts reported in the financial statements and
notes. We evaluate these estimates and assumptions on an ongoing basis and use
historical experience factors, current economic conditions and various other
assumptions that we believe are reasonable under the circumstances. The results
of these estimates form the basis for making judgments about the carrying values
of assets and liabilities as well as identifying
the
accounting treatment with respect to commitments and contingencies. Actual
results could differ from these estimates under different assumptions or
conditions. The following is a list of the accounting policies that we believe
are most important to the portrayal of our financial condition and results of
operations that require our most difficult, complex or subjective judgments as a
result of the need to make estimates about the effect of matters that are
inherently uncertain.
Product
Warranties
We
provide the initial retail homebuyer a one-year limited warranty covering
defects in material or workmanship in home structure, plumbing and electrical
systems. We record a liability for estimated future warranty costs relating to
homes sold, based upon our assessment of historical experience factors and
current industry trends. Factors we use in the estimation of the warranty
liability include historical sales amounts and warranty costs related to homes
sold and any outstanding service work orders. We have a reserve for estimated
warranties of $10,100 (2008) and $11,720 (2007). Although we maintain reserves
for such claims, based on our assessments as described above, which to date have
been adequate, there can be no assurance that warranty expense levels will
remain at current levels or that such reserves will continue to be adequate. A
large number of warranty claims or per claim costs exceeding our current
warranty expense levels could have a material adverse effect on our results of
operations.
Insurance
Our
workers’ compensation, product liability and general liability insurance
coverages are generally provided under incurred loss, retrospectively rated
premium plans. Under these plans, we incur 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 actuarial data is available.
We were contingently liable at December 31, 2008 for future retrospective
premium adjustments and recorded an estimated liability of approximately $4,079
(2008) and $4,274 (2007) related to these contingent claims. Claims exceeding
our current expense levels could have a material adverse effect on our results
of operations.
Reserve
for Repurchase Commitments
Manufactured
housing companies customarily enter into repurchase agreements with lending
institutions, which provide wholesale floor plan financing to dealers. A
majority of our sales are made to dealers located primarily in the South Central
and South Atlantic regions of the United States pursuant to repurchase
agreements with lending institutions. These agreements generally provide that we
will repurchase our new products from the lending institutions in the event of
dealer default. Our risk of loss under repurchase agreements is reduced by the
following factors: (1) sales of our manufactured homes are spread over a
relatively large number of independent dealers, the largest of which accounted
for approximately 10.1% of sales in 2008, excluding MEMA -related sales; (2) the
price that we are obligated to pay under such repurchase agreements declines
based on predetermined amounts over the period of the agreement (generally 9 to
24 months); and (3) we historically have been able to resell homes repurchased
from lenders.
We apply
FASB Interpretation (“FIN”) No. 45,
Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57, and 107
and a rescission of FASB Interpretation No. 34
and SFAS No. 5,
Accounting for Contingencies
,
to account for our liability for repurchase commitments. Under the provisions of
FIN 45, issuance of a guarantee results in two different types of obligations:
(1) a non-contingent obligation to stand ready to perform under the repurchase
commitment (accounted for pursuant to FIN 45) and (2) a contingent obligation to
make future payments under the conditions of the repurchase commitment
(accounted for pursuant to SFAS No. 5). We review the retail dealers’ inventory
to estimate the amount of inventory subject to repurchase obligation which is
used to calculate (1) the fair value of the non-contingent obligation for
repurchase commitments and (2) the contingent liability based on historical
information available at the time. During the period in which a home is sold
(inception of a repurchase commitment), we record the greater of these two
calculations as a liability for repurchase commitments and as a reduction to
revenue.
(1)
|
We
estimate the fair value of the non-contingent portion of our
manufacturer’s inventory repurchase commitment under the provisions of FIN
45 when a home is shipped to dealers whose floor plan financing includes
our repurchase commitment. The fair value of the inventory repurchase
agreement has been estimated on a “pooled dealer” approach based on the
creditworthiness of the independent dealers, as determined by the floor
plan institution, and is derived using an income approach. Specifically,
the fair value of the inventory repurchase agreement is determined by
calculating the net present value of the difference in (a) the interest
cost to carry the inventory over the maximum repurchase liability period
at the prevailing floor plan note interest rate and (b) the interest cost
to carry the inventory over the maximum repurchase liability period at the
interest rate of a similar type loan without a manufacturer’s repurchase
agreement in force.
|
(2)
|
We
estimate the contingent obligation to make future payments under our
manufacturer’s inventory repurchase commitment for the same pool of
commitments as used in the fair value calculation above and record the
greater of the two calculations. This SFAS No. 5 contingent obligation is
estimated using historical loss factors, including the frequency of
repurchases and the losses we experienced for repurchased
inventory.
|
Additionally,
subsequent to the inception of the repurchase commitment, we evaluate the
likelihood that we will be called on to perform under the inventory repurchase
commitments. If it becomes probable that a dealer will default and a SFAS No. 5
loss reserve should be recorded, then such contingent liability is recorded
equal to the estimated loss on repurchase. Based on identified changes in
dealers’ financial conditions, we evaluate the probability of default for the
group of dealers who are identified at an elevated risk of default and apply a
probability of default to the group, based on historical default rates. In this
default probability evaluation, we review repurchase notifications received from
floor plan sources and review our dealer inventory for expected repurchase
notifications based on various communications from the lenders and the dealers
as well as for dealers who, we believe, are experiencing financial difficulty.
Our repurchase commitments for the dealers in the category of elevated risk of
default are excluded from the pool of commitments used in both of the
calculations at (1) and (2) above. Changes in the reserve are recorded as an
adjustment to revenue.
Following
the inception of the commitment, the recorded reserve is reduced over the
repurchase period and is eliminated on the earlier of the date the dealer sells
the home or the commitment expires. The maximum amount for which we are
contingently liable under repurchase agreements approximated $45,000 and $61,000
at December 31, 2008 and 2007, respectively. We have a reserve for repurchase
commitments of $1,141 (2008) and $1,131 (2007).
Changes
in the level of retail inventories in the manufactured housing industry, either
up or down, can have a significant impact on our operating results. The
deterioration in the availability of retail financing experienced in recent
years, along with significant competition from repossessed homes, extended the
inventory adjustment period for excess industry retail inventory levels beyond
what was originally expected. If these trends were to continue, or if retail
demand were to significantly weaken, the inventory overhang could result in even
greater intense price competition, cause further pressure on profit margins
within the industry, and have a material adverse effect on us. The inventory of
Cavalier manufactured homes at all retail locations decreased 22.9% in 2008 from
2007 and 3.1% in 2007 from 2006. The changes in retail inventory, and
corresponding changes in repurchase commitments, have been impacted in the last
several years by the leveling of retail inventory with demand.
Impairment
of Long-Lived Assets
As
discussed above, the manufactured housing industry has experienced an overall
market decline since the latter part of 1999. Due to the overall reduction in
units sold, we have idled, closed or sold manufactured housing facilities, a
portion of our insurance and premium finance business, a portion of our supply
operations and under-performing retail locations. We periodically evaluate the
carrying value of long-lived assets to be held and used when events and
circumstances warrant such a review. The carrying value of long-lived assets is
considered impaired when the anticipated undiscounted cash flow from such assets
is less than our carrying value. In that event, a loss is recognized based on
the amount by which the carrying value exceeds the fair market value of the
long-lived assets. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
Losses on long-lived assets to be disposed of are determined in a similar
manner, except that the fair market values are based primarily on independent
appraisals and preliminary or definitive contractual arrangements less costs to
dispose. We recorded impairment charges totaling $91 in 2007 based on our
estimates of fair values for certain equipment idled in connection with the
closing of the Winfield, Alabama facility.
Deferred
Tax Asset
Realization
of deferred tax assets (net of recorded valuation allowances) is largely
dependent upon future profitable operations and future reversals of existing
taxable temporary differences. We have reviewed information available to us,
including the decline in industry home shipments, anticipated operating results,
scheduled reversals of deferred tax liabilities, tax planning strategies, and
our view of industry conditions. Based on these evaluations, we have established
a full valuation allowance against our deferred tax assets under the standards
of SFAS No. 109. We will continue to evaluate the need for a valuation allowance
in the future, which may be reversed to income in future periods to the extent
that the related deferred income tax assets are realized or the valuation
allowances are otherwise no longer required. As of December 31, 2008, we
maintained a valuation allowance of $16,042.
Related
Party Transactions
We
purchased raw materials of approximately $11,564, $14,474, and $14,968 from MSR
Forest Products, LLC during 2008, 2007 and 2006, respectively, which is a
company in which we own a minority interest.
We
recorded net income of investees accounted for by the equity method of $96,
$971, and $805 for the years ended December 31, 2008, 2007, and 2006,
respectively.
We used
the services of a law firm, Lowe, Mobley & Lowe, a partner of which, Mr.
John W Lowe, is a former director. We paid legal fees to this firm of $237
(2008), $212 (2007), and $292 (2006).
Impact
of Inflation
We
generally have been able to increase our selling prices to offset increased
costs, including the costs of raw materials. However, as the number of units
shipped by the manufactured housing industry continues to decline, downward
pressures on selling prices may not allow us to increase our selling prices to
cover any increases in costs. Sudden increases in costs as well as price
competition, however, can affect our ability to increase our selling prices. We
believe that the relatively moderate rate of inflation over the past several
years has not had a significant impact on our sales or profitability, but can
give no assurance that this trend will continue in the future.
Recently
Issued Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157,
Fair Value
Measurements
, which defines fair value, establishes guidelines for
measuring fair value and expands disclosures regarding fair value measurements.
SFAS No. 157 does not require any new fair value measurements but rather
eliminates inconsistencies in guidance found in various prior accounting
pronouncements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. In February 2008, the FASB issued FASB Staff Position
No. FAS 157-2,
Effective Date
of FASB Statement No. 157.
This FSP permits the delayed application of
SFAS No. 157 for all non-recurring fair value measurements of non-financial
assets and non-financial liabilities until fiscal years beginning after November
15, 2008. We adopted SFAS No. 157 in the first quarter of 2008 for all financial
assets and financial liabilities with no material impact on our consolidated
statements of operations or financial condition. No assets or liabilities are
measured at fair value in the accompanying consolidated balance sheets. For
disclosure purposes, we estimated the fair value of our installment contracts
receivable as of December 31, 2008 at $3,010 using Level 3 inputs as defined in
SFAS No. 157. In general, these inputs were based on the actual sales prices we
received from the sale of comparable installment contracts and the underlying
collateral value on certain loans based on appraisals, when available, or
industry price guides for used manufactured housing.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business Combinations
(“SFAS
No. 141R”) and SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements
(“SFAS No. 160”). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No.
141R also establishes disclosure requirements to enable the evaluation of the
nature and financial effects of the business combination. SFAS No. 160 amends
ARB No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also amends certain of ARB No. 51’s consolidation procedures for
consistency with the requirements of SFAS No. 141R. SFAS No. 141R and SFAS No.
160 are effective for fiscal years beginning on or after December 15, 2008. We
do not expect the adoption of these statements to materially impact our
consolidated financial position or results of operations directly when they
become effective. Adoption of these statements is, however, expected to have a
significant effect on how acquisition transactions subsequent to January 1,
2009, if any, are reflected in our financial statements.
In May
2008, the FASB issued SFAS No. 162,
Hierarchy of Generally Accepted
Accounting Principles
(“SFAS No. 162”). This statement is intended to
improve financial reporting by identifying a consistent framework, or hierarchy,
for selecting accounting principles to be used in preparing financial statements
of nongovernmental entities that are presented in conformity with GAAP. This
statement will be effective 60 days following the U.S. Securities and Exchange
Commission’s approval of the Public Company Accounting Oversight Board amendment
to AU Section 411,
The Meaning
of Present Fairly in Conformity with Generally Accepted Accounting
Principles
. We believe that SFAS No. 162 will have no effect on our
financial statements.
In June
2008, the FASB issued FASB Staff Position Emerging Issues Task Force 03-6-1,
“
Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities
” (“FSP-EITF 03-6-1”). Under FSP-EITF 03-6-1, unvested
share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class
method.
FSP-EITF 03-6-1 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those years and
requires retrospective application. We believe that FSP-EITF 03-6-1 will have no
material effect on our financial statements.
Market
Risk
Market
risk is the risk of loss arising from adverse changes in market prices and
interest rates. We are exposed to interest rate risk inherent in our financial
instruments, but are not currently subject to foreign currency or commodity
price risk. We manage our exposure to these market risks through our regular
operating and financing activities.
We
purchase retail installment contracts from independent dealers, at fixed
interest rates, in the ordinary course of business, and periodically resell a
majority of these loans to financial institutions under the terms of retail
finance agreements. The periodic resale of installment contracts reduces our
exposure to interest rate fluctuations, as the majority of contracts are held
for a short period of time. Our portfolio consisted of fixed rate contracts with
interest rates generally ranging from 7.0% to 14% and an average original term
of 262 months at December 31, 2008. We estimated the fair value of our
installment contracts receivable at $3,010 using Level 3 inputs as defined in
SFAS No. 157.
We have
one industrial development revenue bond issue that is exposed to interest rate
changes. Since this borrowing is floating rate debt, an increase in short-term
interest rates would adversely affect interest expense. Additionally, we have
one other industrial development revenue bond issue at a fixed interest rate. We
estimated the fair value of our debt instruments at $1,672 using rates at which
we believe we could have obtained similar borrowings at December 31,
2008.
|
|
Assumed
Annual Principal Cash Flows
|
(dollars
in thousands)
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
Total
|
|
Fair
Value
|
Installment
loan portfolio (a)
|
|
$
|
1,337
|
|
|
$
|
51
|
|
|
$
|
57
|
|
|
$
|
63
|
|
|
$
|
70
|
|
|
$
|
1,965
|
|
|
$
|
3,543
|
|
|
$
|
3,010
|
|
(weighted
average interest rate – 9.1%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)We
have recorded an allowance for credit losses of $604, primarily based upon
management's assessment of historical experience factors and current
economic
conditions.
|
|
|
Expected
Principal Maturity Dates
|
(dollars
in thousands)
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
Total
|
|
Fair
Value
|
Notes
payable and long-term debt
|
|
$
|
707
|
|
|
$
|
171
|
|
|
$
|
168
|
|
|
$
|
182
|
|
|
$
|
190
|
|
|
$
|
248
|
|
|
$
|
1,666
|
|
|
$
|
1,672
|
|
(weighted
average interest rate – 4.53%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have a
revolving line of credit and a note payable under a retail floor plan agreement
that are exposed to interest rate changes, as they are floating rate debt based
on the prime interest rate. These borrowings are excluded from the above table
since there is no scheduled payout or maturity date for either of these
obligations. We did not have any amounts outstanding under the revolving line of
credit at December 31, 2008. The bank’s prime rate at December 31, 2008 and 2007
was 3.25% and 7.25%, respectively. We have $253 and $510 of notes payable under
the retail floor plan agreement at December 31, 2008 and December 31, 2007,
respectively. The notes bear interest rates ranging from prime to prime plus
2.5% but not less than 6% based on the age of the home.
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 use words such as
“estimates,” “projects,” “intends,” “believes,” “anticipates,” “expects,”
“plans,” and other words and terms of similar meaning in connection with any
discussion of future operating or financial performance. From time to time, we
also may provide oral or written forward-looking statements in other materials
released to the public. These forward-looking statements include statements
involving known and unknown assumptions, risks, uncertainties and other factors
which may cause the 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:
|
·
|
changes
in the availability of wholesale (dealer) financing, including the
modification and/or termination of programs by national floor plan
lenders;
|
|
·
|
changes
in the availability of retail (consumer)
financing;
|
|
·
|
the
cyclical and seasonal nature of the manufactured housing industry and the
economy generally;
|
|
·
|
the
severe and continuing downturn in the manufactured housing
industry;
|
|
·
|
limitations
in our ability to pursue our business
strategy;
|
|
·
|
changes
in demographic trends, consumer preferences and our business
strategy;
|
|
·
|
changes
and volatility in interest rates and the availability of
capital;
|
|
·
|
changes
in level of industry retail
inventories;
|
|
·
|
the
ability to attract and retain quality independent dealers in a competitive
environment, including any impact from the consolidation of independent
dealers;
|
|
·
|
the
ability to attract and retain executive officers and other key
personnel;
|
|
·
|
the
ability to produce modular and HUD-code products within the same
manufacturing plants;
|
|
·
|
the
ability to substantially grow our modular
business;
|
|
·
|
contingent
repurchase and guaranty
obligations;
|
|
·
|
uncertainties
regarding our retail financing
activities;
|
|
·
|
the
potential unavailability of and price increases for raw
materials;
|
|
·
|
the
potential unavailability of manufactured housing
sites;
|
|
·
|
regulatory
constraints;
|
|
·
|
the
potential for additional warranty
claims;
|
|
·
|
litigation,
including formaldehyde-related regulation and litigation;
and
|
|
·
|
the
potential for deficiencies in internal controls over financial reporting
or in disclosure controls and
procedures.
|
Any or
all of the forward-looking statements in this Annual Report on Form 10-K for the
year ended December 31, 2008 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 future filings with the Securities and Exchange Commission or in any of our
press releases. See Item 1A, Risk Factors, in this Annual Report on Form 10-K
for the period ended December 31, 2008 for a discussion of the factors we think
could cause our actual results to differ materially from expected and historical
results. Other factors besides those listed could also adversely affect us. This
discussion is provided as permitted by the Private Securities Litigation Reform
Act of 1995.
Selected
Quarterly Financial Data
(Unaudited)
The table
below sets forth certain unaudited quarterly financial data for the years ended
December 31, 2008 and 2007. We believe that the following quarterly financial
data includes all adjustments necessary for a fair presentation, in accordance
with accounting principles generally accepted in the United States of America.
The following quarterly financial data should be read in conjunction with the
other financial information contained elsewhere in this report. The operating
results for any interim period are not necessarily indicative of results for a
complete year or for any future period.
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
Totals
|
|
|
(dollars
in thousands, except per share amounts)
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
(as originally reported)
|
|
$
|
27,631
|
|
|
$
|
39,012
|
|
|
$
|
51,090
|
|
|
$
|
49,516
|
|
|
$
|
167,249
|
|
Discontinued
operations
|
|
|
(585)
|
|
|
|
(687
|
)
|
|
|
(737
|
)
|
|
|
(835
|
)
|
|
|
(2,844
|
)
|
Revenue
(as adjusted)
|
|
|
27,046
|
|
|
|
38,325
|
|
|
|
50,353
|
|
|
|
48,681
|
|
|
|
164,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
7,420
|
|
|
|
7,379
|
|
|
|
9,643
|
|
|
|
8,300
|
|
|
|
32,742
|
|
Discontinued
operations
|
|
|
(585)
|
|
|
|
(687
|
)
|
|
|
(737
|
)
|
|
|
(835
|
)
|
|
|
(2,844
|
)
|
Gross
profit (as adjusted)
|
|
|
6,835
|
|
|
|
6,692
|
|
|
|
8,906
|
|
|
|
7,465
|
|
|
|
29,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
2,161
|
|
|
|
(168
|
)
|
|
|
1,238
|
|
|
|
118
|
|
|
|
3,349
|
|
Basic
net income (loss) per share
|
|
|
0.12
|
|
|
|
(0.01
|
)
|
|
|
0.07
|
|
|
|
0.01
|
|
|
|
0.18
|
|
Diluted
net income (loss) per share
|
|
$
|
0.12
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.07
|
|
|
$
|
0.01
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
(as originally reported)
|
|
$
|
53,167
|
|
|
$
|
51,703
|
|
|
$
|
62,809
|
|
|
$
|
42,902
|
|
|
$
|
210,581
|
|
Discontinued
operations
|
|
|
(926
|
)
|
|
|
(870
|
)
|
|
|
(1,044
|
)
|
|
|
(857
|
)
|
|
|
(3,697
|
)
|
Revenue
(as adjusted)
|
|
|
52,241
|
|
|
|
50,833
|
|
|
|
61,765
|
|
|
|
42,045
|
|
|
|
206,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
7,995
|
|
|
|
6,049
|
|
|
|
8,637
|
|
|
|
5,980
|
|
|
|
28,661
|
|
Discontinued
operations
|
|
|
(926
|
)
|
|
|
(870
|
)
|
|
|
(1,044
|
)
|
|
|
(857
|
)
|
|
|
(3,697
|
)
|
Gross
profit (as adjusted)
|
|
|
7,069
|
|
|
|
5,179
|
|
|
|
7,593
|
|
|
|
5,123
|
|
|
|
24,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(1,017
|
)
|
|
|
(2,742
|
)
|
|
|
(869
|
)
|
|
|
(3,891
|
)
|
|
|
(8,519
|
)
|
Basic
net loss per share
|
|
|
(0.06
|
)
|
|
|
(0.15
|
)
|
|
|
(0.05
|
)
|
|
|
(0.21
|
)
|
|
|
(0.46
|
)
|
Diluted
net loss per share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.46
|
)
|
Index
to Consolidated Financial Statements and Schedule
Management’s
Report on Internal Control Over Financial Reporting
|
|
|
31
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
32
|
|
Consolidated
Balance Sheets
|
|
|
33
|
|
Consolidated
Statements of Operations
|
|
|
34
|
|
Consolidated
Statements of Stockholders’ Equity
|
|
|
35
|
|
Consolidated
Statements of Cash Flows
|
|
|
36
|
|
Notes
to Consolidated Financial Statements
|
|
|
37
|
|
Schedule-
|
|
|
|
|
II
- Valuation and Qualifying Accounts
|
|
|
50
|
|
Schedule
I, III, IV and V have been omitted because they are not
required
|
|
|
|
|
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our
internal control system was designed to provide reasonable assurance to
management and the board of directors regarding the preparation and fair
presentation of published financial statements. Under the supervision and with
the participation of management, including our Chief Executive Officer and our
Chief Financial Officer, our management conducted an evaluation of the
effectiveness of internal control over financial reporting based on the
framework in
Internal Control:
Integrated Framework
issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”), as of December 31, 2008.
Based on
the evaluation under the criteria contained in the framework of
Internal Control: Integrated
Framework
, our management concluded that our internal control over
financial reporting was effective as of December 31, 2008.
This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.
/s/ BOBBY
TESNEY
Director
and Principal Executive Officer
/s/
MICHAEL R. MURPHY
Chief
Financial Officer and Principal Accounting Officer
February
19, 2009
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Cavalier
Homes, Inc.
We have
audited the accompanying consolidated balance sheets of Cavalier Homes, Inc. and
subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2008. Our audits also
included the financial statement schedule of the Company listed in Item
15(a). These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Cavalier Homes, Inc.
and subsidiaries as of December 31, 2008 and 2007, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related 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.
As
described in Note 10 to the consolidated financial statements, effective January
1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes
.
/s/ Carr,
Riggs & Ingram, LLC
Birmingham,
Alabama
February
19, 2009
CAVALIER
HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2008 AND 2007
(in
thousands, except share and per share data)
|
|
2008
|
|
2007
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
31,198
|
|
|
$
|
22,043
|
|
Accounts
receivable, less allowance for losses of $162 (2008) and $106
(2007)
|
|
|
2,946
|
|
|
|
6,208
|
|
Installment
contracts receivable held for resale (discontinued
operations)
|
|
|
1,311
|
|
|
|
5,688
|
|
Inventories
|
|
|
15,353
|
|
|
|
20,537
|
|
Other
current assets
|
|
|
839
|
|
|
|
3,754
|
|
Property
held for sale
|
|
|
1,537
|
|
|
|
1,583
|
|
Total
current assets
|
|
|
53,184
|
|
|
|
59,813
|
|
Property,
plant and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
3,162
|
|
|
|
3,223
|
|
Buildings
and improvements
|
|
|
31,403
|
|
|
|
32,094
|
|
Machinery
and equipment
|
|
|
28,705
|
|
|
|
29,188
|
|
|
|
|
63,270
|
|
|
|
64,505
|
|
Less
accumulated depreciation and amortization
|
|
|
39,112
|
|
|
|
38,264
|
|
Property,
plant and equipment, net
|
|
|
24,158
|
|
|
|
26,241
|
|
Installment
contracts receivable, less allowance for credit losses of $604 (2008)
and $725 (2007)
|
|
|
1,528
|
|
|
|
3,264
|
|
Other
assets
|
|
|
1,925
|
|
|
|
2,059
|
|
Total
assets
|
|
$
|
80,795
|
|
|
$
|
91,377
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
707
|
|
|
$
|
834
|
|
Note
payable under retail floor plan agreement
|
|
|
253
|
|
|
|
510
|
|
Accounts
payable
|
|
|
2,663
|
|
|
|
4,720
|
|
Amounts
payable under dealer incentives
|
|
|
2,778
|
|
|
|
3,619
|
|
Estimated
warranties
|
|
|
10,100
|
|
|
|
11,720
|
|
Accrued
insurance
|
|
|
4,348
|
|
|
|
5,158
|
|
Accrued
compensation and related withholdings
|
|
|
2,487
|
|
|
|
2,846
|
|
Reserve
for repurchase commitments
|
|
|
1,141
|
|
|
|
1,131
|
|
Progress
billings
|
|
|
--
|
|
|
|
3,546
|
|
Other
accrued expenses
|
|
|
2,508
|
|
|
|
3,384
|
|
Total
current liabilities
|
|
|
26,985
|
|
|
|
37,468
|
|
Long-term
debt, less current portion
|
|
|
959
|
|
|
|
3,678
|
|
Other
long-term liabilities
|
|
|
255
|
|
|
|
247
|
|
Total
liabilities
|
|
|
28,199
|
|
|
|
41,393
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Series
A Junior Participating Preferred stock, $0.01 par value; 200,000
shares authorized, none issued
|
|
|
--
|
|
|
|
--
|
|
Preferred
stock, $0.01 par value; 300,000 shares authorized, none
issued
|
|
|
--
|
|
|
|
--
|
|
Common
stock, $0.10 par value; 50,000,000 shares authorized; 19,412,880 shares
issued; 17,598,380 (2008) shares and 18,429,580 (2007) shares
outstanding
|
|
|
1,941
|
|
|
|
1,941
|
|
Additional
paid-in capital
|
|
|
59,152
|
|
|
|
59,126
|
|
Deferred
compensation
|
|
|
(17
|
)
|
|
|
(185
|
)
|
Accumulated
deficit
|
|
|
(3,767
|
)
|
|
|
(7,116
|
)
|
Treasury
stock, at cost; 1,814,500 (2008) shares and 983,300 (2007)
shares
|
|
|
(4,713
|
)
|
|
|
(3,782
|
)
|
Total
stockholders’ equity
|
|
|
52,596
|
|
|
|
49,984
|
|
|
|
$
|
80,795
|
|
|
$
|
91,377
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CAVALIER
HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
(in
thousands, except per share amounts)
|
|
2008
|
|
2007
|
|
2006
|
Revenue
|
|
$
|
164,405
|
|
|
$
|
206,884
|
|
|
$
|
224,602
|
|
Cost
of sales
|
|
|
134,507
|
|
|
|
181,920
|
|
|
|
189,175
|
|
Gross
profit
|
|
|
29,898
|
|
|
|
24,964
|
|
|
|
35,427
|
|
Selling,
general and administrative expenses
|
|
|
26,992
|
|
|
|
34,684
|
|
|
|
36,201
|
|
Restructuring
and impairment charges
|
|
|
--
|
|
|
|
267
|
|
|
|
--
|
|
Operating
income (loss)
|
|
|
2,906
|
|
|
|
(9,987
|
)
|
|
|
(774
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(488
|
)
|
|
|
(672
|
)
|
|
|
(1,150
|
)
|
Other,
net
|
|
|
501
|
|
|
|
314
|
|
|
|
1,298
|
|
|
|
|
13
|
|
|
|
(358
|
)
|
|
|
148
|
|
Income
(loss) from continuing operations before income taxes and
equity in earnings of equity-method investees
|
|
|
2,919
|
|
|
|
(10,345
|
)
|
|
|
(626
|
)
|
Income
tax provision (benefit)
|
|
|
(61
|
)
|
|
|
(221
|
)
|
|
|
665
|
|
Equity
in earnings of equity-method investees
|
|
|
96
|
|
|
|
971
|
|
|
|
805
|
|
Income
(loss) from continuing operations
|
|
|
3,076
|
|
|
|
(9,153
|
)
|
|
|
(486
|
)
|
Income
from discontinued operations, net of income tax provision of
$159 (2008), $392 (2007) and $355 (2006)
|
|
|
273
|
|
|
|
634
|
|
|
|
658
|
|
Net
income (loss)
|
|
$
|
3,349
|
|
|
$
|
(8,519
|
)
|
|
$
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
0.17
|
|
|
$
|
(0.50
|
)
|
|
$
|
(0.03
|
)
|
From
discontinued operations
|
|
|
0.01
|
|
|
|
0.04
|
|
|
|
0.04
|
|
Net
income (loss)
|
|
$
|
0.18
|
|
|
$
|
(0.46
|
)
|
|
$
|
0.01
|
|
Weighted
average shares outstanding
|
|
|
18,342
|
|
|
|
18,378
|
|
|
|
18,335
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
0.17
|
|
|
$
|
(0.50
|
)
|
|
$
|
(0.03
|
)
|
From
discontinued operations
|
|
|
0.01
|
|
|
|
0.04
|
|
|
|
0.04
|
|
Net
income (loss)
|
|
$
|
0.18
|
|
|
$
|
(0.46
|
)
|
|
$
|
0.01
|
|
Weighted
average shares outstanding
|
|
|
18,353
|
|
|
|
18,378
|
|
|
|
18,470
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CAVALIER
HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
(dollars
in thousands)
|
|
Common
Stock
|
|
Additional
paid-in capital
|
|
Deferred
compensation
|
|
Retained
earnings (accumulated deficit)
|
|
Treasury
stock
|
|
Total
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance,
January 1, 2006
|
|
|
19,285,705
|
|
|
$
|
1,929
|
|
|
$
|
58,275
|
|
|
$
|
--
|
|
|
$
|
1,423
|
|
|
$
|
(3,782
|
)
|
|
$
|
57,845
|
|
Stock
options exercised
|
|
|
42,175
|
|
|
|
4
|
|
|
|
144
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
148
|
|
Stock-based
compensation
|
|
|
--
|
|
|
|
--
|
|
|
|
235
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
235
|
|
Net
income
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
172
|
|
|
|
--
|
|
|
|
172
|
|
Balance,
December 31, 2006
|
|
|
19,327,880
|
|
|
|
1,933
|
|
|
|
58,654
|
|
|
|
--
|
|
|
|
1,595
|
|
|
|
(3,782
|
)
|
|
|
58,400
|
|
Cumulative
effect of adoption of accounting policy related to uncertainty in income
taxes
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(192
|
)
|
|
|
--
|
|
|
|
(192
|
)
|
Adjusted
balance, January 1, 2007
|
|
|
19,327,880
|
|
|
|
1,933
|
|
|
|
58,654
|
|
|
|
--
|
|
|
|
1,403
|
|
|
|
(3,782
|
)
|
|
|
58,208
|
|
Stock
options exercised
|
|
|
15,000
|
|
|
|
1
|
|
|
|
49
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
50
|
|
Restricted
stock awards
|
|
|
70,000
|
|
|
|
7
|
|
|
|
294
|
|
|
|
(301
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Stock-based
compensation
|
|
|
--
|
|
|
|
--
|
|
|
|
129
|
|
|
|
116
|
|
|
|
--
|
|
|
|
--
|
|
|
|
245
|
|
Net
loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(8,519
|
)
|
|
|
--
|
|
|
|
(8,519
|
)
|
Balance,
December 31, 2007
|
|
|
19,412,880
|
|
|
|
1,941
|
|
|
|
59,126
|
|
|
|
(185
|
)
|
|
|
(7,116
|
)
|
|
|
(3,782
|
)
|
|
|
49,984
|
|
Stock-based
compensation
|
|
|
--
|
|
|
|
--
|
|
|
|
26
|
|
|
|
168
|
|
|
|
--
|
|
|
|
--
|
|
|
|
194
|
|
Purchase
of 831,200 shares of treasury stock
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(931
|
)
|
|
|
(931
|
)
|
Net
income
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
3,349
|
|
|
|
--
|
|
|
|
3,349
|
|
Balance,
December 31, 2008
|
|
|
19,412,880
|
|
|
$
|
1,941
|
|
|
$
|
59,152
|
|
|
$
|
(17
|
)
|
|
$
|
(3,767
|
)
|
|
$
|
(4,713
|
)
|
|
$
|
52,596
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CAVALIER
HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
(in
thousands)
|
|
2008
|
|
2007
|
|
2006
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,349
|
|
|
$
|
(8,519
|
)
|
|
$
|
172
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,095
|
|
|
|
2,156
|
|
|
|
2,299
|
|
Deferred
income taxes
|
|
|
--
|
|
|
|
--
|
|
|
|
1,314
|
|
Stock-based
compensation
|
|
|
194
|
|
|
|
245
|
|
|
|
235
|
|
Provision
for credit and accounts receivable losses
|
|
|
433
|
|
|
|
218
|
|
|
|
114
|
|
Loss
(gain) on sale of property, plant and equipment
|
|
|
(87
|
)
|
|
|
45
|
|
|
|
(293
|
)
|
Impairment
charge
|
|
|
--
|
|
|
|
91
|
|
|
|
--
|
|
Other,
net
|
|
|
(97
|
)
|
|
|
(971
|
)
|
|
|
(1,195
|
)
|
Installment
contracts purchased for resale
|
|
|
(31,808
|
)
|
|
|
(53,853
|
)
|
|
|
(42,664
|
)
|
Sale
of installment contracts purchased for resale
|
|
|
35,431
|
|
|
|
53,347
|
|
|
|
44,589
|
|
Principal
collected on installment contracts purchased for resale
|
|
|
38
|
|
|
|
80
|
|
|
|
221
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(373
|
)
|
|
|
(723
|
)
|
|
|
37,554
|
|
Inventories
|
|
|
5,184
|
|
|
|
(522
|
)
|
|
|
5,048
|
|
Accounts
payable
|
|
|
(2,057
|
)
|
|
|
972
|
|
|
|
(4,073
|
)
|
Amounts
payable under dealer incentives
|
|
|
(841
|
)
|
|
|
578
|
|
|
|
(4,046
|
)
|
Accrued
compensation and related withholdings
|
|
|
(359
|
)
|
|
|
155
|
|
|
|
(3,456
|
)
|
Other
assets and liabilities
|
|
|
(2,550
|
)
|
|
|
666
|
|
|
|
(3,505
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
8,552
|
|
|
|
(6,035
|
)
|
|
|
32,314
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from dispositions of property, plant and equipment
|
|
|
109
|
|
|
|
71
|
|
|
|
1,555
|
|
Capital
expenditures
|
|
|
(351
|
)
|
|
|
(2,177
|
)
|
|
|
(1,995
|
)
|
Notes
and installment contracts purchased for investment
|
|
|
(600
|
)
|
|
|
(1,145
|
)
|
|
|
(326
|
)
|
Sale
of installment contracts purchased for investment
|
|
|
4,414
|
|
|
|
--
|
|
|
|
--
|
|
Principal
collected on notes and installment contracts purchased for
investment
|
|
|
640
|
|
|
|
1,582
|
|
|
|
845
|
|
Other
investing activities
|
|
|
454
|
|
|
|
3,756
|
|
|
|
1,075
|
|
Net
cash provided by investing activities
|
|
|
4,666
|
|
|
|
2,087
|
|
|
|
1,154
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
repayment on note payable under revolving line of credit
|
|
|
--
|
|
|
|
--
|
|
|
|
(17,750
|
)
|
Net
borrowings (repayment) on note payable under retail floor plan
agreement
|
|
|
(257
|
)
|
|
|
1,200
|
|
|
|
(887
|
)
|
Payments
on long-term debt
|
|
|
(2,875
|
)
|
|
|
(1,226
|
)
|
|
|
(3,391
|
)
|
Purchase
of treasury stock
|
|
|
(931
|
)
|
|
|
--
|
|
|
|
--
|
|
Proceeds
from exercise of stock options
|
|
|
--
|
|
|
|
50
|
|
|
|
148
|
|
Net
cash provided by (used in) financing activities
|
|
|
(4,063
|
)
|
|
|
24
|
|
|
|
(21,880
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
9,155
|
|
|
|
(3,924
|
)
|
|
|
11,588
|
|
Cash
and cash equivalents at beginning of period
|
|
|
22,043
|
|
|
|
25,967
|
|
|
|
14,379
|
|
Cash
and cash equivalents at end of period
|
|
$
|
31,198
|
|
|
$
|
22,043
|
|
|
$
|
25,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for (received from):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
419
|
|
|
$
|
713
|
|
|
$
|
1,126
|
|
Income
taxes
|
|
$
|
49
|
|
|
$
|
(857
|
)
|
|
$
|
1,454
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
received on sale of property, plant and equipment
|
|
$
|
392
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Property,
plant and equipment acquired through capital lease
transactions
|
|
$
|
29
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Retail
assets sold for assumption of note payable, net of note receivable of
$447
|
|
$
|
--
|
|
|
$
|
1,793
|
|
|
$
|
--
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CAVALIER
HOMES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
(dollars
in thousands except per share amounts)
1.
|
BASIS
OF PRESENTATION AND 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,
Cavalier, the “Company”, “we”, “our” or “us”). Our 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 (see
Note 13). Intercompany transactions have been eliminated in consolidation. We
have one reportable segment for home manufacturing, which is comprised of four
manufacturing divisions (five plants), supply companies who sell their products
primarily to the manufacturing divisions, and retail activities that provide
revenue from home sales to individuals.
Nature of Operations
– We
design and produce manufactured homes which are sold to a network of dealers
located primarily in the South Central and South Atlantic regions of the United
States.
Accounting Estimates
– Our
consolidated financial statements are prepared in conformity with U.S. generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial
Instruments
– The carrying value of our cash equivalents, accounts
receivable, accounts payable and accrued expenses approximates fair value
because of the short-term nature of these instruments. Additional information
concerning the fair value of other financial instruments is disclosed in Notes 4
and 7.
Cash Equivalents
– We
consider all highly liquid investments with original maturities of three months
or less to be cash equivalents.
Accounts Receivable
–
Accounts receivable are carried at original invoice amount less an estimated
allowance for doubtful accounts. Management determines the allowance for
doubtful accounts by identifying troubled accounts and estimating expected
losses using historical experience. Amounts billable under contracts in advance
of shipment are included in accounts receivable and in current liabilities as
progress billings.
Installment Contracts
Receivable
– Installment contracts receivable of CIS Financial Services,
Inc. (“CIS”), a wholly-owned subsidiary, are reported at their outstanding
unpaid principal balances reduced by any charge-off or specific valuation
accounts. We purchase the majority of our contracts receivable with the intent
to resell the loans, with limited recourse, to financial institutions under the
terms of retail financing agreements. Recourse is applicable in the case of
fraud or misrepresentation. CIS may also be required to repurchase the loan from
certain third party financial institutions if any of the first four payments on
a loan become 90 days delinquent. Such sales are accounted for under the
provisions of Statement of Financial Accounting Standards (“SFAS”) No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities
. Loans
purchased for resale are recorded in our balance sheet at the lower of cost or
market and are classified as held for sale if we have the intent and believe
that we have the ability to resell the loans within one year from acquisition
based on the terms of retail financing agreements with various financial
institutions. Loan origination and other fees, net of capitalized costs, are
deferred and recognized over the life of the loan as an adjustment of yield. See
Note 3 – Discontinued Operations.
Allowance for Credit Losses on
Installment Contracts
– We have provided an allowance for estimated
future credit losses resulting from retail financing activities of CIS based on
management’s periodic evaluation of our past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower’s ability to repay, the estimated value of any underlying collateral
and current economic conditions. The allowance for credit losses is increased by
charges to income and decreased by charge-offs (net of recoveries).
Inventories
– Inventories are
stated at the lower of cost (first-in, first-out method) or market.
Work-in-process and finished goods inventories include an allocation for labor
and overhead costs. Included in finished goods are repossessed inventories of
CIS which are recorded at estimated net realizable value.
Property, Plant and Equipment
– Property, plant and equipment in use is stated at cost and depreciated over
the estimated useful lives of the related assets primarily using the
straight-line method. Maintenance and repairs are expensed as
incurred.
Impairment of Long-Lived
Assets
– In accordance with SFAS No. 144,
Accounting for the Impairment or
Disposal of Long-Lived Assets
, we evaluate the carrying value of
long-lived assets to be held and used when events and circumstances warrant such
a review. The carrying value of long-lived assets is considered impaired when
the anticipated undiscounted cash flow from such assets is less than our
carrying value. In that event, a loss is recognized based on the amount by which
the carrying value exceeds the fair market value of the long-lived assets. Fair
market value is determined primarily using the anticipated cash flows discounted
at a rate commensurate with the risk involved. Losses on long-lived assets to be
disposed of are determined in a similar manner, except that the fair market
values are primarily based on independent appraisals and preliminary or
definitive contractual arrangements less costs to dispose.
Revenue Recognition
– Revenue
for manufactured homes sold to independent dealers generally is recorded when
all of the following conditions have been met: (a) an order for the home has
been received from the dealer, (b) an agreement with respect to payment terms
(usually in the form of a written or verbal approval for payment) has been
received from the dealer’s flooring institution, and (c) the home has been
shipped and risk of loss has passed to the dealer. All sales are final and
without recourse except for the contingency described in Note 12. Estimated
sales incentives, including rebates, payable to our independent retailers are
accrued at the time of sale and are recorded as a reduction of revenue. Sales
incentive levels are estimated based on the anticipated sales volume purchased
by our independent retailers within the rebate period specified in the sales
incentive agreements. For the Company-owned retail location, revenue is recorded
when the home has been delivered and accepted by the retail customer, risk of
ownership has been transferred and funds have been received.
Product Warranties
– We
provide the retail home buyer a one-year limited warranty covering defects in
material or workmanship in home structure, plumbing and electrical systems. We
have provided a liability of $10,100 (2008) and $11,720 (2007) for estimated
future warranty costs relating to homes sold, based upon management’s assessment
of historical experience factors and current industry trends. Activity in the
liability for product warranty was as follows:
|
|
2008
|
|
2007
|
|
2006
|
Balance,
beginning of period
|
|
$
|
11,720
|
|
|
$
|
11,900
|
|
|
$
|
13,190
|
|
Provision
for warranties issued in the current period
|
|
|
10,760
|
|
|
|
12,632
|
|
|
|
12,407
|
|
Adjustments
for warranties issued in prior periods
|
|
|
(1,031
|
)
|
|
|
1,210
|
|
|
|
234
|
|
Payments
|
|
|
(11,349
|
)
|
|
|
(14,022
|
)
|
|
|
(13,931
|
)
|
Balance,
end of period
|
|
$
|
10,100
|
|
|
$
|
11,720
|
|
|
$
|
11,900
|
|
Reserve for Repurchase
Commitments
– We are contingently liable under terms of repurchase
agreements with financial institutions providing inventory financing for
retailers of our products. These arrangements, which are customary in the
industry, provide for the repurchase of products sold to retailers in the event
of default by the retailer. The risk of loss under these agreements is spread
over numerous retailers. The price we are obligated to pay generally declines
over the period of the agreement (generally 9 – 24 months) and the risk of loss
is further reduced by the sales value of repurchased homes. We apply FASB
Interpretation (“FIN”) No. 45,
Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57, and 107
and a rescission of FASB Interpretation No. 34
and SFAS No. 5,
Accounting for Contingencies,
to account for our liability for repurchase commitments. Under the provisions of
FIN 45 during the period in which a home is sold (inception of a repurchase
commitment), we record the greater of the estimated fair value of the
non-contingent obligation or a contingent liability under the provisions of SFAS
No. 5, based on historical information available at the time, as a reduction to
revenue. Subsequent to the inception of the repurchase commitment, we evaluate
the likelihood that we will be called on to perform under the inventory
repurchase commitments. If it becomes probable that a dealer will default and a
SFAS No. 5 loss reserve should be recorded, then such contingent liability is
recorded equal to the estimated loss on repurchase. Based on identified changes
in dealers’ financial conditions, we evaluate the probability of default for the
group of dealers who are identified at an elevated risk of default and apply a
probability of default to the group, based on historical default rates. Changes
in the reserve are recorded as an adjustment to revenue. Following the inception
of the commitment, the recorded reserve is reduced over the repurchase period
and is eliminated once the dealer sells the home.
Insurance
– Our workers’
compensation, product liability and general liability insurance coverages are
generally provided under incurred loss, retrospectively rated premium plans.
Under these plans, we incur 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 actuarial data is available.
Other Income (Expense): Other,
net
– Other, net included in our consolidated statement of operations is
comprised primarily of interest income, dividends received from an
unconsolidated investee accounted for under the cost method, and gain (loss) on
the sale of the stock of unconsolidated cost method investees.
Net Income (Loss) Per Share
–
We report two separate net income (loss) per share numbers, basic and diluted.
Both are computed by dividing net income (loss) by the weighted average shares
outstanding (basic) or weighted average shares outstanding assuming dilution
(diluted) as detailed below:
|
|
2008
|
|
2007
|
|
2006
|
Income
(loss) from continuing operations
|
|
$
|
3,076
|
|
|
$
|
(9,153
|
)
|
|
$
|
(486
|
)
|
Income
from discontinued operations
|
|
|
273
|
|
|
|
634
|
|
|
|
658
|
|
Net
income (loss)
|
|
$
|
3,349
|
|
|
$
|
(8,519
|
)
|
|
$
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
(in
thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,342
|
|
|
|
18,378
|
|
|
|
18,335
|
|
Effect
of potential common stock from the exercise of stock
options
|
|
|
11
|
|
|
|
--
|
|
|
|
135
|
|
Diluted
|
|
|
18,353
|
|
|
|
18,378
|
|
|
|
18,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
0.17
|
|
|
$
|
(0.50
|
)
|
|
$
|
(0.03
|
)
|
From
discontinued operations
|
|
|
0.01
|
|
|
|
0.04
|
|
|
|
0.04
|
|
Net
income (loss)
|
|
$
|
0.18
|
|
|
$
|
(0.46
|
)
|
|
$
|
0.01
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
0.17
|
|
|
$
|
(0.50
|
)
|
|
$
|
(0.03
|
)
|
From
discontinued operations
|
|
|
0.01
|
|
|
|
0.04
|
|
|
|
0.04
|
|
Net
income (loss)
|
|
$
|
0.18
|
|
|
$
|
(0.46
|
)
|
|
$
|
0.01
|
|
Weighted
average option shares excluded from computation of diluted loss per share
because their effect is anti-dilutive
(in
thousands)
|
|
|
541
|
|
|
|
889
|
|
|
|
1,160
|
|
Restricted
common stock outstanding issued to employees totaling 13,332 shares has been
excluded from the computation of basic earnings (loss) per share as of December
31, 2008 since the shares are not vested and remain subject to
forfeiture.
Stock-Based Compensation
– As
provided in the provisions of SFAS No. 123R,
Share-Based Payment,
we
record compensation cost over the vesting period of awards of equity instruments
based on the grant date fair value of the award. SFAS 123R applies to new awards
issued, awards modified, repurchased or cancelled and unvested
awards.
Recently Issued Accounting
Pronouncements
– In September 2006, the Financial Accounting Standards
Board (“FASB”) issued SFAS No. 157,
Fair Value Measurements
,
which defines fair value, establishes guidelines for measuring fair value and
expands disclosures regarding fair value measurements. SFAS No. 157 does not
require any new fair value measurements but rather eliminates inconsistencies in
guidance found in various prior accounting pronouncements. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. In February
2008, the FASB issued FASB Staff Position No. FAS 157-2,
Effective Date of FASB Statement No.
157.
This FSP permits the delayed application of SFAS No. 157 for all
non-recurring fair value measurements of non-financial assets and non-financial
liabilities until fiscal years beginning after November 15, 2008. We adopted
SFAS No. 157 in the first quarter of 2008 for all financial assets and financial
liabilities with no material impact on our consolidated statements of operations
or financial condition. No assets or liabilities are measured at fair value in
the accompanying consolidated balance sheets. For disclosure purposes, we
estimated the fair value of our installment contracts receivable as of December
31, 2008 at $3,010 using Level 3 inputs as defined in SFAS No. 157. In general,
these inputs were based on the actual sales prices we received from the sale of
comparable installment contracts and the underlying collateral value on certain
loans based on appraisals, when available, or industry price guides for used
manufactured housing.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business Combinations
(“SFAS
No. 141R”) and SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements
(“SFAS No. 160”). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No.
141R also establishes disclosure requirements to enable the evaluation of the
nature and financial effects of the business combination. SFAS No. 160 amends
ARB No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation
of a subsidiary. It also amends certain of ARB No. 51’s consolidation procedures
for consistency with the requirements of SFAS No. 141R. SFAS No. 141R and SFAS
No. 160 are effective for fiscal years beginning on or after December 15, 2008.
We do not expect the adoption of these statements to materially impact our
consolidated financial position or results of operations directly when they
become effective. Adoption of these statements is, however, expected to have a
significant effect on how acquisition transactions subsequent to January 1,
2009, if any, are reflected in our financial statements.
In May
2008, the FASB issued SFAS No. 162,
Hierarchy of Generally Accepted
Accounting Principles
(“SFAS No. 162”). This statement is intended to
improve financial reporting by identifying a consistent framework, or hierarchy,
for selecting accounting principles to be used in preparing financial statements
of nongovernmental entities that are presented in conformity with GAAP. This
statement will be effective 60 days following the U.S. Securities and Exchange
Commission’s approval of the Public Company Accounting Oversight Board amendment
to AU Section 411,
The Meaning
of Present Fairly in Conformity with Generally Accepted Accounting
Principles
. We believe that SFAS No. 162 will have no effect on our
financial statements.
In June
2008, the FASB issued FASB Staff Position Emerging Issues Task Force 03-6-1,
“
Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities
” (“FSP-EITF 03-6-1”). Under FSP-EITF 03-6-1, unvested
share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method. FSP-EITF 03-6-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those years and requires retrospective application. We believe that FSP-EITF
03-6-1 will have no material effect on our financial statements.
Reclassifications
– Certain
amounts from the prior periods have been reclassified to conform to the 2008
presentation.
In 2007,
we closed one of two home manufacturing lines in our Millen, Georgia facility
and we consolidated the production at our Winfield, Alabama facility into our
Hamilton, Alabama operations based on reviews of our overall production capacity
and the continued weakness in the manufactured housing markets. These actions
were taken to reduce our costs and increase overall productivity. We recorded
restructuring charges totaling $176 in connection with these actions for
one-time termination benefits paid in 2007 to 76 employees. No additional
charges are expected to be incurred in connection with these
restructurings.
3.
|
DISCONTINUED
OPERATIONS
|
In
November 2008, we announced our intent to sell our financial services
subsidiary, and subsequent to year-end, we entered into a stock purchase
agreement to sell CIS with an expected closing date of March 1, 2009. The
purchase price will consist of $750,000 in cash, to be paid at closing, plus the
principal balance of installment contracts held for resale, which will be paid
to us as collected by the purchaser within 180 days of the closing date. We will
retain certain net assets of CIS, primarily cash and installment contracts held
for investment. Immediately prior to the closing, we will transfer these
retained net assets into a newly-formed wholly-owned subsidiary. We have
accounted for the operations of CIS as discontinued operations in the
accompanying consolidated statements of operations. We expect to record a gain
on this sale during the first quarter of 2009.
Summary
operating results of the discontinued operations for the years ended December
31, 2008, 2007, and 2006 were:
|
|
2008
|
|
2007
|
|
2006
|
Revenue
|
|
$
|
2,844
|
|
|
$
|
3,697
|
|
|
$
|
3,323
|
|
Income
from discontinued operations before income tax provision
|
|
|
432
|
|
|
|
1,026
|
|
|
|
1,013
|
|
4.
|
INSTALLMENT
CONTRACTS RECEIVABLE
|
CIS
finances retail sales through the purchase of installment contracts primarily
from a portion of our dealer network and originates direct mortgage loans, at
fixed interest rates, in the ordinary course of business, and resells a majority
of the loans to financial institutions under the terms of retail finance
agreements. CIS enters into agreements to sell, with limited recourse, contracts
in its portfolio that meet specified credit criteria. Recourse is applicable in
the case of fraud or misrepresentation. CIS may also be required to repurchase
the loan from certain third party financial institutions if any of the first
four payments on a loan become 90 days delinquent. Under these agreements, CIS
sold $35,431, $53,347, and $44,589 of contracts receivable and realized gains of
$1,605, $1,906, and $1,612 for the years ended December 31, 2008, 2007, and
2006, respectively. CIS’s portfolio consists of fixed rate contracts with
interest rates generally ranging from 7.0% to 14.0% at December 31, 2008 and
2007. The average original term of the portfolio was approximately 262 and 284
months at December 31, 2008 and 2007,
respectively.
For loans held in its portfolio, CIS 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 CIS upon default by the
borrower. At December 31, 2008, scheduled principal payments of installment
contracts receivable are as follows (excludes deferred origination fees, points
and capitalized costs of $100):
Years
ending December 31,
|
|
|
2009
|
|
$
|
1,337
|
|
2010
|
|
|
51
|
|
2011
|
|
|
57
|
|
2012
|
|
|
63
|
|
2013
|
|
|
70
|
|
Thereafter
|
|
|
1,965
|
|
|
|
$
|
3,543
|
|
We
maintain a reserve for loans based on historical experience, the estimated value
of any underlying collateral, and specifically identified factors presenting
uncertainty with respect to collectibility. Activity in the allowance for credit
losses on installment contracts was as follows:
|
|
2008
|
|
2007
|
|
2006
|
Balance,
beginning of year
|
|
$
|
725
|
|
|
$
|
841
|
|
|
$
|
968
|
|
Provision
for credit losses
|
|
|
343
|
|
|
|
227
|
|
|
|
145
|
|
Charge
offs, net
|
|
|
(464
|
)
|
|
|
(343
|
)
|
|
|
(272
|
)
|
Balance,
end of year
|
|
$
|
604
|
|
|
$
|
725
|
|
|
$
|
841
|
|
At
December 31, 2008 and 2007, the estimated fair value of installment contracts
receivable was $3,010 and $9,915, respectively. We estimated the fair value of
our installment contracts receivable as of December 31, 2008 using Level 3
inputs as defined in SFAS 157. In general, these inputs were based on the actual
sales prices we received from the sale of comparable installment contracts and
the underlying collateral value on certain loans based on appraisals, when
available, or industry price guides for used manufactured housing. In prior
years, the fair values were estimated using discounted cash flows and interest
rates offered by CIS on similar contracts at such times.
Inventories
consisted of the following:
|
|
2008
|
|
2007
|
Raw
materials
|
|
$
|
11,469
|
|
|
$
|
11,967
|
|
Work-in-process
|
|
|
942
|
|
|
|
1,263
|
|
Finished
goods
|
|
|
2,942
|
|
|
|
7,307
|
|
Total
inventories
|
|
$
|
15,353
|
|
|
$
|
20,537
|
|
During
2008, 2007, and 2006, we purchased raw materials of approximately $11,564,
$14,474, and $14,698, respectively, from a joint venture in which we own a
minority interest.
In
accordance with SFAS No. 146,
Accounting for Costs Associated with
Exit or Disposal Activities
, we record the liability, measured at fair
value, for costs associated with an exit or disposal activity when the liability
is incurred. SFAS No. 144,
Accounting for the Impairment or
Disposal of Long-Lived Assets
, provides that a long-lived asset or asset
group that is to be sold shall be classified as “held for sale” if certain
criteria are met, including the expectation supported by evidence that the sale
will be completed within one year. We had idle assets of $5,906 (2008) and
$6,873 (2007) recorded at the lower of carrying value or fair value. Idle assets
are comprised primarily of closed home manufacturing facilities which we are
attempting to sell. In 2008, we sold an idle building in Addison, Alabama,
recognized a gain of $30, and received a $392 note from the purchaser payable
over 10 years. Other than the facility at Cordele, management does not have
evidence at the balance sheet date that it is probable that the sale of idle
assets will occur within one year, and thus, in accordance with the requirements
of SFAS No. 144, such assets are classified as “held and used” and depreciation
has continued on these assets. In September 2008, we entered into an agreement
to sell an idle facility in Cordele, Georgia for a gross purchase price of
$2,975 to be paid in cash at closing. The
closing
of this transaction occurred on February 13, 2009, and the net book value of
this property has been classified as property held for sale in the consolidated
balance sheet.
In
connection with the idling of the Winfield, Alabama facility in 2007, we
recorded impairment charges totaling $91 to write-down idled equipment to its
fair value based on management’s estimate. We obtained an independent appraisal
for the Winfield land and buildings, which indicated the property was not
impaired.
We have a
credit agreement with our primary lender (the “Credit Facility”), which has been
amended from time to time with a current maturity date of April 2009. The Credit
Facility is comprised of (i) a revolving line of credit that provides for
borrowings (including letters of credit) up to $17,500 and (ii) a real estate
term loan, which are cross-secured and cross-defaulted. No amounts were
outstanding under the revolving line of credit as of December 31, 2008 or
December 31, 2007.
The
amount available under the revolving line of credit is equal to the lesser of
(i) $17,500 or (ii) an amount based on defined percentages of accounts and notes
receivable and inventories reduced by the sum of $2,500 and any outstanding
letters of credits. At December 31, 2008, $2,585 was available under the
revolving line of credit after deducting letters of credit of
$3,773.
The
applicable interest rates under the revolving line of credit are based on
certain levels of tangible net worth as noted in the following table. Tangible
net worth at December 31, 2008 was $52,595.
Tangible
Net Worth
|
|
Interest
Rate
|
above
$62,000
|
|
Prime
less 0.50%
|
$62,000
–
$56,500
|
|
Prime
|
$56,500
–
$38,000
|
|
Prime
plus 0.75%
|
below
$38,000
|
|
Prime
plus 1.25%
|
The
bank’s prime rate was 3.25% and 7.25% at December 31, 2008 and December 31,
2007, respectively.
The real
estate term loan agreement contained in the Credit Facility provided for initial
borrowings of $10,000, of which $490 and $2,737 was outstanding on December 31,
2008 and December 31, 2007, respectively. Interest on the term note is fixed for
a period of five years from September 2008 at 7.0% and may be adjusted in
September 2013.
The
Credit Facility contains certain restrictive and financial covenants which,
among other things, limit our ability without the lender’s consent to (i) make
dividend payments and purchases of treasury stock in an aggregate amount which
exceeds 50% of consolidated net income for the two most recent years, (ii)
mortgage or pledge assets which exceed in the aggregate $1,000, (iii) incur
additional indebtedness, including lease obligations, which exceed in the
aggregate $1,000, excluding floor plan notes payable which cannot exceed $3,000
and (iv) make annual capital expenditures in excess of $5,000. In addition, the
Credit Facility contains certain financial covenants requiring us (i) to
maintain on a consolidated basis certain defined levels of liabilities to
tangible net worth ratio (not to exceed 1.5 to 1), (ii) to maintain a current
ratio, as defined, of at least 1.1 to 1, (iii) maintain minimum cash and cash
equivalents of $5,000, (iv) achieve an annual cash flow to debt service ratio of
not less than 1.35 to 1 for the year ended December 31, 2008, and (v) achieve an
annual minimum profitability of $100. The Credit Facility also requires CIS to
comply with certain specified restrictions and financial covenants. At December
31, 2008, we were in compliance with our debt covenants. In November 2008, the
lender granted us a waiver to purchase treasury stock totaling
$931.
We have
two Industrial Development Revenue Bond issues (“Bonds”) with outstanding
amounts totaling $1,155 and $1,775 at December 31, 2008 and 2007, respectively.
One bond issue bearing interest at 5.25% will mature in April 2009. The second
bond issue with annual installments payable through 2013 provides for monthly
interest payable at a variable rate currently at 1.80% as determined by a
remarketing agent. The real estate term loan and the Bonds are collateralized by
substantially all of our plant facilities and equipment.
We had
$253 and $510 of notes payable under a retail floor plan agreement at December
31, 2008 and 2007, respectively. The notes are collateralized by certain retail
new home inventories and bear interest rates ranging from prime to prime plus
2.5% but not less than 6% based on the age of the home.
We
entered into a capital lease transaction during 2008 related to machinery and
equipment we acquired with an initial cost of $29. At December 31, 2008, $21 was
outstanding under the capital lease obligation.
At
December 31, 2008, principal repayment requirements on long-term debt are as
follows:
Years
ending December 31,
|
|
|
2009
|
|
$
|
707
|
|
2010
|
|
|
171
|
|
2011
|
|
|
168
|
|
2012
|
|
|
182
|
|
2013
|
|
|
190
|
|
Thereafter
|
|
|
248
|
|
Total
|
|
|
1,666
|
|
Less
current portion
|
|
|
707
|
|
Long-term
debt, less current portion
|
|
$
|
959
|
|
At
December 31, 2008 and 2007, the estimated fair value of outstanding long-term
debt was $1,672 and $4,551, respectively. These estimates were determined using
rates at which we believe we could have obtained similar borrowings at such
times.
Pursuant
to a common stock repurchase program approved by our Board of Directors, a total
of 831,200 shares were purchased in December 2008 at a cost of $931. A
cumulative total of 4,000,000 shares were purchased under this program at a cost
of $25,773, which included the purchase of 3,168,800 shares during the four year
period ended December 31, 2001 for total cost of $24,842. We retired 2,151,500
of the repurchased shares at December 31, 1999, with the remaining shares being
recorded as treasury stock. During 2006, we reissued 34,000 treasury shares upon
the exercise of stock options.
9.
|
STOCK-BASED
COMPENSATION
|
Stock
Incentive Plans
At
December 31, 2008, our stock incentive plans included the
following:
a.
|
The
2005 Incentive Compensation Plan (the “2005 Plan”) provides for both
incentive stock options and non-qualified stock options to key employees.
The 2005 Plan also provides for stock appreciation rights and awards of
both restricted stock and performance shares. Awards are granted at prices
and terms determined by the compensation committee of the Board of
Directors. The term for awards granted under the 2005 Plan cannot exceed
ten years from the date of grant. Upon adoption of the 2005 Plan, our 1996
Key Employee Stock Incentive Plan (the “1996 Plan”) was terminated.
However, the termination of the 1996 Plan did not affect any options which
were outstanding and unexercised under that Plan. A total of 1,500,000
shares of common stock are authorized for issuance under the 2005 Plan. As
of December 31, 2008, shares authorized for grant and available to be
granted under the 2005 Plan totaled 1,430,000
shares.
|
b.
|
The
2005 Non-Employee Directors Stock Option Plan (the “2005 Directors Plan”)
provides for the issuance of up to 500,000 shares of our common stock,
which is reserved for grant to non-employee directors. Options are granted
upon the director’s initial election and automatically on an annual basis
thereafter at fair market value on the date of such grant. Stock option
grants become exercisable at a rate of 1/12th of the shares subject to the
stock option on each monthly anniversary of the date of grant. Except in
the case of death, disability, or retirement, options granted under the
2005 Directors Plan expire ten years from the date of grant. Upon adoption
of the 2005 Directors Plan, the 1993 Non-employee Director Plan (the “1993
Plan”) was terminated. However, the termination of the 1993 Plan did not
affect any options which were outstanding and unexercised under that Plan.
As of December 31, 2008, shares available to be granted under the 2005
Directors Plan totaled 425,000
shares.
|
The
following table sets forth the summary of activity under our stock incentive
plans for the years ended December 31, 2008, 2007, and 2006:
|
|
|
|
Options
Outstanding
|
|
|
Shares
Available for Grant
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
Balance
at December 31, 2005
|
|
|
1,518,834
|
|
|
|
1,738,672
|
|
|
$
|
9.26
|
|
Plan
shares expired
|
|
|
(46,341
|
)
|
|
|
--
|
|
|
|
--
|
|
Granted
at fair value
|
|
|
(35,000
|
)
|
|
|
35,000
|
|
|
|
6.45
|
|
Stock
awards
|
|
|
(70,000
|
)
|
|
|
--
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
(42,175
|
)
|
|
|
3.53
|
|
Canceled
|
|
|
357,684
|
|
|
|
(357,684
|
)
|
|
|
13.30
|
|
Balance
at December 31, 2006
|
|
|
1,725,177
|
|
|
|
1,373,813
|
|
|
|
8.32
|
|
Plan
shares expired
|
|
|
(383,392
|
)
|
|
|
--
|
|
|
|
--
|
|
Granted
at fair value
|
|
|
(30,000
|
)
|
|
|
30,000
|
|
|
|
4.16
|
|
Exercised
|
|
|
--
|
|
|
|
(15,000
|
)
|
|
|
3.36
|
|
Canceled
|
|
|
558,215
|
|
|
|
(558,215
|
)
|
|
|
10.46
|
|
Balance
at December 31, 2007
|
|
|
1,870,000
|
|
|
|
830,598
|
|
|
|
6.81
|
|
Plan
shares expired
|
|
|
(321,675
|
)
|
|
|
--
|
|
|
|
--
|
|
Granted
at fair value
|
|
|
(30,000
|
)
|
|
|
30,000
|
|
|
|
1.93
|
|
Canceled
|
|
|
336,675
|
|
|
|
(336,675
|
)
|
|
|
9.77
|
|
Balance
at December 31, 2008
|
|
|
1,855,000
|
|
|
|
523,923
|
|
|
$
|
4.64
|
|
Options
exercisable at December 31, 2008
|
|
|
|
|
|
|
521,838
|
|
|
$
|
4.65
|
|
Options
exercisable at December 31, 2007
|
|
|
|
|
|
|
828,096
|
|
|
$
|
6.82
|
|
Options
exercisable at December 31, 2006
|
|
|
|
|
|
|
1,371,311
|
|
|
$
|
8.32
|
|
The
weighted average fair values of options granted during 2008, 2007, and 2006 were
$0.94, $2.29, and $3.53, respectively. The total intrinsic value of options
exercised during 2008, 2007, and 2006 were $0, $21, and $128, respectively. The
aggregate intrinsic value of options outstanding and options exercisable as of
December 31, 2008 was zero. The intrinsic value is calculated as the difference
between the market value on the date of exercise and the exercise price of the
shares.
The
following table summarizes information concerning stock options outstanding at
December 31, 2008:
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
Range
of Exercise Prices
|
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
$1.69
– $3.03
|
|
|
|
73,675
|
|
|
|
5.42
|
|
|
$
|
2.29
|
|
|
|
71,590
|
|
|
$
|
2.30
|
|
$3.04
– $3.94
|
|
|
|
268,200
|
|
|
|
2.89
|
|
|
|
3.45
|
|
|
|
268,200
|
|
|
|
3.45
|
|
$3.95
– $5.51
|
|
|
|
68,698
|
|
|
|
4.67
|
|
|
|
4.39
|
|
|
|
68,698
|
|
|
|
4.39
|
|
$5.52
– $11.00
|
|
|
|
113,350
|
|
|
|
1.59
|
|
|
|
9.11
|
|
|
|
113,350
|
|
|
|
9.11
|
|
$1.69
– $11.00
|
|
|
|
523,923
|
|
|
|
3.20
|
|
|
$
|
4.64
|
|
|
|
521,838
|
|
|
$
|
4.65
|
|
Stock-Based
Compensation
We use
the Black-Scholes option pricing model to determine the fair value of stock
option shares granted. The determination of the fair value of stock-based
payment awards on the date of grant using an option-pricing model is affected by
our stock price as well as other assumptions, including our expected stock price
volatility over the term of the awards, actual and projected employee stock
option exercise behaviors, risk-free interest rate and expected dividends. We
estimate the expected term of options granted by calculating the average term
from our historical stock option exercise experience. We estimate the volatility
of our common stock by using the historical volatility in our common stock over
a period similar to the expected term on the options. We base the risk-free
interest rate that we use in the option valuation model on U.S. Treasury
zero-coupon issues with remaining terms similar to the expected term on the
options. We do not anticipate paying any cash dividends in the foreseeable
future and therefore use an expected dividend yield of zero in the option
valuation model. We are required to estimate forfeitures at the time of grant
and revise those estimates in subsequent periods if actual forfeitures differ
from those estimates. Based on historical data, we assumed zero forfeitures in
our 2008 calculation of stock-based compensation expense. All stock-based
payment awards are amortized on a straight-line basis over the requisite service
periods of the awards, which are generally the vesting periods.
The
assumptions used to value stock option grants are as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Dividend
yield
|
|
|
--
|
%
|
|
|
--
|
%
|
|
|
--
|
%
|
Expected
volatility
|
|
|
52.10
|
%
|
|
|
59.23
|
%
|
|
|
60.80
|
%
|
Risk
free interest rate
|
|
|
3.28
|
%
|
|
|
4.68
|
%
|
|
|
5.04
|
%
|
Expected
lives
|
|
5.1
years
|
|
|
5.0
years
|
|
|
4.6
years
|
|
The fair
value of the restricted stock awards granted in 2006 for 70,000 shares was $463
based on the closing market price of $6.61 on the date of the award. No awards
were granted in 2008 or 2007. We recognize the estimated compensation cost of
restricted stock awards, defined as the fair value of our common stock on the
date of grant, on a straight line basis over the three year vesting period.
During 2008 and 2007, 33,334 and 23,334 restricted stock awards vested,
respectively. The remaining 13,332 restricted stock awards were unvested as of
December 31, 2008. Deferred compensation of $17 as of December 31, 2008
represents the unamortized cost of these unvested restricted stock
awards.
Stock-based
compensation recorded in 2008, 2007 and 2006 was $194, $245 and $235,
respectively, and is included in selling, general and administrative expense in
our statements of operations. Future compensation cost on unvested stock-based
awards as of December 31, 2008 is estimated to be $17, which will be charged to
expense on a straight line basis through March 2009.
Provision
(benefit) for income taxes consists of:
|
|
2008
|
|
2007
|
|
2006
|
Continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(83
|
)
|
|
$
|
(230
|
)
|
|
$
|
(644
|
)
|
State
|
|
|
79
|
|
|
|
3
|
|
|
|
43
|
|
|
|
|
(4
|
)
|
|
|
(227
|
)
|
|
|
(601
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,173
|
|
|
|
(2,790
|
)
|
|
|
522
|
|
State
|
|
|
511
|
|
|
|
(278
|
)
|
|
|
(183
|
)
|
Change
in valuation allowance
|
|
|
(1,741
|
)
|
|
|
3,074
|
|
|
|
927
|
|
|
|
|
(57
|
)
|
|
|
6
|
|
|
|
1,266
|
|
Provision
(benefit) for income taxes, continuing operations
|
|
|
(61
|
)
|
|
|
(221
|
)
|
|
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
94
|
|
|
|
335
|
|
|
|
253
|
|
State
|
|
|
8
|
|
|
|
63
|
|
|
|
54
|
|
|
|
|
102
|
|
|
|
398
|
|
|
|
307
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
48
|
|
|
|
(6
|
)
|
|
|
40
|
|
State
|
|
|
9
|
|
|
|
--
|
|
|
|
8
|
|
|
|
|
57
|
|
|
|
(6
|
)
|
|
|
48
|
|
Provision
for income taxes, discontinuing operations
|
|
|
159
|
|
|
|
392
|
|
|
|
355
|
|
Provision
for income taxes
|
|
$
|
98
|
|
|
$
|
171
|
|
|
$
|
1,020
|
|
We
adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes
(“FIN 48”), on January 1, 2007. As a result of the implementation
of FIN 48, we recognized an increase of $192 in the liability for uncertain tax
benefits, which was accounted for as a reduction to the January 1, 2007 balance
of retained earnings. A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
2008
|
|
2007
|
Balance,
beginning of period
|
|
$
|
247
|
|
|
$
|
231
|
|
Increase
as a result of tax positions taken in prior years
|
|
|
8
|
|
|
|
16
|
|
Balance,
end of period
|
|
$
|
255
|
|
|
$
|
247
|
|
We
recognize potential accrued interest and penalties related to uncertain tax
positions in income tax expense. In conjunction with the adoption of FIN 48, we
recognized $98 for the payment of interest and penalties at January 1, 2007,
which is included as a component of the $192 liability for uncertain tax
positions. Interest and penalties associated with uncertain tax positions of $8
and $16 was recognized in 2008 and 2007, respectively, and totaled $122 and $114
as of December 31, 2008 and 2007, respectively. To the extent interest and
penalties are not assessed in the future with respect to uncertain tax
positions, amounts accrued will be reduced and reflected as a reduction of the
overall income tax provision. The total amount of liability for uncertain tax
benefits that, if recognized, would affect the effective tax rate was $255 and
$247 as of December 31, 2008 and 2007, respectively.
We file
consolidated and separate income tax returns in the U.S. federal jurisdiction
and in various state jurisdictions. With few exceptions, we are no longer
subject to U.S. federal, state or local income tax examinations by tax
authorities in our major tax jurisdictions for years before 2004.
Total
provision for income tax (benefit) differs from the amount of income tax
determined by applying the applicable U.S statutory federal income tax rate to
income before taxes as a result of the following differences:
|
|
2008
|
|
2007
|
|
2006
|
Income
tax provision (benefit) at expected federal income tax
rate
|
|
$
|
1,207
|
|
|
$
|
(2,922
|
)
|
|
$
|
417
|
|
State
income tax provision (benefit), net of federal tax effect
|
|
|
577
|
|
|
|
(235
|
)
|
|
|
17
|
|
Change
in valuation allowance
|
|
|
(1,741
|
)
|
|
|
3,074
|
|
|
|
927
|
|
Non-deductible
operating expenses
|
|
|
106
|
|
|
|
140
|
|
|
|
117
|
|
Expiration
of carryforward items
|
|
|
25
|
|
|
|
85
|
|
|
|
--
|
|
Return
to provision adjustments
|
|
|
(72
|
)
|
|
|
(83
|
)
|
|
|
(291
|
)
|
Change
in liability for tax contingencies
|
|
|
--
|
|
|
|
--
|
|
|
|
(174
|
)
|
Other
|
|
|
(4
|
)
|
|
|
112
|
|
|
|
7
|
|
Total
|
|
$
|
98
|
|
|
$
|
171
|
|
|
$
|
1,020
|
|
We assess
the need for a valuation allowance against our deferred tax assets in accordance
with SFAS No. 109,
Accounting
for Income Taxes
. Realization of deferred tax assets (net of recorded
valuation allowances) is largely dependent upon future profitable operations and
future reversals of existing taxable temporary differences. In assessing the
need for a valuation allowance, we consider all positive and negative evidence,
including anticipated operating results, scheduled reversals of deferred tax
liabilities, and tax planning strategies.
Our need
for a valuation allowance considers a number of factors, including operating
performance, downward industry trends in shipments of manufactured housing,
future projected shipments, and an uncertainty about future results given the
overall economic environment. As a result, we have fully reserved our deferred
tax assets. The valuation allowance against deferred tax assets totaling $16,042
as of December 31, 2008 may be reversed to income in future periods to the
extent that the related deferred income tax assets are realized or the valuation
allowances are otherwise no longer required. The net decrease in the valuation
allowance in 2008 relates primarily to the utilization of net operating loss
carryforwards.
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.
Deferred tax assets and liabilities are comprised of the following as of
December 31, 2008 and 2007:
|
|
2008
|
|
2007
|
Current
differences:
|
|
|
|
|
|
|
|
|
Warranty
expense
|
|
$
|
3,777
|
|
|
$
|
4,010
|
|
Inventory
capitalization
|
|
|
941
|
|
|
|
1,340
|
|
Allowance
for losses on receivables
|
|
|
300
|
|
|
|
465
|
|
Accrued
expenses
|
|
|
2,245
|
|
|
|
2,454
|
|
Repurchase
commitments
|
|
|
448
|
|
|
|
294
|
|
|
|
|
7,711
|
|
|
|
8,563
|
|
Less
valuation allowance
|
|
|
7,711
|
|
|
|
8,563
|
|
Totals
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
Non-current
differences:
|
|
|
|
|
|
|
|
|
Depreciation
and basis differential of acquired assets
|
|
$
|
753
|
|
|
$
|
1,025
|
|
Net
operating loss and other carryforwards
|
|
|
7,419
|
|
|
|
8,037
|
|
Goodwill
|
|
|
4
|
|
|
|
6
|
|
Other
|
|
|
155
|
|
|
|
152
|
|
|
|
|
8,331
|
|
|
|
9,220
|
|
Less
valuation allowance
|
|
|
8,331
|
|
|
|
9,220
|
|
Totals
|
|
$
|
--
|
|
|
$
|
--
|
|
In 2008,
we utilized federal net operating loss carryforwards of $587 and state net
operating loss carryforwards of $874 to reduce taxes otherwise payable. At
December 31, 2008, we had federal and state net operating loss carryforwards of
$9,941 and $60,167, respectively. The net operating loss carryforwards will
expire as follows:
Years
ending December 31,
|
|
Federal
|
|
State
|
2009
|
|
$
|
--
|
|
|
$
|
105
|
|
2010
|
|
|
437
|
|
|
|
--
|
|
2011
|
|
|
--
|
|
|
|
276
|
|
2012
|
|
|
--
|
|
|
|
273
|
|
2013
|
|
|
--
|
|
|
|
123
|
|
2019
|
|
|
--
|
|
|
|
46
|
|
2020
|
|
|
--
|
|
|
|
14,668
|
|
2021
|
|
|
--
|
|
|
|
4,946
|
|
2022
|
|
|
--
|
|
|
|
8,926
|
|
2023
|
|
|
--
|
|
|
|
9,548
|
|
2024
|
|
|
--
|
|
|
|
3,070
|
|
2025
|
|
|
--
|
|
|
|
103
|
|
2026
|
|
|
--
|
|
|
|
6,346
|
|
2027
|
|
|
9,504
|
|
|
|
11,300
|
|
2028
|
|
|
--
|
|
|
|
437
|
|
Net cash
paid for (received from) income taxes for the years ended December 31, 2008,
2007, and 2006 was $49, $(857), and $1,454, respectively.
11.
|
EMPLOYEE
BENEFIT PLANS
|
We have
self-funded group medical plans which are administered by third party
administrators. The medical 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 our incident reporting system and incurred but not
reported claims are funded or accrued based on estimates that incorporate our
past experience, as well as other considerations such as the nature of each
claim or incident, relevant trend factors and advice from consulting actuaries.
We have established self-insurance trust funds for payment of claims and make
deposits to the trust funds in amounts determined by outside consultants. The
cost of these plans to us was $2,065, $2,428, and $3,138 for years ended
December 31, 2008, 2007, and 2006, respectively.
We
sponsor a 401(k) retirement plan covering all employees who meet participation
requirements. Employee contributions are limited to a percentage of compensation
as defined in the plan. The amount of our matching contribution is discretionary
as determined by our Board of Directors. In December 2008, our matching
contribution was suspended by our Board of Directors. Our matching contributions
totaled $366, $465, and $481 for the years ended December 31, 2008, 2007, and
2006, respectively.
12.
|
COMMITMENTS
AND CONTINGENCIES
|
Operating
Leases
We are
obligated under various operating lease agreements with varying monthly payments
and expiration dates through December 2011. Total rent expense under operating
leases was $310, $466, and $533 for the years ended December 31, 2008, 2007, and
2006, respectively. Future minimum rents payable under operating leases that
have initial or remaining noncancelable
lease
terms in excess of one year at December 31, 2008 are $310, $10, and $4 for the
years ending December 31, 2009, 2010, and 2011, respectively.
Contingent
Liabilities and Other
a.
|
Under
the repurchase agreements described in Note 1, we were contingently liable
at December 31, 2008, to financial institutions providing inventory
financing for retailers of our products up to a maximum of approximately
$45,000 in the event we must perform under the repurchase commitments. We
recorded an estimated liability of $1,141 and $1,131 at December 31, 2008
and December 31, 2007, respectively, related to these commitments.
Activity in the reserve for repurchase commitments was as
follows:
|
|
|
2008
|
|
2007
|
|
2006
|
Balance,
beginning of period
|
|
$
|
1,131
|
|
|
$
|
1,513
|
|
|
$
|
1,270
|
|
Reduction
for payments made on inventory purchases
|
|
|
(220
|
)
|
|
|
(252
|
)
|
|
|
(197
|
)
|
Recoveries
for inventory repurchase
|
|
|
94
|
|
|
|
51
|
|
|
|
10
|
|
Accrual
for guarantees issued during the period
|
|
|
1,128
|
|
|
|
1,334
|
|
|
|
2,173
|
|
Reduction
to pre-existing guarantees due to declining obligations or expired
guarantees
|
|
|
(1,353
|
)
|
|
|
(1,607
|
)
|
|
|
(2,045
|
)
|
Changes
to the accrual for pre-existing guarantees for those dealers deemed to be
probable of default
|
|
|
361
|
|
|
|
92
|
|
|
|
302
|
|
Balance,
end of period
|
|
$
|
1,141
|
|
|
$
|
1,131
|
|
|
$
|
1,513
|
|
In
conjunction with the review of our critical accounting estimates, we evaluated
our historical loss factors applied to the reserve for repurchase commitments,
including changes in dealers’ circumstances and industry conditions, for those
dealers deemed to be probable of default. Based on our review of dealers’
circumstances, we recorded a change in accounting estimate that resulted in
reductions in revenue in 2008, 2007 and 2006 of $361, $92 and $302,
respectively.
b.
|
Under
the insurance plans described in Note 1, we were contingently liable at
December 31, 2008 for future retrospective premium adjustments. We
recorded an estimated liability of $4,079 at December 31, 2008 and $4,274
at December 31, 2007 related to these contingent
claims.
|
c.
|
Litigation
is subject to uncertainties and we cannot predict the probable outcome or
the amount of liability of individual litigation matters with any level of
assurance. We are engaged in various legal proceedings that are incidental
to and arise in the course of our business. Certain of the cases filed
against us and other companies engaged in businesses similar to ours
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. Our liability under
some of this litigation is covered in whole or in part by insurance.
Anticipated legal fees and other losses, in excess of insurance coverage,
associated with these lawsuits are accrued at the time such cases are
identified or when additional information is available such that losses
are probable and reasonably estimable. In our opinion, the ultimate
liability, if any, with respect to the proceedings in which we are
currently involved is not presently expected to have a material adverse
effect on our results of operations, financial position or liquidity. We
used the services of a law firm in which a partner is a former director.
We paid legal fees to this firm of $237 (2008), $212 (2007), and $292
(2006).
|
d.
|
We
have provided letters of credit totaling $3,773 as of December 31, 2008 to
providers of certain of our surety bonds and insurance policies. While the
current letters of credit have a finite life, they are subject to renewal
at different amounts based on the requirements of the insurance carriers.
We have recorded insurance expense based on anticipated losses related to
these policies.
|
13.
|
EQUITY
METHOD INVESTEES
|
Our
minority ownership interests in joint ventures are accounted for using the
equity method and are included in other assets in the accompanying consolidated
balance sheets in the amount of $1,038 (2008) and $1,118 (2007). We recorded
equity in earnings of equity-method investees of $96, $971, and $805 for the
years ended December 31, 2008, 2007, and 2006, respectively. Cash distributions
received from investees accounted for by the equity method were $231, $784, and
$622 for the years ended December 31, 2008, 2007 and 2006, respectively. At
December 31, 2008, none of our equity method investees were defined as
significant. In 2006, our only significant minority ownership interest in an
individual joint venture was in WoodPerfect, Ltd. of which we owned a 35.42%
interest. We completed the significance tests in 2007 and 2006 using
the
average
income for the previous five-year periods since income from continuing
operations was at least 10% lower than the average income for the five year
periods (excluding losses).
Effective
as of September 30, 2007, we sold our ownership interest in WoodPerfect, Ltd. to
a joint venture partner and we acquired that partner’s interest in another of
our joint ventures. We received net cash on the sale/swap of these partnership
interests of $3,012 and recognized a gain on the sale of $123. Following this
transaction, we have one remaining operating equity-method investee, MSR Forest
Products, LLC, in which we own 23.26%. Summarized information related to the
combined group of equity investees and for WoodPerfect, Ltd., individually, is
shown below. The income statement information for WoodPerfect for 2007 is only
shown through September 30, 2007.
|
|
2008
|
|
2007
|
|
2006
|
Combined
group:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
3,093
|
|
|
$
|
3,742
|
|
|
$
|
12,418
|
|
Non-current
assets
|
|
|
1,961
|
|
|
|
2,227
|
|
|
|
6,479
|
|
Current
liabilities
|
|
|
397
|
|
|
|
611
|
|
|
|
2,030
|
|
Non-current
liabilities
|
|
|
544
|
|
|
|
831
|
|
|
|
2,974
|
|
Income
Statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
16,204
|
|
|
|
51,251
|
|
|
|
75,537
|
|
Gross
profit
|
|
|
3,930
|
|
|
|
10,497
|
|
|
|
11,285
|
|
Income
from continuing operations
|
|
|
416
|
|
|
|
3,161
|
|
|
|
1,259
|
|
Net
income
|
|
|
416
|
|
|
|
3,161
|
|
|
|
1,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WoodPerfect,
Ltd:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
--
|
|
|
|
--
|
|
|
|
7,033
|
|
Non-current
assets
|
|
|
--
|
|
|
|
--
|
|
|
|
3,232
|
|
Current
liabilities
|
|
|
--
|
|
|
|
--
|
|
|
|
1,480
|
|
Non-current
liabilities
|
|
|
--
|
|
|
|
--
|
|
|
|
156
|
|
Income
Statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
--
|
|
|
|
29,905
|
|
|
|
47,553
|
|
Gross
profit
|
|
|
--
|
|
|
|
4,938
|
|
|
|
5,954
|
|
Income
from continuing operations
|
|
|
--
|
|
|
|
1,576
|
|
|
|
1,463
|
|
Net
income
|
|
|
--
|
|
|
|
1,576
|
|
|
|
1,463
|
|
14.
|
CONCENTRATION
OF CREDIT RISK
|
We design
and produce manufactured homes which are sold to a network of dealers located
primarily in the South Central and South Atlantic regions of the United States
and under agreements, which may be terminated at any time by either party, with
or without cause, after a short notice period. We are not dependent on any
single dealer, and the largest independent dealer accounted for approximately
10.1% of sales in 2008, excluding MEMA related sales.
For
installment contracts held in the CIS portfolio, CIS 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 CIS upon
default by the borrower.
In
January 2009, subsequent to year-end, we entered into a stock purchase agreement
to sell CIS, our financial services subsidiary. See Note 3, Discontinued
Operations.
Our idle
facility located in Cordele, Georgia was sold on February 13, 2009. See Note 6,
Impairment Charges.
CAVALIER
HOMES, INC. AND SUBSIDIARIES
SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006
(dollars
in thousands)
|
|
Balance
at Beginning of Year
|
|
|
Additions
Charged to Cost and Expenses
|
|
|
Deductions
|
|
|
Balance
at End of Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for losses on accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
$
|
106
|
|
|
$
|
90
|
|
|
$
|
(34
|
)
|
|
$
|
162
|
|
Year
Ended December 31, 2007
|
|
$
|
78
|
|
|
$
|
28
|
|
|
$
|
--
|
|
|
$
|
106
|
|
Year
Ended December 31, 2006
|
|
$
|
56
|
|
|
$
|
22
|
|
|
$
|
--
|
|
|
$
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax asset valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
$
|
17,783
|
|
|
$
|
--
|
|
|
$
|
(1,741
|
)
|
|
$
|
16,042
|
|
Year
Ended December 31, 2007
|
|
$
|
14,709
|
|
|
$
|
3,074
|
|
|
$
|
--
|
|
|
$
|
17,783
|
|
Year
Ended December 31, 2006
|
|
$
|
13,782
|
|
|
$
|
927
|
|
|
$
|
--
|
|
|
$
|
14,709
|
|
None.
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our chief executive officer and chief
financial officer, management has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of December
31, 2008. Based on that evaluation, our chief executive officer and our chief
financial officer have concluded that our disclosure controls and procedures
were effective as of December 31, 2008.
Management’s
Report on Internal Control Over Financial Reporting
Management’s
Report on Internal Control Over Financial Reporting is included on page 31 of
this report.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in internal controls that occurred during the fourth
quarter of 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
None.
PART
III
The
information required by this item will be included in our Proxy Statement for
the Annual Meeting of Stockholders to be held on May 18, 2009, which is
incorporated herein by reference.
The
information required by this item will be included in our Proxy Statement for
the Annual Meeting of Stockholders to be held on May 18, 2009, which is
incorporated herein by reference.
The
information required by Item 403 of Regulation S-K will be included in our Proxy
Statement for the Annual Meeting of Stockholders to be held on May 18, 2009,
which is incorporated herein by reference.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table provides information as of December 31, 2008 regarding
compensation plans (including individual compensation arrangements) under which
our common stock is authorized for issuance.
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
Equity
compensation plans approved by stockholders
|
|
|
506,923
|
|
|
$
|
4.68
|
|
|
|
1,855,000
|
|
Equity
compensation plans not approved by stockholders
|
|
|
17,000
|
|
|
$
|
3.40
|
|
|
|
--
|
|
Total
|
|
|
523,923
|
|
|
$
|
4.64
|
|
|
|
1,855,000
|
|
See Note
9 of Notes to Consolidated Financial Statements for information regarding the
material features of the above plans. Each of the above plans provides that the
number of shares with respect to which options may be granted, and the number of
shares of our common stock subject to an outstanding option, shall be
proportionately adjusted in the event of a subdivision or consolidation of
shares or the payment of a stock dividend on our common stock, and the purchase
price per share of outstanding options shall be proportionately
revised.
The
information required by this item will be included in our Proxy Statement for
the Annual Meeting of Stockholders to be held on May 18, 2009, which is
incorporated herein by reference.
The
information required by this item will be included in our Proxy Statement for
the Annual Meeting of Stockholders to be held on May 18, 2009, which is
incorporated herein by reference.
PART
IV
(a)
|
|
1.
The financial statements contained in this report and the page on which
they may be found are as follows:
|
|
|
|
|
|
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Financial Statement
Description
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Page
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Report
of Independent Registered Public Accounting Firm
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32
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Consolidated
Balance Sheets as of December 31, 2008 and 2007
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33
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Consolidated
Statements of Operations for years ended December 31, 2008, 2007, and
2006
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34
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Consolidated
Statements of Stockholders’ Equity for years ended December 31, 2008,
2007, and 2006
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35
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Consolidated
Statements of Cash Flows for years ended December 31, 2008, 2007, and
2006
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36
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Notes
to Consolidated Financial Statements
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37
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2.
The financial statement schedule required to be filed with this report and
the page on which it may be found is as follows:
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No.
Schedule
Description
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Page
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II Valuation
and Qualifying Accounts
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50
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3.
The exhibits required to be filed with this report are listed below. We
will furnish upon request any of the exhibits listed upon the receipt of
$15.00 per exhibit, plus $0.50 per page, to cover the cost to us of
providing the exhibit.
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Exhibit
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Description
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3.1
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Our
Composite Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3(a) to our Annual Report on Form 10-K for the
year ended December 31, 1998)
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3.2
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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 (incorporated by reference to
Exhibit A to Exhibit 4 to our Registration Statement on Form 8-A filed on
October 30, 1996)
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3.3
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Our
Amended and Restated By-laws (incorporated by reference to Exhibit 3(b) to
our registration of securities on Form 8K/A filed on March 3,
2004)
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4.1
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Articles
four, six, seven, eight and nine of our Amended and Restated Certificate
of Incorporation, as amended, included in Exhibit 3(a) above
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4.2
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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 our Amended and Restated
By-laws, included in Exhibit 3(c) above
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10.1
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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 (incorporated by
reference to Exhibit 10(j) to our Annual Report on Form 10-K for the year
ended December 31, 1999)
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10.2
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Amended
and Restated Revolving and Term Loan Agreement, dated as of March 31,
2000, by and among the Company, First Commercial Bank and certain
subsidiaries of the Company (incorporated by reference to Exhibit 10(b) to
our Quarterly Report on Form 10-Q for the quarter ended March 31,
2000)
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10.2(a)
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First
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of September 29, 2000, between us and First Commercial Bank
(incorporated by reference to Exhibit 10(a) to our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000)
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10.2(b)
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Second
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of May 4, 2001, between us and First Commercial Bank (incorporated by
reference to Exhibit 10(c) to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001)
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10.2(c)
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Second
Modification to Amended and Restated Revolving Note, dated as of June 21,
2002, between us and First Commercial Bank (incorporated by reference to
Exhibit 10(a) to our Quarterly Report on Form 10-Q for the quarter ended
June 29, 2002)
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10.2(d)
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Third
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of June 21, 2002, between us and First Commercial Bank (incorporated by
reference to Exhibit 10(b) to our Quarterly Report on Form 10-Q for the
quarter ended June 29, 2002)
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10.2(e)
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Third
Modification to Amended and Restated Revolving Note, dated as of October
25, 2002, between us and First Commercial Bank (incorporated by reference
to Exhibit 10(c) to our Quarterly Report on Form 10-Q for the quarter
ended September 28, 2002)
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10.2(f)
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Fourth
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of October 25, 2002, between us and First Commercial Bank (incorporated
by reference to Exhibit 10(d) to our Quarterly Report on Form 10-Q for the
quarter ended September 28, 2002)
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Exhibit
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Description
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10.2(g)
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Fourth
Modification to Amended and Restated Revolving Note, dated as of August 6,
2003, between us and First Commercial Bank (incorporated by reference to
Exhibit 10(a) to our Quarterly Report on Form 10-Q for the quarter ended
June 28, 2003)
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10.2(h)
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Fifth
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of August 6, 2003, between us and First Commercial Bank (incorporated
by reference to Exhibit 10(b) to our Quarterly Report on Form 10-Q for the
quarter ended June 28, 2003)
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10.2(i)
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Sixth
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of October 26, 2004, between us and First Commercial Bank
(incorporated by reference to Exhibit 10(c) to our Quarterly Report on
Form 10-Q for the quarter ended September 25, 2004)
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10.2(j)
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Seventh
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of October 25, 2005, between us and First Commercial Bank (incorporated
by reference to Exhibit 99.1 to our Report on Form 8-K filed on October
31, 2005)
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10.2(k)
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Eighth
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of December 6, 2005, between us and First Commercial Bank (incorporated
by reference to Exhibit 99.1 to our Report on Form 8-K filed on December
7, 2005)
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10.2(l)
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Ninth
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of May 23, 2006, between us and First Commercial Bank (incorporated by
reference to Exhibit 99.1 to our Report on Form 8-K filed on May 25,
2006)
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10.2(m)
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Tenth
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of February 21, 2007, between us and First Commercial Bank
(incorporated by reference to Exhibit 99.1 to our Report on Form 8-K filed
on February 21, 2007)
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10.2(n)
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Eleventh
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of June 26, 2007, between us and First Commercial Bank (incorporated by
reference to Exhibit 10.1 to our Report on Form 8-K filed on June 27,
2007)
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10.2(o)
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Twelfth
Amendment to Amended and Restated Revolving and Term Loan Agreement, dated
as of February 22, 2008, between us and First Commercial Bank
(incorporated by reference to Exhibit 10.2(o) to our Annual Report on Form
10-K for the year ended December 31, 2007)
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10.2(p)
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Continuing
Guaranty Agreement between First Commercial Bank and Cavalier Homes, Inc.,
dated March 31, 2000, relating to guaranty of payments of Cavalier
Acceptance Corporation (incorporated by reference to Exhibit 10(c) to our
Quarterly Report on Form 10-Q for the quarter ended March 31,
2000)
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10.2(q)
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Guaranty
Agreement, dated as of August 6, 2003, between us and First Commercial
Bank (incorporated by reference to Exhibit 10(d) to our Quarterly Report
on Form 10-Q for the quarter ended June 28, 2003)
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10.2(r)
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Real
Estate Note, dated as of August 6, 2003, between us and First Commercial
Bank (incorporated by reference to Exhibit 10(c) to our Quarterly Report
on Form 10-Q for the quarter ended June 28, 2003)
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10.2(s)
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Amended
and Restated Real Estate Note, dated as of September 26, 2003, between us
and First Commercial Bank (incorporated by reference to Exhibit 10(a) to
our Quarterly Report on Form 10-Q for the quarter ended September 27,
2003)
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10.2(t)
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Amendment
to Real Estate Term Note, effective as of September 30, 2008, between us
and First Commercial Bank (incorporated by reference to Exhibit 10.1 to
our Quarterly Report on Form 10-Q for the quarter ended September 27,
2008)
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10.2(u)
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Revolving
Note, under the Amended and Restated Revolving and Term Loan Agreement,
dated as of December 6, 2005, between us and First Commercial Bank
(incorporated by reference to Exhibit 10(y) to our Annual Report on Form
10-K for the year ended December 31, 2005)
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Exhibit
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Description
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10.3*
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Cavalier
Homes, Inc. 1996 Key Employee Stock Incentive Plan (incorporated by
reference to an Appendix to our definitive Proxy Statement for the Annual
Meeting of Stockholders held May 15, 1996)
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10.3(a)*
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Amendment
to Cavalier Homes, Inc. 1996 Key Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10(i) to our Quarterly Report on
Form 10-Q for the quarter ended March 28, 1997)
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10.3(b)*
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Amendment
to Cavalier Homes, Inc. 1996 Key Employee Stock Incentive Plan, effective
December 30, 1997 (incorporated by reference to Exhibit 10(j) to our
Annual Report on Form 10-K for the year ended December 31,
1997)
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10.3(c)*
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Amendment
to Cavalier Homes, Inc. 1996 Key Employee Stock Incentive Plan, effective
January 23, 1998 (incorporated by reference to Exhibit 10(k) to our Annual
Report on Form 10-K for the year ended December 31, 1997)
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10.3(d)*
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Amendment
to Cavalier Homes, Inc. Key 1996 Employee Stock Incentive Plan, effective
October 20, 1998 (incorporated by reference to Exhibit 10(l) to our Annual
Report on Form 10-K for the year ended December 31, 1998)
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10.4*
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Cavalier
Homes, Inc. 1993 Amended and Restated Nonemployee Directors Stock Option
Plan, (incorporated by reference to an Appendix to our definitive Proxy
Statement for the Annual Meeting of Stockholders held May 15,
1996)
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10.4(a)*
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Amendment
to Cavalier Homes, Inc. 1993 Amended and Restated Nonemployee Directors
Plan (incorporated by reference to Exhibit 10(i) to our Annual Report on
Form 10-K for the year ended December 31, 1996)
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10.4(b)*
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Amendment
to Cavalier Homes, Inc. 1993 Amended and Restated Nonemployee Directors
Plan (incorporated by reference to Exhibit 10(n) to our Annual Report on
Form 10-K for the year ended December 31, 1997)
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10.5*
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Cavalier
Homes, Inc. 2005 Incentive Compensation Plan (incorporated by reference to
an Appendix to our definitive Proxy Statement for the Annual Meeting of
Stockholders held May 24, 2005)
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10.6*
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Cavalier
Homes, Inc. 2005 Non-Employee Directors Stock Option Plan (incorporated by
reference to an Appendix to our definitive Proxy Statement for the Annual
Meeting of Stockholders held May 24, 2005)
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10.7*
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Form
of Stock Option Agreement between us and Thomas A. Broughton, III, dated
January 29, 2002 (incorporated by reference to Exhibit 4(e) to our
Registration Statement on Form S-8, Registration No.
333-90652)
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10.8
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Form
of Indemnification Agreement by and between Cavalier Homes, Inc. and each
member of our Board of Directors (incorporated by reference to Exhibit
10(a) to our Quarterly Report on Form 10-Q for the quarter ended September
25, 1998)
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10.9
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Inventory
Security Agreement and Power of Attorney, dated as of July 13, 2004,
between us and 21st Mortgage Company (incorporated by reference to Exhibit
10(a) to our Quarterly Report on Form 10-Q for the quarter ended September
25, 2004)
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21†
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Subsidiaries
of the Registrant
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23†
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Consent
of Independent Registered Public Accounting Firm – Carr, Riggs &
Ingram, LLC
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31.1†
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Certification
of principal executive officer pursuant to Exchange Act Rule 13a-15(e) or
15d-15(e)
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31.2†
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Certification
of principal financial officer pursuant to Exchange Act Rule 13a-15(e) or
15d-15(e)
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32†
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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* Management
contract or compensatory plan or arrangement.
† Filed
herewith.
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.
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CAVALIER
HOMES, INC.
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(Registrant)
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Date:
February 19, 2009
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/s/
BOBBY TESNEY
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Bobby
Tesney
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President
and Chief Executive Officer
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Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature
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Title
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Date
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/s/
BOBBY TESNEY
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Director,
President and Chief Executive Officer
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February
19, 2009
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Bobby
Tesney
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/s/
MICHAEL R. MURPHY
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Chief
Financial Officer and Principal Accounting Officer
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February
19, 2009
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Michael
R. Murphy
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/s/
BARRY DONNELL
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Chairman
of the Board and Director
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February
19, 2009
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Barry
Donnell
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/s/
THOMAS A. BROUGHTON, III
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Director
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February
19, 2009
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Thomas
A. Broughton, III
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/s/
LEE ROY JORDAN
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Director
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February
19, 2009
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Lee
Roy Jordan
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/s/
J. DON WILLIAMS
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Director
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February
19, 2009
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J.
Don Williams
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INDEX
Exhibit
Number
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Description
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21
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Subsidiaries
of the Registrant
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23
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Consent
of Independent Registered Public Accounting Firm – Carr, Riggs &
Ingram, LLC
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31.1
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Certification
of principal executive officer pursuant to Exchange Act Rule 13a-15(e) or
15d-15(e).
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31.2
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Certification
of principal financial officer pursuant to Exchange Act Rule 13a-15(e) or
15d-15(e).
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32
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Certification
of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
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Cavalier Homes (AMEX:CAV)
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Cavalier Homes (AMEX:CAV)
過去 株価チャート
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