<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934
and Rule 13e-3 thereunder)
(Amendment No. 1)
CAVCO INDUSTRIES, INC.
(Name of the Issuer)
Cavco Industries, Inc.
Al R. Ghelfi
Janet M. Ghelfi
Janal Limited Partnership
(Name of Person(s) Filing Statement)
Common Stock, $0.05 par value
(Title of Class of Securities)
149567109
(CUSIP Number of Class of Securities)
Al R. Ghelfi, 1001 North Central Avenue, Eighth Floor,
Phoenix, Arizona 85004, tel. (602) 256-6263
(Name, address and telephone number of person authorized to
receive notices and communications on behalf of
person(s) filing statement)
Copies to: William M. Hardin, Esq.
Osborn Maledon, P.A.
2929 North Central Avenue, Suite 2100
Phoenix, AZ 85012-2794
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
<PAGE> 2
c. [ ] A tender offer
d. [ ] None of the above
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [X]
Calculation of Filing Fee
Transaction Valuation* Amount of Filing Fee
$74,302,191 $14,860.44
* For purposes of calculation of fee only. The transaction valuation is based
upon the cash payment per share in the proposed transaction in accordance with
Rule 0-11.
[X] Check box if any part of the fee is offset as provided by Rule 0-ll(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: $14,860.44
Form or Registration No. Schedule 14A
Filing Party: Cavco Industries, Inc.
Date Filed: January 7, 1997
2
<PAGE> 3
This Amendment No. 1 (the "Amendment") on Schedule 13E-3 amends and
supplements the Rule 13E-3 Transaction Statement on Schedule 13E-3 (the
"Statement") filed by Al R. Ghelfi, Janet M. Ghelfi and Janal Limited
Partnership on January 7, 1997 in connection with a proposal to approve an
Agreement and Plan of Merger (the "Merger Agreement") dated as of December 4,
1996, by and among Cavco Industries, Inc. (the "Issuer" or the "Company"),
Centex Real Estate Corporation ("CREC"), MFH Holding Company (the "Holding
Company"), MFH Acquisition Company (the "Merger Subsidiary") and certain
shareholders of the Issuer, Al R. Ghelfi, Janet M. Ghelfi and Janal Limited
Partnership (the "Ghelfi Parties").
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to such terms in the Statement. Except as expressly set forth
in this Amendment, all information in the Statement remains unchanged.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1996, as amended by the Company's
Annual Report on Form 10K/A filed with the Commission on February 19, 1997
(which is incorporated by reference in the Proxy Statement) under the caption
"Executive Compensation" is incorporated herein by reference.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "Selected Financial Data" is
incorporated herein by reference. The information set forth in the Company's
Annual Report on Form 10-K for the year ended September 30, 1996, as amended by
the Company's Annual Report on Form 10K/A, filed with the Commission on February
19, 1997, and Quarterly Report on Form 10-Q for the quarter ended December 31,
1996 (which are incorporated by reference in the Proxy Statement) is
incorporated herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
99(b)(1) Fairness opinion of Goldman Sachs (incorporated herein by
reference to Appendix B to the Proxy Statement).
99(b)(2) Material prepared by Goldman Sachs for the Special Committee
of the Board of Directors of the Company.
3
<PAGE> 4
SIGNATURE
After due inquiry and to the best of its knowledge and belief, each of
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Date: February 18, 1997
CAVCO INDUSTRIES, INC.
By /s/ BRENT GHELFI
---------------------------
Brent Ghelfi
Its President and Chief Executive Officer
/s/ AL R. GHELFI
---------------------------
AL R. GHELFI
/s/ JANET M. GHELFI
------------------------------
JANET M. GHELFI
JANAL LIMITED PARTNERSHIP
By: THE 1994 ALSONS TRUST, created February
9, 1994, general partner
By /s/ JANET M. GHELFI
----------------------------------
Janet M. Ghelfi,
Independent Trustee
By /s/ AL R. GHELFI
----------------------------------
Al R. Ghelfi,
Family Trustee
By: ALFRED AND JANET GHELFI TRUST,
created August 24, 1989, general partner
By /s/ AL R. GHELFI
----------------------------------
Al R. Ghelfi,
Trustee
By /s/ JANET M. GHELFI
----------------------------------
Janet M. Ghelfi,
Trustee
<PAGE> 5
EXHIBIT INDEX
EXHIBIT NO.
99(b)(1) Fairness opinion of Goldman Sachs (incorporated herein by
reference to Appendix B to the Proxy Statement).
99(b)(2) Material prepared by Goldman Sachs for the Special Committee
of the Board of Directors of the Company.
<PAGE> 1
Exhibit 99(b)(2)
PRESENTATION TO THE
SPECIAL COMMITTEE OF THE BOARD OF
DIRECTORS
OF
CAVCO INDUSTRIES, INC.
[Goldman
Sachs
Logo] GOLDMAN, SACHS & CO.
DECEMBER 4, 1996
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF EXHIBITS
<S> <C>
SCOPE OF THE ASSIGNMENT 1
SUMMARY OF THE TRANSACTION 2
MANUFACTURED HOUSING INDUSTRY OVERVIEW 3
BUSINESS SUMMARY OF THE COMPANY 4
SUMMARY HISTORICAL AND PROJECTED FINANCIAL INFORMATION 5
RESEARCH ANALYSTS' EARNINGS ESTIMATES AND COMMENTS 6
STOCK PRICE HISTORY 7
SHAREHOLDER ANALYSIS 8
COMPARISON TO OTHER PUBLICLY TRADED COMPANIES 9
COMPARISON OF OTHER RECENT INDUSTRY ACQUISITIONS 10
DISCOUNTED CASH FLOW ANALYSIS 11
ANALYSIS AT ACQUISITION PRICE 12
CENTEX ACQUISITION ANALYSIS 13
PRESENT VALUE OF CONSIDERATION LIKELY TO BE RECEIVED BY MAJORITY SHAREHOLDERS 14
</TABLE>
<PAGE> 3
SCOPE OF THE ASSIGNMENT
We have been engaged by the Special Committee of the Board of Directors
(the "Special Committee") of Cavco Industries, Inc. (the "Company") to
render an opinion regarding the fairness of the consideration to be
received by the independent shareholders of the Company in the
acquisition of a majority interest in the Company by Centex Corporation
("Centex").
The independent shareholders collectively own shares representing
approximately 49% of the fully diluted shares of the Company. The other
51% of the shares of the Company are owned, directly or indirectly, by
the Company's founder and Chairman, Alfred R. Ghelfi, and his wife.
1
<PAGE> 4
SUMMARY OF THE TRANSACTION
THE AGREEMENTS The Company, the Company's majority shareholders (Al
BETWEEN THE Ghelfi and his wife) and Centex intend to enter into a
COMPANY, THE Merger Agreement, a Shareholders' Agreement, a Voting
COMPANY'S MAJORITY Agreement and a Stock Purchase Agreement in order to
SHAREHOLDERS AND consummate the acquisition of the Company by Centex as
CENTEX EFFECTIVELY summarized below.
ALLOW CENTEX TO
ACQUIRE 78% OF THE Centex will purchase all of the shares of the Company
COMPANY IN THE owned by the independent shareholders (which represent
NEAR TERM FOR $26.75 approximately 49% of the fully diluted shares of the
PER SHARE Company) for $26.75 in cash.
Centex will concurrently purchase an additional 29% of
the Company from the Company's majority shareholders for
$26.75 in cash, bringing Centex's ownership percentage
to 78%.
Once Centex acquires 78% of the Company, the majority
shareholders have an option to put their remaining 22%
ownership stake to Centex as follows:
- At the end of year three following the
purchase from the independent shareholders
for a purchase price equal to 6x the latest
twelve months' earnings before taxes
- At the end of year four following the
purchase from the independent shareholders
for a purchase price equal to 7x the latest
twelve months' earnings before taxes
- At the end of year five following the
purchase from the independent shareholders
for a purchase price equal to 8x the latest
twelve months' earnings before taxes
- At the end of every other year thereafter for
8x the latest twelve months' earnings before
taxes
If the majority shareholders do not exercise their put
rights for their remaining 22% ownership interest by the
end of the fifth year following the purchase from the
independent shareholders, Centex has a call option on
this remaining 22% interest as follows:
- At the end of year five following the
purchase from the independent shareholders
for a purchase price equal to 8x the latest
twelve months' earnings before taxes, subject
to a minimum price of $26.75 per share
- At the end of every other year thereafter for
8x the latest twelve months' earnings before
taxes, subject to a minimum price of $26.75
per share
The Company's Board of Directors, by virtue of its
fiduciary obligations, may accept a higher offer from a
third party provided that such offer results in cash
consideration to independent shareholders of at least
$27.33 per share and satisfies certain other conditions.
2
<PAGE> 5
TRANSACTION PRICING SUMMARY
<TABLE>
<CAPTION>
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<S> <C>
Consideration per Share: $26.75
Fully Diluted Shares: 3,561,093
Aggregate Equity Consideration: $95.26
Net Debt Outstanding 6.29
------
Total Enterprise Value $101.55
Shares Held by Independent Shareholders: 1,730,364
Aggregate Consideration to Independent Shareholders: $46.29
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MULTIPLE/PREMIUM
- -------------------------------------------------------------------------------
<S> <C> <C>
1996 (LTM) Revenues (a) $130.0 .78x
1996 (LTM) EBITDA (a) 13.9 7.3
1996 (LTM) Operating Income (a) 12.1 8.4
1996 (LTM) EBT (b) 11.6 8.2
1996 (LTM) Net Income after Discontinued Operations (b) 6.2 15.3
1997E Net Income (b)(c) 8.1 11.7x
PREMIUM TO STOCK PRICE:
December 2, 1996 $22.50 18.9%
Last 10 Day Average from 12/2/96 21.76 22.9%
- -------------------------------------------------------------------------------
</TABLE>
(a) Multiple based on assumed Total Enterprise Value.
(b) Multiple based on Aggregate Equity Consideration.
(c) Based on management's projections dated November 23, 1996.
3
<PAGE> 6
OVERVIEW OF MANUFACTURED HOUSING INDUSTRY
ACCORDING TO THE - Manufactured homes differ from conventional
MANUFACTURED site-built homes
HOUSING INSTITUTE, -- required to be permanently affixed to a steel
NEW MANUFACTURED chassis
HOME SHIPMENTS -- must be able to attach wheels to enable transport
INCREASED TO 339,600 of home (although homes are rarely relocated due to
IN 1995 (AN 11% the relatively high moving costs)
INCREASE OVER 1994),
REPRESENTING 33.2% - Manufactured homes are a low cost alternative to
OF ALL NEW SINGLE conventional single family homes and come in two
FAMILY HOMES BUILT forms:
IN 1995. THE -- single section homes: typically 12'-18' by
NUMBER OF NEW 60'-80'
SINGLE FAMILY SITE- -- multi-section homes: consist of two or more
BUILT HOMES sections, each transported on a chassis, and then
DECLINED 7.5% "married" on the land site to become one home
DURING THAT SAME
PERIOD - The average single section manufactured home in 1994
retailed for $23,900 and consisted of 1,085 square
feet. The average multi-section home retailed for
$42,900 and consisted of 1,565 square feet of living
space
- The 1993 median income of manufactured home buyers
was $22,300 while the average age was 51. Both
figures have increased over the past decade
- The low cost of manufactured homes makes the market
relatively insensitive to interest rates. However,
the relatively low income of manufactured home
purchasers makes the market sensitive to economic
downturns and recessionary forces
- According to the Manufactured Housing Institute, new
manufactured home shipments increased to 339,600 in
1995 (an 11% increase over 1994), representing 33.2%
of all new single family homes built in 1995. The
number of new single family site-built homes declined
7.5% during that same period
- Analysts currently estimate that approximately 50%
of the new manufactured homes developed each year are
located in manufactured housing communities
- The Manufactured Housing Institute has determined
that:
-- manufactured housing has increased as a percent
of the U.S. housing market every year for the past 50
years
-- one out of every fourteen homes (or approximately
7.0%) in the U.S. is a manufactured home
4
<PAGE> 7
MANUFACTURED HOUSING INDUSTRY OUTLOOK
GS&CO. EQUITY - Key factors driving the market share growth in the
RESEARCH REMAINS single family housing market are the dramatically
VERY POSITIVE ON THE improved product offering and value due to the
MANUFACTURED efficiency of assembly-line production.
HOUSING INDUSTRY
- As manufactured homebuilders diversify their
geographic base, and builders continue to expand
their community offerings of factory-built homes, we
believe that consumer acceptance will continue to
grow.
- As awareness of the different designs, quality
building materials, and highly competitive price
tags versus stick-built homes is expanded, we
believe that demand for these homes will grow.
- We are expecting an expanded business cycle for
manufactured housing companies versus conventional
builders.
- We expect manufactured housing to comprise in excess
of 30% and 40% of total single-family starts and
sales, respectively, by the year 2000. This gain
likely will be bolstered by continuing and
diversified growth in the employment base within
traditionally strong markets for manufactured housing
(specifically the Southeast and Southwest).
- We also expect the continuing influx of alien
immigration and net migration into these
traditionally strong markets. These demographic
factors are expected to fuel the demand for
affordable housing well into the next century.
5
<PAGE> 8
THE COMPANY BUSINESS SUMMARY
OVERVIEW
- The Company is the largest manufacturer of
residential and recreational housing in Arizona
- In addition to manufactured housing the Company is
engaged in two separate businesses:
-- Real estate development using manufactured homes
-- Storage container leasing
Both of these are very small compared to the
Company's core manufactured housing business.
MANUFACTURED HOUSING (APPROXIMATELY 89% OF 1996 NET SALES)
- The Company produces single and multiple-section
homes and offers floor plans ranging from 600 to over
2,000 square feet
-- Models typically retail between $17,000 and
$100,000
- The manufactured housing products are transported
from the factory to the dealer retail outlet and
ultimately to the site in one or more sections and
are installed utilizing their own chassis on either a
temporary or permanent foundation
-- Although the manufactured housing products are
designated to be transportable, fewer than 5% are
ever moved off the owner's original site
- The Company has approximately a 35% market share for
manufactured housing in Arizona and is one of the top
20 manufacturers in the U.S.
- -----------------
Note: This data has been derived from Company provided sources and has not been
independently verified by Goldman, Sachs & Co.
6
<PAGE> 9
THE COMPANY BUSINESS SUMMARY
- - The Company has three factories located in Arizona
-- Litchfield facility
-- Durango facility
-- Specialty facility
- - More than 150 independent dealerships market and distribute the Company's
homes
-- The dealerships are located in 10 western states, Canada and Japan
- - The Company's sales in 1996 were distributed as follows:
-- Arizona - 60%
-- New Mexico - 20%
-- Utah - 10%
-- Others - <10%
REAL ESTATE DEVELOPMENT (APPROXIMATELY 5% OF 1996 NET SALES)
- - Through its 100% owned subsidiary, Sun Built, the Company develops
manufactured housing subdivisions and sells manufactured homes in
established subdivisions
-- The average size of these homes ranges from 576 to 1,984 square feet,
with retail selling prices (excluding land) ranging from $26,000 to
$87,000
- - The Company has indicated that it would not expand this business segment
should the merger not be completed
-- This segment had an operating profit of $262,000 in FY1996 (representing
2% of the Company's total operating profit) and a net loss in FY 1996 of
($170,000)
- ------------------
Note: This data has been derived from Company provided sources and has not been
independently verified by Goldman, Sachs & Co.
7
<PAGE> 10
THE COMPANY BUSINESS SUMMARY
STORAGE CONTAINER LEASING (APPROXIMATELY 6% OF 1996 NET SALES)
- - The Company sells and leases temporary security storage containers and
trailer vans
-- Containers are used as ocean cargo containers, previously used to secure
overseas shipment of packaged goods
-- The Company purchases the containers from various vendors and refurbishes
them at its fabricating facility
-- This segment had an operating profit of $650,000 in FY1996 (representing
5% of the Company's total operating profit) and a net loss in FY 1996 of
($220,000)
________________
Note: This data has been derived from Company provided sources and has not been
independently verified by Goldman, Sachs & Co.
8
<PAGE> 11
HISTORICAL AND PROJECTED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
--------------------------------------- ----------------------------------------------------
HISTORICAL(a) PROJECTIONS(b)
1993 1994 1995 1996 1997 1998 1999 2000 2001
--------------------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES $56,916 $90,596 $112,682 $130,105 $143,132 $178,671 $196,957 $206,236 $210,441
EBITDA(c) 3,836 7,899 10,042 13,925 16,839 20,224 22,461 23,997 24,901
OPERATING INCOME 2,806 6,524 8,314 12,107 14,962 18,179 20,485 21,976 22,779
EBT 2,626 6,403 7,759 11,558 13,516 17,999 21,023 23,094 24,273
NET INCOME FROM
CONTINUING OPERATIONS 1,515 3,897 4,644 6,933 8,110 10,800 12,614 13,857 14,564
NET INCOME FROM
DISCONTINUED OPERATIONS 634 2,709 (406) (695) 0 0 0 0 0
--------------------------------------- ----------------------------------------------------
NET INCOME $2,150 $6,606 $4,238 $6,237 $8,110 $10,800 $12,614 $13,857 $14,564
EPS CONTINUING OPERATIONS $0.45 $1.15 $1.37 $2.05 $2.28 $3.03 $3.54 $3.89 $4.09
EPS $0.64 $1.95 $1.25 $1.84 $2.28 $3.03 $3.54 $3.89 $4.09
ANNUAL GROWTH
SALES 59.2% 24.4% 15.5% 10.0% 24.8% 10.2% 4.7% 2.0%
EBITDA 105.9% 27.1% 38.7% 20.9% 20.1% 11.1% 6.8% 3.8%
MARGINS
EBITDA 6.7% 8.7% 8.9% 10.7% 11.8% 11.3% 11.4% 11.6% 11.8%
OPERATING INCOME 4.9% 7.2% 7.4% 9.3% 10.5% 10.2% 10.4% 10.7% 10.8%
EBT 4.6% 7.1% 6.9% 8.9% 9.4% 10.1% 10.7% 11.2% 11.5%
</TABLE>
(a) Fiscal years ending September 30.
(b) Provided by Company management. Goldman, Sachs & Co. is not commenting on
the Company's projections.
(c) EBITDA calculated as operating income plus depreciation and amortization.
9
<PAGE> 12
SUMMARY BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $13,298
Accounts and Notes Receivable 3,040
Total Inventories 10,878
Other Current Assets 1,792
TOTAL CURRENT ASSETS $29,007
Net Property, Plant & Equipment 9,994
Net Leasable Assets 21,312
Notes Receivable 1,502
Investment in Partnerships 2,644
Other Assets 986
TOTAL ASSETS $65,446
<CAPTION>
9/30/96
<S> <C>
TOTAL DEBT/TOTAL BOOK CAP 40.6%
NET DEBT/TOTAL BOOK CAP 13.0%
TOTAL DEBT/TOTAL MARKET CAP(a) 19.6%
NET DEBT/TOTAL MARKET CAP(a) 6.3%
<CAPTION>
1995 1996
<S> <C> <C>
EBITDA/INTEREST 9.45 8.39
OPERATING INCOME/INTEREST 7.81 7.61
(EBITDA-CAPEX)/INTEREST 7.27 7.12
TOTAL DEBT/EBITDA 1.63 1.47
NET DEBT/EBITDA 0.81 0.47
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C>
Notes Payable $ 704
Current Portion of Long Term Debt 3,410
Accounts Payable 4,991
Accrued Expenses 7,958
Income Taxes 2,563
TOTAL CURRENT LIABILITIES $19,625
Long Term Debt 15,480
Deferred Taxes & Other 1,670
Shareholder's Equity 28,671
TOTAL LIABILITIES AND EQUITY $65,446
</TABLE>
(a) Market Capitalization is calculated as of December 2, 1996 at a share price
of $22.50.
10
<PAGE> 13
KEY DRIVERS OF THE COMPANY'S FINANCIAL PERFORMANCE
KEYS TO SUCCESS
- - Customization. Consumer expectations have been elevated, making frequent
design updates necessary and requiring the flexibility to satisfy individual
customer needs. The Company has a relatively sophisticated design team and
process in place that should enable the Company to remain competitive in
quality.
- - Positive market trends. Population and employment growth rates in the
Southwest and Mountain States are higher than other parts of the country. In
combination with greater acceptability at the community level, both should
help expand the Company's opportunity.
- - Dealership network. For manufactured homes the Company has an excellent
distribution network composed of seasoned dealers. Furthermore, expertise in
establishing and maintaining these relationships is being leveraged in the
container leasing segment.
- - Product line. The Company has effectively used lower-end products to enter
markets, following with higher-end models as dealer relationships allow. The
Company will continue to emphasize frequent design innovations and
customization as a means to stay competitive.
ISSUES
- - Distribution. There has been a consolidation of independent dealerships as
some of the larger manufacturers buy up dealerships to start internal retail
sales programs. The Company has not yet embraced retailing, but if the
standard distribution system is irrevocably altered, the Company may not be
able to rely on dealerships alone for distributing its product.
- - Production capacity. Even after adding a new facility in 1993 and adding a
second assembly line to that same factory, real growth could eventually be
capped by production capacity. In order to maintain its current growth rate,
management is adding a fourth plant outside Belen, N.M.
11
<PAGE> 14
SUMMARY OF RECENT RESEARCH REPORTS -- THE COMPANY
<TABLE>
<CAPTION>
EPS ESTIMATES P/E RATIO
INSTITUTIONAL STOCK --------------- -------------
REPORT DATE PRICE RECOMMENDATION 1996E FY 1997 1996E 1997E ANALYSTS' KEY COMMENTS
- ------------- -------- ------ --------------- ----- ------- ----- ----- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HD Brous & 05/16/96 $14.25 Buy $1.59 $1.94 8.9x 7.3x - The Company experienced substantial growth
Co. Inc. in revenue in the last 4 years, with 4
year compound annual growth in revenue at
28%.
- The Company manufactured 45% of homes in
AZ in 1995 and is among the top 20
manufacturers in the US.
- The Company intends to expand geographical-
ly and to target markets with high growth
in manufactured housing sales.
- After modernizing its factories, the
Company achieved a production rate per
factory above the industry average.
- In late 1993, the Company began selling
and leasing all-steel storage containers
and trailer vans through a subsidiary,
National Security Containers. This seg-
ment contributes only 4% of revenues but
is expected to grow substantially.
- The Company's shares trade at 8.9 times HD
Brous & Co.'s 1996 earnings estimates,
indicating they are undervalued relative
to the industry.
- ------------------------------------------------------------------------------------------------------------------------------------
Torrey Pines 02/09/96 $13.50 Long Term Buy $1.70 N.A. 7.9x N.A. - Revenues have grown from $37 million to
Securities $114 million during the past 5 years, which
represents a compound growth rate of
nearly 30% per year.
- Earnings have grown in excess of 40% over
the past 5 years from $.24 per share to
$1.34 per share.
- The Manufactured Home Industry has grown
at a 20% rate each year which should fuel
the Company's continued revenues and
earnings growth.
- The Company would be a wise investment
because of its low volatility; Torrey Pines
Securities sees it as more of a "buy and
hold" investment as opposed to a trading
security.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
THE COMPANY
DAILY COMMON STOCK PRICE AND TRADING VOLUME HISTORY
[GRAPH]
13
<PAGE> 16
THE COMPANY
COMMON STOCK PRICE AND TRADING VOLUME HISTORY
3 YEAR PRICE HISTORY
[GRAPH]
5 YEAR PRICE HISTORY
[GRAPH]
14
<PAGE> 17
THE COMPANY
TEN YEAR WEEKLY COMMON STOCK PRICE & TRADING VOLUME HISTORY
[GRAPH]
15
<PAGE> 18
THE COMPANY
COMMON STOCK PRICE AND TRADING VOLUME HISTORY
ONE YEAR PRICE HISTORY
[GRAPH]
THREE YEAR PRICE HISTORY
[GRAPH]
MANUFACTURED HOUSING
COMPOSITE:
AMERICAN HOMESTAR
CAVALIER HOMES
LIBERTY HOMES
NOBILITY HOMES
SCHULT HOMES
SKYLINE CORP.
SOUTHERN ENERGY
HOMES
16
<PAGE> 19
THE COMPANY
WEEKLY INDEXED COMMON STOCK PRICE HISTORY
MANUFACTURED [GRAPH]
HOUSING COMPOSITE:
AMERICAN HOMESTAR
CAVALIER HOMES
LIBERTY HOMES
NOBILITY HOMES
SCHULT HOMES
SKYLINE CORP.
SOUTHERN ENERGY
HOMES
17
<PAGE> 20
THE COMPANY
SHARES TRADED AT SPECIFIC PRICES
11/22/96 to 12/2/96 ONE MONTH 12/2/96
[GRAPH] [GRAPH]
ONE YEAR TO 12/2/96 THREE YEARS TO 12/2/96
[GRAPH] [GRAPH]
Source: Muller
18
<PAGE> 21
COMMON STOCK OWNERSHIP
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
$ VALUE OF
% OF TOTAL SHARES CONSIDERATION TO BE
NUMBER OF SHARES OUTSTANDING(c) RECEIVED
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DIRECTORS AND INSIDERS
MAJORITY SHAREHOLDER
Alfred R Ghelfi 1,830,729 54.1% $48,972
OTHER DIRECTORS & INSIDERS
Stephen Kleemann(b) 272,025 8.0 7,277
Ruth Smith 42,340 1.3 1,133
William Blandin(b) 29,900 0.9 800
Robert Ward(b) 3,750 0.1 100
INSTITUTIONS
Fidelity Mgmt & Res Co. 240,550 7.1% $ 6,435
Barclays Bank PLC 67,640 2.0 1,809
Kennedy Capital Management 66,874 2.0 1,789
First Union Corporation 35,000 1.0 936
Rosenberg Inst. Eq. Management(a) 12,100 0.4 324
ANB Investment Management(a) 1,650 0.0 44
First Interstate Bancorp 375 0.0 10
RCB Trust Company 300 0.0 8
Bankers Trust NY Corp. 150 0.0 4
Travelers Inc. 150 0.0 4
NON-INSTITUTIONS 779,435 23.0% $20,850
TOTAL SHARES OUTSTANDING 3,382,968 100.0% $90,495
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) Ownership based on Spectrum as of September 1996, all other data as of
June 1996.
(b) Ownership based on the Company's proxy statement dated January 26, 1996.
(c) Excludes 128,125 shares to be issued pursuant to a convertible note and
50,000 employee stock options likely to be exercised. Fully diluted shares
outstanding including these items are 3,561,093.
19
<PAGE> 22
PUBLIC MARKET VALUATION COMPARISON OF SELECTED COMPANIES
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
EARNINGS ESTIMATES
EQUITY DEBT/TOTAL ---------------------
PRICE SHARES MARKET TOTAL MARKET LTM FYE FYE
DEC. 2 OUTSTANDING CAP DEBT CAP 1996 1996 1997
====================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
CAVCO INDUSTRIES(c) $22.50 3,561 $ 80,125 $19,593 19.6% $1.84 $1.84 $2.28
- ----------------------------------------------------------------------------------------------------
American
Homestar(d) 18.25 8,701 158,789 3,593 2.2% 1.28 1.23 1.50
Nobility Homes(e) 12.50 2,991 37,387 658 1.7% 0.78 0.84 0.98
Liberty Homes(f) 13.50 4,281 57,797 0 0.0% 1.17 N/A N/A
Southern Energy
Homes(g) 12.00 15,102 181,220 29 0.0% 0.97 1.01 1.15
Cavalier Homes 11.13 10,109 112,466 6,260 5.3% 1.04 1.09 1.29
Skyline Corp.(h) 26.25 10,143 266,250 0 0.0% 2.05 1.85 1.23
Schult Homes
Corp.(i) 23.25 3,747 87,120 1,073 1.2% 2.15 1.81 2.20
- ----------------------------------------------------------------------------------------------------
HIGH 5.3%
LOW 0.0%
MEAN(j) 1.5%
MEDIAN(j) 1.2%
- ----------------------------------------------------------------------------------------------------
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
LEVERED MARKET
CAPITALIZATION AS A
MULTIPLE
P/E RATIO --------------------
--------------------- LTM FREE
LTM FYE FYE DIVIDEND CASH LTM
1996 1996 1997 DIVIDEND YIELD FLOW(a) EBITDA(b)
========================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
CAVCO INDUSTRIES(c) 12.2x 12.2x 9.9x $0.00 0.0% 14.8x 7.2x
- ----------------------------------------------------------------------------------------
American
Homestar(d) 14.3 14.8 12.2 0.00 0.0% 24.3 7.2
Nobility Homes(e) 16.0 14.9 12.8 0.00 0.0% 17.1 10.4
Liberty Homes(f) 11.5 N/A N/A 1.12 8.3% 0.0 6.0
Southern Energy
Homes(g) 12.4 11.9 10.4 0.00 0.0% 15.8 7.4
Cavalier Homes 10.7 10.2 8.6 0.48 4.3% 31.1 5.1
Skyline Corp.(h) 12.8 14.2 21.3 0.60 2.3% 16.0 7.8
Schult Homes
Corp.(i) 10.8 12.8 10.6 0.20 0.9% 19.6 5.2
- ---------------------------------------------------------------------------------------
HIGH 16.0x 14.9x 21.3x 8.3% 31.1x 10.4x
LOW 10.7x 10.2x 8.6x 0.0% 0.0x 5.1x
MEAN(j) 12.8x 13.1x 12.6x 2.3% 17.7x 7.0x
MEDIAN(j) 12.6x 13.5x 11.4x 0.9% 17.1x 7.2x
- ---------------------------------------------------------------------------------------
=======================================================================================
</TABLE>
(a) Free Cash Flow is calculated as Net Income plus Depreciation/Amortization,
less capital expenditures and dividends.
(b) EBITDA is calculated as Operating Income plus Depreciation and Amortization.
(c) The Company's earnings for 1996 are actual numbers; 1997 estimate is taken
from management projections provided by the Company. Fiscal Year end is
Sept. 30, 199x. The Company's LTM Free Cash Flow adds back a loss on
discontinued operations of $695,497.
(d) American Homestar Fully Diluted shares outstanding include 74,750 options
available for grant as of May 31, 1996.
(e) Nobility Homes Fully Diluted Shares outstanding include 20,000 options
as of Nov. 1995.
(f) Liberty Homes Shares outstanding include 2,535,496 Class A shares and
1,745,759 Class B shares outstanding. Class A shares have no voting rights;
Class B shares have voting rights and are convertible at a 1:1 ratio into
Class A. Liberty Homes net income for the 9 months ending Sept. 30, 1996
is adjusted downward for an after tax gain of $345,000.
(g) Southern Energy Homes declared a 3 for 2 stock split on July 3, 1996, in
the form of a 50% stock dividend. All numbers reflect this occurrence.
(h) Skyline FYE 1996 & LTM 1996 are actual numbers. FYE 1997 is based on IBES.
FYE is May 31, 199x.
(i) Schult FYE 1996 & LTM 1996 are actual numbers. FYE 1997 is based on a
First Call Consensus Estimate. FYE is June 30, 199x.
(j) Mean and Median do not include Cavco Industries.
(k) Earnings estimates for American Homestar, Nobility Homes, Liberty Homes,
Southern Energy Homes and Cavalier Homes are First Call estimates as of
Nov. 19, 1996. Their Fiscal Year Ends are as follows: American Homestar -
5/31/96; Nobility Homes - 11/4/96; Liberty Homes - 12/31/96; Southern
Energy Homes - 12/31/96; Cavalier Homes - 12/31/96.
20
<PAGE> 23
MANUFACTURED HOME INDUSTRY MERGER TRANSACTIONS
(COMPLETED AND PENDING DEALS 1991 TO PRESENT)
<TABLE>
<CAPTION>
CONSIDERATION AS A MULTIPLE OF (a):
----------------------------------------
PREMIUM DESCRIPTION
DATE AGGREGATE OPERAT- TO OF THE
ANNOUNCED CONSIDERATION BOOK ING NET STOCK TRANSACTION/
(COMPLETED) TARGET ACQUIRER (MILLIONS) VALUE REVENUES EBITDA INCOME INCOME PRICE COMPANY
- ----------- --------------- -------- ------------- ----- -------- ------ ------- ------ -------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/22/96 BELLCREST HOMES BELMONT $13.0 (con- N.A. 0.34(b) N.A. N.A. N.A. N.A. Bellcrest operates two
(10/29/96) INC. HOMES, sisting of plants in Georgia, one of
INC. approximately which opened in early
$9.5 in cash 1996, and sells to 90
and $3.5 in independent dealers in
profit- Georgia, South Carolina
related and North Carolina
payments)
8/14/96 REDMAN INDUS- CHAMPION $335.2 or 4.8x 0.53x 7.2x 8.1x 13.2x 15.9%(c) Champion Enterprises
(10/24/96) TRIES, INC. ENTER- $24.65 per acquired Redman Indus-
PRISES, share tries in a stock swap
INC. transaction. Redman
shareholders received
1.24 Champion common
shares for each Redman
share held. Redman
operates 18 plants and
sells houses to 1,400
dealers in 40 states
4/4/96 LEGEND REALTY, CHAMPION Approximately 4.4x 0.36x N.A. 5.6x 7.3x N.A. Champion Enterprises,
(4/26/96) INC. ENTER- $33.0 (con- Inc. acquired Legend
GRAND MANOR PRISES, sisting of Realty, Inc.
INC. INC. $18.5 in cash Concurrently,
HOMES OF and $14.5 in Champion Enterprises
LEGEND profit- acquired Grand Manor
related and all the outstanding
payments). stock of Homes of Legend.
12/04/95 GUERDON HOMES, AMERICAN $27.0 (con- N.A. 0.26x(d) N.A. N.A. N.A. N.A. American Homestar (AH)
(9/27/96) INC. (a unit HOMESTAR sisting of exercised a nine-month
of Guerdon CORP. 256,495 option to acquire all the
Holdings) common outstanding capital stock
shares valued of Guerdon Homes, a unit
at $4.04, $14 of Guerdon Holdings for
in the assump- $27.0. Guerdon operates
tion of lia- four plants and uses 150
bilities, $6 independent dealers to
in 8.5% con- market its homes in
vertible three market areas.
notes, and a
$3 loan in
the form of
an 8.5%
subor-
dinated
debenture).
8/29/95 SPIRIT HOMES, BELMONT $9.8 (con- 2.5x 0.23x 4.5x 5.1x 7.4x N.A. Belmont Homes, Inc. a
(10/12/95) INC. HOMES, sisting of Mississippi corporation,
INC. $2.5 in cash acquired 100% of the
and $7.3 in stock of Spirit Homes,
promissory Inc., a producer and
notes) manufacturer of
homes in Conway,
Arkansas, pursuant to a
Stock Purchase Agreement.
Spirit will continue to
operate as a producer of
manufactured homes.
5/9/95 DESTINY OAKWOOD $21.7 N.A. 0.24x(c) N.A. N.A. N.A. N.A. Oakwood Homes acquired
(6/30/95) INDUSTRIES, HOMES, Destiny Industries in
INC. CORP. exchange for 925,000
common shares, in a
stock swap merger valued
at $21.7. Destiny operates
four plants and sells
houses to 195 dealers in
the deep South.
CONTINUED
</TABLE>
21
<PAGE> 24
MANUFACTURED HOME INDUSTRY MERGER TRANSACTIONS
(COMPLETED AND PENDING DEALS 1991 TO PRESENT)
<TABLE>
<CAPTION>
CONSIDERATION AS A MULTIPLE OF (a):
----------------------------------------
PREMIUM DESCRIPTION
DATE AGGREGATE OPERAT- TO OF THE
ANNOUNCED CONSIDERATION BOOK ING NET STOCK TRANSACTION/
(COMPLETED) TARGET ACQUIRER (MILLIONS) VALUE REVENUES EBITDA INCOME INCOME PRICE COMPANY
- ----------- --------------- -------- ------------- ----- -------- ------ ------- ------ -------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/6/95 CHANDELEUR CHAMPION $46.9 2.9x 0.51x 3.8x 3.9x 7.9x N.A. Champion Enterprises
(2/3/95) HOMES, INC. AND ENTER- acquired Chandeleur
CREST RIDGE PRISES, Homes and Crest Ridge
HOMES, INC. INC. Homes concurrently
in transactions
contingent upon each
other.
7/6/94 IMPERIAL SOUTHERN $7.2 (con- 3.7x 0.29x 3.7x 3.9x 7.0x N.A.
(8/2/94) MANUFACTURED ENERGY sisting of
HOMES HOMES, $5.7 in
INC. cash and
$1.5 in
assumption
of liabil-
ities)
6/27/94 GOLDEN WEST OAKWOOD $15.5 1.8x 0.15x 5.3x 7.1x 8.9x N.A. Oakwood Homes (OH)
(10/3/94) HOMES HOMES acquired all the
CORP. outstanding shares of
Golden West Homes for
700,000 OH common shares
in a stock swap
transaction valued at
$15.5 mil. Golden West
operates three factories
and sells homes to 150
independent dealers in
Oregon, Washington and
California.
1/31/94 DUTCH HOUSING, CHAMPION $40.0 3.0x 0.44x N.A. 3.7x 6.2x N.A.
(3/10/94) INC. ENTER-
PRISES,
INC.
LOW: 1.8x 0.15x 3.7x 3.7x 6.2x 15.9%
MEDIAN: 3.0x 0.32x 4.5x 5.1x 7.4x 15.9%
HIGH: 4.8x 0.53x 7.2x 8.1x 13.2x 15.9%
- ----------------
Notes:
(a) Based on most recently filed public documents prior to acquisition.
(b) Based on first six month 1996 revenues annualized.
(c) Based on ten day average closing price starting five days prior to announcement of merger.
(d) Based on sales as stated in acquisition press release.
</TABLE>
22
<PAGE> 25
OBSERVATIONS ON MANUFACTURED HOME INDUSTRY
ACQUISITIONS
Based on analysis of recent acquisitions in the industry, public statements
by certain publicly traded manufactured housing companies and discussions
with certain equity research analysts familiar with the manufactured
housing industry, it appears that, in general, the range of acquisition
multiples for small, privately held, single-market focused manufactured
housing companies is approximately 8-10x LTM earnings.
The only recent large acquisition in this industry occurred in October 1996
when Champion Enterprises acquired Redman Industries for $335.2 million,
which represented a multiple of 13.2x LTM earnings and a 15.9% premium to
Redman's recent stock price. Redman was one of the largest companies in
the manufactured housing sector and had a national presence. Redman
operated 18 production plants throughout the U.S., and had LTM revenues of
$614 million, over 1,400 retail dealers, and sales (in over 40 states) of
approximately 25,000 homes in the past year.
The Company is not as large or as geographically diverse as Redman. However,
the Company is more diverse than the single market manufactured housing
companies mentioned above. Its primary market is Arizona, which accounted
for more than 60% of sales this past year. The Company also sells houses
in nine other states (with New Mexico accounting for more than 20% of
sales and Utah accounting for approximately 10% of sales).
23
<PAGE> 26
COMPARISON OF TRANSACTION TO OTHER RECENT INDUSTRY ACQUISITIONS
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MULTIPLE/PREMIUM OF OTHER
RECENT INDUSTRY ACQUISITIONS
------------------------------------------------------
LOW MEDIAN HIGH
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MULTIPLE OF:
----------------------------------------------------------
September 30, 1996 Book Value $28.7 | | * |
----------------------------------------------------------
1.8x 3.0x 3.3x 4.8x
----------------------------------------------------------
1996 Revenues $130.0 | | | ---------------------*
----------------------------------------------------------
0.15x 0.32x 0.53x 0.78x
----------------------------------------------------------
1996 EBITDA $13.9 | | | -----*
----------------------------------------------------------
3.7x 4.5x 7.2x 7.3x
----------------------------------------------------------
1996 Operating Income $12.1 | | | -*
----------------------------------------------------------
3.7x 5.1x 8.1x 8.4x
----------------------------------------------------------
1996 Net Income $6.2 | | | ---*
----------------------------------------------------------
6.2x 7.4x 13.2x 15.3x
PREMIUM TO STOCK PRICE:
----------------------------------------------------------
December 2, 1996 $22.50 | | -----*
----------------------------------------------------------
0% 15.9% 18.9x
----------------------------------------------------------
Last 10 Day Average $21.76 | | ------------------------------*
----------------------------------------------------------
0% 15.9% 22.9%
</TABLE>
Note: The multiples/premiums for this particular transaction are shown by an
asterisk and highlighted by a box around the number.
24
<PAGE> 27
POTENTIAL BUYER LIST
Champion Enterprises
Clayton Homes
Fleetwood Enterprises
Oakwood Homes
American Homestar
Belmont Homes
Cavalier Homes
Southern Energy Homes
Skyline Corp.
Centex Corp.
Pulte Corp.
Lennar Corp.
Hovnanian Enterprises
D.R. Horton
25
<PAGE> 28
PROJECTION ASSUMPTIONS(a)
THE COMPANY PROVIDED TWO SETS OF FIVE YEAR FINANCIAL PROJECTIONS AS OUTLINED IN
"MANAGEMENT CASE #1" AND "MANAGEMENT CASE #2"
MANAGEMENT CASE #1
- - There is no economic recession during the period (1997 - 2001)
- - The New Mexico plant comes on stream without any delays
- - The leasing segment's cash flow and utilization increase significantly in
1997 and build steadily thereafter
- - Revenue growth and the EBITDA margin increases as highlighted below:
<TABLE>
<CAPTION>
Actual Projected
---------------------------- ------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue (growth) N/A 61.8% 23.5% 14.4% 10.0% 24.8% 10.2% 4.7% 2.0%
EBITDA (margin) 6.7% 8.7% 8.9% 10.7% 11.8% 11.3% 11.4% 11.6% 11.8%
- ----------------------------------------------------------------------------------------------------
</TABLE>
MANAGEMENT CASE #2
- - The New Mexico plant comes on stream without any delays
- - Manufactured Housing's EBIT growth during the period FY1996-FY2001 is 5.2%
- - Leasing's EBIT growth is 66% from FY1996 to FY1997 and continues to grow to
$2.5 million in FY2001
- - A moderate to significant recession occurs in FY1997, which causes unit
volumes in manufactured housing to decline. Growth in revenues in the
manufactured housing division resumes at 8% thereafter.
(a) Goldman, Sachs & Co. expresses no comment on the Company's projections.
26
<PAGE> 29
DISCOUNTED CASH FLOW ANALYSIS - MANAGEMENT CASE #1
<TABLE>
<CAPTION>
------------------------------------------------------
FISCAL YEARS
1997 1998 1999 2000 2001
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES $143,132 $178,671 $196,957 $206,236 $210,441
EBITDA (a) 16,839 20,224 22,461 23,997 24,901
INTEREST EXPENSE 1,373 1,168 782 282 (296)
EBT 13,516 17,999 21,023 23,094 24,273
INCOME TAXES 5,406 7,199 8,409 9,237 9,709
NET INCOME 8,110 10,800 12,614 13,857 14,564
DEPRECIATION 1,877 2,045 1,976 2,021 2,122
CAPEX (7,100) (2,300) (2,300) (2,300) (2,300)
WORKING CAPITAL (1,720) (2,488) (1,280) (650) (294)
NET CASH FLOW $1,167 $8,057 $11,010 $12,928 $14,092
PERFORMANCE RATIOS
SALES GROWTH 10.0% 24.8% 10.2% 4.7% 2.0%
EBT MARGIN 9.4% 10.1% 10.7% 11.2% 11.5%
EBITDA MARGIN 11.8% 11.3% 11.4% 11.6% 11.8%
DEPRECIATION/SALES 1.3% 1.1% 1.0% 1.0% 1.0%
TAX RATE 40.0% 40.0% 40.0% 40.0% 40.0%
NPV AS OF DEC. 2, 1996
DISCOUNT RATE 16.0% 18.0% 20.0%
NPV CASH FLOWS $27,897 $26,304 $24,837
EBITDA MULTIPLE: 7.5x NPV TERMINAL VALUE $88,918 $81,633 $75,054
- -----------------------------------------------------
TOTAL ENTERPRISE VALUE $116,814 $107,938 $99,891
NET DEBT 6,295 6,295 6,295
AGGREGATE EQUITY CONSIDERATION $110,519 $101,643 $93,596
EQUITY VALUE PER SHARE $31.04 $28.54 $26.28
- -----------------------------------------------------
</TABLE>
(a) Defined as operating income plus depreciation and amortization.
(b) Based on 3,561,093 fully diluted shares outstanding
27
<PAGE> 30
DCF SENSITIVITY ANALYSIS - MANAGEMENT CASE #1
<TABLE>
<CAPTION>
ENTERPRISE VALUE
DISCOUNT RATE
--------------------------------
16.0% 18.0% 20.0%
--------------- --------------------------------
<S> <C> <C> <C> <C>
5.50x $93,103 $86,169 $79,876
EBITDA MULTIPLE 6.50 104,959 97,053 89,883
7.50 116,814 107,938 99,891
---------------
EQUITY VALUE PER SHARE
DISCOUNT RATE
--------------------------------
16.0% 18.0% 20.0%
--------------- --------------------------------
5.50x $24.38 $22.43 $20.66
EBITDA MULTIPLE 6.50 27.71 25.49 23.47
7.50 31.04 28.54 26.28
---------------
</TABLE>
28
<PAGE> 31
DISCOUNTED CASH FLOW ANALYSIS - MANAGEMENT CASE #2
<TABLE>
<CAPTION>
------------------------------------------------------
FISCAL YEARS
1997 1998 1999 2000 2001
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES $109,588 $133,841 $147,248 $161,079 $174,378
EBITDA (a) 12,553 14,896 16,424 18,358 20,031
INTEREST EXPENSE 1,413 1,300 1,102 824 478
EBT 8,268 11,156 13,169 15,573 17,721
INCOME TAXES 3,307 4,462 5,267 6,229 7,069
NET INCOME 4,961 6,694 7,901 9,344 10,633
DEPRECIATION 1,877 2,045 1,976 2,021 2,122
CAPEX (7,100) (2,300) (2,300) (2,300) (2,300)
WORKING CAPITAL 628 (1,698) (938) (968) (931)
NET CASH FLOW $366 $4,741 $6,639 $8,097 $9,524
PERFORMANCE RATIOS
SALES GROWTH (15.8)% 22.1% 10.0% 9.4% 8.3%
EBT MARGIN 7.5% 8.3% 8.9% 9.7% 10.2%
EBITDA MARGIN 11.5% 11.1% 11.2% 11.4% 11.5%
DEPRECIATION/SALES 1.7% 1.5% 1.3% 1.3% 1.2%
TAX RATE 40.0% 40.0% 40.0% 40.0% 39.9%
NPV AS OF DEC. 2, 1996
DISCOUNT RATE 16.0% 18.0% 20.0%
NPV CASH FLOWS $17,099 $16,095 $15,172
EBITDA MULTIPLE: 7.5X NPV TERMINAL VALUE $71,528 $65,668 $60,375
- -----------------------------------------------------
TOTAL ENTERPRISE VALUE $88,626 $81,763 $75,547
NET DEBT 6,295 6,295 6,295
AGGREGATE EQUITY CONSIDERATION $82,331 $75,468 $69,252
EQUITY VALUE PER SHARE $23.12 $21.19 $19.45
- -----------------------------------------------------
</TABLE>
(a) Defined as operating income plus depreciation and amortization.
(b) Based on 3,561,093 fully diluted shares outstanding
29
<PAGE> 32
DCF SENSITIVITY ANALYSIS - MANAGEMENT CASE #2
<TABLE>
<CAPTION>
ENTERPRISE VALUE
DISCOUNT RATE
-----------------------------
16.0% 18.0% 20.0%
----- ----- -----
<S> <C> <C> <C> <C>
EBITDA MULTIPLE 5.50x $69,552 $64,252 $59,447
6.50 79,089 73,007 67,497
7.50 88,626 81,763 75,547
EQUITY VALUE PER SHARE
DISCOUNT RATE
-----------------------------
16.0% 18.0% 20.0%
----- ----- -----
EBITDA MULTIPLE 5.50x $17.76 $16.27 $14.93
6.50 20.44 18.73 17.19
7.50 23.12 21.19 19.45
</TABLE>
30
<PAGE> 33
ANALYSIS AT ACQUISITION PRICE FOR THE COMPANY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
PRICE PER SHARE $26.75
- ------------------------------------------------------------------
<S> <C>
Premium/(Discount) to Market (12/2/96) 18.9%
Aggregate Equity Consideration $95,259
Net Debt Assumed 6,295
--------
Total Enterprise Value $101,554
Shares Outstanding 3,561
MULTIPLE OF SALES(a)
FYE 1996 $130,105 0.78x
Projected 1997 143,132 0.71
MULTIPLE OF EBITDA(a)
FYE 1996 $13,925 7.3x
Projected 1997 16,839 6.0
MULTIPLE OF EBIT(a)
FYE 1996 $12,107 8.4x
Projected 1997 14,889 6.8
MULTIPLE OF NET INCOME AFTER
DISCONTINUED OPERATIONS(b)
FYE 1996 $6,237 15.3x
Projected 1997 8,110 11.7
MULTIPLE OF BOOK VALUE(b) $28,671 3.3x
</TABLE>
(a) Multiple based on Total Enterprise Value.
(b) Multiple based on Aggregate Equity Consideration.
31
<PAGE> 34
SUMMARY MERGER ANALYSIS
CENTEX ACQUIRES THE COMPANY
ASSUMPTIONS
<TABLE>
<CAPTION>
CENTEX
<S> <C> <C> <C>
Current Stock Price $35.88 PRICE PAID PER SHARE $26.75
LTM EPS $2.77 MULTIPLE OF LTM EPS PAID 15.3 x
NTM EPS $3.32 MULTIPLE OF NTM EPS PAID 11.7 x
LTM EPS Multiple 13.0 x
NTM EPS Multiple 10.8 x CENTEX'S EPS
Number of Shares Outstanding 28,622 POST ACQUISITION
Current Equity Market Cap $1,026,803 ----------------
Current Dividend $0.20 LTM 1996 $2.79
NTM 1997 $3.41
THE COMPANY
Current Stock Price $22.50 ACCRETION/(DILUTION)
LTM EPS $1.84 TO CENTEX'S EPS
NTM EPS $2.28 --------------------
LTM EPS Multiple 12.2 x LTM 1996 0.8%
NTM EPS Multiple 9.9 x NTM 1997 2.7%
Number of Fully Diluted Shares 3,561
Current Equity Market Cap $80,125
Current Dividend $0.00
</TABLE>
NOTES
(a) Share prices taken as of close on December 2, 1996.
(b) Fully Diluted shares of the Company include those from convertible debt
(128,125) and outstanding options (50,000).
(c) All CTX values in analysis are taken from most recently filed public
documents.
(d) Effective tax rate is assumed to be 40.0% and cost of debt is assumed to be
6.85%.
Merger analysis assumes Centex finances merger with all debt.
(e) CTX Next twelve months earnings estimates are the sum of quarterly
estimates. The next two quarters are First Call estimates; the following two
quarters are grown at 7% (First Call consensus growth rate) from the
comparable four quarters in the prior year.
32
<PAGE> 35
PRESENT VALUE OF FUTURE CONSIDERATION LIKELY TO BE
RECEIVED BY MAJORITY SHAREHOLDERS
<TABLE>
<CAPTION>
PRICE PER SHARE TO BE RECEIVED IN PRESENT VALUE PER SHARE TO MAJORITY SHAREHOLDERS AT VARIOUS
FUTURE BY MAJORITY HOLDERS FOR DISCOUNT RATES/PERCENTAGE CHANGE IN COMPANY PROJECTIONS
REMAINING 22% OWNERSHIP INTEREST NEEDED TO ACHIEVE PRESENT VALUE OF $26.75 PER SHARE
YEAR BASED ON COMPANY PROJECTIONS ------------------------------------------------------------
14% 15% 16% 17% 18% 19% 20%
- ----- ------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3 $35.42 $23.91 $23.29 $22.69 $22.12 $21.56 $21.02 $20.50
11.9% 14.9% 17.9% 21.0% 24.1% 27.3% 30.5%
4 $45.40 $26.88 $25.95 $25.07 $24.23 $23.41 $22.64 $21.89
(0.5)% 3.1% 6.7% 10.4% 14.2% 18.2% 22.2%
5 $54.53 $28.32 $27.11 $25.96 $24.87 $23.84 $22.85 $21.91
(5.5)% (1.3)% 3.0% 7.6% 12.2% 17.1% 22.1%
</TABLE>
33
