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
JUNE 30, 1997
COMMISSION FILE NUMBER 0-26142
BELMONT HOMES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSISSIPPI 64-0834574
-------------------------------- -----------------
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
HIGHWAY 25 SOUTH, INDUSTRIAL PARK DRIVE
BELMONT, MISSISSIPPI 38827 (601) 454-9217
---------------------------------- -----------------------
(Address, including zip code of principal executive (Registrant's telephone number, including area code)
offices)
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
---
At July 31, 1997, 9,467,000 shares of the Registrant's $.10 Par Value
Common Stock were outstanding.
Page 1
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BELMONT HOMES, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
--------- ----------
1997 1996 1997 1996
---- ---- ---- ----
Net sales $70,500 $61,681 $122,644 $113,126
Cost of sales 60,467 52,214 105,882 95,644
------- ------- -------- -------
Gross profit 10,033 9,467 16,762 17,482
Selling, general and administrative 7,035 3,904 12,340 7,712
------- ------- --------- -------
Income from operations 2,998 5,563 4,422 9,770
Other income (expense):
Interest expense (138) (15) (344) (66)
Interest income 137 168 267 282
Officer's life insurance 1,500 - 1,500 -
------- ------- -------- -------
Income before income taxes 4,497 5,716 5,845 9,986
Income taxes 1,174 2,177 1,715 3,805
------- ------- -------- --------
Net income $ 3,323(1) $ 3,539 $ 4,130(1) $ 6,181
------- ------- -------- --------
Net income per common share $.35 $.37 $.44 $.67
------- ------- -------- --------
Weighted average common shares 9,482 9,537 9,482 9,291
------- ------- -------- --------
- ----------------
(1) Includes nonrecurring proceeds of $1.5 million received by the Company
pursuant to an officer's life insurance policy.
See Notes to Condensed Consolidated
Financial Statements
Page 2
3
BELMONT HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
Unaudited
June 30, December 31,
1997 1996
------ ------
ASSETS
- ------
Current assets:
Cash and cash equivalents $11,038 $ 5,070
Certificates of deposit 5,500 8,243
Accounts receivable 10,061 7,829
Inventories 12,745 13,020
Prepaid and other 2,139 2,661
------- -------
Total current assets 41,483 36,823
------- -------
Property, plant and equipment, net 21,812 22,318
Goodwill and other assets, net 19,631 20,214
------- -------
$82,926 $79,355
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes and current portion of long-term debt $ 5,595 $ 9,093
Accounts payable 5,857 3,461
Accrued expenses 12,135 10,744
------- -------
Total current liabilities 23,587 23,298
------- -------
Long-term debt 455 1,303
Deferred income taxes 907 907
------- -------
Total liabilities 24,949 25,508
------- -------
Shareholders' equity:
Common stock 947 947
Additional paid-in capital 27,372 27,372
Retained earnings 33,151 29,021
Adjustment to predecessor basis (3,493) (3,493)
------- -------
Total shareholders' equity 57,977 53,847
------- -------
$82,926 $79,355
------- -------
See Notes to Condensed Consolidated
Financial Statements
Page 3
4
BELMONT HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
Six Months Ended
June 30,
---------------
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 4,130(1) $ 6,181
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,479 702
Loss on leasehold improvements at closed plant 299
Changes in operating assets and liabilities:
Accounts receivable (2,232) (2,555)
Inventories 275 (2,615)
Prepaid and other 721 (330)
Accounts payable 2,396 2,291
Accrued expenses 1,391 3,779
------- -------
Net cash provided by operating activities 8,459(1) 7,453
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (888) (3,064)
Certificates of deposit, net 2,743 (1,283)
------- -------
Net cash provided (used) by investing activities 1,855 (4,347)
------- -------
Cash flows from financing activities:
Repayment of notes and long-term debt (4,346) (10,917)
Proceeds from sale of common stock net of
offering costs - 11,741
------- -------
Net cash provided (used) by financing activities (4,346) 824
------- -------
Net increase in cash and equivalents 5,968 3,930
Cash and equivalents at beginning of year 5,070 2,055
------- -------
Cash and equivalents at end of period $11,038 $ 5,985
------- -------
---------------------
(1) Includes nonrecurring proceeds of $1.5 million received by the Company
pursuant to an officer's life insurance policy.
See Notes to Condensed Consolidated
Financial Statements
Page 4
5
BELMONT HOMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED QUARTERLY FINANCIAL
STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
In June 1993, Belmont Homes, Inc. ("Belmont"), which was 43% owned by
shareholders of BHI, Inc. (Predecessor) and 57% owned by new investors, acquired
through the issuance of debt and equity securities, substantially all of the
assets and liabilities of Predecessor for a purchase price of $15,541. This
transaction was accounted for using the purchase method of accounting including
the computational guidelines contained in EITF Issue No. 88-16.
In August 1995, Belmont incorporated Delta Homes, Inc., a wholly-owned
subsidiary and purchased for $450 a production facility in Clarksdale,
Mississippi.
In October 1995, Belmont acquired, in a transaction accounted for using
the purchase method of accounting, all the outstanding common stock of Spirit
Homes, Inc. ("Spirit") for $9,800 of cash and debt.
In October 1996, Belmont acquired, in a transaction accounted for using
the purchase method of accounting, all the outstanding common stock of Bellcrest
Homes, Inc. ("Bellcrest") for $9,500 of cash plus future contingent payments of
$3,500 if certain earnings levels are achieved through December 31, 1998. In
March 1997, the Company paid the former shareholders of Bellcrest $1,000, the
amount of contingent payments earned and accrued for in 1996.
The condensed consolidated financial statements include the accounts of
Belmont Homes, Inc. and its wholly-owned subsidiaries from incorporation or
acquisition date (collectively, the "Company") and have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with Generally Accepted Accounting
Principles have been omitted. The Condensed Consolidated Financial Statements
should be read in conjunction with the Company's audited financial statements
and notes thereto.
Page 5
6
In the opinion of management, all adjustments, consisting only of
normal recurring adjustments that are necessary for a fair presentation, have
been included in the Condensed Consolidated Financial Statements for the interim
periods ended June 30, 1997 and 1996. The results of operations for the three
and six month periods are not indicative of the results of operations to be
expected for the full year ending December 31, 1997 or any other interim period.
(2) Inventories
June 30, December 31,
1997 1996
---- ----
Raw materials $ 9,515 $ 9,702
Work-in-process 795 798
Finished homes 2,435 2,520
------- -------
$12,745 $13,020
------- -------
(3) Subsequent Event
As reflected in Item 5 below, on August 14, 1997 the Company announced
it had entered into a definitive agreement to merge with a subsidiary of
Cavalier Homes, Inc. (NYSE:CAV). The agreement calls for the exchange of .80
shares of Cavalier Homes, Inc. common stock for each outstanding share of
Belmont stock. The combination is intended to qualify as a tax-free exchange to
the shareholders of Belmont and to be accounted for as a pooling of interests.
The consummation of this transaction is subject to customary closing conditions
including regulatory and shareholder approvals.
Cavalier Homes, Inc. is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Copies of such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at the
following Regional Offices of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington D.C. 20549. The commission also maintains a site on the
World Wide Web at http://www.sec.gov that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission. The common stock of Cavalier is quoted on the New York Stock
Exchange, and such reports, proxy statements and other information can also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005. The Company makes no representation and assumes no
responsibility for the accuracy or completeness of any such reports, proxy
statements or other information.
Page 6
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results Of Operations
The following table sets forth for the periods indicated information
derived from the Company's Condensed Consolidated Financial Statements
expressed as a percentage of net sales:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
1997 1996 1997 1996
------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 85.8 84.7 86.3 84.5
----- ----- ----- -----
Gross profit 14.2 15.3 13.7 15.5
Selling, general and administrative 10.0 6.3 10.1 6.8
----- ----- ----- -----
Income from operations 4.3 9.0 3.6 8.7
Interest income (expense), net - .2 (.1) .2
Officer's Life Insurance 2.1 - 1.2 -
Income taxes 1.7 3.5 1.3 3.4
----- ----- ----- -----
Net income(1) 4.7 5.7 3.4 5.5
----- ----- ----- -----
- ---------------
(1) Includes nonrecurring proceeds of $1.5 million received by the Company
pursuant to an officer's life insurance policy.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
Industry conditions in the Company's market territory remained
competitive due to a increase in the level of dealers (retailers) and
manufacturing plants. In response, the Company has restructured its
manufacturing operations, idling one plant each at its Belmont and Spirit plant
clusters and closing a leased plant at Spirit. The two idled plants may be
reopened as market conditions improve.
Net sales for the three months ended June 30, 1997 increased 14.3% to
$70.5 million from $61.7 million for the three months ended June 30, 1996 due
primarily to the addition of Bellcrest Homes which was acquired during the
fourth quarter of 1996. The number of homes sold during the quarter increased
8.1% to 3,211 from 2,971 in the second quarter of 1996. Multi-sectional homes
increased to 32.2% of homes sold during the second quarter of 1997 from 25.7% in
the same quarter of 1996. The average price of a home sold increased 5.8% to
$21,956 in the second quarter of 1997 from $20,761 in the second quarter of 1996
due, in part, to the higher mix of multi-sectional homes.
Cost of sales includes costs of raw materials, direct labor, service
and warranty expense, insurance and payroll taxes. Cost of sales during the
second quarter of 1997 increased 15.8% to
Page 7
8
$60.5 million from $52.2 million for the second quarter of 1996. Cost of raw
materials and direct labor, which are two of the largest components of cost of
sales, increased to $44.1 million and $8.6 million, respectively, for the second
quarter of 1997 from $38.5 million and $7.5 million, respectively, for the
second quarter of 1996 primarily as a result of the increased volume. As a
percentage of net sales, cost of sales for the second quarter of 1997 increased
to 85.8% from 84.7% in the second quarter of 1996, due in part to the $299
thousand write off of leasehold improvements at the closed Spirit plant and
increases in salary and wages, insurance and depreciation.
Selling, general and administrative expenses for the second quarter of
1997 increased 80.2% to $7 million from $3.9 million in the second quarter of
1996, primarily as a result of increased dealer promotion costs and the addition
of Bellcrest Homes which was acquired during the fourth quarter of 1996. Dealer
promotion costs increased to $3.3 million in the second quarter of 1997 from
$1.5 million in the second quarter of 1996. The Company believes the number of
dealers and manufacturers in its market territory has increased and expects
these higher promotion costs to continue. As a percentage of net sales, selling,
general and administrative expense increased to 10% for the second quarter of
1997 from 6.3% for the second quarter of 1996 due primarily to the higher dealer
promotion costs and increases in selling and administrative salaries and
commissions.
Income tax expense for the second quarter of 1997 was $1.2 million or
an effective tax rate of 26.1% compared to $2.2 million for the comparable
quarter of the prior year or an effective tax rate of 38.1%. The difference in
these effective rates is primarily attributable to the receipt during the second
quarter of 1997 of $1.5 million in Officer Life Insurance which is non-taxable.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996.
Net sales for the six months ended June 30, 1997 increased 8.4% to
$122.6 million from $113.1 million for the six months ended June 30, 1996 due
primarily to the acquisition of Bellcrest Homes which was acquired during the
fourth quarter of 1996. The number of homes sold increased 1.6% to 5,543 in 1997
from 5,457 in 1996. Multi-sectional homes increased to 33.1% of homes sold
during the first six months of 1997 from 24.5% for the six months ended June 30,
1996.
Cost of sales for the six months ended June 30, 1997 increased 10.7% to
$105.9 million from $95.6 million for the six months ended June 30, 1996. Costs
of raw materials and direct labor increased to $77.3 million and $14.7 million,
respectively, in 1997 from $71.5 million and $13.1 million, respectively, in
1996 primarily as a result of the increased sales volume. As a percentage of net
sales, cost of sales for the six months ended June 30, 1997 increased to 86.3%
from 84.5% due primarily to increases in direct labor and wages, insurance,
depreciation and the write off of leasehold improvements at the closed Spirit
plant.
Page 8
9
Selling, general and administrative expenses for the six months ended
June 30, 1997 increased 60% to $12.3 million from $7.7 million in the comparable
period of the prior year due to higher dealer promotional costs and the addition
of Bellcrest Homes which was acquired during the fourth quarter of 1996. Dealer
promotional costs increased to $5.7 million for the six months ended June 30,
1997 from $2.7 million in the prior year period. The Company believes the number
of dealers and manufacturers in its market territory has increased and expects
these higher levels of promotional costs to continue. As a percentage of net
sales, selling, general and administrative expense increased to 10.1% for the
six months ended June 30, 1997 from 6.8% for the six months ended June 30, 1996
primarily as a result of the higher promotional costs.
Interest expense for the six months ended June 30, 1997 was $344
thousand compared to $66 thousand for the six months ended June 30, 1996 due
primarily to additional borrowings supporting the Bellcrest acquisition during
the fourth quarter of 1996.
Income tax expense for the six months ended June 30, 1997 was $1.7
million or an effective tax rate of 29.3% compared to $3.8 million for the six
months ended June 30, 1996 or an effective tax rate of 38.1%. The difference in
these effective rates is primarily attributable to the receipt during the second
quarter of 1997 of $1.5 million in officers life insurance which is
non-taxable.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents including certificates of deposit were $16.5
million at June 30, 1997 compared to $13.3 million at year end December 31,
1996.
Net cash provided by operating activities was $8.5 million for the six
months ended June 30, 1997 compared to $7.5 million for the six months ended
June 30, 1996 due in part to increases in depreciation and amortization and the
write off of leasehold improvements at the closed Spirit plant. Accounts
receivable are funded by approved dealer floor-plan financing and usually are
collected within 15 days, except in periods when extended terms are granted to
promote sales. All homes are manufactured against orders, and currently, no
homes are produced for inventory.
The Company utilized $888 thousand for the purchase of property, plant
and equipment during the six months ended June 30, 1997 compared with $3.1
million during the six months ended June 30, 1996. Expenditures during 1996 were
primarily for the addition of two plants at Spirit Homes.
The Company's financing activities used $4.3 million in cash for the
repayment of debt during the six months ended June 30, 1997 compared with
providing $824 thousand during the six months ended June 30, 1996. In January
1996 the Company raised approximately $11.7 million in net cash proceeds from
the secondary sale of stock to the public and used $10.9 million of these
proceeds to retire outstanding debt.
Page 9
10
The Company plans to continue its current growth strategy of acquiring
or constructing new manufacturing facilities when necessitated by consumer
demand. In order to provide any additional funds necessary for the continued
pursuit of this growth strategy, the Company may incur, from time to time,
additional short-and long-term bank indebtedness, including mortgage loans and
industrial revenue bond financing, and may issue, in public or private
transactions, equity and debt securities, the availability and terms of which
will depend upon market and other conditions.
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on June 3, 1997.
During the Annual Meeting the following directors were elected to serve until
the 1998 Annul Meeting or their earlier retirement from the Board of Directors:
Votes
Directors For Against Withheld
A. Douglas Jumper, Sr. 7,257,313 -- 30,895
John W. Allison 7,257,313 -- 30,895
Thomas D. Keenum 7,257,313 -- 30,895
Roger D. Moore 7,257,118 -- 31,090
J.M. Page 7,257,118 -- 31,090
Don D. Murphy 7,260,568 -- 27,640
Hollis D. Sparks 7,260,763 -- 27,445
Additionally, ratification of an amendment to the Company's 1994
Incentive Stock Plan to (i) increase from 600,000 to 1,000,000 the number of
shares of Common Stock authorized thereunder; (ii) require that no more than
250,000 shares of Common Stock be awarded to any person in a three-year period;
and (iii) eliminate the requirement of shareholder approval of certain
administrative amendments was ratified as follows: For 6,086,584; Against
227,287; Withheld 874,940.
ITEM 5. OTHER MATTERS
On August 14, 1997 the Company announced it had entered into a
definitive agreement to merge with a subsidiary of Cavalier Homes, Inc.
(NYSE:CAV). The agreement calls for the exchange of .80 shares of Cavalier
Homes, Inc. common stock for each outstanding share of Belmont stock. The
combination is intended to qualify as a tax-free exchange to the shareholders
of Belmont and to be accounted for as a pooling of interests. The consummation
of this transaction is subject to customary closing conditions including
regulatory and shareholder approvals.
Item 6.
(a) Exhibits
Exhibit 27. Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
1. Report dated May 4, 1997 announcing the death of Mr. Jerold
Kennedy, the Company's President And CEO.
Page 10
11
SIGNATURES
Pursuant to the requirements of the Securities And Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BELMONT HOMES, INC
Date: August 12, 1997 /s/ John Allison
----------------
Acting President And CEO
Date: August 12, 1997 /s/ William Kunkel
------------------
CFO
Page 11