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 August 31, 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 [ ]
Number of shares outstanding of each of the issuer's classes of common stock,
as of October 1, 1997.
Common Stock, Par Value $.05 Per Share 11,449,699
2
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets - May 31, 1997 and August 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations - three months ended
August 31, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows - three months ended
August 31, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1
3
PART I -- FINANCIAL INFORMATION
AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MAY 31, AUGUST 31,
1997 1997
ASSETS ------------ ------------
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,209,000 $ 16,977,000
Cash in transit from financial institutions . . . . . . . . . 26,139,000 20,714,000
------------ ------------
Total cash and cash equivalents . . . . . . . . . . . . . 43,348,000 37,691,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 58,209,000 64,288,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 13,807,000 19,670,000
Manufacturer incentives receivable . . . . . . . . . . . . . . 1,072,000 1,000,000
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . 4,604,000 4,404,000
Prepaid expenses and other current assets . . . . . . . . . . 6,195,000 5,269,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . 127,235,000 132,322,000
Property, plant and equipment, net . . . . . . . . . . . . . . . 47,581,000 47,885,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,280,000 34,435,000
Investment in affiliate . . . . . . . . . . . . . . . . . . . . . 3,675,000 2,946,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 2,250,000 3,057,000
------------ ------------
$211,021,000 $220,645,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Floor plan payable . . . . . . . . . . . . . . . . . . . . . $ 46,282,000 20,686,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 21,474,000 21,245,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . 22,703,000 25,307,000
Accrued warranty costs . . . . . . . . . . . . . . . . . . . 6,356,000 6,425,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . 6,160,000 993,000
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . 102,975,000 74,656,000
Notes payable and capital lease, less current installments . . . 29,136,000 63,483,000
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . 235,000 236,000
Minority interest in consolidated subsidiary . . . . . . . . . . 966,000 1,013,000
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 11,297,183 and
11,439,629 shares at May 31, 1997 and August,
31, 1997, respectively . . . . . . . . . . . . . . . . . . 565,000 572,000
Additional paid-in capital . . . . . . . . . . . . . . . . . 40,018,000 42,416,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . 37,126,000 38,269,000
------------ ------------
Total shareholders' equity . . . . . . . . . . . . . . . . 77,709,000 81,257,000
------------ ------------
$211,021,000 $220,645,000
============ ============
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AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED AUGUST 31,
-----------------------------------------
1996 1997
------------- ---------------
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $ 75,781,000 $ 118,360,000
Other revenues . . . . . . . . . . . . . . . . . . . . . . 6,714,000 6,372,000
------------- ---------------
Total revenues . . . . . . . . . . . . . . . . . . . . 82,495,000 124,732,000
------------- ---------------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . 57,087,000 89,241,000
Selling, general and administrative . . . . . . . . . . . 19,327,000 26,012,000
Acquisition costs . . . . . . . . . . . . . . . . . . . . -- 2,425,000
------------- ---------------
Total costs and expenses . . . . . . . . . . . . . . . 76,414,000 117,678,000
------------- ---------------
Operating income . . . . . . . . . . . . . . . . . . . 6,081,000 7,054,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (863,000) (1,894,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,000 1,000
------------- ---------------
Income before items shown below . . . . . . . . . . . 5,322,000 5,161,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . 2,090,000 2,900,000
------------- ---------------
Income before items shown below . . . . . . . . . . . 3,232,000 2,261,000
Earnings in affiliate . . . . . . . . . . . . . . . . . . . . . 22,000 240,000
Minority interest in income of consolidated subsidiary . . . . (100,000) (47,000)
------------- ---------------
Net income before extraordinary item . . . . . . . . . 3,154,000 2,454,000
Extraordinary loss from early extinguishment of debt
(net of income tax benefit of $423,000) . . . . . . . . . . . -- (634,000)
------------- ---------------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 3,154,000 $ 1,820,000
============= ===============
Basic Earnings Per Share:
Net income before extraordinary loss . . . . . . . . . . . $ 0.28 $ 0.22
Extraordinary loss, net of income tax benefit . . . . . . -- (0.06)
------------- ---------------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 0.28 $ 0.16
============= ===============
Diluted Earnings Per Share:
Net income before extraordinary loss . . . . . . . . . . . $ 0.27 $ 0.20
Extraordinary loss, net of income tax benefit . . . . . . -- (0.05)
------------- ---------------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 0.27 $ 0.15
============= ===============
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AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1996 1997
------------ -------------
Cash flows from operating activities:
Net income ..................................................... $ 3,154,000 $ 1,820,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Net loss of Brilliant ........................................ -- (678,000)
Depreciation and amortization ................................ 667,000 1,272,000
Earnings in affiliate ........................................ (22,000) (240,000)
Minority interest in income of consolidated subsidiary ....... 100,000 47,000
Compensation expense on sale of common stock ................. 15,000 --
Deferred taxes ............................................... (171,000) 200,000
Change in assets and liabilities, net of acquisitions
Increase in accounts receivable ............................ (998,000) (5,571,000)
Decrease in manufacturer incentive receivable .............. 204,000 73,000
Decrease (increase) in inventories ......................... (6,248,000) 161,000
Decrease in prepaid expenses and other current assets ...... 747,000 937,000
Decrease (increase) in other assets ........................ (867,000) 218,000
Increase (decrease) in accounts payable .................... 1,733,000 (670,000)
Increase in accrued expenses ............................... 2,923,000 2,458,000
Increase in other liabilities .............................. 641,000 --
------------ ------------
Net cash provided by operating activities ............ 1,878,000 27,000
------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment ................... (2,015,000) (1,055,000)
Payment for purchase of acquisitions, net of cash acquired ... -- (349,000)
------------ ------------
Net cash used in investing activities ................ (2,015,000) (1,404,000)
------------ ------------
Cash flows from financing activities:
Borrowings under floor plan payable .......................... 40,024,000 40,521,000
Repayment of floor plan payable .............................. (34,623,000) (45,328,000)
Participations in floor plan payable ......................... (1,059,000) (27,484,000)
Principal payments on long-term debt ......................... (17,000) (33,394,000)
Borrowings under long-term debt .............................. 516,000 61,000,000
Exercise of stock options .................................... 29,000 405,000
Secondary public offering costs .............................. (129,000) --
------------ ------------
Net cash provided by (used in) financing activities .. 4,741,000 (4,280,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents ............... 4,604,000 (5,657,000)
Cash and cash equivalents, beginning of period ..................... 33,149,000 43,348,000
------------ ------------
Cash and cash equivalents, end of period ........................... $ 37,753,000 $ 37,691,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest ....................................... $ 1,353,000 $ 1,178,000
Cash paid for income taxes ................................... 143,000 51,000
============ ============
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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. On June 10, 1997, the Company completed the acquisition of
Brilliant Holding Corporation ("Brilliant"). This transaction was accounted
for as a pooling of interests; accordingly, the accompanying consolidated
financial statements have been restated to include the results of Brilliant for
all periods presented. Because of the seasonal nature of the Company's
business, operating results for the three months ended August 31, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending May 31, 1998. 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.
BUSINESS COMBINATIONS
On June 10, 1997, Brilliant was acquired by the Company, and 474,099 shares
of the Company's common stock and options to purchase 25,901 shares of the
Company's common stock were issued in exchange for all of Brilliant's
outstanding common stock and options to purchase Brilliant's common stock.
This transaction was accounted for as a pooling of interests. Prior to the
acquisition, Brilliant used a fiscal year ending on December 31. The financial
statements for the three months ended August 31, 1997 combine each company's
three months ended August 31, 1997. The restated financial statements for the
three months ended August 31, 1996 combine the Company's financial statements
for the three months ended August 31, 1996 with Brilliant's financial
statements for the three months ended March 31, 1996. Due to the different
fiscal year ends, retained earnings includes an adjustment to record
Brilliant's net loss for the five months ended May 31, 1997, which will not be
included in the restated financial statements for any fiscal period.
A summary of Brilliant's results of operations for the five months ended May
31, 1997 follows:
Net sales . . . . . . . . . . . . . $28,984,000
Total costs and expenses . . . . . $29,845,000
Net loss . . . . . . . . . . . . . $ (678,000)
===========
A reconciliation of revenues and net income of the combined entities as
restated for the three months ended August 31, 1996 follows:
Revenues:
American Homestar . . . . $66,706,000
Brilliant . . . . . . . . 15,789,000
-----------
Combined . . . . . . . . $82,495,000
===========
Net income:
American Homestar . . . . $ 3,018,000
Brilliant . . . . . . . . 136,000
-----------
Combined . . . . . . . . $ 3,154,000
===========
Adjustments to conform Brilliant's method of accounting for inventory and
accrued warranty costs with that of the Company reduced pro forma net income by
$93,000.
5
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AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On June 16, 1997, the Company completed the acquisition of N.C. Mobile Home
Corporation (NC Homes), which operates 11 retail centers in North Carolina and
one in Virginia. The results of the acquired operations of NC Homes have been
included with those of the Company from the date of the acquisition. The
excess purchase price over the estimated fair value of the net assets acquired
as of the acquisition date of $3.6 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. The estimated fair value of assets acquired and
liabilities assumed is summarized as follows:
Current assets . . . . . . . . . . $ 7,994,000
Other assets . . . . . . . . . . . 282,000
Goodwill . . . . . . . . . . . . . 3,571,000
Floor plan payable . . . . . . . . (6,691,000)
Accounts payable . . . . . . . . . (442,000)
Accrued liabilities . . . . . . . . (214,000)
-----------
$ 4,500,000
===========
Consideration:
Cash . . . . . . . . . . . . . . $ 1,000,000
Note payable . . . . . . . . . . 1,500,000
Common stock . . . . . . . . . . 2,000,000
-----------
$ 4,500,000
===========
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 12 to 15
months). At August 31, 1997, the Company's contingent repurchase liability was
approximately $55.3 million.
INVENTORIES
A summary of inventories follows:
MAY 31, AUGUST 31,
1997 1997
------------ ------------
Manufactured homes:
New . . . . . . . . . . . . . . . . . . . . . . . $ 41,767,000 $ 46,545,000
Used . . . . . . . . . . . . . . . . . . . . . . . 4,715,000 5,278,000
Furniture and supplies . . . . . . . . . . . . . . . . . . 3,374,000 3,532,000
Raw materials and work-in-process . . . . . . . . . . . . . 8,353,000 8,933,000
------------ ------------
$ 58,209,000 $ 64,288,000
============ ============
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AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
INVESTMENT IN AFFILIATE
Summary financial information for the Company's 50% owned subsidiary, 21st
Century Mortgage Corporation, for the three months ended August 31, 1996 and
1997 follows:
1996 1997
--------- -----------
Total revenues . . . . . $ 426,000 $ 2,003,000
Net income . . . . . . . $ 43,000 $ 480,000
--------- -----------
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 issuance of 474,099 shares of common stock exchanged
for all of the common stock of Brilliant and the 5-for-4 stock split effected
on February 7, 1997.
The following data show the amounts used in computing earnings per share and
the weighted average number of shares of dilutive potential common stock.
AUGUST 31, 1996 AUGUST 31, 1997
------------------------------ ------------------------------
BASIC DILUTED BASIC DILUTED
EARNINGS PER EARNINGS PER EARNINGS PER EARNINGS PER
SHARE SHARE SHARE SHARE
----------- ----------- ------------ -----------
Net income before extraordinary loss . . . . . . . . $ 3,154,000 $ 3,154,000 $ 2,454,000 $ 2,454,000
Extraordinary loss . . . . . . . . . . . . . . . . . -- -- (634,000) (634,000)
----------- ----------- ------------ -----------
Net income . . . . . . . . . . . . . . . . . . . . $ 3,154,000 $ 3,154,000 $ 1,820,000 $ 1,820,000
=========== =========== ============ ===========
Weighted average common shares outstanding . . . . .
11,247,503 11,247,503 11,404,613 11,404,613
Dilutive effect of stock options . . . . . . . . . . -- 450,280 -- 563,264
----------- ----------- ------------ -----------
Common shares denominator . . . . . . . . . . . . . 11,247,503 11,697,783 11,404,613 11,967,877
=========== =========== ============ ===========
LONG-TERM DEBT
The Company's loan agreement related to the 8.32% senior unsecured notes
contain certain requirements as to net working capital, consolidated net worth,
disposition of assets, additional long-term debt, redemption of common stock,
payment of dividends and prepayment of subordinated debt. At August 31, 1997,
the Company was in compliance with all such restrictions.
7
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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 ("21st
Century"), the Company's mortgage affiliate, finances more of the
Company's retail sales, the Company's earnings should increase without
a corresponding increase in retail unit sales.
The recent acquisitions of Heartland Homes, Inc. ("Heartland") and Guerdon
Homes, Inc. ("Guerdon") in September 1996 will have the effect of adding
significant revenues to the Company with little, if any, immediate benefits of
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.
8
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RESULTS OF OPERATIONS
Three months ended August 31, 1997 compared to three months ended August 31,
1996
The following table summarizes certain key sales statistics for the three
months ended August 31, 1996 and 1997:
THREE MONTHS ENDED AUGUST 31,
-----------------------------
1996 1997
------------- ------------
Company-manufactured new homes sold at retail (1) . . . . 792 1,048
Total new homes sold at retail . . . . . . . . . . . . . 1,153 1,300
Internalization rate (2) . . . . . . . . . . . . . . . . 69% 81%
Previously-owned homes sold at retail . . . . . . . . . . 320 397
Average retail selling price--new homes . . . . . . . . . $ 44,191 $ 46,576
Average number of new homes sold per retail
sales center . . . . . . . . . . . . . . . . . . . . 25 19
Number of retail sales centers at end of period . . . . . 47 69
Manufacturing shipments (1) . . . . . . . . . . . . . . . 1,604 2,616
Manufacturing shipments to independent dealers (1) . . . 776 1,531
(1) Operating data for the three months ended August 31, 1996 has been
restated to included the effects of the Brilliant acquisition.
(2) The internalization rate is the proportion of new homes sold by
Company-owned retail sales centers that are manufactured by the Company.
The following table summarizes the Company's operating results, expressed as
a percentage of revenues, for the periods indicated:
THREE MONTHS ENDED
AUGUST 31,
-----------------------
1996 1997
------ -------
Total revenues . . . . . . . . . . . . . . . . . 100.0% 100.0%
Gross profit . . . . . . . . . . . . . . . . . . 30.8% 28.5%
Selling, general and administrative before
acquisition costs . . . . . . . 23.4% 20.9%
Acquisition costs . . . . . . . . . . . . . . . . -- 1.9%
Operating income . . . . . . . . . . . . . . . . 7.4% 5.7%
Net income before extraordinary loss . . . . . . 3.8% 2.0%
Net income . . . . . . . . . . . . . . . . . . . 3.8% 1.5%
Net Sales. Net sales of manufactured homes were $118.4 million for the
three months ended August 31, 1997, compared to $75.8 million for the three
months ended August 31, 1996. Sales from Heartland and Guerdon manufacturing
operations were $26.9 million for the three months ended August 31, 1997. On a
basis comparable to the three months ended August 31, 1996, net sales increased
21% to $91.5 million. The increase was primarily the result of a 15% increase
in the number of new and previously-owned homes sold at retail as well as a 5%
increase in the average selling price of new homes. The decline in the number
of new homes sold per retail sales center from 25 in the first quarter of
fiscal 1997 to 19 in the first quarter of fiscal 1998 was primarily
attributable to two factors; (1) retail management changes necessitated by the
restructuring of the Company's retail operations and (2) average new homes sold
from the recently acquired operations of NC Homes being significantly lower
than the average historically generated by the Company's retail locations in
Texas and the surrounding states. The Company added 15 new retail sales
centers during the first quarter of fiscal 1998, 12 of which were NC Homes
retail sale centers.
9
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Other Revenues. Transportation revenues for the three months ended August
31, 1997 were $2.9 million, a decrease of 26% from $3.9 million for the three
months ended August 31, 1996. This decrease was primarily due to increased
competition among mobile home transporters, particularly in Texas and
surrounding states. Transportation is not a key growth operation of the
Company and has over time represented a declining proportion of total revenues
and net income. Other revenues increased to $3.5 million (3.8% of net sales
excluding net sales attributable to Heartland and Guerdon) for the three months
ended August 31, 1997, compared to $2.9 million (3.8% of net sales) for the
three months ended August 31, 1996. This increase in other revenues is
primarily due to increased commissions and premiums generated by the Company's
insurance operations. Other revenues, expressed as a percentage of net sales,
remained unchanged from the first quarter of fiscal 1998 to the first quarter
of fiscal 1997.
Cost of Sales. Cost of manufactured homes sold were $86.9 million (73.4% of
net sales) for the three months ended August 31, 1997, as compared to $53.9
million (71.1% of net sales) for the three months ended August 31, 1996. Cost
of manufactured homes attributable to Heartland and Guerdon for the three
months ended August 31, 1997 were $21.7 million. On a basis comparable to the
three months ended August 31, 1996, cost of manufactured homes increased 21% to
$65.2 million (71.3% of net sales). The increase in cost of sales was
primarily due to higher sales volume. The slight increase in cost of sales,
expressed as a percentage of sales, was the result of an increase in the
percentage of multi- section homes sold at retail in the first quarter of
fiscal 1998 (54%) compared to the first quarter of fiscal 1997 (52%). This
increase was partially offset by an increase in the internalization rate from
69% for the three months ended August 31, 1996 to 81% for the three months
ended August 31, 1997. Cost of sales attributable to transportation operations
for the three months ended August 31, 1997 were $2.3 million (82.2% of
transportation revenues), a decrease of 26% from $3.2 million (82.9% of
transportation revenues) for the three months ended August 31, 1996. The
decrease is consistent with the decrease in transportation activity from fiscal
1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended August 31, 1997, were $26.0
million (20.9% of total revenues), as compared to $19.3 million (23.4% of
total revenues) for the three months ended August 31, 1996. On a basis
comparable to the three months ended August 31, 1996 (excluding the selling,
general and administrative expenses of Heartland and Guerdon), selling, general
and administrative expenses increased 17% to $22.6 million (23.2% of total
revenues). The increase in selling, general and administrative expenses is
attributable to increased sales, manufacturing and insurance activities as well
as an increase in fixed costs and expenses associated with new retail sales
centers and expanded manufacturing capacity. The slight decrease in selling,
general and administrative expenses, expressed as a percentage of total
revenues, was the result of a decrease in warranty costs. The decrease was
offset by an increase in the internalization rate from 69% in the first three
months of fiscal 1997 to 81% in the first three months of fiscal 1998.
Acquisition Costs. During the three months ended August 31, 1997, the
Company incurred $2.4 million in costs related to the Brilliant acquisition.
These acquisition related costs primarily consisted of transaction costs and
severance and termination agreements with two former officers of Brilliant.
Interest Expense. Interest expense increased 119% to $1.9 million for the
three months ended August 31, 1997, from $863,000 for the three months ended
August 31, 1996. This increase was primarily attributable to increased
borrowings associated with the Company's private placement of 8.32% senior
unsecured notes totaling $61 million in July 1997, and increased gross
borrowings under its floor plan credit facility to support a higher level of
inventory due to the addition of new retail sales centers.
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Income Taxes. The income tax provision, expressed as a percentage of income
before income taxes, minority interest, earnings in affiliate and extraordinary
items, was 39.3% and 56.2% for the three months ended August 31, 1996 and 1997,
respectively. The increase was primarily the result of nondeductible
acquisition costs related to the Brilliant acquisition as well as the
nondeductibility of goodwill related to the acquisitions of Guerdon and NC
Homes.
Extraordinary Loss. In connection with the private placement of $61 million
of 8.32% senior unsecured notes in July 1997, the Company repaid existing
secured bank debt of approximately $31 million. Consequently, the Company
recorded an extraordinary loss of $634,000 (net of income tax benefit) which
represented the write-off of unamortized debt issue costs as well as a
prepayment penalty associated with the repayment of the bank debt.
LIQUIDITY AND CAPITAL RESOURCES.
Cash provided by operations was $27,000 for the three months ended August
31, 1997. Net income before depreciation and amortization accounted for a
significant portion of the cash provided by operating activities for the three
months ended August 31, 1997. The increase of $2.5 million in accrued expenses
from May 31, 1997 to August 31, 1997 was attributable to the accrual of federal
and state income taxes, the payment of which was not due to the various taxing
authorities until September 1997. The increase in accounts receivable
accounted for the majority of cash used in operations for the first quarter of
fiscal 1998. The May 31, 1997 balance sheet combines the Company's May 31,
1997 balance sheet with Brilliant's December 31, 1996 balance sheet. As is
customary in the manufactured home industry, the Brilliant plants were shut
down for one week in late December, which resulted in a reduction in sales as
well as accounts receivable in December 1996.
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 that the capital required to open a new
retail sales center is approximately $1.0 million to $1.25 million, primarily
for working capital, inventory and leasehold and land improvements. Management
currently plans to open 20 to 30 retail sales centers each year for the next
two years. In addition, management expects to expend approximately $15 million
on capital improvements to expand manufacturing capacity at six plants and to
add a new plant in North Carolina during fiscal 1998.
The Company had capital expenditures of $1.1 million for the three months
ended August 31, 1997. These expenditures were used primarily to fund new
retail sales centers and expand manufacturing capacity. The Company paid
$350,000, net of cash acquired, to purchase NC Homes and four additional retail
sales centers.
At August 31, 1997, the Company had a $100 million floor plan credit
facility with Ford Consumer Finance Company, Inc. ("Ford"), with an interest
rate of prime less 0.50%. The credit facility was increased to $125 million in
September 1997. The facility is similar to a revolving credit facility and is
used to finance the purchase of inventory of new homes at its 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 $2.6 million in
the first quarter of fiscal 1998. At August 31, 1997, the Company had net
borrowings of $20.7 million (gross borrowings of $68.6 million less
participations of $47.9 million). The Company's participations in its floor
plan credit facility earn interest at Ford's prime rate less 0.75%, and are
immediately available to the Company in cash.
On July 15, 1997, the Company completed the private placement of $61 million
of 8.32% senior unsecured notes (the "Senior Notes"). Scheduled payments of
the Senior Notes begin in July 2002 and continue annually until paid in full in
July 2007. The Company used the net proceeds to repay approximately $31
million in existing bank debt. The remainder of the proceeds were used to
temporarily reduce borrowings under the Company's floor plan credit facility
with Ford.
Management believes that the proceeds from the Senior Notes, when coupled
with the Company's increased floor plan credit facility and cash provided from
operations, will be sufficient to satisfy working capital and capital
expenditure requirements over the next two years.
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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
----------- ------- ---------------------------
Note Purchase Agreement, 8.32% Senior Unsecured Notes due July 10, 1997. 2.1 Filed herewith
Restated Articles of Incorporation of American Homestar Corporation. 3.1 S-1 Registration Statement
No. 33-78630
Amended and Restated Bylaws of American Homestar Corporation. 3.2 S-1 Registration Statement
No. 33-78630
Specimen Common Stock Certificate. 4.1 S-1 Registration Statement
No. 33-78630
Employment Agreement, dated August 23 1997, by and between American
Homestar Corporation and Ronald McCaslin. 10.1 Filed herewith
None 11
None 15
None 18
None 19
None 22
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
dated June 5, 1997 regarding the acquisition of Brilliant Holding
Corporation. The Current Report on Form 8-K dated June 5, 1997 was
amended on Form 8-K/A and filed on July 16, 1997.
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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: October 10, 1997 By: /s/ Craig A. Reynolds
-----------------------------
Craig A. Reynolds
Executive Vice President, Chief Financial
Officer, Secretary and Director (Principal
Financial and Accounting Officer)
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