Exhibit 99.1
NEW ERA BUILDING SYSTEMS, INC. |
UNAUDITED CONSOLIDATED INCOME STATEMENT |
FOR THE YEAR ENDED DECEMBER 31, 2004 |
(IN THOUSANDS) |
|
| Year Ended |
| |
|
|
|
|
|
Net sales |
| $ | 113,206 |
|
Cost of sales |
|
| 100,576 |
|
Gross margin |
|
| 12,630 |
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
| 8,212 |
|
Operating income |
|
| 4,418 |
|
|
|
|
|
|
Equity in loss of unconsolidated subsidiary |
|
| 307 |
|
Interest expense, net |
|
| 872 |
|
Income before income taxes and minority interest in loss of subsidiaries |
|
| 3,239 |
|
|
|
|
|
|
Income tax expense |
|
| 88 |
|
Income before minority interest in loss of subsidiaries |
|
| 3,151 |
|
|
|
|
|
|
Minority interest in loss of subsidiaries |
|
| (89 | ) |
Net income |
| $ | 3,240 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
NEW ERA BUILDING SYSTEMS, INC. |
UNAUDITED CONSOLIDATED BALANCE SHEET |
AS OF DECEMBER 31, 2004 |
(IN THOUSANDS) |
|
| December 31, 2004 |
| |
Current assets |
|
|
|
|
Cash and cash equivalents |
| $ | 1,436 |
|
Accounts receivable, trade |
|
| 3,555 |
|
Inventories (Note 2) |
|
| 13,308 |
|
Other current assets |
|
| 602 |
|
Total current assets |
|
| 18,901 |
|
|
|
|
|
|
Property, plant and equipment (Note 3) |
|
| 24,493 |
|
Less-accumulated depreciation (Note 3) |
|
| 9,228 |
|
|
|
| 15,265 |
|
|
|
|
|
|
Goodwill |
|
| 1,092 |
|
Investments (Note 4) |
|
| 520 |
|
Other non-current assets |
|
| 70 |
|
|
| $ | 35,848 |
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Short-term debt (Note 5) |
| $ | 7,687 |
|
Current maturities of long-term debt (Note 6) |
|
| 809 |
|
Accounts payable |
|
| 4,824 |
|
Accrued warranty obligations |
|
| 1,771 |
|
Customer deposits |
|
| 1,195 |
|
Other current liabilities (Note 7) |
|
| 5,301 |
|
Total current liabilities |
|
| 21,587 |
|
|
|
|
|
|
Long-term debt (Note 6) |
|
| 6,587 |
|
Contingent liabilities (Note 9) |
|
|
|
|
Minority interest in net assets of consolidated subsidiaries |
|
| 1,944 |
|
Shareholders’ equity |
|
| 5,730 |
|
|
| $ | 35,848 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements.
NEW ERA BUILDING SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of and for the year ended December 31, 2004
NOTE 1 – Basis of presentation and summary of significant accounting policies
Basis of presentation and principles of consolidation |
On August 8, 2005, pursuant to respective Asset Purchase Agreements, a wholly-owned subsidiary of Champion Enterprises, Inc. (“Champion”) acquired the assets of New Era Building Systems, Inc. (“New Era”), its wholly-owned subsidiary Unique Fabrications, LLC (“Unique”), and its majority-owned subsidiaries, Castle Housing of Pennsylvania, Ltd. (“Castle”) and Carolina Building Solutions, LLC (“CBS”), collectively “the acquired businesses.” At December 31, 2004, New Era owned 55.7% and 54.6%, respectively, of the outstanding membership interests of Castle and CBS.
The consolidated financial statements include the accounts of the acquired businesses (“the Company”). All significant intercompany transactions have been eliminated. Design Homes, LLC, a majority-owned subsidiary of New Era that was not acquired by Champion in the acquisition described above, is carried on the equity method in the consolidated financial statements.
Business |
The Company is a manufacturer and wholesaler of modular and manufactured housing. The factory-built homes that are produced are primarily single-family dwellings sold to builders/retailers throughout the Eastern United States.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue recognition
Sales revenue is generally recognized when wholesale floor plan financing or builder/retailer credit approval has been received, the home is invoiced, title is transferred and the home is shipped.
Cash and cash equivalents
Cash and cash equivalents include checking accounts, money market accounts and highly liquid debt instruments with a maturity of less than 90 days or that are subject to a bank repurchase agreement within that period.
Inventories |
Inventories are stated at the lower of cost or market, with cost determined on the first-in, first-out method) for raw materials and the specific identification for finished goods and work-in-process. Manufacturing costs includes cost of materials, labor and manufacturing overhead.
Property, plant, and equipment |
Property, plant and equipment are stated at cost. Repairs and maintenance are expensed in the year incurred. Depreciation is provided on the straight-line and accelerated methods over the following estimated useful lives:
Buildings and land and building improvements | 30 to 39 years | |
Machinery and equipment | 4 to 10 years |
|
Amortization of assets held under capital lease obligations is included in depreciation expense. Depreciation and amortization expense was $1.7 million for the year ended December 31, 2004.
Goodwill
The Company tests for goodwill impairment in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company assesses goodwill for impairment annually. Impairment losses are recognized whenever the implied fair value of goodwill is less than its carrying value.
Warranty obligations |
The Company generally provides the builder/retailer with a warranty on materials and workmanship for one year from the date the homes are delivered. Estimated warranty costs are accrued as cost of sales at the time of sale. The warranty provision and reserves are based on estimates of the amounts necessary to settle existing and future claims on homes sold by the Company as of the balance sheet date. Factors used to calculate the warranty obligation are the estimated number of homes still under warranty and the historical average costs incurred to service a home.
Dealer volume rebates |
The Company sponsors volume rebate programs under which sales to builders/retailers can qualify for cash rebates generally based on the level of sales attained during a twelve-month
period. Volume rebates are accrued at the time of sale and are recorded as a reduction of net sales.
Income taxes |
New Era is an S Corporation and its subsidiaries are limited liability corporations and therefore are not subject to federal and most state income taxes. Accordingly, there is no provision for federal income taxes in the consolidated financial statement. State income taxes are provided in the consolidated financial statements for states in which the Company is subject to income tax.
NOTE 2 – Inventory
The following is a summary of inventories by component at December 31, 2004: |
|
| December 31, 2005 |
| |
|
|
| (in thousands) |
|
Raw materials |
| $ | 6,182 |
|
Work-in-process |
|
| 1,586 |
|
Finished goods |
|
| 5,577 |
|
Inventory reserve |
|
| (37 | ) |
Total inventory |
| $ | 13,308 |
|
NOTE 3 – Property, plant, and equipment
Following is a summary of property, plant, and equipment and related accumulated depreciation as of December 31, 2004:
|
| December 31, 2004 |
| |
|
| (in thousands) |
| |
Land and improvements |
| $ | 994 |
|
Buildings and improvements |
|
| 12,287 |
|
Machinery and equipment |
|
| 11,212 |
|
Property, plant, and equipment, at cost |
|
| 24,493 |
|
Accumulated depreciation |
|
| (9,228 | ) |
Net property, plant, and equipment |
| $ | 15,265 |
|
NOTE 4 – Investments
Investment in Design Homes, LLC |
The Company owns 61.9% of the outstanding membership interest of Design Homes, LLC, a manufacturer of modular homes. In the consolidated financial statements, the Company accounted for this investment using the equity method. The Company recognized a loss of $313,000 in 2004 to reflect its share of Design Homes net loss for the year. There were no cash
distributions from Design Homes during the year. The Company converted $250,000 due from Design Homes, LLC into additional member interests during the current year.
Summary condensed financial information for Design Homes, LLC as of December 31, 2004 and the year then ended is as follows:
|
| December 31, 2004 |
| |
Total Assets |
|
| (in thousands) |
|
Current Assets |
| $ | 2,994 |
|
Net Property and Equipment |
|
| 1,720 |
|
Other Assets |
|
| 241 |
|
Total Assets |
| $ | 4,955 |
|
|
|
|
|
|
Liabilities & Member Equity |
|
|
|
|
Current Liabilities |
| $ | 3,461 |
|
Long-Term Liabilities |
|
| 1,520 |
|
Members’ Equity |
|
| (26 | ) |
Total Liabilities & Member Equity |
| $ | 4,955 |
|
Liabilities & Member Equity |
|
|
|
|
NOTE 5 – Short-term debt
Short-term debt primarily consists of borrowings under bank lines of credit and is secured by the accounts receivable, inventories and certain property and equipment of the Company. Interest on short-term debt ranges from the bank’s prime rate (5.25% at December 31, 2004) to the prime rate plus 0.5%.
NOTE 6 – Long-term debt
Long-term debt at December 31, 2004 consists of the following: |
|
| December 31, 2004 |
| |
|
|
| (in thousands) |
|
Bank mortgage loans |
| $ | 6,098 |
|
Other loans payable and capital lease obligations |
|
| 1,298 |
|
Total long-term debt |
|
| 7,396 |
|
Less: current portion |
|
| (809 | ) |
Long-Term Debt |
| $ | 6,587 |
|
Interest on the mortgage loans is payable monthly at rates ranging from the bank’s prime rate (5.25% at December 31, 2004) to 8.375%.
NOTE 7 – Other current liabilities
Other current liabilities at December 31, 2004 consists of the following: |
|
| December 31, 2004 |
| |
|
|
| (in thousands) |
|
Accrued dealer volume rebates |
| $ | 1,233 |
|
Accrued delivery and set up costs |
|
| 1,024 |
|
Accrued employee costs |
|
| 938 |
|
Accrued sales tax payable |
|
| 416 |
|
Other accrued liabilities |
|
| 1,690 |
|
Total current liabilities |
| $ | 5,301 |
|
NOTE 9 – Contingent liabilities
As is customary in the manufactured housing industry, a significant portion of the Company’s sales to builders/retailers are made pursuant to repurchase agreements with lending institutions that provide wholesale floor plan financing to the builders/retailers. Pursuant to these agreements, generally for a period of up to 24 months from invoice date of the sale of the homes and upon default by the builders/retailers and repossession by the financial institution, the Company is obligated to purchase the related floor plan loans or repurchase the homes from the lender. Losses under repurchase agreements have not been and at December 31, 2004, are not expected to be significant.
NOTE 10 – Related party transactions
A significant portion of the shareholders of the Company are also customers of the Company. During 2004, there were significant amounts of sales to these shareholders as well as rebates earned and accrued or paid to these shareholders.
NOTE 11 – Retirement plans
The Company sponsors a 401(k) retirement plans under which participating employees may contribute 1% to 15% of their annual compensation to the plans, subject to IRS limitations. Under the plans, the Company matches 25% of the first 4% of employee contributions or 33% of the first 5% of employee contributions. Amounts expensed under these plans were approximately $140,000 in 2004.