1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 24, 1996
AMERICAN HOMESTAR CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 0-24210 76-0070846
----- ------- ----------
State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) Identification No.)
2450 South Shore Boulevard, Suite 300, League City, Texas 77573
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(281) 334-9700
(Registrant's Telephone Number, Including Area Code)
2
Reference is made to the Current Report on Form 8-K (the "Form 8-K") filed
by American Homestar Corporation (the "Corporation") on October 9, 1996. The
Form 8-K is hereby amended to read in its entirety as follows:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to the Option Agreement, dated January 10, 1996, among the
Corporation, Guerdon Homes, Inc., Guerdon Holdings, Inc. (collectively
"Guerdon") and certain security holders (the "Securityholders") of Guerdon (the
"Option Agreement"), the Company obtained a 9-month option to acquire Guerdon
(the "Option"). Upon acquiring the Option, the Company loaned $3,000,000 to
Guerdon evidenced by an 8.5% Promissory Note and pledged $1,000,000 of assets
as collateral under Guerdon's bank credit facility. The proceeds of the loan to
Guerdon were used by Guerdon to fund its working capital needs. On September
24, 1996, the Corporation, Guerdon and the Securityholders entered into an
Exercise and Settlement Agreement whereby, among other things, the Corporation
exercised the Option and agreed to pay an aggregate of $14,754,073 (the
"Consideration") to the Securityholders. The Consideration was paid on
September 24, 1996. The Consideration was determined on arms-length
negotiations among the parties.
The assets acquired by the Corporation include Guerdon's leasehold interests
in four operating manufacturing facilities located in Stayton, Oregon; Boise,
Idaho; Gering, Nebraska and Vicksburg, Mississippi, which facilities produce
manufactured homes (although the Gering facility also produces modular homes),
and the equipment, inventory and other assets associated with such facilities.
The assets acquired also include a new manufacturing facility owned by Guerdon
and located in Pendleton, Oregon (which facility is not operating), and a
leasehold interest in a closed manufacturing facility in Alexander City,
Alabama. The Corporation intends to continue such use of those assets.
Bank One Texas National Association provided $11,677,678 of the financing to
fund the cash portion of the acquisition price of Guerdon, with the remainder
coming from working capital of the Corporation.
To the best knowledge of the Corporation, there is no material relationship
between Guerdon and the Corporation, or any of its affiliates, any director or
officer of the Corporation, or any associate of such director or officer.
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ITEM 7. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
(a)(1) Financial Statements of Business Acquired
Report of Independent Public Accountants . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of April 28, 1995, April 26, 1996
and August 30, 1996 (unaudited) . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the Years Ended April
29, 1994, April 28, 1995 and April 26, 1996 and the four
months ended August 30, 1996 (unaudited) . . . . . . . . . . . . F-3
Consolidated Statements of Changes in Common Stock Equity
(Deficit) for the Years Ended April 29, 1994, April 28, 1995
and April 26, 1996 and the four months ended August 30, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the Years Ended April
29, 1994, April 28, 1995 and April 26, 1996 and the four
months ended August 30, 1996 (unaudited) . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . F-6
(b)(1) Pro Forma Financial Information
Description of Pro Forma Consolidated Financial Statements . . . . F-16
Pro Forma Consolidated Balance Sheet as of August 30, 1996 . . . . F-17
Pro Forma Consolidated Statements of Operations for the Year
Ended May 31, 1996 and three months ended August 31, 1996 . . . F-18
Notes to Pro Forma Consolidated Financial Statements . . . . . . . F-20
(c) Exhibits
The following is a list of exhibits filed as part of this Current
Report on Form 8-K:
Exhibit No. Description
2.1 Securities Purchase Agreement, dated January 10, 1996, among
American Homestar Corporation, Guerdon Homes, Inc. and
Guerdon Holdings, Inc. (1)
2.2 Option Agreement, dated January 10, 1996, among American
Homestar Corporation, Guerdon Homes, Inc., Guerdon Holdings,
Inc. and certain security holders of Guerdon Homes, Inc. and
Guerdon Holdings, Inc. (1)
2.3 Exercise and Settlement Agreement, dated September 24, 1996,
by and among American Homestar Corporation, Guerdon Homes,
Inc., Guerdon Holdings, Inc. and certain security holders of
Guerdon Homes, Inc. and Guerdon Holdings, Inc. (2)
23.1 Consent of Deloitte & Touche LLP. (3)
- ----------------
(1) Previously filed as an exhibit to the Company's Registration
Statement No. 333-1818 on Form S-1 and incorporated herein by
reference.
(2) Previously filed with Form 8-K on October 9, 1996, and is being
refiled herewith to include signatures of all parties.
(3) Filed herewith.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Guerdon Holdings, Inc.
Lake Oswego, Oregon:
We have audited the accompanying consolidated balance sheets of Guerdon
Holdings, Inc. and its subsidiaries as of April 28, 1995 and April 26, 1996 and
the related consolidated statements of operations, changes in stockholders'
equity (deficit), and cash flows for each of the years in the three-year period
ended April 26, 1996. 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 our audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Guerdon Holdings, Inc. and
subsidiary at April 28, 1995 and April 26, 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 26, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 13 to the financial statements, the Company changed its
method of accounting for certain costs related to product design and retailer
development in 1995.
DELOITTE & TOUCHE LLP
June 20, 1996
Portland, Oregon
F-1
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GUERDON HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
APRIL 28, APRIL 26, AUGUST 30,
1995 1996 1996
---------- ---------- -----------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 843 $ 207 $ 126
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 161 161
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,041 3,264 4,344
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,877 3,572 4,116
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,150 461 586
Current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . 1,643 2,130 3,947
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . 975 929 489
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . -- 25 --
---------- ---------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . 13,685 10,749 13,769
Property, plant, and equipment - net . . . . . . . . . . . . . . . . . . 5,723 8,226 8,417
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,552 2,907 1,102
Other assets - net . . . . . . . . . . . . . . . . . . . . . . . . . . . 935 780 690
Other intangible assets - net . . . . . . . . . . . . . . . . . . . . . . 863 840 833
---------- ---------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 22,758 $ 23,502 $ 24,811
========== ========== =========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND COMMON STOCK EQUITY (DEFICIT)
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,152 $ 9,189 $ 6,582
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,209 9,593 10,569
Current portion of senior debt . . . . . . . . . . . . . . . . . . . . . 23 2,026 4,940
Subordinated debt - current . . . . . . . . . . . . . . . . . . . . . . . -- 12,000 12,000
---------- ---------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . 16,384 32,808 34,091
Senior debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,078 2,986 2,957
Subordinated debt - long term . . . . . . . . . . . . . . . . . . . . . . 9,419 3,000 3,000
Redeemable preferred stock :
Redeemable preferred stock, $.01 par value, stated at redemption
value:
Series A, 190,000 shares authorized, 42,000 shares outstanding
at April 28, 1995, April 26, 1996 and August 30, 1996,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . 420 420 420
Series B, 310,000 shares authorized, 20,000 shares outstanding at
April 28, 1995, April 26, 1996 and August 30, 1996,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . 200 200 200
---------- ---------- ---------
Total redeemable preferred stock . . . . . . . . . . . . . . 620 620 620
Common stock equity (deficit):
Common stock subject to repurchase - 14,653 shares . . . . . . . . . . 100 100 100
Common stock, $.01 par value: 600,000 shares authorized: 66,603,
66,570 and 66,570 shares outstanding at April 28, 1995, April 26,
1996 and August 30, 1996, respectively, excluding 14,653 subject
to repurchase and 429,454 treasury shares . . . . . . . . . . . . . 1 1 1
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 8,153 8,053 8,053
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (5,562) (11,631) (11,576)
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,435) (12,435) (12,435)
---------- ---------- ---------
Total common stock equity (deficit) . . . . . . . . . . . . (9,743) (15,912) (15,857)
---------- ---------- ---------
Total liabilities, redeemable preferred stock and common
stock equity (deficit) . . . . . . . . . . . . . . . . . $ 22,758 $ 23,502 $ 24,811
========== ========== =========
See notes to consolidated financial statements.
F-2
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GUERDON HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
YEAR ENDED FOUR MONTHS ENDED
------------------------------------ ----------------------
APRIL 29, APRIL 28, APRIL 26, AUGUST 25, AUGUST 30,
1994 1995 1996 1995 1996
--------- --------- ---------- ---------- ----------
(UNAUDITED)
Sales . . . . . . . . . . . . . . . . . . . $ 89,451 $ 103,035 $ 96,974 $ 32,796 $ 35,780
Cost of sales . . . . . . . . . . . . . . . 78,608 93,390 88,661 29,555 31,801
--------- --------- --------- --------- ---------
Gross profit . . . . . . . . . . . 10,843 9,645 8,313 3,241 3,979
Selling, general, and administrative
expenses. . . . . . . . . . . . . . . . . . 6,004 9,976 8,222 2,269 2,927
Restructuring costs . . . . . . . . . . . . 3,028 1,046 1,181 -- --
--------- --------- --------- --------- ---------
Operating income (loss) before
depreciation and amortization . 1,811 (1,377) (1,090) 972 1,052
Depreciation and amortization . . . . . . . 733 1,456 1,041 230 271
--------- --------- --------- --------- ---------
Operating income (loss) . . . . . 1,078 (2,833) (2,131) 742 781
Other income (expense):
Interest expense . . . . . . . . . . . (178) (1,560) (2,658) (676) (632)
Equity bonus . . . . . . . . . . . . . (503) -- -- -- --
Amortization of discount on
subordinated debt . . . . . . . . . -- (752) (2,581) (2,581) --
Losses from investment in subsidiary . -- (517) -- -- --
Other . . . . . . . . . . . . . . . . 38 -- (567) -- --
--------- --------- --------- --------- ---------
Income (loss) before taxes and cumulative
effect of change in accounting
principle . . . . . . . . . . . . . . . 435 (5,662) (7,937) (2,515) 149
Provision (benefit) for income taxes . . . 108 (2,484) (1,949) 51 70
--------- --------- --------- --------- ---------
Net income (loss) before cumulative effect
of change in accounting principle. . . 327 (3,178) (5,988) (2,566) 79
Cumulative effect of change in accounting
principle, net of tax . . . . . . . . -- (297) -- -- --
--------- --------- --------- --------- ---------
Net income (loss) . . . . . . . . . . . . . $ 327 $ (3,475) $ (5,988) $ (2,566) $ 79
========= ========= ========= ========= =========
See notes to consolidated financial statements.
F-3
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GUERDON HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
Total
Common Common
Stock Additional Stock
Subject to Common Paid-in Accumulated Treasury Equity
Repurchase Stock Capital Deficit Stock (Deficit)
---------- ------- --------- ------------ ---------- ---------
Balance at April 30, 1993 . . . . . . . . . . $ 100 $ 5 $ 2,995 $ (1,915) $ -- $ 1,185
Dividends paid on redeemable preferred
stock . . . . . . . . . . . . . . . . . . . . -- -- -- (323) -- (323)
Redemption of 79,000 shares Series A
and 130,000 shares of Series B
redeemable preferred stock at a
premium of $98 . . . . . . . . . . . . . . -- -- -- (98) -- (98)
Exercise of warrants to purchase 127,908
shares of common stock . . . . . . . . . . -- -- 1,021 -- -- 1,021
Acquisition of 429,454 shares of common
stock as treasury stock and return of
115,623 shares of stock held in trust
by the Company for outstanding
warrants . . . . . . . . . . . . . . . . . -- (5) 5 -- (12,241) (12,241)
Issuance of 14,600 shares of common
stock . . . . . . . . . . . . . . . . . . . . -- -- 500 -- -- 500
Exchange of 51,282 warrants to purchase
common stock for 43,218 shares of
common stock . . . . . . . . . . . . . . . -- 1 (1) -- -- --
Issuance of 165,870 warrants to purchase
common stock to senior subordinated
and junior subordinated debtholders. . . . -- -- 2,933 -- -- 2,933
Net income for 52 weeks ended April 29,
1994 . . . . . . . . . . . . . . . . . . . . -- -- -- 327 -- 327
------ ------ ------- -------- -------- --------
Balance at April 29, 1994 . . . . . . . . . . 100 1 7,453 (2,009) (12,241) (6,696)
Dividends paid on redeemable preferred
stock . . . . . . . . . . . . . . . . . . . . -- -- -- (78) -- (78)
Issuance of 8,752 shares of common stock -- -- 300 -- -- 300
Issuance of 22,634 warrants to purchase
common stock to senior subordinated
and junior subordinated debtholders -- -- 400 -- -- 400
Contingent payment for purchase of
treasury stock . . . . . . . . . . . . . . -- -- -- -- (194) (194)
Net loss for 52 weeks ended April 28,
1995 . . . . . . . . . . . . . . . . . . . -- -- -- (3,475) -- (3,475)
------ ------ ------- -------- -------- --------
Balance at April 28, 1995 . . . . . . . . . . 100 1 8,153 (5,562) (12,435) (9,743)
Dividends accrued on Series A and Series
B preferred stock . . . . . . . . . . . . -- -- -- (81) -- (81)
Retirement of 2,916 shares of common
stock . . . . . . . . . . . . . . . . . . -- -- (101) -- -- (101)
Exercise of 54,701 warrants to purchase
common stock . . . . . . . . . . . . . . -- -- 1 -- -- 1
Net loss for the 52 weeks ended April
26, 1996 . . . . . . . . . . . . . . . . . -- -- -- (5,988) -- (5,988)
------ ------ ------- -------- -------- --------
Balance at April 26, 1996 . . . . . . . . . . 100 1 8,053 (11,631) (12,435) (15,912)
Dividends accrued on Series A and
Series B preferred stock (unaudited) -- -- -- (24) -- (24)
Net income for the 17 weeks ended August
30, 1996 (unaudited) . . . . . . . . . . . -- -- -- 79 -- 79
------ ------ ------- -------- -------- --------
Balance at August 30, 1996 (unaudited) $ 100 $ 1 $ 8,053 $(11,576) $(12,435) $(15,857)
====== ====== ======= ======== ======== ========
See notes to consolidated financial statements.
F-4
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GUERDON HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED FOUR MONTHS ENDED
------------------------------------ ------------------------
APRIL 29, APRIL 28, APRIL 26, AUGUST 25, AUGUST 30,
1994 1995 1996 1995 1996
--------- --------- --------- ---------- ----------
(UNAUDITED)
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . $ 327 $ (3,475) $ (5,988) $ (2,566) $ 79
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization . . . . . 733 1,456 1,041 230 271
Amortization of debt discount . . . . . -- 752 2,581 2,581 --
Deferred taxes . . . . . . . . . . . . . -- (3,195) (1,842) 33 (12)
Other . . . . . . . . . . . . . . . . . 28 -- --
Changes in operating assets and
liabilities:
Restricted cash . . . . . . . . . . (156) -- (5) -- --
Accounts receivable . . . . . . . . 1,480 (1,070) 1,777 1,174 (1,080)
Other receivables . . . . . . . . . 75 275 688 273 (125)
Inventory . . . . . . . . . . . . . 1,235 (755) 305 380 (544)
Prepaid expenses and other . . . . . (351) 29 46 (131) 440
Accounts payable . . . . . . . . . . (1,482) 4,908 (963) (1,892) (2,607)
Accrued liabilities . . . . . . . . (85) 1,050 3,384 58 976
-------- -------- -------- -------- ---------
Net cash provided by (used in)
operating activities . . . . . . 1,804 (25) 1,024 140 (2,602)
-------- -------- -------- -------- ---------
Cash flows from investing activities:
Purchases of property, plant, and
equipment . . . . . . . . . . . . . . . . (342) (4,391) (3,320) (2,197) (340)
Sale of marketable securities . . . . . . 302 -- -- -- --
Acquisition of other assets . . . . . . . (146) (538) (69) -- --
Decrease in restricted cash . . . . . . . 500 -- -- -- --
-------- -------- -------- -------- ---------
Net cash provided by (used in)
investing activities . . . . . . 314 (4,929) (3,389) (2,197) (340)
-------- -------- -------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock . 500 300 -- -- --
Exercise of warrants to purchase common
stock . . . . . . . . . . . . . . . . . . . . 1,021 -- 1 -- --
Purchase of treasury stock . . . . . . . . (12,241) (195) -- -- --
Issuance of common stock warrants . . . . 2,933 400 -- -- --
Redemption of preferred stock . . . . . . (2,188) (140) -- -- --
Retirement of common stock . . . . . . . . -- -- (101) -- --
Proceeds from issuance of long-term debt -
net of discount . . . . . . . . . . . . 9,644 5,124 4,910 1,929 --
Payments of long-term debt . . . . . . . . (800) -- (4,822) (316) (29)
Issuance (payment) of short-term senior
debt . . . . . . . . . . . . . . . . . . . . -- -- 1,822 -- 2,914
Deferred financing costs . . . . . . . . . (711) -- -- -- --
Dividends paid . . . . . . . . . . . . . . (323) (78) (81) (24) (24)
-------- -------- -------- -------- ---------
Net cash provided by (used in)
financing activities . . . . . . (2,165) 5,411 1,729 1,589 2,861
-------- -------- -------- -------- ---------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . (47) 457 (636) (468) (81)
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . . . . . 433 386 843 843 207
-------- -------- -------- -------- ---------
Cash and cash equivalents, end of period . . $ 386 $ 843 $ 207 375 126
======== ======== ======== ======== =========
Supplemental disclosure of cash flow
information -
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . 73 1,480 966 177 182
Taxes . . . . . . . . . . . . . . . . . 314 429 -- -- 81
See notes to consolidated financial statements.
F-5
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GUERDON HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. DESCRIPTION OF BUSINESS AND CORPORATE ORGANIZATION
The accompanying consolidated financial statements include the
accounts of Guerdon Holdings, Inc. ("GHI") and it wholly-owned subsidiary,
Guerdon Homes, Inc. ("Guerdon") (together, the "Company"). The Company's
operations are conducted by Guerdon which operates in the factory-built
housing industry.
On February 27, 1996, American Homestar Corporation ("American
Homestar") obtained a nine month option (the "Option") to acquire the
Company. American Homestar which intends to support Guerdon's operations
also loaned $3,000 to the Company and pledged $1,000 of collateral under
the Company's senior bank facility. American Homestar also signed a
management agreement with the Company and managed the Company's operations
during the Option period. On September 27, 1996, American Homestar
exercised its option and acquired the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND CORPORATE ORGANIZATION
Use of Accounting 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
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
Cash and Cash Equivalents
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
computed over the estimated useful lives of the assets using the
straight-line method.
Income Taxes
The taxable income of GHI and Guerdon is included in the consolidated
federal income tax return filed by GHI. State income taxes are paid by
Guerdon directly to the appropriate authorities. The Company uses the
liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based upon differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. The Company records a valuation
allowance to reduce deferred tax assets to an amount that is more likely
than not to be realized.
Intangibles
Goodwill represents the excess of purchase price over the net assets
acquired. Goodwill and trade name are amortized on a straight-line basis
over forty years. Leasehold interests represents the fair value of the
plant facilities under lease and are amortized on a straight-line basis
over the life of the original lease which expires in December 2002. The
costs of other intangible assets are amortized on a straight-line basis
over their estimated useful lives, ranging from two to five years. The
Company evaluates the realization of its intangible assets using
undiscounted cash flows.
Inventories
Inventories are valued at the lower of cost, using the first-in,
first-out (FIFO) method of inventory valuation, or market.
F-6
10
GUERDON HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Product Warranties
The Company warrants its manufactured homes against substantial
manufacturing defects for one year commencing at the time of the retail
sale. Estimated warranty costs are provided at the time of sale.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
presentation adopted in fiscal year 1996.
3. INVENTORY
Inventories at April 28, 1995, April 26, 1996 and August 30, 1996 are
as follows:
APRIL 28, APRIL 26, AUGUST 30,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
Raw materials . . . . . . . . . . . . . . . $ 3,221 $ 2,837 $ 3,304
Work-in-process . . . . . . . . . . . . . . 692 669 713
Finished goods . . . . . . . . . . . . . . 61 241 274
Lower of cost or market allowance . . . . . (97) (175) (175)
------- ------- -------
Total . . . . . . . . . . . . . . . $ 3,877 $ 3,572 $ 4,116
======= ======= =======
4. OTHER ASSETS
Other assets at April 28, 1995, April 26, 1996 and August 30, 1996 are
as follows:
APRIL 28, APRIL 26, AUGUST 30,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
Deferred finance costs . . . . . . . . . . . . $ 771 $ 840 $ 840
Leasehold interests . . . . . . . . . . . . . . 590 590 590
------- ------- -------
Subtotal . . . . . . . . . . . . . . . . 1,361 1,430 1,430
Accumulated amortization . . . . . . . . . . . (426) (650) (740)
------- ------- -------
Total other assets (net) . . . . . . . . $ 935 $ 780 $ 690
======= ======= =======
Goodwill . . . . . . . . . . . . . . . . . . . $ 614 $ 614 $ 614
Trade name . . . . . . . . . . . . . . . . . . 356 356 356
Other . . . . . . . . . . . . . . . . . . . . . 5 7 7
------- ------- -------
Subtotal . . . . . . . . . . . . . . . . 975 977 977
Accumulated amortization . . . . . . . . . . . (112) (137) (144)
------- ------- -------
Total other intangible assets (net) . . . $ 863 $ 840 $ 833
======= ======= =======
The favorable leasehold interest valued at $478 as part of the
acquisition of the Colorado plant which was acquired in 1995 and then
closed (see note 12) was written off in fiscal 1995.
Amortization for the years ended April 29, 1994, April 28, 1995 and
April 26, 1996 and the four months ended August 25, 1995 and August 30,
1996 was $206, $834, $249, $73 (unaudited) and $96 (unaudited),
respectively.
F-7
11
GUERDON HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment and accumulated
depreciation and amortization at April 28, 1995, April 26, 1996 and August
30, 1996 follows:
APRIL 28, APRIL 26, AUGUST 30,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
Property under construction . . . . . . . . . $ 1,840 $ 43 $ 406
Equipment . . . . . . . . . . . . . . . . . . 3,756 3,624 3,624
Leasehold interests . . . . . . . . . . . . . 2,840 3,196 3,196
Accumulated depreciation and amortization . . (2,713) (3,138) (3,310)
-------- -------- --------
Subtotal . . . . . . . . . . . . . . . 5,723 3,725 3,916
Idle plant facility . . . . . . . . . . . . . -- 4,501 4,501
-------- -------- --------
Property, plant and equipment, net . . $ 5,723 $ 8,226 $ 8,417
======== ======== ========
Depreciation is computed over the estimated useful lives of the
assets, which range from 3 to 20 years, using the straight-line method.
Idle plant represents the Pendleton facility which was constructed in
fiscal 1996 and received its certificate of completion on January 19, 1996.
Management has determined not to put the facility into production until
market conditions change and, therefore, has classified the plant as idle.
The facility will not be depreciated until placed into service.
6. DEBT
Long-term debt consists of the following:
APRIL 28, APRIL 26, AUGUST 30,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
Subordinated debt:
Senior subordinated debt, 12% stated interest rate . . $ 7,270 $ 7,270 $ 7,270
Junior subordinated debt, 8% stated interest rate . . . 4,730 4,730 4,730
Junior subordinated debt, 8.5% stated interest rate . . -- 3,000 3,000
-------- -------- --------
Total subordinated debt . . . . . . . . . . . . . 12,000 15,000 15,000
Discount on senior subordinated debt . . . . . . . . . (1,161) -- --
Discount on junior subordinated debt . . . . . . . . . (1,420 -- --
-------- -------- --------
9,419 15,000 15,000
Current portion -- (12,000) (12,000)
-------- -------- --------
Total long-term subordinated debt . . . . . . . . $ 9,419 $ 3,000 $ 3,000
======== ======== ========
Senior debt:
Revolving credit agreement . . . . . . . . . . . . . . $ 4,821 $ 1,822 $ 4,790
Construction loan . . . . . . . . . . . . . . . . . . . 961 1,971 1,971
Equipment loan . . . . . . . . . . . . . . . . . . . . 241 687 637
Equipment loan . . . . . . . . . . . . . . . . . . . . -- 482 475
Other . . . . . . . . . . . . . . . . . . . . . . . . . 78 50 24
-------- -------- --------
6,101 5,012 7,897
Current portion . . . . . . . . . . . . . . . . . . . . (23) (2,026) (4,940)
-------- -------- --------
Total long-term senior debt . . . . . . . . . . . $ 6,078 $ 2,986 $ 2,957
======== ======== ========
F-8
12
GUERDON HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company entered into a $4,000 revolving credit agreement in April
1994. The borrowing limit was increased to $6,000 in March 1995. Borrowings
under the revolving credit agreement bear interest at the lender's publicly
announced prime rate (9.25% at April 26, 1996) plus 2%. The revolving
credit agreement has a maturity date of December 1, 1996. Loan commitment
fees paid equal 1% of the face amount of the note. In addition, the holders
of subordinated debt have pledged an additional $1,400 of collateral under
the Company's senior bank facility. The Company accrued $383 in structuring
fees related to this collateral and accrues an availability fee of 1.67%
per month.
On March 6, 1995, the Company entered into a financing arrangement for
the purchase of equipment. The loan is a five year loan with payments of
$13 of principal per month plus interest at the 5-year U.S. Treasury Note
four week average yield (5.875% at April 26, 1996) plus 3%.
On March 8, 1995, the Company obtained a $2,100 plant construction
loan. The loan bears interest at the lender's publicly announced prime rate
(9.25% at April 26, 1996) plus 2%. The loan is in the process of being
converted to either a 10 year or 15 year real estate loan at the Company's
election that will bear interest at the five year U.S. Treasury note plus
3%. The project received its certificate of completion on January 19, 1996.
In conjunction with the issuance of the senior subordinated debt of
$1,000 in 1995 and junior subordinated debt of $500 in 1995, warrants to
purchase 11,697 shares of common stock at $16.57 were issued in 1995 to the
senior subordinated debtholders, and warrants to purchase 10,937 shares of
common stock at $16.57 were issued to the junior subordinated debtholders.
These warrants, in addition to the warrants issued in 1994, were
issued at a discount of $17.68 and, accordingly, the senior subordinated
debt and junior subordinated debt were discounted by $1,503 and $1,829,
respectively. The discounts were being accreted over the life of the debt.
Including the warrant's value, the senior subordinated debt and junior
subordinated debt had effective interest rates of 9.2% and 18.3% higher
than the stated interest rates, respectively, in 1995. Additionally, the
Company must pay an annual fee equal to 3% on the outstanding balance of
the junior subordinated debt. In 1996, the Company was in default on the
senior and junior subordinated debt and had not received waivers from the
lenders. As a result, the Company has classified all such debt as current
and fully amortized the discount on the senior and junior subordinated debt
in the current year.
The senior subordinated debt was subordinated to the debt under the
revolving credit agreement and the junior subordinated debt was
subordinated to the debt under the revolving credit agreement and the
senior subordinated debt. All payments of principal or interest to the
subordinated debtholders and payments of dividends or redemptions of common
and preferred stock required the express written consent of the senior
debtholder.
The Company was required to maintain certain financial covenants,
including certain amounts of tangible net worth and debt service and
interest coverage ratios. Substantially all assets of the Company were
pledged as security under these loan agreements. As of April 26, 1996, the
Company was in violation of certain of these covenants. The Company was
unable to obtain waivers from the various debtholders and, accordingly,
classified the appreciable debt as current. In connection with American
Homestar's acquisition of the Company, the senior debt, senior subordinated
debt and junior subordinated debt were repaid in full.
The scheduled maturities of all long-term debt is: 1997, $204; 1998,
$182; 1999, $3,183; 2000, $184; 2001, $160.
F-9
13
GUERDON HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. PREFERRED AND COMMON STOCK
Cumulative Redeemable Preferred Stock, Series A
An officer of the Company owns these shares which the Company has the
option to redeem in whole or in part at a redemption price of $10 per share
plus accrued and unpaid dividends. The redemption terms of these shares
were modified in 1995 such that the remaining shares are required to be
redeemed on September 30, 1996, subject to the approval of the senior
debtholder. In the event of dissolution of GHI, the Series A maintains a
liquidation preference to the subordinated debt of $10 per share. Dividends
are accrued quarterly at a rate of 12%. In connection with acquisition of
the Company, American Homestar redeemed all shares plus accrued and unpaid
dividends.
Cumulative Callable Exchangeable Preferred Stock, Series B
The Series B shares which are subordinate to the Series A shares are
owned by a member of the Company's Board of Directors. Dividends are paid
quarterly at a rate of 12% per annum. The outstanding Series B preferred
stock will be redeemed, subject to approval of the senior debtholder, at
the rate of $27 per calendar quarter from October 1, 1997 through July 1,
1998 and $13 per calendar commencing October 1, 1998 through April 1, 2000.
The Board member was given 4,375 warrants for a change in terms of
redemption. In connection with acquisition of the Company, American
Homestar redeemed all shares plus accrued and unpaid dividends.
Common Stock Subject to Repurchase
The Company has issued 14,653 shares of common stock for $100 that are
subject to repurchase, at the option of the shareholder, at the fair market
value of common stock upon exercise of the put option. The put option is
exercisable commencing on May 1, 1995, and will terminate upon the
Company's sale of common stock in a public offering which results in
aggregate cash proceeds to the Company of at least $5,000.
The maximum aggregate number of shares of common stock which the
Company may be required to repurchase is limited to 10% during fiscal year
1996, 15% during fiscal year 1997 and 20% during each fiscal year
thereafter of the then outstanding or issuable shares of common stock of
the Company. These annual limitations are not cumulative.
Warrants
The Company issued to a shareholder and former officer warrants to
purchase 51,282 shares of common stock for $6.83 per share and 3,419 shares
of common stock for $11.70 per share. These warrants were exercised by
agreement at $0.01 per share in 1996.
The Company has also issued warrants to purchase 188,504 shares of
common stock for $16.57 per share to the senior subordinated and junior
subordinated debtholders, of which 103,467 are exercisable through April 4,
2004. The remaining 85,037 are exercisable through the earlier of April 4,
2004 or the sixth anniversary of the date on which the senior subordinated
debt (senior debt) is paid in full or at maturity. The foregoing warrants
are subject to provisions relating to circumstances surrounding the
repayment of senior debt or a merger or initial public offering (IPO) of
the Company. In the event that a merger or IPO occurs after the second
anniversary of the date of grant (April 4, 1994) but on or before the third
anniversary date, then 9.0975% of the warrants (contingent warrants) shall
be exercisable for 10% of the shares and the remaining 90% shall be
canceled and no longer subject to exercise. In the event that all senior
debt is repaid after the first anniversary of the date of grant, but on or
before the third anniversary date, then 40% of the contingent warrants
shall remain exercisable and the remaining shall be canceled and no longer
subject to exercise.
F-10
14
GUERDON HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A summary of warrants to purchase common stock is as follows:
APRIL 29, 1994
EXERCISE OUTSTANDING AT ---------------------------
PRICE APRIL 30, 1993 EXERCISED CANCELED ISSUED OUTSTANDING VESTED
- ------------ -------------- --------- --------- --------- ----------- ----------
$6.83 141,025 32,051 57,692(1) -- 51,282 51,282
$8.52 63,910 60,680 3,230 -- -- --
$11.70 25,641 22,222 -- -- 3,419 3,419
Variable 12,955 12,955 -- -- -- --
$16.57 -- -- -- 165,870 165,870 165,870
----------- --------- --------- --------- ----------- ----------
Total 243,531 127,908 60,922 165,870 220,571 220,571
=========== ========= ========= ========= =========== ==========
(1) 51,282 warrants to purchase common stock at $6.83 included in the warrants
canceled were exchanged for 43,218 shares of common stock of GHI.
APRIL 28, 1994
EXERCISE OUTSTANDING AT ---------------------------
PRICE APRIL 30, 1993 EXERCISED CANCELED ISSUED OUTSTANDING VESTED
- ------------ -------------- --------- --------- --------- ----------- ----------
$6.83 51,282 -- -- -- 51,282 51,282
$11.70 3,419 -- -- -- 3,419 3,419
$16.57 165,870 -- -- 27,009 192,879 192,879
----------- --------- --------- --------- ----------- ----------
Total 220,571 -- -- 27,009 247,580 247,580
=========== ========= ========= ========= =========== ==========
APRIL 26, 1994
EXERCISE OUTSTANDING AT ---------------------------
PRICE APRIL 30, 1993 EXERCISED CANCELED ISSUED OUTSTANDING VESTED
- ------------ -------------- --------- --------- --------- ----------- ----------
$6.83 51,282 51,282 -- -- -- --
$11.70 3,419 3,419 -- -- -- --
$16.57 192,879 -- -- -- 192,879 192,879
----------- --------- --------- --------- ----------- ----------
Total 247,580 54,701 -- -- 192,879 192,879
=========== ========= ========= ========= =========== ==========
AUGUST 30, 1996
(UNAUDITED)
EXERCISE OUTSTANDING AT ---------------------------
PRICE APRIL 30, 1993 EXERCISED CANCELED ISSUED OUTSTANDING VESTED
- ------------ -------------- --------- --------- --------- ----------- ----------
$16.57 192,879 -- -- -- 192,879 192,879
=========== ========= ========= ========= =========== ==========
Options
The Company has issued the option to purchase 15,090 shares of common
stock to a member of the Board of Directors for $16.57 per share, exercisable in
whole or in part from April 4, 1997 through April 4, 2004.
Stock Option Plan
On May 1, 1994, the Company adopted the GHI Stock Option Plan (the
"Plan"). The Plan is available to all employees and consultants employed by the
Company or any subsidiary. Employees are eligible for qualified and nonqualified
options and consultants are eligible for nonqualified options. All awards are
made at the discretion of the Company's Board of Directors. The total number of
shares reserved and granted on May 18, 1994 under the Plan was 12,574. Upon
granting of the options, the exercise price was $34.25 and the options will be
exercisable at the rate of 20% per year. The exercise period may be accelerated
at the administrator's discretion.
As a condition for renewal of the revolving credit agreement at July 31,
1996 to a maturity of December 1, 1996, all payments of dividends and
redemptions of common and preferred stock must have the express written consent
of the senior debtholder through the maturity date of the revolving credit
agreement.
F-11
15
GUERDON HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
Rent is due under various operating leases, principally for
manufacturing facilities, equipment, and computers, for each of the
following fiscal years and in the aggregate thereafter as follows:
Year Ending April
-----------------
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 832
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 784
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 743
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 707
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 697
Thereafter (2002 through 2003) . . . . . . . . . . . . . 1,149
--------
Total . . . . . . . . . . . . . . . . . . . . . . $ 4,912
========
Under the terms of the plant leases, the Company is responsible for
the payment of property taxes, maintenance of the facilities and insurance.
The plant leases are subject to a rent adjustment every three years based
on the lesser of the United States Bureau of Labor Statistics Consumer
Price Index for all Urban Consumers or a factor of 1.1 times the present
rent. The next rent adjustment is scheduled for January 1, 1997. The
Company has the options to buy the plant facilities within the last year of
the lease term or may renew the lease for an additional ten-year term. In
addition, the Company has acquired an option to purchase the lease plants
for an agreed-upon price, which option expires on February 27, 1997. Total
rent expense related to the Company was $756, $902, $848, $285 (unaudited)
and $223 (unaudited) for the years ended April 29, 1994, April 28, 1995,
and April 26, 1996 and four months ended August 25, 1995 and August 30,
1996, respectively.
Repurchase Commitments
The majority of sales are made to dealers under commitments by
financial institutions to pay for units as they are delivered. In
accordance with customary industry practice, some financial institutions
require the Company to execute repurchase agreements which provide that, if
a dealer defaults on repayment of the financing, the Company will
repurchase its product from the financial institution in accordance with a
declining repurchase price schedule. While the gross contingent liability
under these agreements is substantial, the risk of loss is spread over
numerous dealers and is reduced by the resale value of the products
repurchased. No losses on repurchased units were recognized for the years
ended April 29, 1994, April 28, 1995 and April 26, 1996 and for the four
months ended August 30, 1996 (unaudited).
Outstanding Litigation
The Company is party to various legal claims, actions and complaints,
certain of which involve material amounts. Although the Company is unable
to predict with certainty whether or not it will ultimately be successful
in these legal proceedings or, if not, what the impact might be, management
presently believes that disposition of these matters will not have a
material adverse effect on the Company's consolidated results of
operations, financial condition or cash flows.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments when it is practicable to estimate that value. The carrying
amount of the current assets (primarily accounts receivable and inventory)
and current liabilities (primarily short-term subordinated debt and
accounts payable) approximates fair value based on the short maturity of
these instruments. The fair value of the Company's long-term debt is
estimated on quoted market prices for the
F-12
16
GUERDON HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
same or similar issues or on the current rates offered to the Company for
debt of the same remaining maturity. Based on the borrowing rates currently
available to the Company for bank loans with similar terms and average
maturities, the fair value of long-term senior debt and long-term
subordinated debt at April 26, 1996 is $1,080 and $3,000, respectively.
10. PENSION PLAN
The Company offers a defined contribution plan to all employees having
one year of service. Eligible employees may elect to contribute up to 15%
of their annual compensation to the plan. The Company may contribute a
matching contribution at its own discretion. Pension expense for the years
ended April 29, 1994, April 28, 1995 and April 26, 1996 and the four months
ended August 25, 1995 and August 30, 1996 were $224, $171, $46, $17
(unaudited) and $24 (unaudited), respectively.
11. INCOME TAXES
Significant components of the Company's deferred tax assets at April
28, 1994, April 6, 1996 and August 30, 1996 (unaudited) are as follows:
APRIL 28, APRIL 26, AUGUST 30,
1995 1996 1996
--------- --------- ----------
(UNAUDITED)
Deferred tax assets:
Book over tax depreciation and amortization . . . . $ 212 $ 55 $ 393
Inventory capitalization . . . . . . . . . . . . . . 147 126 128
Warranty costs . . . . . . . . . . . . . . . . . . . 644 701 733
Workers' compensation insurance costs . . . . . . . . 105 305 342
Net operating loss carry forward . . . . . . . . . . 1,312 2,785 929
Restructuring costs . . . . . . . . . . . . . . . . . 499 -- --
Lease acquisition costs . . . . . . . . . . . . . . . 144 -- 54
Idle plant reserve . . . . . . . . . . . . . . . . . -- 169 75
Legal settlement reserve . . . . . . . . . . . . . . -- 111 82
Self-insurance reserve . . . . . . . . . . . . . . . -- 146 71
Environmental reserve . . . . . . . . . . . . . . . . -- 97 89
Transaction cost . . . . . . . . . . . . . . . . . . -- 103 --
Inventory reserve . . . . . . . . . . . . . . . . . . -- 67 67
Vacation accrual . . . . . . . . . . . . . . . . . . -- 63 69
Deferred compensation . . . . . . . . . . . . . . . . -- -- 447
Reserve for structuring fees and interest . . . . . . -- 163 994
Dealer incentive and other . . . . . . . . . . . . . 132 146 576
--------- --------- ----------
Total deferred tax assets . . . . . . . . . . . $ 3,195 $ 5,037 $ 5,049
========= ========= ==========
The Company's benefit for income taxes resulted in effective tax rates
that differ from the federal statutory income tax rate.
F-13
17
GUERDON HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEARS ENDED FOUR MONTHS ENDED
-----------------------------------------------------------------
APRIL 29, APRIL 28, APRIL 26, AUGUST 25, AUGUST 30,
1994 1995 1996 1995 1996
--------- ---------- --------- ---------- ----------
(UNAUDITED) (UNAUDITED)
Expected federal income tax provision
at 34% . . . . . . . . . . . . . . . . . $ 148 $ (1,925) $(2,699) $ (855) $ 51
State income taxes, net of federal tax
effect . . . . . . . . . . . . . . . . . 108 (226) (237) (100) 6
Book depreciation in excess of tax 1
depreciation . . . . . . . . . . . . . . 66 38 -- --
Expenses not deductible for tax purposes 64 26 16 20 13
Tax Benefits as submitted . . . . . . . . . (274) -- -- -- --
Accrued warranty costs . . . . . . . . . . -- 269 -- -- --
Restructuring costs . . . . . . . . . . . . -- 499 -- -- --
Warrant expenses . . . . . . . . . . . . . -- (163) 986 986 --
Change in valuation allowance . . . . . . . -- (933) -- -- --
Lease acquisition costs -- 144 -- -- --
Write-off of product development costs -- (198) -- -- --
Other . . . . . . . . . . . . . . . . . . (4) (15) (16) -- --
--------- ---------- --------- --------- ----------
Total provision (benefit) for income
taxes . . . . . . . . . . . . . . . $ 108 $ (2,484) $ (1,949) $ 51 $ 70
========= ========= ========= ========= ==========
A significant portion of the before tax net operating loss experienced
in fiscal years 1995 and 1996 resulted from restructuring and nonrecurring
accruals or write-off, a change in accounting principle, nonrecurring
losses from the results of operations of plants which have been curtailed,
and from overhead costs related to the expansion and construction of those
plants. Although the cumulative effect of these items was substantially
negative to the operations in fiscal years 1995 and 1996, all of these
items were of a nonrecurring nature, and accruals have been made to the
1995 and 1996 financial statements to allow for the expected full impact on
the Company's operations. Based on these facts, the historical
profitability of the Company, and management's assessment of operations for
the foreseeable future, management strongly believes that the full benefit
of the deferred tax assets recognized will be realizable in future
operations.
Net operating loss carry forwards for state and federal taxes of
$3,693 and $3,598 expire in the years 2010 and 2011, respectively.
12. RESTRUCTURING
To control overhead costs and streamline production, the Company began
a plan of curtailing growth. Production at the plant in Colorado which was
acquired in 1995 has been shifted to other facilities. The Company recorded
restructuring accruals of $1,046 in fiscal 1995 and $1,181 in fiscal 1996
including employee severance liability, lease termination costs and other
costs associated with the closure of these operations and charged $478 to
income for the write-offs of the Colorado leasehold interest. The Company
sold its wholly-owned subsidiary, Guerdon Financial Services, Inc., in the
second quarter of fiscal year 1996. The Company recorded losses of $517
resulting from operations and the sales transaction in 1995. Additionally,
the Company recorded accruals and expenses related to the American Homestar
transaction of $567 in 1996.
Prior to the repurchase of stock, the Company maintained a corporate
office in Columbia, Maryland for the benefit of its wholly-owned
subsidiaries. The corporate office had no operations and a substantial
amount of administrative expenses were allocated to the subsidiaries. This
office, and all of its related activities, have
F-14
18
GUERDON HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
been closed. The costs associated with running the corporate office in
Maryland ($736) and the expenses associated with the write-off of the
Company's investment in RBS ($2,292) are shown as a separate line item
($3,028) on the consolidated statement of operations for the year ended
April 29, 1994.
13. CHANGES IN ACCOUNTING PRINCIPLE
Effective May 1, 1994, the Company began expensing certain costs
related to product design and retailer development. Such costs had
previously been capitalized and amortized over a three-year period. The new
method of accounting was adopted because management believes that it more
closely and conservatively represents the actual results of operations and
the useful lives of such expenditures. The net effect had this principle
been applied in prior years would have been to increase income before taxes
by $495 in fiscal 1995 and to decrease operating income by $495 in fiscal
1994. Loss before taxes for the year ended April 28, 1995 would have been
$628 less if this accounting change had not been made.
F-15
19
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma consolidated balance sheet as of August 31, 1996
gives effect to the acquisition of 100% of the outstanding common stock of
Guerdon Holdings, Inc. ("Guerdon") by American Homestar Corporation (the
"Company") as if the transaction occurred on August 31, 1996. The following pro
forma consolidated statements of operations for the year ended May 31, 1996 and
the three months ended August 31, 1996 give effect to the acquisition of 100%
of the outstanding common stock of Guerdon by the Company as if the transaction
occurred on June 1, 1995.
The pro forma information for the year ended May 31, 1996 is based on the
historical financial statements of the Company for the year ended May 31, 1996
and Guerdon for the year ended April 26, 1996. The pro forma financial
information for the three months ended August 31, 1996 is based on the
historical financial statements of the Company for the three months ended
August 31, 1996 and Guerdon for the three months ended August 3, 1996.
The unaudited pro forma financial statements may not be indicative of the
results that actually would have occurred if the acquisition has been in effect
on the dates indicated or of future results of operations of the combined
companies. The unaudited pro forma financial statements should be read in
conjunction with the financial statements and notes of the Company and Guerdon.
F-16
20
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
AMERICAN GUERDON
HOMESTAR HOLDINGS,
CORPORATION INC. (a) PRO FORMA
AUGUST 31, AUGUST 30, PRO FORMA AUGUST 31,
1996 1996 ADJUSTMENTS 1996
----------- ----------- ----------- -----------
ASSETS
Current assets:
Cash ........................................................ $ 17,408 $ 287 $ (1,275) $ 16,420
Cash in transit from financial institutions ................. 21,697 -- -- 21,697
--------- --------- --------- ---------
Total cash and cash equivalents ...................... 39,105 287 (1,275) 38,117
Inventories ................................................. 41,247 4,116 (260) 45,103
Accounts receivable ......................................... 4,840 4,344 (160) 9,024
Manufacturer incentives receivable .......................... 939 -- -- 939
Deferred tax assets ......................................... -- 3,947 (3,947) --
Prepaid expenses and other current assets ................... 4,126 1,075 -- 5,201
--------- --------- --------- ---------
Total current assets ................................. 90,257 13,769 (5,642) 98,384
Property, plant and equipment, net ............................ 20,738 8,417 243 29,398
Investment in affiliate ....................................... 2,457 -- -- 2,457
Note receivable ............................................... 3,000 -- (3,000) --
Goodwill ...................................................... -- -- 21,940 21,940
Deferred tax assets ........................................... 755 1,102 3,063 4,920
Other assets .................................................. 2,808 1,523 (1,523) 2,808
--------- --------- --------- ---------
$ 120,015 $ 24,811 $ 15,081 $ 159,907
========= ========= ========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Floor plan payable .......................................... $ 24,228 $ -- $ -- $ 24,228
Accounts payable ............................................ 12,230 6,582 -- 18,812
Accrued expenses ............................................ 13,892 10,569 3,344 27,805
Subordinated debt ........................................... -- 12,000 (12,000) --
Notes payable, current installments ......................... 316 4,940 -- 5,256
--------- --------- --------- ---------
Total current liabilities ............................ 50,666 34,091 (8,656) 76,101
Notes payable, less current installments ...................... 3,593 5,957 (3,000) 18,050
11,500
Other long-term liabilities ................................... 3,999 -- -- 3,999
Minority interest in consolidated subsidiary .................. 810 -- -- 810
Preferred stock ............................................... -- 620 (620) --
Shareholders' equity (deficit):
Common stock ................................................ 431 101 (101) 431
Additional paid-in capital .................................. 36,028 8,053 (8,053) 36,028
Retained earnings (accumulated deficit) ..................... 24,488 (11,576) 11,576 24,488
Treasury stock .............................................. -- (12,435) 12,435 --
--------- --------- --------- ---------
Total shareholders' equity (deficit) ................. 60,947 (15,857) 15,857 60,947
--------- --------- --------- ---------
$ 120,015 $ 24,811 $ 15,081 $ 159,907
========= ========= ========= =========
F-17
21
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
GUERDON
AMERICAN HOLDINGS,
HOMESTAR INC. YEAR
CORPORATION ENDED
YEAR ENDED APRIL 26, PRO FORMA
MAY 31, 1996 1996 PRO FORMA YEAR ENDED
AS REPORTED AS REPORTED ADJUSTMENTS MAY 31, 1996
------------- ------------- ------------- ---------------
Revenues:
Net sales . . . . . . . . . . . . . . $ 208,745 $ 96,974 $ -- $ 305,719
Other revenues . . . . . . . . . . . . 22,487 -- -- 22,487
---------- --------- -------- ---------
Total revenues . . . . . . . . . 231,232 96,974 328,206
---------- --------- -------- ---------
Costs and expenses:
Cost of sales . . . . . . . . . . . . 154,575 89,702 -- 244,277
Selling, general and administrative . 57,185 8,222 549 (b) 65,931
(25) (c)
Restructuring costs . . . . . . . . . -- 1,181 -- 1,181
---------- --------- -------- ---------
Total costs and expenses . . . . 211,760 99,105 524 311,389
---------- --------- -------- ---------
Operating income (loss) . . . . 19,472 (2,131) (524) 16,817
Other income (expense):
Interest expense . . . . . . . . . . . (2,972) (2,658) -- (5,630)
Equity bonus . . . . . . . . . . . . . -- (567) -- (567)
Amortization -- discount of
subordinated debt . . . . . . . . . . -- (2,581) 2,581 (d) --
Other . . . . . . . . . . . . . . . . 219 -- -- 219
---------- --------- -------- ---------
Total other . . . . . . . . . . (2,753) (5,806) 2,581 (5,978)
---------- --------- -------- ---------
Income (loss) before items
shown below . . . . . . . . . 16,719 (7,937) 2,057 10,839
Income tax expense (benefit) . . . . . . 6,601 (1,949) (154) (e) 4,498
---------- --------- -------- ---------
Income (loss) before items
shown below . . . . . . . . . 10,118 (5,988) 2,211 6,341
Loss in affiliate . . . . . . . . . . . . (65) -- -- (65)
Minority interest . . . . . . . . . . . . (297) -- -- (297)
---------- --------- -------- ---------
Net income (loss) . . . . . . . $ 9,756 $ (5,988) $ 2,211 $ 5,979
========== ========= ======== ==========
Earnings per share . . . . . . . . . . . $ 0.75
==========
Weighted average number of shares of
common stock outstanding . . . . . . . 7,945,976
==========
F-18
22
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
AMERICAN
HOMESTAR GUERDON GUERDON
CORPORATION HOLDINGS, HOLDINGS, PRO FORMA
THREE INC. INC. THREE
MONTHS FOUR MONTHS ONE MONTH MONTHS
ENDED ENDED ENDED ENDED
AUGUST 31, AUGUST 30, AUGUST 30, PRO FORMA AUGUST 31,
1996 1996 1996 (1) ADJUSTMENTS 1996
----------- ---------- ---------- ----------- ---------
Revenues:
Net sales . . . . . . . . . . . . . . $59,993 $35,780 $ 8,606 $ -- $ 87,167
Other revenues . . . . . . . . . . . . 6,713 -- -- -- 6,713
------- ------- ------- ------- ---------
Total revenues . . . . . . . . . 66,706 35,780 8,606 -- 93,880
------- ------- ------- ------- ---------
Costs and expenses:
Cost of sales . . . . . . . . . . . . 44,200 31,801 7,701 -- 68,300
Selling, general and administrative . . 16,862 3,198 720 137 (b) 19,477
------- ------- ------- ------- ---------
Total costs and expenses . . . . 61,062 34,999 8,421 137 87,777
------- ------- ------- ------- ---------
Operating income . . . . . . . . 5,644 781 185 (137) 6,103
Other income (expense):
Interest expense . . . . . . . . . . . (578) (632) (171) -- (1,039)
Other . . . . . . . . . . . . . . . . 40 -- -- -- 40
------- ------- ------- ------- ---------
Total other (538) (632) (171) -- (999)
------- ------- ------- ------- ---------
Income (loss) before items
shown below . . . . . . . . . 5,106 149 14 (137) 5,104
Income tax expense (benefit) . . . . . . 2,010 70 24 14 (e) 2,070
------- ------- ------- ------- ---------
Income (loss) before items
shown below . . . . . . . . . 3,096 79 (10) (151) 3,034
Earnings in affiliate . . . . . . . . . . 22 -- -- -- 22
Minority interest . . . . . . . . . . . . (100) -- -- -- (100)
------- ------- ------- ------- ---------
Net income (loss) . . . . . . . $ 3,018 $ 79 $ (10) $ (151) $ 2,956
======= ======= ======= ======= =========
Earnings per share . . . . . . . . . . . $ 0.33
=========
Weighted average number of shares of
common stock outstanding . . . . . . . 8,978,947
=========
(1) In order to reflect pro forma consolidated results of operations for
three months, Guerdon's results of operations for the month ended August
30, 1996 are subtracted from its results of operations for the four
months ended August 30, 1996.
F-19
23
AMERICAN HOMESTAR CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(a) To record the effects of the acquisition of 100% of Guerdon.
-- Payment of $1,275,000 in cash to holders of preferred stock and
transactions costs.
-- Repayment of subordinated debt financed with long-term notes payable.
(b) To reflect the amortization of goodwill related to the acquisition of
Guerdon.
(c) To eliminate Guerdon's amortization of goodwill.
(d) To eliminate amortization related to warrants that were issued in
conjunction with Guerdon's subordinated debt.
(e) To reflect the tax effect of the pro forma adjustments described above.
F-20
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN HOMESTAR CORPORATION
Date: December 6, 1996 By: /s/ Craig A. Reynolds
--------------------------------
Craig A. Reynolds
Executive Vice President, Chief
Financial Officer and Secretary
25
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2.1 Securities Purchase Agreement, dated January 10, 1996, among
American Homestar Corporation, Guerdon Homes, Inc. and
Guerdon Holdings, Inc. (1)
2.2 Option Agreement, dated January 10, 1996, among American
Homestar Corporation, Guerdon Homes, Inc., Guerdon Holdings,
Inc. and certain security holders of Guerdon Homes, Inc. and
Guerdon Holdings, Inc. (1)
2.3 Exercise and Settlement Agreement, dated September 24, 1996,
by and among American Homestar Corporation, Guerdon Homes,
Inc., Guerdon Holdings, Inc. and certain security holders of
Guerdon Homes, Inc. and Guerdon Holdings, Inc. (2)
23.1 Consent of Deloitte & Touche LLP. (3)
- ----------------------------------
(1) Previously filed as an exhibit to the Company's Registration
Statement No. 333-1818 on Form S-1 and incorporated herein by
reference.
(2) Previously filed with Form 8-K on October 9, 1996, and is being
refiled herewith to include signatures of all parties.
(3) Filed herewith.