1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number 0-24210
AMERICAN HOMESTAR CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0070846
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2450 SOUTH SHORE BOULEVARD, SUITE 300, LEAGUE CITY, TEXAS 77573
(Address of principal executive offices, including zip code)
(281) 334-9700
(Registrant's telephone number, including area code)
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 [ ]
The number of shares outstanding of the registrant's Common Stock, par value
$.05 per share, as of April 2, 1997 was 10,791,795.
2
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets - May 31, 1996 and February 28, 1997 . . . . . . . . . . . 2
Consolidated Statements of Operations - three months ended
February 29, 1996 and February 28, 1997 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations - nine months ended
February 29, 1996 and February 28, 1997 . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - nine months ended
February 29, 1996 and February 28, 1997 . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1
3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MAY 31, FEBRUARY 28,
1996 1997
------------ ------------
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,178,000 $ 12,212,000
Cash in transit from financial institutions . . . . . . . . . 22,148,000 25,189,000
------------ ------------
Total cash and cash equivalents . . . . . . . . . . . . 34,326,000 37,401,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 35,363,000 49,094,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 5,229,000 14,596,000
Manufacturer incentives receivable . . . . . . . . . . . . . . 1,143,000 1,018,000
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . -- 4,749,000
Prepaid expenses and other current assets . . . . . . . . . . 4,625,000 4,589,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . 80,686,000 111,447,000
Property, plant and equipment, net . . . . . . . . . . . . . . . 19,569,000 37,519,000
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . -- 28,045,000
Investment in affiliate . . . . . . . . . . . . . . . . . . . . . 2,435,000 2,547,000
Note receivable . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 --
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 3,165,000 4,194,000
------------ ------------
$108,855,000 $183,752,000
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Floor plan payable . . . . . . . . . . . . . . . . . . . . . . $ 19,886,000 $ 39,014,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 10,924,000 16,701,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 10,871,000 19,588,000
Accrued warranty costs . . . . . . . . . . . . . . . . . . . . 1,166,000 4,737,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . 263,000 4,123,000
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . 43,110,000 84,163,000
Notes payable, less current installments . . . . . . . . . . . . 3,663,000 25,555,000
Reserve for future policy benefits . . . . . . . . . . . . . . . 3,358,000 5,319,000
Minority interest in consolidated subsidiary . . . . . . . . . . 710,000 858,000
Shareholders' equity:
Preferred stock, no par value, authorized 5,000,000 shares; no
shares issued . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, $0.05 par value; authorized 20,000,000 shares;
issued and outstanding 10,771,463 and 10,791,795 shares at
May 31, 1996 and February 28, 1997, respectively . . . . . . 538,000 540,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . 36,005,000 36,133,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 21,471,000 31,184,000
------------ ------------
Total shareholders' equity . . . . . . . . . . . . . . . 58,014,000 67,857,000
------------ ------------
$108,855,000 $183,752,000
============ ============
2
4
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
------------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
----------- -----------
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $48,452,000 $78,551,000
Other revenues . . . . . . . . . . . . . . . . . . . . . . . 4,975,000 5,838,000
----------- -----------
Total revenues . . . . . . . . . . . . . . . . . . . . 53,427,000 84,389,000
----------- -----------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 35,704,000 59,000,000
Selling, general and administrative . . . . . . . . . . . . 13,529,000 18,693,000
----------- -----------
Total costs and expenses . . . . . . . . . . . . . . . 49,233,000 77,693,000
----------- -----------
Operating income . . . . . . . . . . . . . . . . . . . 4,194,000 6,696,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (827,000) (1,503,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000 2,000
----------- -----------
Income before items shown below . . . . . . . . . . . 3,481,000 5,195,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . 1,371,000 2,097,000
----------- -----------
Income before items shown below . . . . . . . . . . . 2,110,000 3,098,000
Earnings (loss) in affiliate . . . . . . . . . . . . . . . . . (19,000) 46,000
Minority interest in income of consolidated subsidiary . . . . (63,000) (34,000)
----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 2,028,000 $ 3,110,000
=========== ===========
Earnings per common share . . . . . . . . . . . . . . . . . . . $ 0.21 $ 0.28
=========== ===========
Weighted average number of shares outstanding . . . . . . . . . 9,754,251 11,226,403
=========== ===========
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AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED
------------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ -------------
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $147,700,000 $ 221,447,000
Other revenues . . . . . . . . . . . . . . . . . . . . . . . 16,191,000 18,954,000
------------ -------------
Total revenues . . . . . . . . . . . . . . . . . . . . 163,891,000 240,401,000
------------ -------------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 109,938,000 165,801,000
Selling, general and administrative . . . . . . . . . . . . 40,903,000 54,992,000
------------ -------------
Total costs and expenses . . . . . . . . . . . . . . . 150,841,000 220,793,000
------------ -------------
Operating income . . . . . . . . . . . . . . . . . . . 13,050,000 19,608,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (2,235,000) (3,238,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,000 43,000
------------ -------------
Income before items shown below . . . . . . . . . . . 11,009,000 16,413,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . 4,331,000 6,606,000
------------ -------------
Income before items shown below . . . . . . . . . . . 6,678,000 9,807,000
Earnings (loss) in affiliate . . . . . . . . . . . . . . . . . (31,000) 112,000
Minority interest in income of consolidated subsidiary . . . . (224,000) (206,000)
------------ -------------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 6,423,000 $ 9,713,000
============ =============
Earnings per common share . . . . . . . . . . . . . . . . . . . $ 0.67 $ 0.87
============ =============
Weighted average number of shares outstanding . . . . . . . . . 9,658,073 11,197,816
============ =============
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AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
-------------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,423,000 $ 9,713,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 1,083,000 2,345,000
Loss (earnings) in affiliate . . . . . . . . . . . . . . . 31,000 (112,000)
Minority interest in income of consolidated subsidiary . . 224,000 206,000
Compensation expense on sale of common stock . . . . . . . 45,000 23,000
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . 323,000 270,000
Change in assets and liabilities, net of acquisitions:
Increase in receivables . . . . . . . . . . . . . . . . (727,000) (4,209,000)
Increase in inventories . . . . . . . . . . . . . . . . (3,999,000) (8,801,000)
Decrease (increase) in prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . . . . . . . . (618,000) 531,000
Increase in other assets . . . . . . . . . . . . . . . . (1,163,000) (1,613,000)
Increase in accounts payable . . . . . . . . . . . . . . 654,000 363,000
Increase (decrease) in accrued expenses and other . . . 1,115,000 (3,003,000)
Increase in other liabilities . . . . . . . . . . . . . 2,162,000 1,962,000
------------ ------------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . 5,553,000 (2,325,000)
------------ ------------
Cash flows from investing activities:
Payment for purchase of acquisitions, net of cash acquired . -- (10,217,000)
Purchases of property, plant and equipment . . . . . . . . . (5,944,000) (3,856,000)
Note receivable . . . . . . . . . . . . . . . . . . . . . . (3,000,000) --
Investment in mortgage affiliate . . . . . . . . . . . . . . (2,500,000) --
------------ ------------
Net cash used in investing activities . . . . . . (11,444,000) (14,073,000)
------------ ------------
Cash flows from financing activities:
Borrowings under floor plan payable . . . . . . . . . . . . 89,395,000 107,977,000
Repayment of floor plan payable . . . . . . . . . . . . . . (83,240,000) (97,908,000)
Participations in floor plan payable . . . . . . . . . . . . 3,996,000 9,059,000
Principal payments on long-term debt . . . . . . . . . . . . (270,000) (20,233,000)
Borrowings under long-term debt . . . . . . . . . . . . . . 911,000 20,530,000
Exercise of stock options . . . . . . . . . . . . . . . . . 41,000 112,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (170,000) (64,000)
------------ ------------
Net cash provided by financing activities . . . . 10,663,000 19,473,000
------------ ------------
Net increase (decrease) in cash and cash equivalents . . . . . 4,772,000 3,075,000
Cash and cash equivalents, beginning of period . . . . . . . . 26,066,000 34,326,000
------------ ------------
Cash and cash equivalents, end of period . . . . . . . . . . . $ 30,838,000 $ 37,401,000
============ ============
Noncash investing and financing activity - purchase of property
through the issuance of long-term debt . . . . . . . . . . . $ 2,000,000 4,500,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . $ 1,931,000 $ 3,375,000
Cash paid for income taxes . . . . . . . . . . . . . . . . . 3,509,000 5,687,000
============ ============
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AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
American Homestar Corporation and subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Because of the seasonal nature of the Company's business,
operating results for the three and nine months ended February 28, 1997, are
not necessarily indicative of the results that may be expected for the fiscal
year ending May 31, 1997. These condensed consolidated financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K.
REPURCHASE AGREEMENTS
The Company has entered into agreements with various financial institutions and
other credit sources under which the Company has agreed to repurchase
manufactured homes sold to independent dealers in the event of default by a
dealer in its obligation to such credit sources. Under the terms of such
agreements, the Company agrees to repurchase manufactured homes at declining
prices over the periods of the agreements (which generally range from twelve to
fifteen months). At February 28, 1997, the Company's contingent repurchase
liability was approximately $36.5 million.
INVENTORIES
A summary of inventories follows:
MAY 31, FEBRUARY 28,
1996 1997
----------- -----------
Manufactured homes:
New . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,818,000 $36,757,000
Used . . . . . . . . . . . . . . . . . . . . . . . . . . 1,878,000 3,699,000
Furniture and supplies . . . . . . . . . . . . . . . . . . 1,505,000 2,870,000
Raw materials and work-in-process . . . . . . . . . . . . . 2,162,000 5,768,000
----------- -----------
$35,363,000 $49,094,000
=========== ===========
EARNINGS PER SHARE
The consolidated financial statements, including all references to the number
of shares of common stock and all per share information, have been adjusted to
reflect the 5-for-4 stock split effected on February 7, 1997. Earnings per
common share are computed based on the weighted average number of shares
outstanding during the periods presented and are adjusted for common stock
equivalents when dilutive.
ACQUISITIONS
On September 3, 1996, the Company acquired all of the common stock of Heartland
Homes, Inc. ("Heartland") and certain operating assets of Manu-Fac Homes, Inc.
("Manu-Fac") for a combination of cash and notes totaling $8.9 million.
Heartland is a single-plant manufactured housing producer in Henderson, North
Carolina. Heartland markets its homes through 65 independent retailers in
North Carolina and three surrounding states. Manu-Fac was a contractually
affiliated group of independent retailers throughout North Carolina, operating
under the CHOICENTER or WESTWOOD Homes trade names. In connection with the
acquisition of such assets of Manu-Fac, these retailers became franchisees of
Associated Retailers Group, Inc., a wholly-owned subsidiary of the Company, and
continue to operate under the CHOICENTER or WESTWOOD trade name. The results
of the
6
8
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
acquired operations of Heartland and Manu-Fac have been included with those of
the Company from the date of acquisition. The excess purchase price over the
estimated fair value of the net assets as of the acquisition date of $6.2
million has been recorded as goodwill and is being amortized over 25 years.
The allocation of the purchase price, in certain instances, is based on
preliminary information and is therefore subject to revision when additional
information concerning asset and liability valuations is obtained.
On September 24, 1996, the Company completed the acquisition of Guerdon
Holdings, Inc. and its subsidiary, Guerdon Homes, Inc. (collectively,
"Guerdon"). Guerdon produces manufactured homes in four facilities located in
Oregon, Idaho, Nebraska and Mississippi, and sells its homes through
approximately 150 independent retailers located primarily in the Pacific
Northwest, Rocky Mountain, and South-Central regions of the United States. The
results of the acquired operations of Guerdon have been included with those of
the Company from the date of acquisition. The excess purchase price over the
estimated fair value of the net assets as of the acquisition date of $22.1
million has been recorded as goodwill and is being amortized over 40 years. The
allocation of the purchase price, in certain instances, is based on preliminary
information and is therefore subject to revision when additional information
concerning asset and liability valuations is obtained.
The estimated fair value of assets acquired and liabilities assumed in these
acquisitions is summarized as follows:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 9,327,000
Property, plant and equipment . . . . . . . . . . . . . . . . 11,584,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,323,000
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . 4,511,000
Current liabilities . . . . . . . . . . . . . . . . . . . . . (20,749,000)
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . (22,911,000)
-------------
$ 10,085,000
=============
Consideration:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,150,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
Acquisition costs . . . . . . . . . . . . . . . . . . . . . 935,000
-------------
$ 10,085,000
=============
Unaudited pro forma results of operations of the Company for the periods
presented, assuming the acquisitions discussed above had been consummated at
June 1, 1995, are as follows:
NINE MONTHS ENDED
------------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
Revenues . . . . . . . . . . . . . . . . . . $246,898,000 $277,940,000
Operating income . . . . . . . . . . . . . . 11,713,000 20,014,000
Net income before taxes . . . . . . . . . . . 7,777,000 15,965,000
Net income . . . . . . . . . . . . . . . . . 4,264,000 9,415,000
Earnings per common share . . . . . . . . . . $ 0.44 $ 0.84
============ ============
The Company intends to sell two facilities acquired in connection with the
Guerdon acquisition. The facilities are recorded at their estimated fair value
less estimated costs to sell the two facilities. Although, it is the Company's
intention to dispose of the facilities within one year, there can be no
assurance that the Company's efforts will be successful. Consequently, the
carrying values of these facilities are classified as long-term in the
Company's balance sheet and as "Assets to Be Disposed Of" in accordance with
SFAS 121.
7
9
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On September 24, 1996, the Company established a $25 million credit facility
through Bank One, Texas N.A. These funds, together with the capital raised in
the March 1996 public offering of the Company's common stock, will be used to
support the Company's internal growth strategy as well as the aforementioned
acquisitions. At February 28, 1997, the Company borrowed all amounts available
under this credit facility, which is secured by certain property, plant and
equipment of the Company's manufacturing plants. The Company used the
remaining $7.0 million in the third quarter to purchase five manufacturing
plants formerly under lease.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-Q contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available
to the Company's management. When used in this document, the words
"anticipate," "believe," "estimate," "should," and "expect" and similar
expressions as they relate to the Company or management of the Company are
intended to identify forward- looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions, including the risk factors
described in the Company's most recently filed registration statement. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected. The Company
does not intend to update these forward-looking statements.
VERTICAL INTEGRATION AND INTERNALIZATION
Several elements of the Company's growth strategy are based on an increasing
degree of vertical integration over time. By combining its retail and
manufacturing operations in fiscal 1994 and then developing transportation,
insurance and finance subsidiaries, the Company potentially benefits from
multiple income sources as the result of each retail sale. Increasing the
degree of vertical integration will affect the Company's revenues and margins
in two important ways:
o A key element of the Company's growth strategy is to increase the rate of
"internalization" of its retail sales (i.e., the proportion of new homes
sold by Company-owned retail sales centers that are manufactured by the
Company). This strategy enables the Company to earn both a manufacturing
profit and a retailing profit on those home sales; however, only retail
sales revenue is recognized. Accordingly, increasing the internalization
rate (without otherwise affecting the Company's level of manufacturing and
retailing activity) has the effect of increasing gross margins and reducing
reported revenues; however, aggregate gross profit (in dollars) is not
materially affected by changes in the internalization rate.
o Another key element of the Company's growth strategy is to increase the
degree of retail penetration of its financial services. As insurance
product penetration increases, both reported revenues and earnings should
increase without a corresponding increase in retail unit sales. Similarly,
as 21st Century Mortgage Corporation, the Company's mortgage affiliate
("21st Century"), finances more of the Company's retail sales, the
Company's earnings should increase without a corresponding increase in
retail unit sales.
The recent acquisition of Heartland and Guerdon will have the effect of adding
significant revenues to the Company with little, if any, immediate benefit from
vertical integration. Those benefits should reflect gradually, over time, as
the Company executes its vertical integration strategy in the new regional
markets which these acquisitions encompass.
9
11
RESULTS OF OPERATIONS
The following table summarizes certain operating data for the Company for
the periods presented:
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
February 29, February 28, February 29, February 28,
1996 1997 1996 1997
------------ ------------ ------------ ------------
Company-manufactured new homes sold at
retail . . . . . . . . . . . . . . . . 594 757 1,598 2,303
Total new homes sold at retail . . . . . 914 1,012 2,726 3,277
Internalization rate (1) . . . . . . . . 65% 75% 59% 70%
Previously-owned homes sold at retail . . 248 328 745 975
Average number of new homes sold per
retail sales center . . . . . . . . . 23 21 72 70
Average retail selling price--new homes . $43,698 $45,794 $43,141 $45,509
Number of retail sales centers at end of
period . . . . . . . . . . . . . . . . 43 49 43 49
Manufacturing shipments . . . . . . . . . 855 1,699 2,571 4,505
Manufacturing shipments to independent
dealers . . . . . . . . . . . . . . . 202 867 683 1,919
(1) The internalization rate is the proportion of new homes sold by
Company-owned retail sales centers that are manufactured by the Company.
Three months ended February 28, 1997 compared to three months ended February
29, 1996
Net Sales. Net sales of manufactured homes were $78.6 million for the three
months ended February 28, 1997, as compared to $48.4 million for the three
months ended February 29, 1996. Sales from the Company's newly acquired
manufacturing operations were $25.5 million for the three months ended February
28, 1997. On a basis comparable to fiscal 1996, net sales increased 10% to
$53.1 million. This increase was primarily the result of a 15% increase in the
number of new and previously-owned homes sold at retail and a 5% increase in
the average selling price of new homes. The decrease in the average number of
new homes sold per retail sales center from 23 for the three months ended
February 29, 1996 to 21 for the three months ended February 28, 1997 was
primarily due to adverse weather conditions during the past winter in the South
and Southwest regions of the United States. In addition, adverse weather
conditions delayed the opening of three new retail sales centers from the
Company's third fiscal quarter to the fourth quarter. The Company added one
new retail sales center during the third quarter of fiscal 1997 in response to
continuing increases in demand for new manufactured homes.
Other Revenues. Transportation revenues for the three months ended February
28, 1997 were $2.7 million, an increase of 5% over $2.6 million for the three
months ended February 29, 1996. This increase was primarily due to an increase
in transportation activity in response to generally higher demand for
transportation services. Other revenues increased 31% to $3.1 million for the
three months ended February 28, 1997, as compared to $2.4 million for the three
months ended February 29, 1996. This increase was primarily attributable to
increased commissions and premiums generated by the Company's insurance
operations as well as revenue associated with the Company's franchising
operations acquired in connection with the purchase of Manu-Fac in September,
1996.
Cost of Sales. Cost of manufactured homes sold were $56.7 million (72.2% of
net sales) for the three months ended February 28, 1997, as compared to $33.6
million (69.3% of net sales) for the three months ended
10
12
February 29, 1996. Cost of manufactured homes attributable to the newly
acquired manufacturing operations for the three months ended February 28, 1997
were $21.4 million. On a basis comparable to fiscal 1996, cost of manufactured
homes increased 5% to $35.3 million (66.4% of net sales) for the three months
ended February 28, 1997 from $33.6 million (69.3% of net sales) for the three
months ended February 29, 1996. This increase in cost of sales was primarily
due to higher sales volume. The decrease in cost of sales, expressed as a
percentage of sales, was the result of an increase in the internalization rate
from 65% for the three months ended February 29, 1996, to 75% for the three
months ended February 28, 1997, and increased operating efficiencies at the
Company's three Texas manufacturing facilities. Cost of sales attributable to
transportation operations for the three months ended February 28, 1997 were
$2.3 million (83.8% of transportation revenues), an increase of 7% from $2.1
million (82.3% of transportation revenues) for the three months ended February
29, 1996. This increase was due to increased transportation activity. The
increase in cost of sales expressed as a percentage of transportation revenues
was largely the result of increased rates paid to independent owner-operators.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended February 28, 1997, were
$18.7 million (22.2% of total revenues), as compared to $13.5 million (25.3% of
total revenues) for the three months ended February 29, 1996. Selling, general
and administrative expenses attributable to the Company's newly acquired
operations were $2.9 million for the three months ended February 28, 1997. On
a basis comparable to fiscal 1996, selling, general and administrative expenses
were $15.8 million (26.8% of total revenues) for the three months ended
February 28, 1997, as compared to $13.5 million (25.3% of total revenues) for
the three months ended February 29, 1996. This increase in selling, general and
administrative expenses was attributable to increased sales, manufacturing,
transportation and insurance activities as well as an increase in fixed costs
and expenses associated with new retail sales centers and expanded
manufacturing capacity. The increase in selling, general and administrative
expenses, expressed as a percentage of total revenues, was the result of an
increase in the internalization rate from 65% for the three months ended
February 29, 1996 to 75% for the three months ended February 28, 1997. This
increase was partially offset by a decrease in warranty expenses, expressed as
a percentage of net revenues.
Interest Expense. Interest expense increased 82% to $1.5 million for the
three months ended February 28, 1997, from $827,000 for the three months ended
February 29, 1996. This increase was attributable to increased borrowings of
$25 million under a credit facility established with Bank One, Texas N.A.,
which was used to fund the Company's internal growth strategy as well as fund
its acquisition of Guerdon and Heartland, and an increase in floor plan debt
used to support a higher level of inventory due to the opening of new retail
sales centers.
Earnings (Loss) in Affiliate. In fiscal 1996, the Company invested $2.5
million to provide one-half of the initial capitalization of 21st Century, a
mortgage company which provides retail financing to manufactured home buyers.
The Company's proportionate share of 21st Century's earnings (losses) were
($19,000) and $46,000 for the three months ended February 29, 1996 and February
28, 1997, respectively.
Nine months ended February 28, 1997 compared to nine months ended February 29,
1996
Net Sales. Net sales of manufactured homes were $221.4 million for the nine
months ended February 28, 1997, as compared to $147.7 million for the nine
months ended February 29, 1996. Sales from the Company's newly acquired
manufacturing operations were $49.3 million for the nine months ended February
28, 1997. On a basis comparable to fiscal 1996, net sales increased 17% to
$172.1 million. The increase was primarily the result of a 23% increase in the
number of new and previously-owned homes sold at retail, and a 5% increase in
the average selling price of new homes. The decrease in the average number of
new homes sold per retail sales center from 72 for the nine months ended
February 29, 1996 to 70 for the nine months ended February 28, 1997 was
primarily due to adverse weather conditions during the past winter in the South
and Southwest regions of the United States. In addition, adverse weather
conditions delayed the opening of three new retail sales centers from the
Company's third fiscal quarter to the fourth quarter. The Company added five
new
11
13
retail sales centers during the nine months ended February 28, 1997, in
response to continuing increases in demand for new manufactured homes.
Other Revenues. Transportation revenues for the nine months ended February
28, 1997 were $9.9 million, an increase of 16% over $8.6 million for the nine
months ended February 29, 1996. This increase was primarily due to an increase
in transportation activity in response to generally higher demand for
transportation services. Other revenues increased to $9.0 million for the nine
months ended February 28, 1997, as compared to $7.6 million for the nine months
ended February 29, 1996. The increase was primarily attributable to increased
commissions and premiums generated by the Company's insurance operations as
well as revenues associated with the Company's franchising operations acquired
in connection with the purchase of Manu-Fac in September, 1996.
Cost of Sales. Cost of manufactured homes sold were $157.6 million (71.1%
of net sales) for the nine months ended February 28, 1997, as compared to
$102.9 million (69.6% of net sales) for the nine months ended February 29,
1996. Cost of manufactured homes attributable to the newly acquired
manufacturing operations for the nine months ended February 28, 1997 were $42.0
million. On a basis comparable to fiscal 1996, cost of manufactured homes
increased 12% to $115.6 million (67.1% of net sales) for the nine months ended
February 28, 1997 from $102.9 million (69.6% of net sales) for the nine months
ended February 29, 1996. The increase in cost of sales was primarily due to
higher sales volume. The decrease in cost of sales, expressed as a percentage
of sales, was the result of an increase in the internalization rate from 59%
for the nine months ended February 29, 1996 to 70% for the nine months ended
February 28, 1997 and increased operating efficiencies at the Company's three
Texas manufacturing facilities. Cost of sales attributable to transportation
operations for the nine months ended February 28, 1997 were $8.2 million (82.9%
of transportation revenues), an increase of 16% from $8.1 million (82.5% of
transportation revenues) for the nine months ended February 29, 1996. This
increase was due to increased transportation activity.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended February 28, 1997, were $55.0
million (22.9% of total revenues), as compared to $40.9 million (25.0% of total
revenues) for the nine months ended February 29, 1996. Selling, general and
administrative expenses attributable to the Company's newly acquired operations
were $5.3 million for the nine months ended February 28, 1997. On a basis
comparable to fiscal 1996, selling, general and administrative expenses were
$49.7 million (26.0% of total revenues) for the nine months ended February 28,
1997 as compared to $40.9 million (25.0% of total revenues) for the nine months
ended February 29, 1996. The increase in selling, general and administrative
expenses was attributable to increased sales, manufacturing, transportation and
insurance activities, as well as an increase in fixed costs and expenses
associated with new retail sales centers and expanded manufacturing capacity.
The increase in selling, general and administrative expenses, expressed as a
percentage of total revenues, was the result of an increase in the
internalization rate from 59% for the nine months ended February 29, 1996, to
70% for the nine months ended February 28, 1997. This increase was partially
offset by a decrease in warranty expenses, expressed as a percentage of net
revenues.
Interest Expense. Interest expense increased 45% to $3.2 million for the
nine months ended February 28, 1997, from $2.2 million for the nine months
ended February 29, 1996. This increase was primarily attributable to increased
borrowings during the first nine months of fiscal 1997 of $25 million under a
credit facility established with Bank One, Texas N.A., which was used to fund
the Company's internal growth strategy as well as fund its acquisition of
Guerdon and Heartland, and an increase in floor plan debt used to support a
higher level of inventory due to the opening of new retail sales centers.
Earnings (Loss) in Affiliate. In fiscal 1996, the Company invested $2.5
million to provide one-half of the initial capitalization of 21st Century. The
Company's proportionate share of 21st Century's earnings (losses) were
($31,000) and $112,000 for the nine months ended February 29, 1996 and February
28, 1997, respectively.
12
14
LIQUIDITY AND CAPITAL RESOURCES.
Cash used in operating activities was $2.3 million for the nine months ended
February 28, 1997. Net income accounted for the significant cash provided by
operating activities for the nine months ended February 28, 1997. Accrued
expenses, including accrued warranty costs, increased from $12.0 million at May
31, 1996 to $24.3 million at February 28, 1997, primarily as a result of
acquisitions of manufacturing facilities in several new market regions. The
Company's reserve for future policy benefits increased from $3.4 million at May
31, 1996 to $5.3 million at February 28, 1997 which is consistent with the
increasing premiums generated by the Company's credit life subsidiary.
Substantial increases in inventory and other working capital items required to
open or acquire Company-owned retail sales centers accounted for most of the
cash used during these periods. An important part of the Company's growth
strategy is to expand the number of Company-owned retail sales centers and
increase its manufacturing production. Management estimates the capital
required to open a new retail sales center to be approximately $1.0 to $1.25
million, primarily for inventory and working capital. Subject to continued
increases in demand, the Company may incur additional capital expenditures to
further increase its manufacturing capacity. Management currently plans to
open or acquire a minimum of eight to ten retail sales centers each year for
the next two years, and in connection therewith, will use cash to purchase
inventory and operating assets and for working capital purposes. Management
expects increased cash generated by the Company's retail sales centers and
manufacturing operations to substantially fund the working capital required to
open new retail sales centers.
The Company paid approximately $10.2 million in cash, net of cash acquired,
to purchase Guerdon, Heartland and certain operating assets of Manu-Fac. Total
tangible assets purchased were approximately $25.4 million with total
liabilities assumed of $43.7 million, giving rise to $28.3 million in goodwill.
In addition, the Company had capital expenditures of $8.4 million for the nine
months ended February 28, 1997. Approximately $4.5 million of these
expenditures, which were financed through the issuance of notes payable, were
used to acquire five manufacturing plants formerly under lease by the Company.
The remaining expenditures were used primarily to fund new retail sales centers
opened during the first nine months of fiscal 1997 and additions to
manufacturing capacity.
The Company has a $100.0 million floor plan credit facility with Ford
Consumer Finance Company, Inc. ("Ford"), with an interest rate at Ford's prime
rate. The facility is similar to a revolving credit facility and is used to
finance the purchase of inventory of new homes at Company-owned retail sales
centers. In order to satisfy greater working capital requirements, and to fund
capital expenditures in connection with the Company's expanding operations, the
Company increased its gross borrowings under the facility by $10.1 million in
the first nine months of fiscal 1997. At February 28, 1997, the Company had
net borrowings of $39.0 million (gross borrowings of $59.0 million less
participations of $20.0 million). The Company reduced its participations in
its floor plan credit facility by $9.1 million during the first nine months of
fiscal 1997, principally to fund the acquisitions of Guerdon, Heartland and
certain operating assets of Manu-Fac. The Company's participations in its
floor plan credit facility earn interest at Ford's prime rate less .375%, and
are immediately available to the Company in cash.
On September 24, 1996, the Company established a $25 million credit facility
through Bank One, Texas N.A. These funds, together with the capital raised in
the March 1996 public offering of the Company's common stock, will be used to
support the Company's internal growth as well as the Guerdon, Heartland and
Manu-Fac acquisitions.
Total funded debt, including floor plan, expressed as a percentage of
equity, increased from 41% at May 31, 1996, to 101% at February 28, 1997,
principally the result of acquisitions of manufacturing facilities in several
new market regions. As the Company continues to explore strategic acquisition
opportunities in new regions, the Company's leverage will continue to increase.
The Company is in the process of securing additional debt facilities which
management believes, when coupled with its current unused floorplan facility,
will be sufficient to satisfy working capital and capital expenditure
requirements over the next two years.
13
15
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
EXHIBIT REPORT WITH WHICH
DESCRIPTION NO. EXHIBIT WAS FILED
- ----------- ------- ------------------
Restated Articles of Incorporation of the Company 3.1 S-1 Registration Statement
No. 33-78630
Amended and Restated Bylaws of the Company 3.2 S-1 Registration Statement
No. 33-78630
Specimen Common Stock Certificate 4.1 S-1 Registration Statement
No. 33-78630
Shareholders Agreement, dated as of August 31, 1993, by and among 4.2 S-1 Registration Statement
the Company and certain shareholders of the Company No. 33-78630
Form of Amendment to Shareholders Agreement 4.3 S-1 Registration Statement
No. 33-78630
Loan Agreement, dated September 24, 1996, among American Homestar 10.1 Filed herewith
Corporation, Oak Creek Housing Corporation, Nationwide Housing
Systems, Inc., American Homestar Financial Services, Inc.,
Heartland Homes, Inc., Guerdon Homes, Inc., Oak Creek Homes,
Inc., American Homestar of Burleson, Inc., American Homestar of
Lancaster, Inc. and Bank One, Texas, N.A.
$2,100,000 Term Promissory Note, dated September 24, 1996, by and 10.2 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$4,600,000 Term Promissory Note, dated September 24, 1996, by and 10.3 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$11,300,000 Term Promissory Note, dated September 24, 1996, by and 10.4 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$7,000,000 Term Promissory Note, dated September 24, 1996, by and 10.5 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
Amendment to Life Reinsurance Contract, dated December 31, 1996, 10.6 Filed herewith
by and between Lifestar Reinsurance Limited and American Bankers
Life Assurance Company of Florida.
Employment Agreement, dated November 15, 1996, between Finis F. 10.7 Filed herewith
Teeter and American Homestar Corporation.
Employment Agreement, dated November 15, 1996, between Laurence A. 10.8 Filed herewith
Dawson, Jr. and American Homestar Corporation.
Nonqualified Stock Option Agreement, dated November 15, 1996 10.9 Filed herewith
between Finis F. Teeter and American Homestar Corporation.
Nonqualified Stock Option Agreement, dated November 15, 1996 10.10 Filed herewith
between Laurence A. Dawson, Jr. and American Homestar
Corporation.
Statement Re Computation of Per Share Earnings 11 Filed herewith
None 15
None 18
14
16
EXHIBIT INDEX
EXHIBIT REPORT WITH WHICH
DESCRIPTION NO. EXHIBIT WAS FILED
----------- ------- ------------------
None 19
List of Subsidiaries 21 Filed herewith
None 22
None 23
None 24
Financial Data Schedules 27 Filed herewith
None 99
(b) REPORTS ON FORM 8-K - The Company filed a Current Report on Form 8-K on
October 9, 1996, regarding the acquisition of Guerdon Holdings, Inc. The
Current Report on Form 8-K dated October 9, 1996 was amended on Form
8-K/A and filed on December 6, 1996 to include financial statements of
Guerdon Holdings, Inc. and Pro Forma Financial Information for the
transaction.
15
17
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 thereunto duly authorized.
AMERICAN HOMESTAR CORPORATION
Date: April 7, 1997 By: /s/ Craig A. Reynolds
-------------------------------------------
Craig A. Reynolds
Executive Vice President, Chief Financial
Officer, Secretary and Director
(Principal Financial and Accounting
Officer)
16
18
EXHIBIT INDEX
EXHIBIT REPORT WITH WHICH
DESCRIPTION NO. EXHIBIT WAS FILED
- ----------- ------- ------------------
Restated Articles of Incorporation of the Company 3.1 S-1 Registration Statement
No. 33-78630
Amended and Restated Bylaws of the Company 3.2 S-1 Registration Statement
No. 33-78630
Specimen Common Stock Certificate 4.1 S-1 Registration Statement
No. 33-78630
Shareholders Agreement, dated as of August 31, 1993, by and among 4.2 S-1 Registration Statement
the Company and certain shareholders of the Company No. 33-78630
Form of Amendment to Shareholders Agreement 4.3 S-1 Registration Statement
No. 33-78630
Loan Agreement, dated September 24, 1996, among American Homestar 10.1 Filed herewith
Corporation, Oak Creek Housing Corporation, Nationwide Housing
Systems, Inc., American Homestar Financial Services, Inc.,
Heartland Homes, Inc., Guerdon Homes, Inc., Oak Creek Homes,
Inc., American Homestar of Burleson, Inc., American Homestar of
Lancaster, Inc. and Bank One, Texas, N.A.
$2,100,000 Term Promissory Note, dated September 24, 1996, by and 10.2 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$4,600,000 Term Promissory Note, dated September 24, 1996, by and 10.3 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$11,300,000 Term Promissory Note, dated September 24, 1996, by and 10.4 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
$7,000,000 Term Promissory Note, dated September 24, 1996, by and 10.5 Filed herewith
between American Homestar Corporation, Oak Creek Housing
Corporation and Bank One, Texas, N.A.
Amendment to Life Reinsurance Contract, dated December 31, 1996, 10.6 Filed herewith
by and between Lifestar Reinsurance Limited and American Bankers
Life Assurance Company of Florida.
Employment Agreement, dated November 15, 1996, between Finis F. 10.7 Filed herewith
Teeter and American Homestar Corporation.
Employment Agreement, dated November 15, 1996, between Laurence A. 10.8 Filed herewith
Dawson, Jr. and American Homestar Corporation.
Nonqualified Stock Option Agreement, dated November 15, 1996 10.9 Filed herewith
between Finis F. Teeter and American Homestar Corporation.
Nonqualified Stock Option Agreement, dated November 15, 1996 10.10 Filed herewith
between Laurence A. Dawson, Jr. and American Homestar
Corporation.
Statement Re Computation of Per Share Earnings 11 Filed herewith
None 15
None 18
19
EXHIBIT REPORT WITH WHICH
DESCRIPTION NO. EXHIBIT WAS FILED
----------- ------- ------------------
None 19
List of Subsidiaries 21 Filed herewith
None 22
None 23
None 24
Financial Data Schedules 27 Filed herewith
None 99