-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NbdDTNdVhPl/fRFx7SZV/ylg2DRsFqt1GOj8sPqHWxVKw07vmKQHuyVcN/BOkLKq VXxr2sQv1AC8jYCo5MYWpQ== 0000950153-95-000435.txt : 19970501 0000950153-95-000435.hdr.sgml : 19970501 ACCESSION NUMBER: 0000950153-95-000435 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951228 DATE AS OF CHANGE: 19970430 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAVCO INDUSTRIES INC CENTRAL INDEX KEY: 0000278166 STANDARD INDUSTRIAL CLASSIFICATION: 2451 IRS NUMBER: 860214910 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08822 FILM NUMBER: 95605466 BUSINESS ADDRESS: STREET 1: 301 E BETHANY HOME RD STE C-178 CITY: PHOENIX STATE: AZ ZIP: 85012 BUSINESS PHONE: 6022650580 MAIL ADDRESS: STREET 1: 301 EAST BETHANY HOME ROAD STREET 2: SUITE C-178 CITY: PHOENIX STATE: AZ ZIP: 85012 10-K 1 FORM 10-K FOR YEAR ENDED SEPTEMBER 30, 1995 1 SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT of 1934 Fiscal Year Ended September 30, 1995 Commission File 0-8822 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES An Arizona Corporation No. 86-0214910 301 East Bethany Home Road, Suite C-178 Phoenix, AZ 85012 Registrant's Telephone No. (602) 265-0580 Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each exchange on which to be so registered each class is to be registered ------------------- ------------------------------ None None Securities to be registered pursuant to Section 12(g) of the Act: Five cent ($.05) Par Value Common Stock Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant as of November 30, 1995 was $14,153,196. As of November 30, 1995, the issuer had 3,382,977 shares of its five cent ($.05) par value common stock outstanding. The Exhibit Index is located on Page 37. The total number of pages is 44. 1 2 PART I ITEM 1: BUSINESS (a) General Cavco Industries, Inc., hereinafter referred to as the "Company" or "Cavco", is the largest manufacturer of residential and recreational housing in Arizona. The Company began as an unincorporated association in 1965, manufacturing truck campers under the name Roadrunner Manufacturing Company. In 1966, the Company changed its name to Cavalier Manufacturing Company and it incorporated in 1968. In 1974, the Company changed its name to Cavco Industries, Inc. In November, 1986, the Company began manufacturing relocatable commercial modular structures for sale or lease, marketed by a division of the Company doing business as CVC Leasing ("CVC"). In October, 1993, CVC diversified its leasing operations to include security storage containers. In August, 1994, the Company sold the relocatable modular commercial structures of CVC. In August, 1994, the Company founded National Security Containers, Inc. ("NSC") to market and lease security storage containers and trailer vans. The Company owns 100% of NSC's stock. In March, 1987, the Company founded Action Healthcare Management Services, Inc., ("Action," formerly known as Action Health Care, Inc.) to provide health care management services. The Company owns approximately 93% of Action's stock. In December, 1991, the Company founded Sun Built Homes, Inc., ("Sun Built") to develop manufactured housing subdivisions and sell manufactured homes in established subdivisions. The Company owns 100% of Sun Built's stock. The Company's executive office is located at 301 E. Bethany Home Road, Suite C-178, Phoenix, Arizona 85012. (b) Financial Information About Industry Segments The Company operates principally in four industries: manufactured housing, leasing, real estate development, and health care management. Information with respect to net sales, operating profit (loss) and identifiable assets by industry segment is shown in the notes to consolidated financial statements in Part II of this Form 10-K. (c) Narrative Description of Business I. Manufactured Housing DESCRIPTION OF BUSINESS The Company is a manufacturer of quality residential and recreational housing. The manufactured housing products are transported from the factory to the dealer retail outlet and ultimately to the site in one or more sections and are installed utilizing their own chassis on either temporary or permanent foundations. Although these manufactured housing products are designed to be transportable, fewer than five percent are ever moved off the owner's original site. 2 3 The Company is subject to the regulations of federal and state agencies which dictate building codes for manufactured housing. Cavco implements efficient assembly line techniques and uses essentially the same materials used in site-built homes. The Company purchases components from outside sources, installs electrical, plumbing and heating systems and fabricates sub-floors, walls and cabinets. Interior walls are constructed with a drywall material and exterior walls from wood products, vinyl lap, aluminum or anodized steel. The roof is covered with asphalt shingles or constructed of galvanized steel. Cavco's housing products are distributed under various trademarks, with models available in a variety of floorplans ranging in size from 399 square feet for a recreation/retirement park home, and 560 to 2,026 square feet for a residential home. A typical home includes a living room, dining room, one or two baths and one or more bedrooms. The base price of the Company's homes includes carpeting, major appliances, draperies and forced air furnaces. There are numerous options available and the Company can customize virtually any of its models to meet the needs of any geographical area. Retail prices of the Company's housing range from a low price of $17,000 up to a high of $100,000. The average price of a recreational/retirement park home is approximately $25,000, and the average price of a residential home is approximately $36,000. The retail price of the manufactured homes is set by the individual dealers and not by the Company. METHOD OF DISTRIBUTION The Company does not sell its housing directly to the general public. The Company sells its homes only to fill orders received by its dealers. Many of the Company's dealers operate more than one retail outlet. The Company presently has 153 dealer retail outlets in 10 states, Canada and Japan, of which there are 91 in Arizona, 15 in New Mexico, 12 in Colorado, 9 in Utah, 6 in Texas, 5 in Nevada, 3 in California, 2 in Oregon, 1 each in Idaho and Washington, 6 in Canada and 2 in Japan. The Company may enter into agreements with dealers that would require them to sell the Company's products exclusively, although most of the dealers also sell competing products. The dealer first establishes credit with a bank and with the Company. The dealer then orders a home, either based on a contract with the retail customer or to increase its inventory. Upon receiving the order from the dealer, the Company clears the order with the dealer's bank and receives a commitment from the dealer's bank for the money, which is earmarked for the home ordered, identified by its serial number. The Company then builds the home and ships it to the dealer. The dealer is responsible for all shipping costs. The dealer examines the home, approves it and authorizes the bank to pay the Company, in accordance with its previous commitment. The length of time it takes to manufacture and ship a home after an order is placed varies according to the backlog. Once the Company delivers the manufactured home to the dealer, it is the dealer's responsibility to install the home on its customer's property. The Company is released from any contingent liability when the dealer sells the manufactured home to the ultimate customer. If the home is not sold and the bank is not paid by the dealer, the bank can request that the Company repurchase the home. The Company is contingently liable under terms of repurchase agreements covering dealer floor plan financing arrangements. These arrangements, which are customary in the industry, provide for the repurchase of the manufacturer's products in the event the dealer defaults on payments. The risk of loss is spread over numerous dealers and financing institutions and is further reduced by the resale value of repurchased units. The Company has not incurred any significant losses from these arrangements since its inception. 3 4 The Company gives a limited warranty to original retail customers. The Company warrants structural components for 12 months and nonstructural components for 90 days. The Company does not warrant anything that pertains to installation, setup or any appliances. The appliances are warranted by their original manufacturer. SOURCES AND AVAILABILITY OF RAW MATERIALS The Company has not experienced any problems purchasing its raw materials or component parts. The Company buys from manufacturers and distributors located primarily in California and Arizona. The Company buys wood, wood products, aluminum, steel, tires, hardware, windows and doors. The only real raw materials are the wood products. Approximately 39 percent of the unit cost of a manufactured home is raw wood products. The majority of the other component parts of the homes are manufactured products in one stage or another. PATENTS, TRADEMARKS AND LICENSES The Company does not own any materially significant patents, licenses, franchises, trademarks or concessions. The Company does not sell or grant franchises to its dealers. SEASONAL The Company's business is not seasonal. It produces and sells manufactured homes throughout the entire year. INVENTORY The Company does not maintain a significant finished product inventory. CUSTOMERS The Company currently has 153 dealer outlets. Sales to one dealer exceeded 10% of the Company's sales volume. This dealer is not affiliated with the Company and the loss of any dealer would not have a material effect on the Company. BACKLOG The backlog of firm orders for manufactured homes as of September 30, 1995 was approximately $19,300,000 (1,300 floors) as compared with September 30, 1994, when the backlog was approximately $19,575,000. It currently requires approximately six to eight weeks to fill an order. The entire backlog at September 30, 1995 will be filled during the 1996 fiscal year. GOVERNMENT CONTRACTS None of the Company's business is subject to renegotiation of profits or termination of contracts at the election of the government. 4 5 COMPETITION The Company sells its housing products in the states of Arizona, New Mexico, Colorado, Texas, California, Nevada, Idaho, Utah, Washington, Oregon, as well as Canada and Japan. The Company estimates that there are 9 other manufacturers competing for the Arizona market. The Company enjoys approximately a 35% share of the Arizona market and a small share of the market in the other states. The largest competitors are Fleetwood, Redman, Palm Harbor, Schult, and Skyline. Most of these competitors have manufacturing facilities in Arizona. The Company has a broad product line at competitive prices, builds quality homes and offers complete service. RESEARCH AND DEVELOPMENT During the last two fiscal years, the amount the Company has spent on research and development was immaterial. ENVIRONMENTAL CONTROLS The Company believes that compliance with federal, state and local environmental protection regulations will not have a material adverse effect on its capital expenditures, earnings or competitive position. EMPLOYEES The Company employs 999 people in its manufacturing segment. Of these, 154 are salaried managerial, office and clerical workers; 832 are hourly production workers, and 13 are commissioned salespeople. FOREIGN OPERATIONS The Company does not have any foreign operations. II. Health Care Management DESCRIPTION OF BUSINESS Action was founded in March, 1987 to provide health care management services. These services initially consisted of utilization management, but were expanded to include employee benefit and worker's compensation, large case management and a high risk pregnancy program. Expanded services were necessitated by self-insurance/reinsurance in the employee benefits arena, excessive and fraudulent claims in the worker's compensation sector and the advent of an increasing number of women in the workforce. Current economic conditions have increased the need for reducing necessary hospital expenses without compromising the quality of care or freedom of choice available to health care participants. As the demand for a national health care program increases, utilization management and large case management will become a critical factor to the success of any such program. 5 6 DESCRIPTION OF SERVICES Utilization management is the methodology for monitoring the medical necessity and appropriateness of health care services, including hospital admissions, proposed length of hospital stay, use of outpatient facilities and other treatment alternatives. All of Action's utilization management services are performed by licensed nurses with a broad base of clinical specialty experience. Using a sophisticated menu-driven computer system, the nurse has access to pertinent medical information and criteria to evaluate the proposed treatment plan. To achieve the most objective determination, Action has an independent panel of physicians available to assist in medical recommendations for complicated cases. Large case management is the process by which medical case managers intensively manage serious illness and catastrophic injuries which typically result in repeated and/or high-cost utilization. Large case management insures that the patient receives cost-effective, integrated and well-coordinated care and that the client will achieve a favorable return for their investment in the large case management process. Action has created an innovative approach to large case management. In effect, the program consists of three parts: a case evaluation that develops a specific cost-to-savings ratio and a plan of action if the case is accepted, actual hands-on case management by medical professionals, and a 30-day post-monitoring segment designed to detect post-case complications. The Worker's Compensation Large Case Management program deals with catastrophic and long-term disability as a result of a worker's compensation accident or injury. Highly skilled medical specialists provide appropriate treatment, lowering indemnity costs via an early return to work, and reducing the possibility of litigation. Action's high risk pregnancy program, which focuses on early identification and intervention of high risk pregnancies, is receiving acceptance with Action's current client base. The program, Great Expectations, provides prescreening, identification, on-going education and hands-on perinatal case management to bring the high risk babies to term, thereby preventing the "million dollar baby." Great Expectations also provides BABYTALK, a 24-hour maternity wellness toll-free telephone line. The entire program is monitored by one of the most recognized groups of perinatologists in the country. SALES/MARKETING Using an innovative database, Action markets its services to insurance brokers/consultants, insurance carriers, third party administrators, self-insured employers, government employee groups and multi-employer trusts. Currently, Action operates with offices in Phoenix, Arizona and Thousand Oaks, California. At the end of the 1993 fiscal year, Action acquired a large block of business on the East Coast. Future expansion plans include the Pacific Northwest and the Midwest. Action's marketing philosophies are target market oriented, and all marketing functions complement each other. Typically, Action enters into a standard service contract with a client for a period of two years. Action currently has approximately 92 clients. The loss of any one client would not have an adverse material effect on Action. Action's charges to its clients are based on the type of service provided and on the number of participants. 6 7 EMPLOYEES Action has 13 employees, comprised of its president, 2 operations managers, 6 licensed nurses engaged in utilization management, 1 customer service representative, 2 clerical and administrative employees and 1 information systems manager. Action also has a network of conferring physicians and contract registered nurses who are compensated on an hourly or per visit basis when requested by Action to render consulting services. COMPETITION Action competes in a highly fragmented market with national and local firms specializing in utilization management and with third party administrators who have implemented their own internal utilization management services. Action also competes indirectly with health maintenance organizations and preferred provider organizations seeking to control health care costs. Most of Action's competitors are significantly larger than Action. Action competes on the basis of its innovative, cost-effective programs and on its commitment to high-quality service. With the recent installation of a sophisticated software system, Action's fees are competitive with other health care management providers. III. Leasing Operations DESCRIPTION OF BUSINESS In October, 1993, the Company began to sell and lease temporary security storage containers ("containers") and trailer vans ("vans"). In August, 1994, the Company formed NSC to continue the leasing operations as a 100% owned subsidiary. The containers are used ocean cargo containers, previously used for secure overseas shipment of packaged goods. The Company purchases the containers from various vendors and refurbishes them at its own fabricating facility or by using various outside contractors. The Company patches, sands, repaints and installs locking units on the containers before transferring them to the leasing offices. The containers are 8-1/2 feet high and 20 or 40 feet long. The vans were previously used for ground transportation of goods. The vans are 8 feet high and 20 to 52 feet long. METHOD OF DISTRIBUTION NSC currently sells or leases the containers and vans through five offices located in Arizona and Texas. Offices in Colorado and Louisiana are scheduled to open in December 1995. At the customer's request, NSC will contract or use its own equipment to deliver the container to the customer's site and complete the set up. Pricing of the product is dependent upon the competition and demand within each geographical area. SOURCES AND AVAILABILITY OF PRODUCTS NSC has not experienced, and does not anticipate, any problems in purchasing its containers or trailer vans. PATENTS, TRADEMARKS AND LICENSES NSC does not own any materially significant patents, licenses, franchises, trademarks or concessions. NSC does not currently sell or grant franchises. 7 8 GOVERNMENT CONTRACTS None of NSC's business is subject to renegotiation of profits or termination of contracts at the election of the Government. COMPETITION The container leasing business is relatively untapped in most areas. Competition consists primarily of small, individually owned companies that concentrate on container sales. RESEARCH AND DEVELOPMENT During the year, the amount NSC has spent on research and development was immaterial. CUSTOMERS NSC sells or leases the containers directly to any business with a need for additional storage space. Typical customers include retail stores, construction companies, and educational and government institutions. NSC experiences seasonal upturns during holiday periods, when retailers require storage space for extra merchandise. The terms of the leases generally range from one month to three years, with an average rental period of six months. There is increasing demand throughout the business community for security storage due to increasing theft and vandalism. NSC is not dependent upon any one customer. ENVIRONMENTAL CONTROLS To the best of the Company's knowledge, NSC is not affected by any federal, state or local regulations which have been enacted or adopted regarding the discharge of materials into the environment or otherwise relating to the protection of the environment. EMPLOYEES NSC has 45 employees. Of these, 1 is the president, 1 is the director of operations, 1 is the director of container development, 5 are branch managers, 9 are sales representatives, 20 are hourly production workers, and 8 are office and clerical workers. FOREIGN OPERATIONS NSC does not have any foreign operations. IV. Real Estate Development DESCRIPTION OF BUSINESS Sun Built was organized in December, 1991, to develop manufactured housing subdivisions and to sell manufactured homes in established subdivisions. Homes sold by Sun Built are manufactured by the Company at the Company's existing manufacturing plants. The average size of these homes ranges from 576 to 1,984 square feet, with retail selling prices ranging from $26,000 to $87,000, excluding the land. Within the environment of the residential development market, competition is intense. Pricing of the product is dependent upon the competition and demand within each geographical area. 8 9 METHOD OF DISTRIBUTION Sun Built sells the manufactured homes directly to the consumer. The customers are responsible for obtaining financing through their own sources, or Sun Built can assist in finding a source for them. All sales are either financed through third parties or paid for by cash. Sun Built distributes its products through fully developed subdivisions in which Sun Built either has an agreement to sell the homes or may have a percentage of ownership. There is no warranty issued with the manufactured homes other than the Manufacturer's Limited Warranty. The manufacturer warrants structural components for 12 months and nonstructural components for 90 days. SOURCES AND AVAILABILITY OF PRODUCTS Sun Built has not experienced, and does not anticipate, any problems in purchasing its manufactured homes, as units are produced by the Company. PATENTS, TRADEMARKS AND LICENSES Sun Built does not own any materially significant patents, licenses, franchises, trademarks or concessions. Sun Built does not sell or grant franchises. GOVERNMENT CONTRACTS None of Sun Built's business is subject to renegotiation of profits or termination of contracts at the election of the Government. COMPETITION Competition in the residential subdivision building market is intense. Sun Built competes with a large number of firms, many of which have substantially greater financial resources. To date, the sales of manufactured homes have all been made in Arizona. RESEARCH AND DEVELOPMENT During the last fiscal year, the amount Sun Built has spent on research and development was immaterial. ENVIRONMENTAL CONTROLS To the best of the Company's knowledge, Sun Built is not affected by any federal, state or local regulations which have been enacted or adopted regarding the discharge of materials into the environment or otherwise relating to the protection of the environment. EMPLOYEES Sun Built has 11 employees. Of these, 1 is the director of operations, 2 are project managers, 2 are servicepeople, 4 are salespeople, and 2 are office and clerical workers. 9 10 FOREIGN OPERATIONS Sun Built does not have any foreign operations. ITEM 2: PROPERTIES I. Manufactured Housing The Company's executive and accounting offices are located at 301 East Bethany Home Road, Suites C-178 and C-275, Phoenix, Arizona. In November, 1993, the Company entered into a 30-month lease for 6,632 square feet of space at this location. Lease payments for this space are $6,936 per month. The Company's manufacturing offices are located at 1001 N. Central Avenue, Suite 800 Phoenix, Arizona. In November, 1992, the Company entered into a 63-month lease for 8,800 square feet of office space. The Company entered into an amendment to the lease in May 1993 and June 1993, for an additional 1,327 and 1,068 square feet, respectively. Lease payments for this space are $8,164 per month. The Company entered into a 5-year lease in February, 1993, consisting of approximately 188,000 square feet which are primarily production facilities with some office space, located at 1366 S. Litchfield Road, Goodyear, Arizona. In December, 1993, The Company added 5,860 square feet to the lease. The Company produces manufactured homes on this property. The cost of the lease is $18,423 per month. The Company has three 5-year options it may exercise on this property. The Company acquired the manufacturing facilities located at 2502 W. Durango, Phoenix, Arizona in August, 1988. On this property are buildings totaling approximately 75,000 square feet, which are primarily production facilities with some office space. The Company produces manufactured homes on this property. The loan on this property is amortized over a 13 year term. A payment of $8,070, plus interest at prime plus 1%, is due monthly, with the balance due and payable in August, 2002. Debt secured by the property totaled $1,250,913 and $1,308,396 at September 30, 1995 and 1994, respectively. The Company leases approximately 4.7 acres of property at 1700 S. 27th Avenue, Phoenix, Arizona. The property is used as a holding yard for finished homes until they are shipped to dealers. The original terms of the lease run from February 1, 1994 to January 31, 1999, with monthly rent at $1,721. The lease provides for two 5-year extension options, and a purchase option of $256,000 at the effective date of the lease, escalating at 4% per year. The Company owns manufacturing facilities located at 3502 W. Lower Buckeye Road, Phoenix, Arizona. On this property are buildings which contain approximately 60,000 square feet, primarily production facilities with some office space. The Company produces recreational and residential homes on this property. There is no mortgage on this property. All of the properties on which the Company's plants are located contain sufficient room to expand production, if necessary. The Company believes its plants, equipment and offices are in good condition and are adequate for the Company's foreseeable business requirements. II. Health Care Management Action's principal office is located at 301 East Bethany Home Road, Suite C-278, Phoenix, Arizona and consists of approximately 2,459 square feet of space. In July of 1993, Action entered into a 36 month lease with monthly lease payments of $2,572. 10 11 Action operates a satellite office located at Conejo Business Center, 123 Hodencamp Road, Suite 102, Thousand Oaks, California. The office consists of roughly 1,530 square feet of space. In July ,1992, Action entered into a 5-year lease for the space commencing October 1, 1992 at a lease rate of $2,142 per month, with 3 months free rent commencing the second month of the lease. III. Leasing Operations NSC's Phoenix branch is located at 2229 W. Roosevelt, Phoenix, Arizona. In June, 1994, NSC entered into a 3-year lease, commencing September 1, 1994 for a 108,000 square foot lot with a 2,100 square foot building. Monthly lease payments are $2,500. NSC uses the property for its leasing and sales office, and to store unleased containers. NSC subleases space at 7440 Stiles Rd, El Paso, Texas, for its leasing and sales office. The sublease commenced August 1, 1994, terminates on June 30, 1997, and requires rent payments of $1,000 per month. NSC also leases property at 423 W. Langdon, Hutchins, Texas, used to store unleased containers. The monthly rent is $1,000 on month-to-month terms. In June, 1994 NSC became the assignee of a lease for premises at 1819 W. Northwest Highway, Dallas, Texas. The property consists of approximately 8.16 acres of land with office/warehouse space. NSC uses the property for its leasing and sales office, as well as for storage of unleased containers and trailer vans. The lease terminates on December 31, 1995 and requires rent payments of $4,000 per month. NSC entered into a 5-year lease, commencing August 1, 1994 for approximately 2.25 acres of fenced-in land with a 2,400 square foot building and a 2,800 square foot building. The property is located at 13390 I.H. 35 South, Bexar County, Texas. One of the buildings is used as a leasing and sales office for NSC's San Antonio branch. The other building is used for repair and maintenance of containers. The land is used to store unleased containers. Monthly rent on the property totals $2,250. NSC has an option to renew the lease for an additional 5-year term. NSC relocated its Houston branch to 11827 Eastex Freeway, Houston, Texas. The property consists of approximately 8.81 acres of land, which will be used for storage of unleased containers. NSC purchased a modular office building to use as a leasing and sales office at this location. The lease term of the property is 36 months, commencing December 1, 1995, with monthly rent of $4,000. NSC's Houston branch was formerly located at 12350 Amelia, Houston, Texas. NSC leased a building and a 2.055 acre tract of land. The lease continues through June 10, 1999. Rent on the property is $1,200 per month. Also in Houston, NSC leases a building and a one acre tract of land in the James Hamilton Survey No. 53 in Harris County, Texas. On these premises, NSC refurbishes and stores purchased containers before they are transferred to the leasing branches. Current monthly rent is $1,900 and increases to $2,000 per month in August 1996. The lease commenced August 1, 1994 and terminates July 31, 1997. In November, 1995, NSC entered into a lease to rent property at 15960 East Colfax Avenue, Aurora, Colorado. NSC will be opening a leasing and sales location there in December 1995. The lease is effective December 1, 1995 and expires November 30, 2000. Monthly rent is $2,250. 11 12 IV. Real Estate Development One of Sun Built's sales offices is located at 519 W. Parkwood Circle, Green Valley, Arizona, in a model home at its Canyon View subdivision. The home is 1,120 square feet. The home and land were purchased by Sun Built for $65,306. Another sales office is located at 12200 E. Highway 69, Dewey, Arizona, in a model home in the Villages at Lynx Creek subdivision. The home is 1,384 square feet. Sun Built does not pay rent for use of the space. ITEM 3: LEGAL PROCEEDINGS The Company is not involved in any material legal proceedings. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the shareholders of the Company during the fourth quarter of the 1995 fiscal year. PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The Registrant's stock is sold Over the Counter, NASDAQ symbol: CVCO. The following quotations reflect inter-dealer prices without related mark-up or mark-down or commission and may not necessarily represent actual transactions. All prices have been adjusted (rounded to nearest 1/8) to reflect a three-for-two stock split that went into effect in December, 1994. Year Ended September 30, 1995
Bid Asked --- ----- High Low High Low ---- --- ---- --- First Quarter 13-5/6 10-5/6 14-1/2 11-1/2 Second Quarter 12 9-3/4 13 10-1/4 Third Quarter 11-3/4 8-1/2 12-3/4 9 Fourth Quarter 10-3/8 8-3/4 11-1/4 9-3/4
Year Ended September 30, 1994
Bid Asked --- ----- High Low High Low ---- --- ---- --- First Quarter 10-1/8 7-7/8 10-7/8 8-3/8 Second Quarter 13-7/8 10 14-7/8 10-5/8 Third Quarter 12-3/8 10-1/8 13-1/8 11 Fourth Quarter 11-5/8 11 12-3/8 11-1/2
(The source of the above quotation is NASDAQ.) (b) The following table sets forth the approximate number of holders of record of each class of equity securities of the Company as of September 30, 1995: 12 13
Title of Class Number of Record Holders -------------- ------------------------ Five Cent ($.05) Par Value Common Stock 267
The method of computation chosen is based on the number of record holders. (c) During the past two years, the Company has paid no dividends and has no expectations of paying dividends during the 1996 fiscal year. In conjunction with a mortgage note, future dividends must be approved by the lending institution. ITEM 6: SELECTED FINANCIAL DATA Five Year Summary of Financial Data Years Ended September 30,
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Results for the year: Net sales $113,708,362 92,061,563 56,915,815 42,413,487 37,156,087 Net income from continuing operations $ 4,533,532 3,928,852 1,515,276 1,231,236 823,837 Income per share from continuing operations $ 1.34 1.16 .45 .36 .24 Year end position: Total assets $ 51,811,939 41,878,513 30,703,330 25,875,595 20,889,140 Long term obligations $ 13,970,960 6,013,047 7,853,985 7,209,131 7,636,365 Net stockholders' equity $ 22,383,195 18,145,544 11,467,392 9,325,115 7,640,756
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company ended 1995 with working capital of $8,249,230 comparable to the $8,371,218 at the end of 1994. During the year the Company borrowed $8 million from lines of credit to fund working capital needs and additions to assets under lease and property, plant and equipment. Cash outflows in 1995 included capital expenditures of $13.6 million. The Company increased its NSC lease fleet by $11.3 million and spent $2.3 million on property, plant and equipment additions, of which $700,000 went to plant expansion and equipment upgrades at one of the manufacturing facilities. Approximately $350,000 and $600,000 was spent on land and delivery equipment for NSC, respectively. The Company also invested another $1.2 million into its partnerships which are developing manufactured housing subdivisions. In June 1995, NSC arranged a $15 million line of credit to support its lease fleet expansion. The lending institution advanced $8,000,000 and the Company used $6.5 million of these funds to repay its lines of credit. The Company has a $3 million bank line of credit that may be used from time to time to fund working capital needs. Long term cash requirements, other than normal operating expenses, are anticipated for plant expansions and computer system upgrades. NSC has $7,000,000 of additional funding available from a financial 13 14 institution for expansion of its lease fleet. The Company believes that its existing cash, available lines of credit, and cash generated from operations will be sufficient to meet capital expenditure and debt service requirements. During the past three years, inflation has not had a significant impact on the Company's operations. The Company has demonstrated its ability to reduce the manufacturing costs of its products through engineering changes and effective price negotiations, and has been able to adjust the selling price of its products in reaction to changing costs. RESULTS OF OPERATIONS 1995 Compared to 1994 Sales for 1995 were $113,708,362, an increse of $21,646,799 (23.5%) over 1994. The new leasing subsidiary provided 23 percent of the increase, $5 million in revenues. The manufacturing operations accounted for the remaining increase. Plant expansions and upgrades to machinery allowed production levels to increase at all facilities. The manufacturing facility added in May 1993 had the most significant favorable impact. Gross profit margins increased to 18.9 percent compared to 18.4 percent in 1994. Margins in the manufacturing operations decreased from 18.2 percent in 1994 to 17.4 percent in 1995. The Company offered a series of low cost , low margin special floor plans in the spring. The decrease in manufacturing margins was more than offset by the leasing operations achievement of a 51.4 percent gross profit margin. Selling, general and administrative expenses increased overall by $2,996,824 (a 29% increase). Most of the increase was due to expansion of the leasing operations in 1995. The $533,149 increase in interest expense reflects increased finance costs incurred from the Company's use of its lines of credit. In 1995, net income was $4,237,651 or $1.25 per share, compared to $6,605,678 or $1.95 per share in 1994. The decrease in net income was a direct result of the sale of discontinued operations in 1994. Income from continuing operations in 1995 was $4,533,532 or $1.34 per share, an increase of $604,680 or $.18 per share. Income from discontinued operations and from the gain on the sale of CVC in 1994 was $404,507 and $2,272,319, respectively, compared to a loss from discontinued operations in 1995 of $295,881. 1994 Compared to 1993 The Company's 1994 net sales increased $35,145,748 (61.8%) over 1993. Approximately $30 million of the increase was directly attributable to the Company's new manufacturing facility, which began production in May, 1993. During 1994, this manufacturing facility expanded its production through installation of a second assembly line. The overall increase in manufactured housing sales was reflective of the continued growth experienced in the industry over the past three years. The Company had been able to increase its market share of manufactured homes in Arizona to over 35 percent. With the new manufacturing facility and aggressive marketing and dealer support, the Company should continue this trend. Gross profit margin is comparable between years (18.4% in 1994, 18.9% in 1993), allowing the increase in sales to be a direct improvement to the bottom line. Selling, general and administrative expenses increased $2,393,350 from 1993 to 1994. This increase resulted from the sales growth, which warranted increased staffing and sales and marketing programs. Increased expenses were recognized in all operations. The 30% increase in operating expenses, in comparison to a 62% increase in sales, exemplified the Company's continuing efforts to control costs and improve profitability 14 15 Interest expense increased $164,067 in 1994 over 1993. The covertible note and the Company's use of its line of credit led to increased finance costs. The finance costs were partially offset by interest income earned on invested proceeds from the sale of CVC. In 1994, net income was $6,605,678 or $1.95 per share, an increse of $4,455,972 or $1.31 per share over 1993. The reason for the large increase was primarily due to the sale of discontinued operations. In 1994, income from continuing operations was $3,928,852 or $1.16 per share, compared to $1,515,276 or $.45 per share in 1993. Income from discontinued operations was $404,507 in 1994, compared to $634,430 in 1993. The gain on the sale of CVC Leasing was $2,272,319 in 1994. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA Index to Consolidated Financial Statements
Page ---- Report of Independent Public Accountants 16 Consolidated Financial Statements: Consolidated Balance Sheets - September 30, 1995 and 1994 17 Consolidated Statements of Earnings - Years Ended September 30, 1995, 1994 and 1993 19 Consolidated Statements of Cash Flows - Years Ended September 30, 1995, 1994 and 1993 20 Notes to Consolidated Financial Statements 21
Note: Schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 15 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Cavco Industries: We have audited the accompanying consolidated balance sheets of CAVCO INDUSTRIES, INC. (an Arizona corporation) and subsidiaries as of September 30, 1995 and 1994, and the related consolidated statements of earnings and cash flows for the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cavco Industries, Inc. and subsidiaries as of September 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP Phoenix, Arizona, November 22, 1995 16 17 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 30, 1995 and 1994 Assets
1995 1994 ------------ ---------- Current Assets Cash and cash equivalents $ 8,140,730 9,006,600 Receivables Trade accounts, net of $280,000 and $125,000 3,164,862 4,605,736 reserve for uncollectible accounts in 1995 and 1994, respectively Notes 511,302 433,804 Other 509,369 1,153,036 ----------- ---------- Total receivables 4,185,533 6,192,576 ----------- ---------- Inventories Held for sale or lease 80,438 2,287,635 Manufacturing: Work in process 807,949 823,582 Raw materials 2,971,581 2,314,623 Real estate held for sale 6,133,089 4,524,240 ----------- ---------- Total inventories 9,993,057 9,950,080 ---------- ---------- Prepaid expenses 834,713 461,515 Deferred tax charge 552,981 480,369 ----------- ---------- Total current assets 23,707,014 26,091,140 ----------- ---------- Notes receivable, net of current portion 1,162,415 1,425,243 Property, plant and equipment, at cost 14,285,539 12,164,077 Less accumulated depreciation 4,666,351 3,634,192 ----------- ---------- Net property, plant and equipment 9,619,188 8,529,885 ----------- ---------- Assets under lease 14,285,700 3,728,294 Less accumulated depreciation 596,007 133,617 ----------- ---------- Net assets under lease 13,689,693 3,594,677 ----------- ---------- Marketable securities 84,426 61,599 Investment in partnerships 2,534,703 1,546,724 Other assets 1,014,500 629,245 ----------- ---------- $51,811,939 41,878,513 =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 17 18 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 30, 1995 and 1994 Liabilities and Stockholders' Equity
1995 1994 ----------- ---------- Current liabilities Notes payable $ 1,022,864 1,654,490 Current installments of long term debt 2,444,248 1,875,189 Accounts payable 5,009,125 5,092,187 Accrued expenses 6,939,129 6,472,376 Income taxes 42,418 2,625,680 ----------- ---------- Total current liabilities 15,457,784 17,719,922 ----------- ---------- Long term debt, excluding current installments 12,692,661 5,413,980 Other liabilities - 97,309 Deferred income taxes 1,278,299 501,758 Stockholders' equity: Common stock, $.05 par value; 8,000,000 shares authorized; 3,382,977 shares issued and outstanding in 1995 and 1994 169,149 169,149 Capital in excess of par value 312,054 312,054 Retained earnings 21,901,992 17,664,341 ----------- ---------- Net stockholders' equity 22,383,195 18,145,544 ----------- ---------- $51,811,939 41,878,513 =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 18 19 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Earnings Years Ended September 30, 1995, 1994 and 1993
1995 1994 1993 ------------- ---------- ---------- Net sales $ 113,708,362 92,061,563 56,915,815 Cost of sales 92,213,840 75,103,512 46,183,666 ------------- ---------- ---------- Gross profit 21,494,522 16,958,051 10,732,149 Selling, general and administrative expenses 13,316,823 10,319,999 7,926,649 ------------- ---------- ---------- Operating income 8,177,699 6,638,052 2,805,500 ------------- ---------- ---------- Other income (expense): Interest income 287,385 175,957 40,707 Interest expense (1,047,650) (514,501) (350,434) Miscellaneous 158,098 156,444 130,403 ------------- ---------- ---------- (602,167) (182,100) (179,324) ------------- ---------- ---------- Income from continuing operations before income taxes 7,575,532 6,455,952 2,626,176 Income taxes 3,042,000 2,527,100 1,110,900 ------------- ---------- ---------- Income from continuing operations 4,533,532 3,928,852 1,515,276 Discontinued operations: Income (loss) from operations of CVC Leasing division (less applicable taxes of ($194,000), $260,800 and $465,800 for 1995, 1994 and 1993, respectively) (295,881) 404,507 634,430 Gain on sale of CVC Leasing division (less applicable taxes of $1,465,000) - 2,272,319 - ------------- ---------- ---------- Net income $ 4,237,651 6,605,678 2,149,706 ============= ========== ========== Income per share from continuing operations $ 1.34 1.16 .45 Income (loss) per share from operations of discontinued division (.09) .12 .19 Income per share from gain on sale of division - .67 - ------------- ---------- ---------- Net income per share $ 1.25 1.95 .64 ============= ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 19 20 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended September 30, 1995, 1994 and 1993
1995 1994 1993 ------------ ----------- ---------- Cash flows from operating activities: Net income $ 4,237,651 6,605,678 2,149,706 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of CVC Leasing division - (3,737,319) - Depreciation and amortization expense 1,727,696 1,375,533 1,030,450 Provision for deferred income taxes 703,929 (455,900) 202,800 Gain on sales of assets under lease (389,409) (118,512) (254,596) Change in assets and liabilites: (Increase) decrease in receivables 1,440,874 (581,448) 397,563 (Increase) decrease in manufacturing and leasing inventories (641,325) (3,739,014) (1,008,311) (Increase) decrease in real estate held for sale (1,067,249) (2.833.311) 140,076 (Increase) decrease in prepaid expenses (373,198) 117,989 (359,662) (Increase) decrease in other assets (241,244) (481,330) 92,138 Increase (decrease) in accounts payable (83,062) 1,305,794 2,114,013 Increase (decrease) in accrued expenses 466,753 2,252,398 1,218,195 Increase (decrease) in income taxes (2,583,262) 2,313,896 181,228 Increase (decrease) in lease deposits and other liabilities (97,309) 190,682 (583) ------------ ----------- ---------- Net cash provided by operating activities 3,100,845 2,215,136 5,903,017 ------------ ----------- ---------- Cash flows from investing activities: Purchases of property, plant and equipment (2,292,217) (1,962,510) (2,570,729) Proceeds from sales of property, plant and equipment 111,254 - - Additions to assets under lease (11,292,377) (8,182,092) (2,173,901) Proceeds from sales of assets under lease 2,713,985 773,288 13,599 Increase in notes receivable - (78,500) (77,000) Proceeds from collections on notes receivable 1,352,273 420,328 393,320 Additions to investment in partnerships (1,212,979) (1,298,172) (248,552) Net proceeds from sale of CVC Leasing division - 10,464,504 - ------------ ----------- ---------- Net cash provided by (used for) investing activities (10,620,061) 136,846 (4,663,263) ------------ ----------- ---------- Cash flows from financing activities: Borrowing under lines of credit 7,989,543 7.442,376 2,369,315 Repayment of lines of credit (8,621,169) (6,990,149) (4,889,559) Proceeds from long-term debt 8,603,857 5,598,713 2,973,715 Repayment of long-term debt (1,318,885) (775,126) (1,654,622) ------------ ----------- ---------- Net cash provided by (used for) financing activities 6,653,346 5,275,814 (1,201,151) ------------ ----------- ---------- Increase (decrease) in cash and cash equivalents (865,870) 7,627,796 38,603 Cash and cash equivalents at beginning of year 9,006,600 1,378,804 1,340,201 ------------ ----------- ---------- Cash and cash equivalents at end of year $ 8,140,730 9,006,600 1,378,804 ============ =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 20 21 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 1995, 1994, and 1993 (1) Summary of Significant Accounting Policies (a) Principles of Consolidation The consolidated financial statements of Cavco Industries, Inc. (the Company) for 1995, 1994 and 1993 include the accounts of Cavco Industries, Inc. and its subsidiaries, Action Healthcare Management Services, Inc. (Action), Sun Built Homes, Inc. (Sun Built) and National Security Containers, Inc. (NSC). The Company owns 93% of Action and 100% of Sun Built and NSC. In accordance with ARB 51, all losses applicable to the minority interest of Action have been charged to the parent. All material intercompany transactions have been eliminated in the consolidation. (b) Inventories Inventories are stated at the lower of cost or market (net realizable value). Cost is determined by using standard cost (which approximates actual cost on a first-in, first-out basis) for finished goods and work-in process and actual cost on a first-in, first-out basis for raw materials. (c) Product Warranty The Company's products carry a one-year warranty on structural components to the original retail customer. The Company also warrants certain nonstructural components for 90 days. The warranty covers defective materials and workmanship. The Company's experience allows it to reasonably estimate the amount of warranty expense expected to be incurred for products sold. Warranty expense for the years ended September 30, 1995, 1994 and 1993 was $1,946,297, $1,664,204, and $1,021,471, respectively. (d) Real Estate Held for Sale Real estate held for sale consists primarily of land purchased by Sun Built and homes manufactured by the Company for sale in residential subdivisions. Sun Built capitalizes certain interest costs incurred with developing the land, and such interest will be included in cost of sales as property is sold to the buyer. The amount of interest capitalized during the years ended September 30, 1995 and 1994 was $127,732 and $33,992, respectively. In most cases, the customer obtains financing from an outside source and pays cash for the purchase. In accordance with rules established by Statement of Financial Accounting Standards No. 66 (Accounting for Sales of Real Estate), revenues are recognized upon close of sale, when the property has transferred to the buyer. 21 22 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies (continued) (e) Investment in Partnerships In November, 1992, the Company formed a limited liability corporation (LLC) with another company for the purpose of developing a manufactured housing subdivision. The Company is a 50% partner in the LLC and accounts for its investment on the equity method. The Company's investment in the LLC was $2,275,313 and $1,321,724 at September 30, 1995 and 1994, respectively. Sun Built is a 50% partner in a LLC formed in August, 1994, to develop a manufactured housing subdivision. Sun Built accounts for its investment on the equity method. Its investment was $259,390 and $225,000 at September 30, 1995 and 1994, respectively. (f) Revenue Recognition The Company recognizes product revenue upon shipment of product. Revenue from services is recognized when services are performed. Lease income is recognized over the terms of the leases. (g) Statement of Cash Flows For purpose of these statements, cash and cash equivalents include cash on hand and cash in short-term investments with original maturities of less than three months (primarily money market funds). Information that does not result in cash receipts or cash payments in the period, but which affects the financing and investing activities of the Company is included in supplemental disclosures as follows. Supplemental Disclosures of Non-cash Investing and Financing Activities: In 1995, the Company sold $523,276 of lease assets for notes receivable. The Company purchased $541,600 of real estate held for sale, financed by long term debt. Inventory held for sale or lease of $2,207,197 was transferred into assets under lease. In 1994, the Company sold $1,015,133 of lease assets for notes receivable. The Company purchased $470,118 of lease assets financed by notes payable. The Company purchased $818,784 of real estate held for sale, assuming $414,384 in notes payable and financing $404,400 by long term debt. Also in 1994, the Company sold its CVC Leasing division. See Note 14 for detail of non-cash items. In 1993, the Company sold $1,021,176 of lease assets for notes receivable. The Company sold $90,750 of real estate held for sale by issuing notes receivable. The Company purchased automotive equipment for $114,819, financed by long term debt. 22 23 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies (continued) (g) Statement of Cash Flows Supplemental Disclosures of Cash Flow information:
1995 1994 1993 ---- ---- ---- Cash paid during the year for: Interest $ 1,020,766 1,109,739 1,010,087 ========= ========= ========= Income Taxes $ 2,540 2,394,904 1,192,621 ========= ========= =========
(h) Accounting Statements The Financial Accounting Standards Board has issued a Statement of Financial Accounting Standards ("SFAS"), No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which the Company will be required to implement effective for the fiscal year ending September 30, 1997. SFAS No. 121 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) from an asset to be held and used is less than the carrying value of the asset, an impairment loss must be recognized in the amount of the difference between the carrying value and fair value. Assets to be disposed of must be valued at the lower of carrying value or fair value less costs to sell. Management of the Company believes that, if SFAS No. 121 were implemented currently, no impairment loss would be recognized. (2) Notes Receivable Notes receivable include amounts due under finance leases ($1,633,607 and $1,758,774 at September 30, 1995 and 1994, respectively) and amounts due from sales of real estate held for sale ($16,610 and $51,773 at September 30, 1995 and 1994, respectively). The finance leases are secured by the related assets under lease, and the notes on real estate sales are secured by deeds of trust. Also included in notes receivable is the balance on a line of credit extended to a dealer ($23,500 and $48,500 at September 30, 1995 and 1994, respectively). The aggregate maturities of the notes receivable for the five years subsequent to September 30, 1995 are as follows: 1995 $ 511,302 1996 442,701 1997 316,324 1998 144,931 1999 110,679 Thereafter 147,780 ---------- $1,673,717 ==========
(3) Marketable Investment Securities At September 30, 1995 and 1994, the noncurrent portfolios of marketable investment securities are carried at the lower of aggregate cost or market. Change in market value is recognized as investment income (or loss) and is included in miscellaneous income in the consolidated statement of earnings. Income recognized in 1995 and 1994 was $23,807 and $49,647, respectively. 23 24 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (4) Property, Plant and Equipment Depreciation of property, plant and equipment is provided over the estimated useful lives of the respective assets on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over their estimated useful lives or the terms of the respective leases, whichever is shorter. Repair and maintenance costs are expensed as incurred. A summary of property, plant and equipment, at cost, follows:
Average September Depreciable ---------------------------- Lives (Years) 1995 1994 -------------- ---- ---- Land - $ 2,455,801 2,088,994 Buildings 15-30 2,115,744 2,082,239 Plant equipment 5-10 3,035,233 3,098,417 Office equipment 3-10 1,909,801 1,820,034 Automotive equipment 3 1,868,784 903,864 Building and leasehold improvements 3-20 2,892,126 2,161,751 Construction in progress - 8,050 8,778 ----------- ---------- $14,285,539 12,164,077 =========== ==========
(5) Notes Payable The Company has a $4,000,000 revolving line of credit with a bank, with an interest rate of prime plus 1/2%, expiring on January 31, 1996. This line of credit is secured by the Company's inventories and accounts receivable. During the year, the Company obtained additional lines of credit from the bank to temporarily fund working capital needs. Sun Built has a $1,000,000 line of credit with a financial institution, with an interest rate of prime plus 1%, expiring in January 1996. This line of credit is secured by certain real estate held for sale. Sun Built has obtained a temporary increase in its credit limit to $1,375,000. During the year NSC utilized a temporary line of credit to fund additions to assets under lease. The maximum borrowed during the year was $2,750,000 at an average interest rate of 9.40%. The line was paid off in June 1995. There was no outstanding balance at September 30, 1995. Also included in notes payable in 1994 was $470,118, due for purchases of storage containers for NSC's lease fleet. The notes were paid off during 1995. 24 25 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (5) Notes Payable (continued) Pertinent information with respect to the bank lines of credit is as follows:
Company line of credit: September 30, ----------------------------------------- 1995 1994 1993 ---- ---- ---- Outstanding balance at year end - - - Interest rate at year end 9.25% 8.25% 6.5% Maximum credit available 4,000,000 3,500,000 2,500,000 Maximum borrowing during the year 3,750,000 3,500,000 2,500,000 Average outstanding borrowings (a) 1,220,000 1,539,726 1,389,000 Average yearly interest rate (a) 9.5% 7.3% 6.7%
(a) The average outstanding borrowings during the periods were calculated by dividing the weighted average daily balance by 365. The average yearly interest rate during the period was calculated by dividing the interest expense by the average outstanding borrowings.
Sun Built line of credit: September 30, --------------------------------------- 1995 1994 1993 ---- ---- ---- Outstanding balance at year end 1,022,864 1,184,372 317,761 Interest rate at year end 9.75% 9.5% 7.75% Maximum credit available 1,375,000 1,184,372 1,000,000 Maximum borrowing during the year 1,360,570 1,184,372 412,219 Average outstanding borrowings (b) 1,178,397 597,614 339,283 Average interest rate for year (b) 10.32% 8.15% 7.4%
(b) Average outstanding borrowings during the periods were calculated by dividing the month-end balances (including beginning of year) by 13. Average yearly interest rates were calculated by dividing the interest expense by the average outstanding borrowings. 25 26 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (6) Long-Term Debt A summary of long-term debt is as follows:
September 30, ------------------------------------ 1995 1994 ---- ---- Convertible note trust, interest payable quarterly at 8%, unsecured, balance due and payable in April, 1999. (See (a) below) $4,100,000 4,100,000 Notes payable to a financial institution, due in monthly installments of $133,333 plus interest at 9.06%, secured by assets under lease and accounts receivable. The note is amortized over a 5-year period and is due and payable in July, 2000. (See (b) below). 7,599,981 - Mortgage note payable, due in monthly installments of $8,070 plus interest at prime plus 1%, (9.75% at September 30, 1995) secured by deed of trust on real estate. The mortgage is amortized over a 13-year term, with the balance due and payable in August, 2002. (See (b) below). 1,250,913 1,308,396 Notes payable to a title company, due in monthly installments of $6,818 including interest at 10%, secured by real estate held for sale, balances due and payable ranging from February 1997 to June 1998. 589,268 313,125 Note payable to bank, due in monthly installments of $19,259 including interest at 9.755%, secured by certain plant equipment, due and payable in September, 1998. 584,598 - Note payable to bank, due in monthly installments of $27,778 plus interest at prime plus 1/2%, (9.25% at September 30, 1995) secured by certain plant equipment, due and payable in September, 1996. 361,088 694,433 Note payable due in monthly installments of $2,601 including interest at a rate of 9%, secured by a deed of trust. The note is amortized over a 30-year term and is due and payable in July, 2011. 293,009 297,599
26 27 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (6) Long-Term Debt (continued)
September 30, ------------------------------------------- 1995 1994 ---- ---- Note payable due in monthly installments of $3,416 including interest at a rate of 13% secured by a deed of trust. The note is amortized over a 15-year term and is due and payable in November, 2000. 153,663 173,272 Note payable to bank, due in monthly installments of $9,587 including interest at 7.55%, secured by certain office equipment, due and payable in September, 1996. 116,184 215,357 Notes payable to finance companies, due in monthly installments totaling $9,019, in- cluding interest at various rates ranging be- tween 6.6% and 11.5%, balances due and payable ranging from November, 1995 to October, 1998, secured by automotive and office equipment. 88,205 186,987 ----------- ---------- 15,136,909 7,289,169 Less current portion 2,444,248 1,875,189 ----------- ---------- Long term debt, net of current portion $12,692,661 $5,413,980 =========== ==========
(a) At any time during the term of the note, all or any portion of the principal balance is convertible, at the Company's option, into shares of the Company's common stock at $16 per share (post stock split), if the stock price exceeds $20 per share (post stock split) for a period of at least 20 trading days. The Company also has an option to prepay up to one half of the outstanding principal balance of the loan after October, 1995. Payment after October, 1995 can be made in stock, at $16 per share (post stock split), if the stock price exceeds $16 per share (post stock split) for a period of at least 20 trading days. (b) Certain of the Company's loan agreements require compliance with financial covenants, the most significant of which specify a minimum current ratio, minimum owner's equity, working capital, debt coverage ratio, debt service coverage ratio, and minimum tangible net worth. The agreements also state that any dividends to stockholders must be approved by the lending institution. At September 30, 1995, the Company was not in compliance with the covenant related to debt service coverage ratio for one of the subsidiaries. The Company obtained a waiver from the bank. 27 28 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (6) Long-Term Debt (continued) The aggregate maturities of long-term debt for the five years subsequent to September 30, 1995 are as follows: 1996 $ 2,444,248 1997 2,122,336 1998 2,355,904 1999 5,836,817 2000 1,341,456 Thereafter 1,036,148 ----------- $15,136,909 ===========
(7) Income Taxes Prior to January 1, 1989, Cavco Industries, Inc. owned less than 80 percent of the stock of Action and therefore filed separate tax returns for Action. Accordingly, the tax benefit of the net operating loss was not utilized on a consolidated basis. The net operating loss expiring in 2002 is available to offset future taxable income in Action. In 1994, $54,362 of that net operating loss carryforward was used to offset Action's taxable income. For income tax purposes at September 30, 1995, Action has a net operating loss carryforward of approximately $521,000 remaining. For 1995 and 1993, the consolidated taxable income reflected a loss of $198,629 and $677,468, respectively, related to Action. Components of income tax expense are as follows:
Current Deferred Total ------- -------- ----- 1995: Federal $1,683,500 552,800 2,236,300 State 460,500 151,200 611,700 ---------- ------- --------- $2,144,000 704,000 2,848,000 ========= ======= ========= 1994: Federal $3,696,400 (357,900) 3,338,500 State 1,012,400 (98,000) 914,400 ---------- -------- --------- $4,708,800 (455,900) 4,252,900 ========== ======== ========= 1993: Federal $1,024,100 174,500 1,198,600 State 349,800 28,300 378,100 ---------- ------- --------- $1,373,900 202,800 1,576,700 ========== ======= =========
28 29 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (7) Income Taxes (continued) Income tax expense amounted to $2,848,000 for the year ended September 30, 1995 (an effective rate of 40.1%), $4,252,900 for the year ended September 30, 1994 (an effective rate of 39.2%), and $1,576,700 for the year ended September 30, 1993 (an effective rate of 42.3%). The actual tax expense differs from the "expected" tax expense (computed by applying the U.S. Federal corporate tax rates to earnings before income tax) as follows:
1995 1994 1993 ---- ---- ---- Federal corporate tax rate 34.0% 34.0 34.0 State income taxes, net of federal income tax benefit 6.1 6.1 6.1 Other - (0.9) 2.2 ---- ---- ---- Effective tax rate 40.1% 39.2 42.3 ==== ==== ====
Deferred tax assets and liabilities represent the estimated future tax effects attributable to timing differences in the recognition of revenue and expense items for financial statement and tax return purposes. The source of these differences and the tax effect of each are set forth as follows:
September 30, ------------------------------------------ 1995 1994 ---- ---- Current: Accrued warranty expense $ 355,104 290,695 Reserve for uncollectible accounts 110,924 49,125 Deferred rent 48,011 87,229 Accrued vacation and holiday 40,471 31,950 Accrued bonuses 15,067 15,771 Accrued state tax deduction (16,596) 5,599 ----------- --------- Deferred tax charge $ 552,981 480,369 =========== ========= Long-term: Excess of tax over book depreciation (1,310,517) (576,368) Loss in partnership (43,827) (12,552) Advance rents received (16,709) 2,563 Excess of tax over book amortization of intangibles 30,862 14,229 Excess of book gain over tax gain on sale of assets 61,892 61,399 Loss on marketable securities - 8,971 ----------- --------- Deferred tax liability $(1,278,299) $(501,758) =========== =========
(8) Employee Benefit Plans The Company's profit sharing plan is a defined contribution plan which covers all employees completing two years of service. After two years of service have been completed, employees begin participation on the first day of the sixth month or the first day of the plan year, whichever is earlier. Participants are 100% vested after two years in the Plan. The Plan was designed to comply with the requirements of ERISA. Contributions to the Plan are determined annually by 29 30 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (8) Employee Benefit Plans (continued) the Board of Directors. The Company contributed $100,000 to the Plan for the year ended September 30, 1995, $200,000 for 1994 and $150,000 for 1993. The Company adopted a 401(k) plan in January, 1995. All employees are eligible to participate after completing four months of service, and may begin participation on the following January 1 or July 1, whichever is earlier. Participants may defer up to 15% of annual compensation (subject to limits set by the Internal Revenue Service) to contribute to the 401(k) plan. The Company matches 25% of the employee's contribution, up to 6% of his or her compensation. The Company contributed $68,924 to the 401(k) plan for the year ended September 30, 1995. (9) Stockholders' Equity The number of shares used in computing earnings per common share was 3,382,977 for 1995, 1994 and 1993. The number of shares reflects a three-for-two stock split effective December, 1994. Fully diluted earnings per share are the same as primary earnings per share. Changes in stockholders' equity accounts between years are summarized below:
Unrealized loss on non-current Retained earnings marketable investment securities ----------------- -------------------------------- Balance September 30, 1992 $ 8,908,957 (65,045) Net income 2,149,706 - Net unrealized loss - (7,429) ----------- ------- Balance September 30, 1993 11,058,663 (72,474) Net income 6,605,678 - Net recognized loss - 72,474 ----------- ------ Balance September 30, 1994 17,664,341 - Net income 4,237,651 - ----------- ------ Balance September 30, 1995 $21,901,992 - =========== ======
(10) Financing Arrangements and Commitments The Company is contingently liable under terms of repurchase agreements covering dealer floor plan financing arrangements. These arrangements, which are customary in the industry, provide for the repurchase of products sold to dealers in the event of default on payments by the dealer. The risk of loss is spread over numerous dealers and financing institutions and is further reduced by the resale value of repurchased units. The Company has not incurred any significant losses from these arrangements since inception. During 1995 and 1994, the Company entered into financing arrangements whereby certain dealers would be assisted in obtaining financing for purchases of Cavco manufactured homes. The Company has guaranteed the flooring lines extended to the dealers by the financing institutions. The Company's maximum liability to financial institutions was $6,500,000 in 1995 and $2,475,000 in 1994. 30 31 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (10) Financing Arrangements and Commitments (continued) The Company is the guarantor on a loan agreement which allowed the LLC (see Note 1) to borrow $3,750,000 from investors. The loan is paid out over five years, based on scheduled sales of lots. The amount guaranteed by the Company has been offset by proceeds received on the lot sales, leaving a balance of $3,177,285 at September 30, 1995. (11) Leases The Company occupies certain land and office buildings and uses certain equipment under lease arrangements classified as operating leases. Real estate taxes, insurance and maintenance expenses are obligations of the Company. At September 30, 1995, future minimum lease payments due under noncancellable operating leases, excluding executory costs, are as follows:
Year Ending September 30 Amount ------------ ------ 1996 $ 864,500 1997 686,087 1998 276,243 1999 94,094 2000 26,606 ---------- Total $1,947,530 ==========
Total rental expense for 1995, 1994 and 1993 was $1,051,884, $902,332 and $551,025 respectively. (12) Industry Segment Information The Company operates principally in four industries: Manufactured Housing, Leasing, Health Care Management and Real Estate Development. Operations are conducted in Arizona and, to a much lesser extent, in Nevada, Colorado, Idaho, California, Utah, Washington, New Mexico, Georgia, Pennsylvania, Oregon, Texas and Canada. Operating profit consists of total revenue less cost of sales and operating expenses. None of the following have been included in the computation of gross operating profit: general corporate expenses, non-operating income and expenses and income taxes. Identifiable assets are those assets used in the operations of each industry segment. General corporate assets primarily consist of cash, temporary investments, deferred tax benefits and other current assets. Information with respect to industry segments as of September 30, 1995, 1994 and 1993 is set forth on the following page. 31 32 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (12) Industry Segment Information (continued)
Real Estate Manufactured Leasing Health Care Development General Housing Operations Management Operations Corporate Total ------- ---------- ---------- ---------- --------- ----- 1995 ---- Sales to unaffiliated customers $ 103,560,443 5,037,282 1,026,230 4,084,407 - 113,708,362 Operating profit (loss) 9,439,956 421,795 (136,610) 15,213 (1,562,655) 8,177,699 Identifiable assets 11,914,234 19,416,794 590,635 7,026,052 12,864,224 51,811,939 Depreciation and amortization 674,658 786,370 50,266 35,678 180,724 1,727,696 Capital expenditures 1,089,116 12,438,891 28,080 28,507 - 13,584,594 1994 ---- Sales to unaffiliated customers $ 85,969,747 - 1,465,525 4,626,291 - 92,061,563 Operating profit (loss) 7,692,540 - 114,146 177,379 (1,346,013) 6,638,052 Identifiable assets 10,501,021 13,175,553 677,843 5,448,625 12,075,471 41,878,513 Depreciation and amortization 521,786 661,824 45,563 29,049 117,311 1,375,533 Capital expenditures 1,181,074 8,665,060 26,998 137,846 133,624 10,144,602 1993 ---- Sales to unaffiliated customers $ 53,356,661 - 589,443 2,969,711 - 56,915,815 Operating profit (loss) 4,193,014 - (553,999) 281,043 (1,114,558) 2,805,500 Identifiable assets 9,708,746 15,663,167 448,918 1,313,708 3,568,791 30,703,330 Depreciation and amortization 347,702 571,832 43,367 15,818 51,731 1,030,450 Capital expenditures 1,940,910 2,398,130 114,490 1,584 404,335 4,859,449
Sales to one manufactured housing customer amounted to $18,129,289, or 15.5% of sales for the year ended September 30, 1995. Sales to two manufactured housing customers amounted to $17,388,700 and $10,999,677 (18.9% and 11.9% of sales, respectively) for the year ended September 30, 1994. Sales to two manufactured housing customers amounted to $8,955,898 and $8,211,982 (15.7% and 14.4% of sales, respectively) for the year ended September 30, 1993. 32 33 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (13) Accrued Expenses A summary of accrued expenses follows:
September 30, --------------------------------------------------- 1994 1994 ---- ---- Wages $ 964,821 979,735 Sales promotion programs 2,427,033 1,960,261 Accrued warranty 896,372 739,683 Industrial insurance 1,308,813 944,383 Other 1,342,090 1,848,314 ---------- --------- $6,939,129 6,472,376 ========== =========
(14) Discontinued Operations On August 1, 1994, the Company sold the relocatable mobile and modular commercial structures and related buildings and equipment of its leasing division (CVC) for $20.1 million, to an unrelated company. Approximately $8.0 million was used to pay off notes payable associated with the assets sold; a $1.2 million note receivable remains due from the purchaser; net cash proceeds totalled $10.9 million. The net value of assets sold, plus other costs related to the sale, amounted to $16.4 million, resulting in a net gain of $3.7 million. Net income (loss) from CVC leasing operations is included in the consolidated statements of income under "discontinued operations". Revenues from such operations were $2,072,569 for 1995, $8,253,530 for 1994, and $7,732,534 for 1993. Revenues in 1995 were produced from the sales of jobs that were in progress when the division was sold. Assets and liabilities related to CVC remaining on the balance sheet as of September 30, 1995 include trade accounts receivable ($378,406), balance remaining from purchaser of CVC ($509,369), and rent due on CVC properties ($121,191). Assets and liabilities related to CVC remaining on the balance sheet as of September 30, 1994 include trade accounts receivable ($2,636,925), balance remaining from purchaser of CVC ($1,153,036), customer deposits ($218,988), inventory and assets under lease ($1,637,084), accounts payable ($327,400), rent due on CVC properties ($221,956), and other accrued expenses ($383,723). (15) Supplemental Financial Data (unaudited) Selected quarterly financial data for the years ended September 30, 1995 and 1994 is set forth on the following page. Earnings per share were adjusted to reflect the three-for-two stock split. Amounts differ from amounts previously reported on the Company's Form 10-Q's due to elimination of discontinued operations of the Company's CVC Leasing division. 33 34 CAVCO INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (15) Supplemental Financial Data (continued)
First Second Third Fourth ----- ------ ----- ------ 1995 ---- Net sales $30,140,661 28,506,700 25,914,959 29,146,042 Gross profit $ 6,042,484 4,984,232 3,972,700 6,495,106 Net income from continuing operations $ 1,628,149 956,026 499,164 1,450,193 Income per share from continuing operations $ .48 .28 .15 .43 1994 ---- Net sales $21,219,830 24,247,343 22,188,008 24,406,382 Gross profit $ 3,519,340 4,003,622 3,645,492 5,789,597 Net income from continuing operations $ 860,622 882,837 704,522 1,480,871 Income per share from continuing operations $ .25 .26 .21 .44
34 35 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE MATTERS There were no disagreements with accountants on accounting and financial disclosure matters. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding directors and executive officers as required by Items 401 and 405 of Regulation S-K is set forth in the Company's Notice of Information Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after September 30, 1995, and by this reference is incorporated herein. ITEM 11: EXECUTIVE COMPENSATION The information regarding executive compensation required by Item 402 of Regulation S-K is set forth in the Company's Notice of Information Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after September 30, 1995, and by this reference is incorporated herein. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 403 of Regulation S-K is set forth in the Company's Notice of Information Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after September 30, 1995, and by this reference is incorporated herein. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information regarding certain relationships and related transactions as required by Item 404 of Regulation S-K is set forth in the Company's Notice of Information Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after September 30, 1995, and by this reference is incorporated herein. PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) List the Following Documents Filed as a Part of the Report: 1. Financial statements - See Index to Consolidated Financial Statements at Item 8 of this Form 10-K. 2. Financial statement schedules - See Index to Consolidated Financial Statements at Item 8 of this Form 10-K. 3. Exhibits - See Exhibit Index. 35 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the registrant and in the undersigned, thereunto duly authorized. Cavco Industries, Inc.
President and By: /s/ A.R. Ghelfi Chief Executive Officer 12/26/95 ------------------------- --------------- Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates authorized.
President, Chief By: /s/ A.R. Ghelfi Executive Officer, 12/26/95 ------------------------- Director --------------- A.R. Ghelfi Date Senior Vice President, By: /s/ Ruth Smith Secretary, Director 12/19/95 ------------------------- --------------- Ruth Smith Date Vice President, By: /s/ Robert Ward Principal Financial and 12/20/95 ------------------------- Accounting Officer --------------- Robert Ward Date Executive Vice By: /s/ William R. Blandin President, Director 12/20/95 ------------------------- --------------- William R. Blandin Date
36 37 EXHIBIT INDEX
Exhibit No. Description Page - - ----------- ----------- ---- (2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession - not applicable. (3) Articles of Incorporation and By-Laws Original articles of incorporation and by-laws and amendments to the articles of incorporation and bylaws were previously filed with Form 10 and are incorporated herein by reference. (4) Instruments defining the rights of security holders, including indentures Certain rights of security holders are set forth in the Articles of Incorporation and By-Laws previously filed with Form 10 and incorporated herein by reference. (9) Voting Trust Agreement - not applicable. (10) Material Contracts Previous Material Contracts have been filed with Form 10, previous Form 10-K's and previous Form 8-K's and are incorporated herein by reference. (11) Statement re computation of per share earnings set forth in financial statements in this Form 10-K. (12) Statements re computation of ratios - not applicable. (13) Annual Reports to Security Holders, Form 10-Q or Quarterly Report to Security Holders The Annual Report and Forms 10-Q were previously filed in a timely manner and are incorporated herein by reference. Attached find the quarterly reports issued to security holders 39 (18) Letter re change in accounting principles - not applicable. (21) Subsidiaries of the registrant Action Healthcare Management Services, Inc. - incorporated in Arizona in March, 1987. Sun Built Homes, Inc. - incorporated in Arizona in December, 1991. National Security Containers, Inc. - incorporated in Arizona in August, 1994.
37 38 (22) Published report regarding matters submitted to vote of security holders - not applicable. (24) Power of Attorney - not applicable. (27) Financial Data Schedule 44 (28) Information from Reports Furnished to State Insurance Authorities - not applicable. (99) Additional Exhibits - not applicable.
(b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the year ended September 30, 1995 38 EX-13 2 QUARTERLY REPORTS 1 REPORT TO SHAREHOLDERS FOR QUARTER ENDED DECEMBER 31, 1994 To our shareholders: Cavco Industries, Inc. achieved record levels of sales and earnings for the first quarter ended December 31, 1994. Sales for the quarter were $30,140,661, a 42 percent improvement over the $21,219,830 reported last year. Net income from continuing operations was $1,628,149 or $.48 per share, a 89 percent improvement over the $860,622 or $.26 per share reported for the similar period last year. Net income was $1,461,734 or $.43 per share, a 56 percent increase over the $934,057 or $.28 per share reported for the same period last year. All per share results have been adjusted for a three-for-two stock split effective December 1994. During the past year, manufactured housing units shipped showed a 20 percent improvement over the prior year. Industry analysts are projecting continued improvement; however, the increase in interest rates may slow industry demand. With the production capacity we have added, our sold financial position and strong management team we feel we are well positioned for future growth. Sincerely, A.R. Ghelfi, President SUMMARY OF FINANCIAL RESULTS
CONDENSED STATEMENTS OF EARNINGS THREE MONTH PERIOD ENDED DECEMBER 31, 1994 1993 ----------- ----------- Net sales $30,140,661 $21,219,830 Earnings from continuing operations before income taxes 2,726,849 1,435,122 Income taxes 1,098,700 574,500 Net earnings from continuing operations 1,628,149 860,622 Net earnings (loss) from discontinued operations (166,415) 73,435 Net earnings 1,461,734 934,057 Earnings per share from continuing operations .48 .25 Earnings (loss) per share from discontinued operations (.05) .03 Earnings per share .43 .28
CONDENSED BALANCE SHEETS DECEMBER 31, SEPTEMBER 30, 1994 1994 ------------ ------------- ASSETS Current Assets $22,834,857 $26,091,040 Net property, plant and equipment 9,041,859 8,529,885 Net assets under lease 4,867,126 3,594,677 Other assets 4,237,451 3,662,811 ------------ ----------- Total assets $40,981,293 $41,878,513 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $15,468,290 $17,719,922 Long-term debt 5,302,901 5,413,980 Other liabilities 602,824 599,067 Stockholders' equity 19,607,278 18,145,544 ----------- ----------- Total liabilities and stockholder's equity $40,981,293 $41,878,513 =========== ===========
39 2 REPORT TO SHAREHOLDERS FOR QUARTER ENDED MARCH 31, 1995 To our shareholders: We are pleased to report financial results for the second-quarter and six-month periods ended March 31, 1995. For the second quarter, net sales were $28,506,700, a 17 percent improvement over the $24,247,343 reported last year. Net income from continuing operations was $956,026 or $.28 per share, compared to the $882,844 or $.26 per share reported for the similar period last year. Net income was $926, 761 or $.27 per share compared to the $951,077 or $.28 per share reported for the same period last year. Through the six months ended March 31, 1995, net sales were $58,647,361, a 28 percent increase over the $45,467,173 reported last year. Net income from continuing operations was $2,584,174 or $.76 per share compared to the $1,743,466 or $.51 per share reported for the same period last year. Net income was $2,388,494 or $.70 per share, compared to $1,885,134 or $.55 per share for the similar period last year. All per share results have been adjusted for a three-for-two stock split effective December 1994. As we enter the third quarter we have seen some softness in order rates and a decline in our backlogs. We have initiated several dealer incentive programs and value added packages to our customers. These programs have been well received and while sales levels will remain in line with expectations, profit margins will be negatively impacted during the current quarter. However, the recent decline in interest rates has stimulated sales activity and we are anticipating stronger sales and earnings during the fourth quarter that ends September 30, 1995. We are reviewing several new marketing concepts and look forward to reporting our progress. Sincerely, A.R. Ghelfi, President 40 3 REPORT TO SHAREHOLDERS FOR QUARTER ENDED MARCH 31, 1995 SUMMARY OF FINANCIAL RESULTS
CONDENSED STATEMENTS OF EARNINGS THREE MONTH PERIOD SIX MONTH PERIOD ENDED MARCH 31, ENDED MARCH 31 1995 1994 1995 1994 ----------- ----------- ----------- ----------- Net sales $28,506,700 $24,247,343 $58,647,361 $45,467,173 Earnings from continuing operations before income taxes 1,583,826 1,472,404 4,310,674 2,907,569 Income taxes 627,800 589,560 1,726,500 1,164,060 Net earnings from continuing operations 956,026 882,844 2,584,174 1,743,509 Net earnings (loss) from discontinued operations (29,265) 68,233 (195,680) 141,625 Net earnings 926,761 951,077 2,388,494 1,885,134 Earnings per share from continuing operations .28 .26 .76 .52 Earnings (loss) per share from discontinued operations (.01) .02 (.06) .04 Earnings per share $.27 .28 .70 .56
CONDENSED BALANCE SHEETS MARCH 31, SEPTEMBER 30, 1994 1994 ----------- ------------- ASSETS Current Assets $22,246,359 $26,091,040 Net property, plant and equipment 9,362,997 8,529,885 Net assets under lease 10,276,754 3,594,677 Other assets 4,514,994 3,662,811 ----------- ----------- Total assets $46,401,095 $41,878,513 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $15,029,062 $17,719,922 Long-term debt 10,139,895 5,413,980 Other liabilities 698,100 599,067 Stockholders' equity 20,534,038 18,145,544 ----------- ----------- Total liabilities and stockholders' equity $46,401,095 $41,878,513 =========== ===========
41 4 REPORT TO SHAREHOLDERS FOR QUARTER ENDED JUNE 30, 1995 To our shareholders: For the third quarter ended June 30, 1995, net sales were $25,914,959 compared to the $22,188,008 reported last year. Net income from continuing operations was $499,164 or $.15 per share compared to the $704,527 or $.20 per share reported for the similar period last year. Net income was $494,024 or $.15 per share compared to the $889,017 or $.26 per share reported for the same period last year. Through the nine months, net sales were $84,562,320, a 24 percent increase over the $67,655,181 reported last year. Net income from continuing operations was $3,083,338 or $.91 per share compared to the $2,448,035 or $.72 per share reported for the same period last year. Net income was $2,882,518 or $.85 per share compared to the $2,774,151 or $.82 per share for the similar period last year. All per share results have been adjusted for a three-for-two stock split effective December 1994. While disappointed with the decline in earnings during the quarter, the recent decline in interest rates has had a favorable impact on our business. At the current time, our order rates and backlogs have shown substantial improvement. This, combined with recent price increases, should result in improved profitability during the fourth quarter over the third quarter. Sincerely, A.R. Ghelfi, President 42 5 REPORT TO SHAREHOLDERS FOR QUARTER ENDED JUNE 30, 1995 SUMMARY OF FINANCIAL RESULTS
CONDENSED STATEMENTS OF EARNINGS THREE MONTH PERIOD NINE MONTH PERIOD ENDED JUNE 30, ENDED JUNE 30, 1995 1994 1995 1994 ----------- ---------- ----------- ----------- Net sales $25,914,959 $22,188,008 $84,562,320 $67,655,181 Earnings from continuing operations before income taxes 766,864 1,173,267 5,077,538 4,080,835 Income taxes 267,700 468,740 1,994,200 1,632,800 Net earnings from continuing operations 499,164 704,527 3,083,338 2,448,035 Net earnings (loss) from discontinued operations (5,140) 184,490 (200,820) 326,116 Net earnings 494,024 889,017 2,882,518 2,774,151 Earnings per share from continuing operations .15 .21 .91 .72 Earnings (loss) per share from discontinued operations .00 .05 (.06) .10 Earnings per share .15 .26 .85 .82
CONDENSED BALANCE SHEETS DECEMBER 31, SEPTEMBER 30, 1994 1994 ------------ ------------- ASSETS Current Assets $24,245,053 $26,091,140 Net property, plant and equipment 9,680,122 8,529,885 Net assets under lease 11,538,335 3,594,677 Other assets 4,631,284 3,662,811 ----------- ----------- Total assets $50,094,794 $41,878,513 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $16,427,026 $17,719,922 Long-term debt 11,846,611 5,413,980 Other liabilities 793,095 599,067 Stockholders' equity 21,028,062 18,145,544 ----------- ----------- Total liabilities and stockholders' equity $50,094,794 $41,878,513 =========== ===========
43 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET AND STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR YEAR ENDED SEPTEMBER 30, 1995. YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 8,140,730 0 4,185,533 280,000 9,993,057 23,707,014 14,285,539 4,666,351 51,811,939 15,457,784 15,136,909 169,149 0 0 22,214,046 51,811,939 109,625,048 113,708,362 90,784,479 92,213,840 13,316,823 0 1,047,650 7,575,532 3,042,000 4,533,532 (295,881) 0 0 4,237,651 1.25 1.25
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