Exhibit 99.2
As permitted under Rule 3-05(c) of Regulation S-X and Item 17(c) of Form 20-F, the financial statements of SRI Homes Inc. included herein, are prepared using Canadian generally accepted accounting principles (“Canadian GAAP”). The consolidated financial statements of Champion Enterprises, Inc. (“Champion”) are prepared using accounting standards generally accepted in the United States (“U.S. GAAP”). However, there are no differences between Canadian GAAP and U.S. GAAP that would have a material impact on the SRI financial statements presented herein.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SRI HOMES INC.
For the ten months ended December 21, 2007 and December 31, 2006
For the ten months ended December 21, 2007 and December 31, 2006
SRI Homes Inc.
Unaudited Consolidated Statement of Financial Position
(in thousands of Canadian dollars)
As at December 21, 2007 and February 28, 2007
Unaudited Consolidated Statement of Financial Position
(in thousands of Canadian dollars)
As at December 21, 2007 and February 28, 2007
| December 21, 2007 | February 28, 2007 | |||||||
Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 2,892 | $ | 1,360 | ||||
| Accounts receivable | 12,700 | 10,180 | ||||||
| Inventories (note 4) | 11,653 | 13,201 | ||||||
| Notes receivable (note 5) | 5,178 | 4,776 | ||||||
| Prepaid expenses and other | 295 | 383 | ||||||
| 32,718 | 29,900 | |||||||
| Property, plant & equipment (note 6) | 5,361 | 4,288 | ||||||
| $ | 38,079 | $ | 34,188 | |||||
Liabilities | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 15,017 | $ | 10,575 | ||||
| Income taxes payable | 230 | 2,722 | ||||||
| Notes payable (note 7) | 5,379 | 237 | ||||||
| Term loans (note 8) | — | 2,458 | ||||||
| Due to shareholder (note 9) | 11,840 | — | ||||||
| 32,466 | 15,992 | |||||||
| Due to shareholder (note 9) | — | 15,209 | ||||||
| Future income tax liability | 125 | 125 | ||||||
| 32,591 | 31,326 | |||||||
Shareholder’s Equity | ||||||||
| Share capital | 1 | 1 | ||||||
| Retained earnings | 5,487 | 2,861 | ||||||
| 5,488 | 2,862 | |||||||
| $ | 38,079 | $ | 34,188 | |||||
The accompanying notes form an integral part of these unaudited consolidated financial statements.
SRI Homes Inc.
Unaudited Consolidated Statement of Earnings and Retained Earnings
(in thousands of Canadian dollars)
For the ten months ended December 21, 2007 and December 31, 2006
Unaudited Consolidated Statement of Earnings and Retained Earnings
(in thousands of Canadian dollars)
For the ten months ended December 21, 2007 and December 31, 2006
| December 21, 2007 | December 31, 2006 | |||||||
| Ten months | Ten months | |||||||
Sales (note 10) | $ | 94,847 | $ | 82,179 | ||||
| Cost of Goods Sold | 66,277 | 61,949 | ||||||
Gross Margin | 28,570 | 20,230 | ||||||
| Expenses | ||||||||
| Administration | 8,030 | 4,292 | ||||||
| Selling and service | 648 | 857 | ||||||
| Depreciation | 265 | 261 | ||||||
Earnings from Operations | 19,627 | 14,820 | ||||||
| Interest income – net (note 3) | 1,062 | 1,082 | ||||||
| Interest expense – net (note 3) | (704) | (499) | ||||||
| Other income | 908 | 434 | ||||||
Earnings Before Income Taxes | 20,893 | 15,837 | ||||||
Income Taxes | 6,090 | 5,701 | ||||||
Net Earnings | 14,803 | 10,136 | ||||||
| Retained Earnings, Beginning of Period, Restated | 2,861 | 9,821 | ||||||
| Dividends Paid | (12,177 | ) | — | |||||
Retained Earnings, End of Period | $ | 5,487 | $ | 19,957 | ||||
The accompanying notes form an integral part of these unaudited consolidated financial statements.
SRI Homes Inc.
Unaudited Consolidated Statement of Cash Flow
(in thousands of Canadian dollars)
For the ten months ended December 21, 2007 and December 31, 2006
Unaudited Consolidated Statement of Cash Flow
(in thousands of Canadian dollars)
For the ten months ended December 21, 2007 and December 31, 2006
| December 21, 2007 | December 31, 2006 | |||||||
| Ten months | Ten months | |||||||
CASH FLOW FROM OPERATING ACTIVITIES | ||||||||
| Net earnings | $ | 14,803 | $ | 10,136 | ||||
| Items not requiring cash | ||||||||
| Depreciation | 265 | 262 | ||||||
| Gain on disposal of capital assets | (13 | ) | (34 | ) | ||||
| Net change in non-cash operating working capital (Note 11) | 664 | 2,600 | ||||||
| 15,719 | 12,964 | |||||||
CASH FLOW FROM FINANCING ACTIVITIES | ||||||||
| Repayment of term loans | (2,458 | ) | (357 | ) | ||||
| Dividend paid | (12,177 | ) | — | |||||
| Advances to shareholder | (3,369 | ) | (2,530 | ) | ||||
| Proceeds from (repayment of) notes payable | 5,142 | (1,819 | ) | |||||
| (12,862 | ) | (4,706 | ) | |||||
CASH FLOW FROM INVESTING ACTIVITIES | ||||||||
| Purchase of Property, Plant and Equipment | (1,362 | ) | (526 | ) | ||||
| Proceeds from disposal of Property, Plant and Equipment | 37 | 266 | ||||||
| (1,325 | ) | (260 | ) | |||||
INCREASE IN CASH AND CASH EQUIVALENTS | 1,532 | 7,998 | ||||||
| Cash and Cash Equivalents, Beginning of Period | 1,360 | 841 | ||||||
Cash and Cash Equivalents, End of Period | $ | 2,892 | $ | 8,839 | ||||
| Cash and Cash Equivalents represented by: | ||||||||
| Cash | $ | 2,892 | $ | 1,878 | ||||
| 30-Day Bank Term Deposits | — | 6,961 | ||||||
| Total Cash and Cash Equivalents | $ | 2,892 | $ | 8,839 | ||||
Supplemental Information | ||||||||
| Interest paid | $ | 704 | $ | 499 | ||||
| Income taxes paid | $ | 8,582 | $ | 7,798 | ||||
The accompanying notes form an integral part of these unaudited consolidated financial statements.
SRI Homes Inc.
Notes to the Unaudited Consolidated Financial Statements
For the ten months ended December 21, 2007 and December 31, 2006
(in thousands of Canadian dollars)
Notes to the Unaudited Consolidated Financial Statements
For the ten months ended December 21, 2007 and December 31, 2006
(in thousands of Canadian dollars)
| 1. | Nature of Operations |
SRI Homes Inc. (the “Company”) operates three home manufacturing facilities in Western Canada. The Company is also involved in retail home dealerships and the financing of new home inventory for its dealers. On December 21, 2007 the Company sold substantially all of its assets and its operations to Champion Enterprises Inc. as explained in note 12.
| 2. | Significant Accounting Policies |
These consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in Canada. Because the precise determination of many assets, liabilities, revenues and expenses are dependent on future events, the preparation of financial statements for a period necessarily includes the use of estimates and approximations which have been made using careful judgment. Actual results could differ from those estimates. These consolidated financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below.
| Basis of Presentation |
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary companies, Dynamic Modular Homes Store Ltd. and Western Guarantee Corporation. All significant inter-company transactions and balances have been eliminated on consolidation. During December 2007, the Company’s wholly owned subsidiaries, Interior Modular Construction Services Corporation and Premier Modular Homes Corporation, and its sister company SRI Equipment and Real Estate Inc. were amalgamated into the Company.
The information presented in the accompanying interim consolidated financial statements is without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These interim financial statements follow the same accounting policies and methods of their application as the Company’s February 28, 2007 annual consolidated financial statements. All adjustments are of a normal recurring nature. It is suggested that these interim financial statements be read in conjunction with the Company’s February 28, 2007 annual consolidated financial statements.
Operating results for the ten months ended December 21, 2007 are not necessarily indicative of the results that can be expected for a full twelve month period.
Interim financial information is prepared from March 1, 2007 to December 21, 2007 (the acquisition date). Comparative information is provided for the ten-month period ended December 31, 2006. The 10-day difference in periods between the two periods would not result in significant events or changes to balances that would impact upon the comparability of the periods.
Following issuance of the consolidated financial statements for the year ended February 28, 2007, the Company corrected an error relating to a previously reported gain on disposal of assets to a sister company which was not previously included in the consolidation. This sister company (SRI Equipment and Real Estate Inc.) has now been included in the consolidation for the periods presented as a variable interest entity.
| 3. | Interest Income (Expense) – Net |
| December 21, 2007 | December 31, 2006 | |||||||
| Ten months | Ten months | |||||||
Income | (thousands of dollars) | |||||||
| Interest on trade receivables | $ | 241 | $ | 464 | ||||
| Other | 345 | 314 | ||||||
| Interest earned on notes receivable | 476 | 304 | ||||||
| 1,062 | 1,082 | |||||||
Expense | ||||||||
| Interest on bank indebtedness | 63 | 40 | ||||||
| Interest on term loans | 151 | 186 | ||||||
| Interest on notes payable | 76 | 65 | ||||||
| Interest on due to shareholder | 414 | 208 | ||||||
| 704 | 499 | |||||||
| $ | 358 | $ | 583 | |||||
SRI Homes Inc.
Notes to the Unaudited Consolidated Financial Statements
For the ten months ended December 21, 2007 and December 31, 2006
(in thousands of Canadian dollars)
Notes to the Unaudited Consolidated Financial Statements
For the ten months ended December 21, 2007 and December 31, 2006
(in thousands of Canadian dollars)
| 4. | Inventories |
| December 21, 2007 | February 28, 2007 | |||||||
| (thousands of dollars) | ||||||||
| Raw materials | $ | 8,349 | $ | 10,404 | ||||
| Work-in-process | 1,031 | 990 | ||||||
| Finished goods | 886 | 989 | ||||||
| 10,266 | 12,383 | |||||||
| Retail dealership inventory | 1,387 | 818 | ||||||
| $ | 11,653 | $ | 13,201 | |||||
| 5. | Notes Receivable |
The notes receivable relate to the financing of certain dealers’ new home inventory. The notes earn interest at bank prime plus 2.5% and are due a maximum of 24 months after invoicing.
| 6. | Property, Plant and Equipment |
| December 21, 2007 | February 28, 2007 | |||||||||||||||
| Accumulated | Net Book | Net Book | ||||||||||||||
| Cost | Depreciation | Value | Value | |||||||||||||
| (thousands of dollars) | ||||||||||||||||
| Land | $ | 1,650 | $ | — | $ | 1,650 | $ | 859 | ||||||||
| Buildings | 4,568 | 1,794 | 2,774 | 2,678 | ||||||||||||
| Land Improvements | 483 | 200 | 283 | 246 | ||||||||||||
| Manufacturing equipment | 4,429 | 3,851 | 578 | 422 | ||||||||||||
| Mobile equipment | 748 | 672 | 76 | 83 | ||||||||||||
| $ | 11,878 | $ | 6,517 | $ | 5,361 | $ | 4,288 | |||||||||
| 7. | Notes Payable |
Notes payable bear interest at bank prime rate plus 0.675% and are secured by specific assignment of notes receivable, a general assignment of book debts, assignment of inventory, a general security agreement and a fixed charge against all capital assets. Interest is payable monthly. Principal is repayable at 10% of the original amount advanced on each of 12, 18 and 24 months from the date of advance, and the balance of the principal is repayable at the earlier of when the related home is sold or 30 months from the date of the advance.
The Company also has operating credit arrangements approved to a maximum of $8,000 that bear interest at bank prime rate covered by the same security.
SRI Homes Inc.
Notes to the Unaudited Consolidated Financial Statements
For the ten months ended December 21, 2007 and December 31, 2006
(in thousands of Canadian dollars)
Notes to the Unaudited Consolidated Financial Statements
For the ten months ended December 21, 2007 and December 31, 2006
(in thousands of Canadian dollars)
| 8. | Term Loans |
Term loans of $2,458 were fully repaid in the period (December 31, 2006 — $357).
A related company had guaranteed bank indebtedness and the term loans of the Company under an unlimited cross-guarantee arrangement wherein the Company likewise guaranteed the bank indebtedness and term loans of the related company. The amount of these loans at December 21, 2007 was $569 (December 31, 2006 — $630).
| 9. | Due to Shareholder |
Amounts due to the shareholder are unsecured, and are not repayable within the next year. The shareholder loan bears interest at the rate of 5% per annum. The balance has been classified as a current liability at December 21, 2007 as it is expected to be repaid in the twelve-month period following the acquisition (note 12).
| 10. | Sales |
Sales to one major customer represented 15% of the Company’s total sales for the period ended December 21, 2007 (2006 — 15%)
11. Net Change In Non-cash Working Capital
| December 21, 2007 | December 31, 2006 | |||||||
| (thousands of dollars) | ||||||||
| Accounts receivable | $ | (2,520 | ) | $ | 2,718 | |||
| Inventories | 1,548 | 1,959 | ||||||
| Notes receivable | (402 | ) | 1,452 | |||||
| Prepaid expenses | 88 | 83 | ||||||
| Accounts payable and accrued liabilities | 4,442 | (2,569 | ) | |||||
| Incomes taxes payable | (2,492 | ) | (1,043 | ) | ||||
| $ | 664 | $ | 2,600 | |||||
| 12. | Subsequent Event |
On December 21, 2007 the Company sold substantially all of its assets and its operations to a subsidiary of Champion Enterprises Inc. for cash consideration of $91,000, a note receivable of $24,000 bearing interest at 8 1/3%, and the assumption of approximately $20,000 of liabilities.