SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
December 31, 1997
CAVALIER HOMES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-9792 63-0949734
(Commission File No.) (IRS Employer Identification No.)
Highway 41 North and Cavalier Road
Addison, Alabama 35540
(Address of principal (Zip Code)
executive offices)
(205) 747-0044
(Registrant's telephone number including area code)
<PAGE>
Item 7. Financial Statements and Exhibits
On December 31, 1997, Crimson Acquisition Corp., a Mississippi
corporation and wholly owned subsidiary of the Company, merged with and into
Belmont Homes, Inc., a Mississippi corporation ("Belmont"), and Belmont became a
wholly owned subsidiary of the Company (the "Merger"). This Current Report on
Form 8-K/A amends the Current Report on Form 8-K filed by the Company on January
15, 1998, and includes as additional items and exhibits certain financial
statements regarding the Company and Belmont, and related consents of
independent auditors, as further specified below.
(a) Financial Statements of the Business Acquired
(3) The Bellcrest Homes, Inc. Statement of Income for the Year
Ended December 31, 1995 and Independent Auditors' Report, which were contained
in Pages F-25 through F-29 of the Joint Proxy Statement and Prospectus (the
"Prospectus") of Belmont Homes, Inc. and Cavalier Homes, Inc. ("Cavalier") that
was included in the Registration Statement on Form S-4 of Cavalier, Registration
No. 333-41319, filed with the Securities and Exchange Commission (the
"Commission") on December 2, 1997 (the "Cavalier Registration Statement"),
are incorporated herein by reference.
(c) Exhibits
Exhibit No. Description
- ----------- -------------
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Alday, Tillman, Wright & Giles, P.C.
27 Article 5 - Financial Data Schedule for Form 8-K/A submitted as
Exhibit 27 for EDGAR filing only (attached as last exhibit).
99.1 Cavalier Homes, Inc. and subsidiaries Consolidated Balance Sheets
as of December 31, 1997 and 1996, and Related Consolidated
Statements of Income, Stockholders' Equity, and Cash Flows for
Each of the Three Years in the Period Ended December 31, 1997 and
Independent Auditors' Report.
99.2 The Belmont Homes,Inc. Consolidated Balance Sheets as of December
31, 1995 and 1996, and Related Consolidated Statements of Income,
Stockholders' Equity and Cash Flows for Each of the Three Years
in the Period Ended December 31, 1996 and Independent Auditors'
Report, which were contained in pages F-2 through F-20 of the
Prospectus that was included in the Cavalier Registration
Statement and which are incorporated by reference into the
Current Report on Form 8-K of Cavalier originally filed with the
Commission on January 15, 1998, as Item 7(a)(1) thereof.
99.3 The Belmont Homes, Inc. Unaudited Condensed Quarterly Balance
Sheet as of September 30, 1997, and the Unaudited Condensed
Consolidated Statements of Income and Cash Flows for the nine
months ended September 30, 1997 and September 30, 1996, which
were contained in pages F-21 through F-24 of the Prospectus that
was included in the Cavalier Registration Statement, and which
are incorporated by reference into the Current Report on Form 8-K
of Cavalier originally filed with the Commission on January 15,
1998, as Item 7(a)(2) thereof.
99.4 The Bellcrest Homes, Inc. Statement of Income for the Year Ended
December 31, 1995 and Independent Auditors' Report, which were
contained in Pages F-25 through F-29 of the Prospectus that was
included in the Cavalier Registration Statement, and which are
incorporated by reference into the Current Report on Form 8-K of
Cavalier originally filed with the Commission on January 15,
1998, as Item 7(a)(3) thereof.
<PAGE>
SIGNATURE
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.
CAVALIER HOMES, INC.
By: /s/ Michael R. Murphy
---------------------------
Michael R. Murphy
Principal Accounting
and Financial Officer
Date: March 16, 1998
<PAGE>
Exhibits
Exhibit No. Description
- ----------- -------------
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Alday, Tillman, Wright & Giles, P.C.
27 Article 5 - Financial Data Schedule for Form 8-K/A submitted as
Exhibit 27 for EDGAR filing only (attached as last exhibit).
99.1 Cavalier Homes, Inc. and subsidiaries Consolidated Balance Sheets
as of December 31, 1997 and 1996, and Related Consolidated
Statements of Income, Stockholders' Equity, and Cash Flows for
Each of the Three Years in the Period Ended December 31, 1997 and
Independent Auditors' Report.
99.2 The Belmont Homes, Inc. Consolidated Balance Sheets as of
December 31, 1995 and 1996, and Related Consolidated Statements
of Income, Stockholders' Equity and Cash Flows for Each of the
Three Years in the Period Ended December 31, 1996 and Independent
Auditors' Report, which were contained in pages F-2 through F-20
of the Prospectus that was included in the Cavalier Registration
Statement and which are incorporated by reference into the
Current Report on Form 8-K of Cavalier originally filed with the
Commission on January 15, 1998, as Item 7(a)(1) thereof.
99.3 The Belmont Homes, Inc. Unaudited Condensed Quarterly Balance
Sheet as of September 30, 1997, and the Unaudited Condensed
Consolidated Statements of Income and Cash Flows for the nine
months ended September 30, 1997 and September 30, 1996, which
were contained in pages F-21 through F-24 of the Prospectus that
was included in the Cavalier Registration Statement, and which
are incorporated by reference into the Current Report on Form 8-K
of Cavalier originally filed with the Commission on January 15,
1998, as Item 7(a)(2) thereof.
99.4 The Bellcrest Homes, Inc. Statement of Income for the Year Ended
December 31, 1995 and Independent Auditors' Report, which were
contained in Pages F-25 through F-29 of the Prospectus that was
included in the Cavalier Registration Statement, and which are
incorporated by reference into the Current Report on Form 8-K of
Cavalier originally filed with the Commission on January 15,
1998, as Item 7(a)(3) thereof.
<PAGE>
EXHIBIT 23.1
Independent Auditors' Consent
We consent to the incorporation by reference in Registration
Statements Nos. 33-20842, 33-20859, 33-86232, 33-86236, 333-06371, 333-04953,
333-19833, and 333-45255 of Cavalier Homes, Inc. on Form S-8, and to the
incorporation by reference in Registration Statement Nos. 33-62487 (as amended),
33-63060 (as amended), 33-86348 (as amended), 333-18213 (as amended), and 333-
00607 (as amended) of Cavalier Homes, Inc. on Form S-3 of our report dated
February 17, 1998 (March 13, 1998 as to the amendment to the Credit Facility
described in Note 5), appearing in this Form 8-K/A of Cavalier Homes, Inc.,
dated March 16, 1998.
/s/ Deloitte & Touche LLP
- -------------------------
Birmingham, Alabama
March 16, 1998
<PAGE>
EXHIBIT 23.2
Independent Auditors' Consent
The Board of Directors
Belmont Homes, Inc.
We consent to incorporation by reference in the Registration
Statements of Cavalier Homes, Inc. (Form S-8 Registration Nos. 33-20842,
33-20859, 33-86232, 33-86236, 333-06371, 333-04953, 333-19833, 333-45255 and
Form S-3 Registration Nos. 33-62487, 33-63060, 33-86348, 333-18213, 333-00607,
as amended) of our report dated February 21, 1997, with respect to the
consolidated balance sheets of Belmont Homes, Inc. and subsidiaries as of
December 31, 1995 and 1996 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 1996, which report is incorporated by reference in the
Form 8-K of Cavalier Homes, Inc., dated January 15, 1998, as amended by Form 8-
K/A dated March 16, 1998.
/s/ KPMG Peat Marwick LLP
----------------------
KPMG Peat Marwick LLP
Jackson, Mississippi
March 13, 1998
<PAGE>
EXHIBIT 23.3
Independent Auditors' Consent
We consent to incorporation by reference in the Registration
Statements of Cavalier Homes, Inc. (Form S-8 Registration Nos. 33-20842,
33-20859, 33-86232, 33-86236, 333-06371, 333-04953, 333-19833, 333-45255 and
Form S-3 Registration Nos. 33-62487, 33-63060, 33-86348, 333-18213, 333-00607,
as amended) of our report dated January 23, 1996, with respect to the statement
of income of Bellcrest Homes, Inc. for the year ended December 31, 1995, which
report incorporated by reference in the Form 8-K of Cavalier Homes, Inc. dated
January 15, 1998, as amended by the Form 8-K/A dated March 16, 1998.
/s/ Alday, Tillman, Wright & Giles, P.C.
- ----------------------------------------
Alday, Tillman, Wright & Giles, P.C.
Valdosta, Georgia
March 13, 1998
<PAGE>
Exhibit 99.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Cavalier Homes, Inc.:
We have audited the consolidated balance sheets of Cavalier Homes, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
financial statements give retroactive effect to the merger of the Company and
Belmont Homes, Inc., which has been accounted for as a pooling of interests as
described in Note 1 to the consolidated financial statements. We did not audit
the consolidated balance sheet of Belmont Homes, Inc. as of December 31, 1996,
or the related consolidated statements of income, stockholders' equity, and cash
flows of Belmont Homes, Inc. for the years ended December 31, 1996 and 1995,
which statements reflect total assets of $79,355,000 as of December 31, 1996,
and total revenues of $227,817,000 and $148,304,000 for the years ended December
31, 1996 and 1995, respectively. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for Belmont Homes, Inc. for 1996 and 1995, is based solely
on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Cavalier Homes, Inc. and
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Birmingham, Alabama
February 17, 1998 (March 13, 1998 as to the amendment to the Credit Facility
described in Note 5)
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 37,276 $ 29,751
Certificates of deposit, maturing within one year 4,000 8,243
Marketable securities available for sale 1,097
Accounts receivable, less allowance for losses of
$1,175 (1997) and $837 (1996) (Notes 5 and 10) 8,449 11,361
Notes and installment contracts receivable - current
(Notes 4 and 5) 1,561 1,086
Inventories (Note 5) 29,697 28,172
Deferred income taxes (Note 8) 7,240 6,482
Other current assets 1,292 3,390
----------- ----------
Total current assets 89,515 89,582
----------- ----------
PROPERTY, PLANT AND EQUIPMENT (Note 5):
Land 2,159 1,921
Buildings and improvements 37,011 30,726
Machinery and equipment 32,213 29,255
----------- ----------
71,383 61,902
Less accumulated depreciation and amortization 17,949 12,048
----------- ----------
Total property, plant and equipment, net 53,434 49,854
----------- ----------
INSTALLMENT CONTRACTS RECEIVABLE, less
allowance for credit losses of $1,272 (1997) and
$941 (1996) (Notes 4 and 5) 46,614 34,504
----------- ----------
GOODWILL, less accumulated amortization
of $3,102 (1997) and $1,947 (1996) (Note 3) 19,551 20,706
----------- ----------
OTHER ASSETS 2,440 1,741
----------- ----------
TOTAL $ 211,554 $ 196,387
=========== ==========
See notes to consolidated financial statements.
</TABLE>
- 2 -
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 5) $ 3,271 $ 10,046
Accounts payable 9,575 12,063
Amounts payable under dealer incentive programs 14,614 13,853
Accrued compensation and related withholdings 4,294 6,037
Estimated warranties 11,700 10,566
Accrued merger and related costs (Note 1) 5,178
Other accrued expenses 12,399 12,271
--------- --------
Total current liabilities 61,031 64,836
--------- --------
DEFERRED INCOME TAXES (Note 8) 297 1,942
--------- --------
LONG-TERM DEBT (Note 5) 15,808 6,227
--------- --------
OTHER LONG-TERM LIABILITIES 867 730
--------- --------
STOCKHOLDERS' EQUITY (Notes 5, 6 and 7):
Series A Junior Participating Preferred Stock, $.01 par value; 200,000 shares
authorized, none issued
Preferred stock, $.01 par value; 300,000 shares authorized,
none issued
Common stock, $.10 par value; authorized 50,000,000 shares,
issued 19,941,357 (1997) and 19,742,328 (1996) shares 1,994 1,974
Additional paid-in capital 57,228 55,126
Retained earnings 74,329 65,552
---------- ---------
Total stockholders' equity 133,551 122,652
---------- ---------
TOTAL $ 211,554 $ 196,387
========== =========
See notes to consolidated financial statements.
</TABLE>
-3-
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
REVENUES:
Net sales $ 555,842 $ 573,838 $ 420,790
Financial services 5,346 3,333 1,764
---------------- ---------------- ----------------
561,188 577,171 422,554
---------------- ---------------- ----------------
COST OF SALES (Note 10) 466,749 482,302 354,811
SELLING, GENERAL AND ADMINISTRATIVE (Notes 7 and 9):
Manufacturing 66,825 51,946 37,909
Financial services 3,174 2,076 1,126
NON-RECURRING MERGER AND RELATED COSTS (Note 1) 7,359
---------------- ---------------- ----------------
544,107 536,324 393,846
---------------- ---------------- ----------------
OPERATING PROFIT 17,081 40,847 28,708
---------------- ---------------- ----------------
OTHER INCOME (EXPENSE):
Interest expense:
Manufacturing (699) (353) (832)
Financial services (812) (492) (501)
Life insurance proceeds 1,500 1,750
Other, net 1,269 2,434 1,423
---------------- ---------------- ----------------
1,258 3,339 90
---------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 18,339 44,186 28,798
INCOME TAXES (Note 8) 8,092 16,707 11,168
---------------- ---------------- ----------------
NET INCOME $ 10,247 $ 27,479 $ 17,630
================ ================ ================
BASIC NET INCOME PER SHARE (Notes 2 and 6) $ 0.52 $ 1.42 $ 1.06
================ ================ ================
DILUTED NET INCOME PER
SHARE (Notes 2 and 6) $ 0.51 $ 1.39 $ 1.03
================ ================ ================
WEIGHTED AVERAGE SHARES
OUTSTANDING (Notes 2 and 6) 19,834,942 19,362,944 16,629,523
================ ================ ================
WEIGHTED AVERAGE SHARES OUTSTANDING,
ASSUMING DILUTION (Notes 2 and 6) 20,028,181 19,799,492 17,056,945
================ ================ ================
See notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Treasury
Additional Stock - At
Common Paid-in Retained Average
Stock Capital Earnings Cost Total
BALANCE, JANUARY 1, 1995 $ 1,663 $ 17,719 $ 22,435 $ (50) $ 41,767
Sale of common stock to public 157 15,126 15,283
Treasury stock reissued and common stock issued
in connection with a purchase option 1 413 50 464
Stock options exercised (Note 7) 9 689 698
Income tax benefits attributable to exercise
of stock options (Note 7) 281 281
Other (215) (215)
Cash dividends paid ($.04 per share) (637) (637)
Dividends on preferred stock (152) (152)
Net income 17,630 17,630
---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1995 1,830 34,013 39,276 $ - 75,119
Sale of common stock to public 64 11,661 =========== 11,725
Stock options exercised (Note 7) 73 4,419 4,492
Income tax benefits attributable to exercise of
stock options (Note 7) 3,692 3,692
Sale of common stock under Employee Stock
Purchase Plan (Note 7) 2 238 240
Common stock issued in connection with
acquisitions 5 887 892
Accrued compensation 216 216
Cash dividends paid ($.06 per share) (1,203) (1,203)
Net income 27,479 27,479
---------- ---------- ---------- ---------
BALANCE, DECEMBER 31, 1996 1,974 55,126 65,552 122,652
Stock options exercised (Note 7) 7 7
Sale of common stock under Employee Stock
Purchase Plan (Note 7) 5 425 430
Sale of common stock under Dividend
Reinvestment Plan (Note 7) 17 1,653 1,670
Accrued compensation 172 172
Cash dividends paid ($.07 per share) (1,470) (1,470)
Retirement of common stock (2) (155) (157)
Net income 10,247 10,247
---------- ---------- ---------- ---------
BALANCE, DECEMBER 31, 1997 $ 1,994 $ 57,228 $ 74,329 $ 133,551
========== ========== ========== =========
See notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
OPERATING ACTIVITIES:
Net income $ 10,247 $ 27,479 $ 17,630
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,492 5,760 3,757
Provision for credit losses and repurchase commitments 669 389 301
(Gain) loss on sale of property, plant and equipment 340 (144) 23
Equity in net income of unconsolidated affiliates (98) (289) (237)
Minority interest in net income (loss) of consolidated subsidiaries 137 (20)
Compensation related to issuance of stock options 172 216
Changes in assets and liabilities provided (used) cash, net of
effects of acquisitions:
Accounts receivable 2,574 (672) (1,437)
Inventories (488) (8,021) (1,366)
Accounts payable (3,310) (146) 1,669
Amounts payable under dealer incentive programs 761 4,508 2,174
Accrued compensation and related withholdings (1,743) 1,188 929
Estimated warranties 1,134 1,744 1,897
Other assets and liabilities 5,361 1,695 1,944
---------- ---------- ----------
Net cash provided by operating activities 23,248 33,687 27,284
---------- ---------- ----------
INVESTING ACTIVITIES:
Net cash paid in connection with acquisitions (871) (8,515) (2,592)
Proceeds from sale of property, plant and equipment 122 228 63
Capital expenditures (10,186) (16,106) (13,482)
Purchases of certificates of deposit (8,000) (16,114) (8,717)
Maturities of certificates of deposit 12,243 14,588 2,000
Purchases of marketable securities (1,004)
Proceeds from sale or maturity of marketable securities 1,097 2,479 3,210
Purchases and originations of notes and installment contracts (19,562) (19,932) (10,721)
Principal collected on notes and installment contracts 6,015 2,716 1,337
Cash restricted for construction 521 1,548
Other 133 95 38
---------- ---------- ----------
Net cash used in investing activities (19,009) (40,040) (28,320)
---------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 25,263 9,650 2,000
Payments on long-term debt (22,456) (12,610) (13,562)
Net proceeds from sales of common stock 2,099 11,965 15,283
Proceeds from exercise of stock options 7 4,492 698
Cash dividends paid (1,470) (1,203) (637)
Retirement of preferred stock, including dividends (1,052)
Retirement of common stock (157)
Other 750
---------- ---------- ----------
Net cash provided by financing activities 3,286 13,044 2,730
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,525 6,691 1,694
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 29,751 23,060 21,366
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 37,276 $ 29,751 $ 23,060
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
- 6 -
<PAGE>
CAVALIER HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. BUSINESS COMBINATION AND BASIS OF PRESENTATION
On December 31, 1997, Belmont Homes, Inc. ("Belmont") was merged with and
into a subsidiary of Cavalier Homes, Inc. ("Cavalier"), and 7,555,121
shares of Cavalier's common stock were issued in exchange for all of the
outstanding common stock of Belmont. The merger was accounted for as a
pooling of interests, and, accordingly, the accompanying financial
statements have been restated to include the financial position, results
of operations and cash flows of Belmont for all periods presented.
Revenues and net income for the separate companies, and the combined
amounts presented in the consolidated financial statements are as follows
(in thousands, excluding non-recurring merger and related costs in 1997):
1997 1996 1995
Revenues:
Cavalier $ 336,343 $ 349,354 $ 274,250
Belmont 224,845 227,817 148,304
-------------- --------------- --------------
Combined $ 561,188 $ 577,171 $ 422,554
============== =============== ==============
Net income:
Cavalier $ 10,428 $ 15,366 $ 9,020
Belmont 5,688 12,113 8,610
-------------- -------------- --------------
Combined $ 16,116 $ 27,479 $ 17,630
============== =============== ==============
Certain amounts from Belmont's prior financial statements have been
reclassified to conform to Cavalier's presentation.
In connection with the merger, Cavalier recorded charges of $7.4 million
in the quarter ended December 31, 1997. These charges are nonrecurring and
include $2.5 million from the earn-out provision contained in the Stock
Purchase Agreement between Belmont and the shareholders of Bellcrest, $0.9
million for severance costs associated with the consolidation of certain
administrative functions, $3.1 million for printing, investment banking,
legal, accounting and other fees, and $0.9 million for other costs
associated with combining and realigning the operations of the two
companies. Of the merger and related costs of $7.4 million, $5.2 million
is recorded as an accrued liability in the consolidated balance sheet at
December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Cavalier Homes, Inc. and its wholly-owned and
majority-owned subsidiaries (hereinafter collectively referred to as the
"Company"). The Company's minority ownership interests in various joint
ventures are accounted for using the equity method and are included in
other assets in the accompanying consolidated balance sheets. Intercompany
profits, transactions and balances have been eliminated in consolidation.
-7-
<PAGE>
Nature of Operations - The Company designs and manufactures a wide range
of high quality manufactured homes which are sold to a network of
independent dealers located primarily in the southeast, southwest and
midwest regions of the United States. In addition, through its financial
services segment, the Company offers retail installment sale financing and
related insurance products for manufactured homes sold through the
Company's independent exclusive dealer network.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingencies at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from
those estimates.
Fair Value of Financial Instruments - The carrying value of the Company's
cash equivalents, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the short-term maturity of
those instruments. Additional information concerning the fair value of
other financial instruments is disclosed in Notes 4 and 5.
Cash Equivalents - The Company considers all highly liquid investments
with original maturities of 90 days or less to be cash equivalents.
Marketable Securities - Marketable securities have been classified as
available for sale in the consolidated balance sheet according to
management's intent. Marketable securities are stated at fair value of
$1,097 at December 31, 1996. The Company had no amounts invested in
marketable securities at December 31, 1997.
Inventories - Inventories consist primarily of raw materials and are
stated at the lower of cost (first-in, first-out method) or market. During
1997, 1996, and 1995, the Company purchased raw materials of approximately
$10,573, $11,645 and $7,900, respectively, from certain joint ventures
referred to previously.
Property, Plant and Equipment - Property, plant and equipment is stated at
cost and depreciated primarily over the estimated useful lives of the
related assets using the straight-line method. Maintenance and repairs are
expensed as incurred. The Company paid or accrued $270, $73 and $690 in
1997, 1996 and 1995, respectively, for construction of plant facilities to
a company in which a stockholder and director of the Company is also a
stockholder.
Goodwill - Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired and is being amortized over 15 to 25
years using the straight-line method.
If facts and circumstances indicate that goodwill may be impaired, an
assessment will be made by the Company to determine if a writedown is
required or if its estimated useful life should be revised. The assessment
will be based primarily on forecasted operating income, including interest
expense, depreciation and amortization other than goodwill; supplemented
if necessary by an independent appraisal of fair value. The Company
believes that no impairment of goodwill has occurred and that no revision
of its estimated useful life is required.
-8-
<PAGE>
Revenue Recognition - Sales of manufactured homes to independent dealers
are recorded as of the date the home is shipped to the dealer, with the
exception of one of the Company's subsidiaries which employs drivers to
deliver its homes; accordingly, sales are recorded upon delivery (at which
time title passes) by this subsidiary. All sales are final and without
recourse except for the contingency described in Note 10. Interest income
on installment contracts receivable is recognized using the interest
method.
Product Warranties - The Company provides a one-year limited warranty
covering defects in material or workmanship in home structure, plumbing
and electrical systems. A liability is provided for estimated future
warranty costs relating to homes sold, based upon management's assessment
of historical experience factors and current industry trends.
Allowance for Losses on Installment Contracts - The Company has provided
an allowance for estimated future losses resulting from retail financing
activities of Cavalier Acceptance Corporation ("CAC"), a wholly-owned
subsidiary, primarily based upon management's assessment of historical
experience and current industry trends.
Insurance - The Company's workmen's compensation, product liability and
general liability insurance coverages (with the exception of Belmont whose
insurance is provided under fully insured policies) are provided under
incurred loss, retrospectively rated premium plans. Under this plan, the
Company incurs insurance expense based upon various rates applied to
current payroll costs and sales. Annually, such insurance expense is
adjusted by the carrier for loss experience factors subject to minimum and
maximum premium calculations. Refunds or additional premiums are estimated
when sufficiently reliable data is available in accordance with the
consensus reached in Emerging Issues Task Force Issue No. 93-14,
Accounting for Multiple-Year Retrospectively Rated Insurance Contracts by
Insurance Enterprises and Other Enterprises.
Net Income Per Share - During February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings per Share, which is effective for all
financial statements issued for periods ending after December 15, 1997,
including interim periods. In accordance with this Standard, the Company
is now required to report two separate earnings per share numbers, basic
and diluted. Both are computed by dividing net income by the weighted
average common shares outstanding (basic EPS) or weighted average common
shares outstanding assuming dilution (diluted EPS) as detailed below (in
thousands of shares):
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Weighted average common shares outstanding 19,835 19,363 16,630
Dilutive effect of stock options and warrants 193 436 427
------------ ----------- -----------
Weighted average common shares outstanding,
assuming dilution 20,028 19,799 17,057
============ =========== ===========
</TABLE>
Accounting Standard Not Yet Adopted - In June 1997, the FASB issued SFAS
No. 131, Disclosures about Segments of an Enterprise and Related
Information. This statement is effective for financial statements issued
for fiscal years beginning after December 15, 1997. The adoption of the
provisions of this Statement is expected to result only in increased
disclosures on segment information and will not impact the amounts in the
financial statements.
-9-
<PAGE>
Reclassifications - Certain amounts from the prior periods have been
reclassified to conform to the 1997 presentation.
3. ACQUISITIONS
On October 24, 1996, in a transaction accounted for using the purchase
method of accounting, the Company completed its purchase of 100% of the
stock of Bellcrest Homes, Inc. ("Bellcrest") through the cash payment of
$9,500.
The effects of the acquisition at the purchase date were as follows:
Decrease in cash, net $ 7,145
Increase in other current assets 3,422
Increase in property, plant and equipment 3,525
Increase in goodwill and other assets 6,762
Increase in current liabilities 4,756
Increase in long-term debt and deferred income taxes 1,808
The following unaudited pro forma data is provided for comparative
purposes and are not necessarily indicative of actual results that would
have been achieved had the acquisition of Bellcrest been consummated at
an earlier date and are not necessarily indicative of future results.
Assuming that the acquisition was consummated on January 1, 1995,
unaudited pro forma revenues, net income and diluted net income per
share, after giving effect to certain adjustments, including
amortization of goodwill and other assets, increased interest expense on
debt related to the acquisition, increased depreciation expense, and
related income tax effects, for the years ended December 31, 1996 and
1995 follow:
1996 1995
Revenues $ 607,056 $ 450,718
Net income 27,570 17,756
Diluted net income per share 1.39 1.04
Under the terms of the Bellcrest Stock Purchase Agreement, the Company
was required to pay the former Bellcrest shareholders additional
consideration in an amount not to exceed $3,500 in the aggregate in the
event Bellcrest attained certain stated levels of earnings before income
taxes for the three-month period ended December 31, 1996 and for each of
the years ending December 31, 1997 and 1998. During 1997, the Company
paid $1,000, the amount earned and accrued for 1996, to the former
shareholders. In addition, in connection with the merger described in
Note 1, the Company paid the remaining $2,500 to the former
shareholders.
In conjunction with this acquisition, a former Bellcrest shareholder was
issued warrants for the purchase of 75,000 shares of Belmont common
stock. The warrants, which expire in October 2001, are exercisable at
$14.66 per share and their fair value at the issue date was estimated to
be negligible. None of these warrants have been exercised as of December
31, 1997. In connection with the merger, these warrants were converted
to warrants to purchase 60,000 shares of Cavalier common stock at an
exercise price of $18.34 per share.
-10-
<PAGE>
In October 1995 the Company 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, consisting of cash of
$2,450 and debt of $7,350.
The following unaudited pro forma data are provided for comparative
purposes and are not necessarily indicative of actual results that would
have been achieved had the acquisition of Spirit been consummated at an
earlier date and are not necessarily indicative of future results.
Assuming that the acquisition was consummated on January 1, 1995,
unaudited pro forma revenues, net income and diluted net income per
share, after giving effect to certain adjustments, including
amortization of goodwill and other assets, increased interest expense on
debt related to the acquisition, increased depreciation expense, and
related income tax effects, for the year ended December 31, 1995 follow:
Revenues $460,378
Net income 18,618
Diluted net income per share 1.09
4. INSTALLMENT CONTRACTS RECEIVABLE
CAC does not exclusively finance sales for any dealer; all dealers have
other financing sources available to offer to their retail customers.
Standard loan programs require minimum down payments, ranging from 0% to
20% of the purchase price of the home, on all installment contracts based
on the creditworthiness of the borrower. In addition, CAC requires the
borrower to maintain adequate insurance on the home throughout the life of
the contract. Contracts are secured by the home which is subject to
repossession by CAC upon default by the borrower.
CAC's portfolio consists of fixed rate contracts with interest rates
generally ranging from 9.25% to 14.0% at December 31, 1997 and 1996. The
average original term of the portfolio was approximately 217 and 208
months at December 31, 1997 and 1996, respectively.
Estimated principal payments under installment contracts receivable are as
follows:
Year Ending December 31,
1998 $ 1,254
1999 1,398
2000 1,559
2001 1,738
2002 1,938
Thereafter 41,259
---------
Total $ 49,146
=========
-11-
<PAGE>
Activity in the allowance for losses on installment contracts was as
follows:
1997 1996 1995
Balance, beginning of year $ 941 $ 551 $ 350
Provision for losses 1,329 778 311
Charge-offs, net (998) (388) (110)
------- ------- -------
Balance, end of year $ 1,272 $ 941 $ 551
======= ======= =======
On February 17, 1998, the Company reached an agreement to sell
approximately $25 million of its existing loan portfolio at a premium.
At December 31, 1997 and 1996, the estimated fair value of installment
contracts receivable was $50,103 and $36,205, respectively. These fair
values were estimated using current market value for the $25,000
previously noted and discounted cash flows and interest rates offered by
CAC on similar contracts at the time for the remaining portfolio.
5. CREDIT ARRANGEMENTS
The Company has a $23,000 revolving, warehouse and term-loan agreement
(the "Credit Facility") with its primary bank, whose president is a
director of the Company. The Credit Facility contains a revolving line of
credit which provides for borrowings (including letters of credit) of up
to 80% and 50% of the Company's eligible (as defined) accounts receivable
and inventories, respectively, up to a maximum of $5,000. Interest is
payable under the revolving line of credit at the bank's prime rate (8.50%
and 8.25% at December 31, 1997 and 1996, respectively). No amounts were
outstanding under the revolving line of credit at December 31, 1997 or
1996.
The warehouse and term-loan agreement contained in the Credit Facility
provide for borrowings of up to 80% of the Company's eligible (as defined)
installment sale contracts, up to a maximum of $18,000. Interest on term
notes is fixed for a period of five years from issuance at a rate based on
the weekly average yield on five-year treasury securities averaged over
the preceding 13 weeks, plus 2%, and floats for the remaining two years at
a rate (subject to certain limits) equal to the bank's prime rate plus
.75%. The warehouse component of the Credit Facility provides for
borrowings of up to $2,000 with interest payable at the bank's prime rate
plus 1%. However, in no event may the aggregate outstanding borrowings
under the warehouse and term-loan agreement exceed $18,000. Under the
Credit Facility, $50 was outstanding under the warehouse component at
December 31, 1997, and $12,694 and $3,866 was outstanding under the term
loan portion at December 31, 1997 and 1996, respectively.
The Credit Facility contains certain restrictive and financial covenants,
which, among other things, limit the aggregate of dividend payments and
purchases of treasury stock to 50% of consolidated net income for the two
most recent years, contain restrictions on the Company's ability to pledge
assets, incur additional indebtedness and make capital expenditures, and
require the Company to maintain certain defined financial ratios. Amounts
outstanding under the Credit Facility are secured by the accounts
receivable and inventories of the Company, loans purchased and originated
by CAC, and the capital stock of certain of the Company's consolidated
subsidiaries. The bank's commitment under the Credit Facility will expire
in April 1998.
-12-
<PAGE>
On March 13, 1998, the Company reached an agreement with its primary bank
to extend its Credit Facility for an additional two years and to increase
available borrowings to $35,000. The renewal provides for a revolving line
of credit with a maximum of $10,000 (an increase from $5,000) and a
warehouse line of $25,000 (an increase from $18,000) which includes a
fixed rate term-loan feature. Terms and restrictive covenants are
substantially the same as the expiring agreement.
The Company has other lines of credit with banks totaling $9,000 which
expire at various dates through July, 1998. Amounts outstanding under
these facilities totaled $1,000 and $8,600 at December 31, 1997 and 1996,
respectively. Interest rates under these lines range from prime to prime
plus 2%.
The Company has amounts outstanding under three Industrial Development
Revenue Bond issues ("Bonds") of $4,442 and $1,044 at December 31, 1997
and 1996, respectively. Two of the bond issues bear interest at variable
rates ranging from 4.0% to 5.4% and mature at various dates through
November 2007. One of the bond issues is payable in equal monthly
installments and bears interest at 75% of the prime rate. The bonds are
collateralized by certain plant facilities.
The Company has a term-loan with a balance of $887 and $960 at December
31, 1997 and 1996, respectively, bearing interest at 7.95%, payable in
equal monthly installments through April, 2006.
At December 31, 1996, the Company's other long-term debt, with an
outstanding balance of $1,796, consisted of various fixed and variable
rate term loans bearing interest at rates ranging from 8.25% to 9.25%.
These notes were paid in 1997.
Principal repayment requirements on long-term debt are as follows:
Year Ending December 31,
1998 $ 3,271
1999 2,452
2000 2,648
2001 2,594
2002 2,332
Thereafter 5,782
-------
Total 19,079
Less current portion 3,271
-------
Long-term debt $ 15,808
========
The estimated fair value of outstanding borrowings was $19,261 and $16,111
at December 31, 1997 and 1996, respectively. These estimates were
determined using rates at which the Company believes it could have
obtained similar borrowings at that time.
Cash paid for interest during the years ended December 31, 1997, 1996 and
1995 was $1,445, $910 and $1,619, respectively.
The Company and certain of its equity partners have jointly and severally
guaranteed revolving notes for two companies and a letter of credit for
one company in which the Company owns various equity interests. The
guarantees are limited to various percentages of the outstanding debt up
to a maximum guaranty of $1,500. At December 31, 1997, $3,000 was
outstanding under the various guarantees, of which the Company had
guaranteed $720.
-13-
<PAGE>
6. STOCKHOLDERS' EQUITY
During the years ended December 31, 1996 and 1995, the Company's Board of
Directors declared the following stock splits of the Company's common
stock. All applicable share and per share data have been restated to give
effect to all stock splits.
Declaration Stock Record Distribution
Date Split Date Date
July 17, 1995 5 for 4 July 31, 1995 August 15, 1995
January 22, 1996 3 for 2 January 31, 1996 February 15, 1996
October 16, 1996 5 for 4 October 31, 1996 November 15, 1996
The Company has adopted a Stockholder Rights Plan. The terms and
conditions of the plan are set forth in a Rights Agreement dated October
23, 1996 between the Company and its Rights Agent. Pursuant to the plan,
the Board of Directors of the Company declared a dividend of one Right (as
defined in the Rights Agreement) for each share of the Company's
outstanding common stock to stockholders of record on November 6, 1996.
The Rights, when exercisable, entitle the holder to purchase a unit of
0.80 one-hundredth share of Series A Junior Participating Preferred Stock,
par value $.01, at a purchase price of $80 per share. Upon certain events
relating to the acquisition of, or right to acquire, beneficial ownership
of 20% or more of the Company's outstanding common stock by a third party,
or a change in control of the Company, the Rights entitle the holder to
acquire, after the Rights are no longer redeemable by the Company, shares
of common stock of the Company (or, in certain cases, securities of an
acquiring person) for each Right held at a significant discount. The
Rights will expire on November 6, 2006, unless redeemed earlier by the
Company at $.01 per Right under certain circumstances. In connection with
the merger, Belmont shareholders received one Right (as defined in the
Rights Agreement) with respect to each Cavalier share received pursuant to
the Merger Agreement.
In June 1995, Belmont completed an initial public offering of
approximately 1,570,000 (before stock split) shares of common stock. The
net proceeds of approximately $15,283 were used to retire debt and
preferred stock and for working capital. In January 1996, Belmont
completed another public offering of approximately 640,000 (before stock
split) shares of common stock. The net proceeds of approximately $11,725
were used to retire debt and for working capital.
Supplemental diluted net income per share for 1996 and 1995, based on net
income after adjustment for dividends on preferred stock and the after tax
effect of interest expense on debt repaid with proceeds of the above
offerings, and on the weighted average shares of common stock outstanding
for 1996 and 1995, giving effect to the number of shares sold in the
offerings, the proceeds of which were used to repay such preferred stock
and debt, is as follows assuming the transactions were effective on
January 1, 1995:
-14-
<PAGE>
1996 1995
Net income, as adjusted $ 27,526 $ 18,072
========== ==========
Diluted net income per share $ 1.39 $ 0.98
========== ==========
Weighted average shares outstanding,
assuming dilution 19,868,292 18,364,945
========== ==========
7. STOCK PLANS
Dealership Stock Option Plan -
- During 1995, the Company's Board of Directors approved the
Dealership Stock Option Plan of Cavalier Homes, Inc. (the "Dealer
Plan"), under which an aggregate of 562,500 shares of the Company's
common stock may be issued to the eligible independent dealerships
(as defined in the Dealer Plan) at a price equal to the fair market
value of the Company's common stock as of a date during the calendar
quarter determined by the plan administrator for which such option is
to be granted. Options granted under the Dealer Plan are immediately
exercisable and expire three years from the grant date. Since these
options have been granted to persons other than employees, the
Company adopted the recognition and measurement provisions of
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), for Dealer Plan options
granted after December 15, 1995.
Employee and Director Plans:
- The Company adopted and the shareholders approved the 1996 Key
Employee Stock Incentive Plan (the "1996 Plan") which provides for
both incentive stock options and non-qualified stock options.
Additionally, the 1996 Plan provides for stock appreciation rights
and awards of both restricted stock and performance shares. Options
are granted at prices and terms determined by the compensation
committee (or, in certain circumstances, a separate sub-committee) of
the Board of Directors. As of December 31, 1997, the aggregate number
of shares available under the 1996 Plan was 1,461,701 (including
57,965 shares canceled from the Company's 1993 Non-qualified Stock
Option Plan and 471,200 shares made available in connection with the
Belmont merger). On January 1 of each year, an additional 1.5% of the
then outstanding common stock becomes available for grant. Options
granted under the 1996 Plan generally expire ten years from the date
of grant.
- During 1996, the Company further amended the 1993 Amended and
Restated Non-employee Directors Plan (the "1993 Non-employee
Directors Plan") to provide for the issuance of stock options, at
fair market value on the date of grant, to non-employee directors to
acquire up to 625,000 shares of common stock. Options are generally
granted upon a directors initial election to the Board and
automatically on an annual basis thereafter. Options granted under
this plan are generally exercisable after six months from the date of
grant and must be exercised within ten years from such date, except
under certain conditions.
- During 1996, the Company adopted the Cavalier Homes, Inc. Employee
Stock Purchase Plan under which an aggregate of 625,000 shares of the
Company's common stock may be issued to eligible employees (as
defined) at a price equal to the lesser of 85% of the market price of
the stock as of the first day (January 1 or July 1) or last day (June
30 or December 31) of the Payment Periods (as defined). Employees may
elect to have a portion of their compensation withheld, subject to
certain limits, to purchase the Company's common stock.
-15-
<PAGE>
Compensation expense recorded in connection with these plans for the years
ended December 31, 1997 and 1996 was not material.
On July 25, 1996, substantially all employee stock options granted in 1996
at prices between $15.40 and $16.60 were repriced to an exercise price of
$13.60. On January 17, 1997, substantially all employee stock options then
exerciseable at a price of $12.00 or higher were repriced to an exercise
price of $10.625. In addition, on January 17, 1997, an option issued under
the 1993 Non-employee Director's Plan to purchase 25,000 shares at $15.40
per share was canceled and reissued for 17,250 shares at $10.625 per
share.
The Company has adopted the Cavalier Homes, Inc. Dividend Reinvestment and
Stock Purchase Plan, under which the Company may issue an aggregate of
200,000 shares of the Company's common stock to eligible participants (as
defined). Participants in the Plan may purchase additional shares of the
Company's common stock by reinvesting the cash distributions on all, or
part, of their shares, or by investing both their cash distributions and
optional cash payments. The purchase price of the stock will be the higher
of 95% of the average daily high and low sale prices of the Company's
common stock on the four trading days including and preceding the
Investment Date (as defined) or 95% of the average high and low sales
prices on the Investment Date.
The Company applied Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting
for its employee and director plans. Accordingly, no compensation expense
has been recognized for these plans except where the exercise price was
less than the fair value on the date of grant. Had compensation cost been
determined based on the fair value at the grant date for awards under
these plans consistent with the methodology prescribed under SFAS 123, the
Company's net income and net income per share would approximate the pro
forma amounts below:
1997 1996 1995
Net income:
As reported $ 10,247 $ 27,479 $ 17,630
Pro forma $ 8,661 $ 24,888 $ 17,515
Basic net income per share:
As reported $ 0.52 $ 1.42 $ 1.06
Pro forma $ 0.44 $ 1.29 $ 1.05
Diluted net income per share:
As reported $ 0.51 $ 1.39 $ 1.03
Pro forma $ 0.43 $ 1.26 $ 1.03
The fair value of options granted were estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions:
1997 1996 1995
Dividend yield 1.13 % 0.66 % 1.35 %
Expected volatility 0.44 % 0.41 % 0.43 %
Risk free interest rate 6.12 % 5.99 % 6.50 %
Expected lives 3.0 years 3.0 years 3.2 years
-16-
<PAGE>
SFAS 123 does not apply to awards prior to 1995. The effects of applying
SFAS 123 in this pro forma disclosure may not be indicative of future
amounts, and additional awards in future years are anticipated.
With respect to options exercised, the income tax benefits resulting from
compensation expense allowable under federal income tax regulations in
excess of the expense reflected in the Company's financial statements have
been credited to additional paid-in-capital. These benefits, which totaled
$-0- (1997), $3,692 (1996), and $281 (1995), represent a noncash financing
transaction for purposes of the consolidated statements of cash flows.
Information regarding all of the Company's stock option plans is
summarized below:
<TABLE>
<S> <C> <C> <C>
Weighted
Weighted Average
Average Fair Value
Shares Exercise Price At Grant Date
Shares under option:
Outstanding at January 1, 1995 1,206,854 $ 4.17
Granted:
Price = Fair Value 183,049 6.39 $ 2.24
Price < Fair Value 22,299 8.73 2.77
Exercised (174,804) 3.99
Cancelled (43,941) 7.09
------------
Outstanding at December 31, 1995 1,193,457 $ 4.51
Granted:
Price = Fair Value 1,640,833 14.42 $ 4.73
Price < Fair Value 28,833 13.70 3.75
Exercised (912,083) 4.92
Cancelled (489,431) 15.90
------------
Outstanding at December 31, 1996 1,461,609 $ 11.76
Granted at Fair Value 858,425 10.61 $ 3.52
Exercised (1,000) 4.27
Cancelled (564,420) 13.75
------------
Outstanding at December 31, 1997 1,754,614 $ 10.56
============ =========
Options exercisable as of December 31, 1997 1,536,986 $ 10.37
============ =========
Options exercisable as of December 31, 1996 649,947 $ 10.17
============ =========
Options exercisable as of December 31, 1995 1,076,235 $ 4.25
============ =========
</TABLE>
Stock options available for future grants at December 31, 1997 were
1,197,516 under all of the Company's various stock option plans.
-17-
<PAGE>
The following table summarizes information concerning stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C>
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
$0.55 - $4.27 219,421 6.19 $ 4.00 207,833 $ 4.00
$4.43 - $10.50 218,989 7.27 8.08 173,989 7.95
$10.63 765,249 9.05 10.63 765,249 10.63
$11.25 - $13.33 273,495 7.34 13.05 116,055 12.70
$13.60 - $16.60 277,460 7.92 15.06 273,860 15.06
--------- ---------
$0.55 - $16.60 1,754,614 8.02 $ 10.56 1,536,986 $ 10.37
========= ======== ======== ========= ========
</TABLE>
8. INCOME TAXES
Provision for income taxes consist of:
1997 1996 1995
Current:
Federal $ 9,574 $ 15,456 $ 10,904
State 921 2,258 1,223
--------- --------- --------
10,495 17,714 12,127
--------- --------- --------
Deferred:
Federal (2,368) (712) (777)
State (35) (295) (182)
--------- --------- --------
(2,403) (1,007) (959)
--------- --------- ---------
Total $ 8,092 $ 16,707 $ 11,168
========= ========= =========
Total income tax expense for 1997, 1996, and 1995 is different from the
amount that would be computed by applying the expected federal income tax
rate of 35% to income before income taxes. The reasons for this difference
are as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Income tax at expected federal income tax rate $ 6,419 $ 15,465 $ 9,941
State income taxes, net of federal tax effect 651 1,810 1,168
Non-taxable life insurance proceeds (525) (655)
Non-deductible operating expenses 387 107 171
Effect of graduated tax rates (121)
State jobs tax credits (40) (471) (344)
Non-deductible merger related expenses 1,085
Other 115 451 353
------- ------- -------
$ 8,092 $ 16,707 $ 11,168
======= ======= =======
</TABLE>
-18-
<PAGE>
Deferred tax assets and liabilities are based on the expected future tax
consequences of temporary differences between the book and tax bases of
assets and liabilities. The approximate tax effects of temporary
differences at December 31, 1997 and 1996 were as follows:
1997 1996
------------------------
Assets (Liabilities)
------------------------
Current differences:
Warranty expense $ 4,058 $ 3,358
Inventory capitalization 512 463
Allowance for losses on receivables 939 666
Accrued expenses 1,132 1,525
Other 599 470
--------- ---------
$ 7,240 $ 6,482
========= =========
Noncurrent differences:
Depreciation and basis differential
of acquired assets $ (1,796) $ (1,815)
Goodwill (726) (534)
Merger related expenses 1,331
Other 894 407
--------- ---------
$ (297) $ (1,942)
========= =========
Cash paid for income taxes for the years ended December 31, 1997, 1996 and
1995 was $10,632, $12,387 and $10,055, respectively.
9. EMPLOYEE BENEFIT PLANS
The Company has self-funded group medical plans which are administered by
third party administrators. The Plans have reinsurance coverage limiting
liability for any individual employee loss to a maximum of $75, with an
aggregate limit of losses in any one year based on the number of covered
employees. Incurred claims identified under the Company's incident
reporting system and incurred but not reported claims are funded or
accrued based on estimates that incorporate the Company's past experience,
as well as other considerations such as the nature of each claim or
incident, relevant trend factors and advice from consulting actuaries. The
Company has established self insurance trust funds for payment of claims
and makes deposits to the trust funds in amounts determined by consulting
actuaries. The cost of these plans to the Company was $5,067, $2,893 and
$2,682 for years ended December 31, 1997, 1996 and 1995, respectively.
The Company sponsors employee 401(k) retirement plans covering all
employees who meet participation requirements. Employee contributions are
limited to a percentage of compensation as defined in the Plans. The
amount of the Company's matching contribution is discretionary as
determined by the Board of Directors. Company contributions amounted to
$545, $420 and $375 for the years ended December 31, 1997, 1996 and 1995,
respectively.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases:
Five of the Company's manufacturing facilities and one component
distribution center are leased under separate operating lease agreements
(the "Related Leases") with partnerships or companies whose owners are
certain officers, directors or stockholders of the Company. The Related
Leases require monthly payments ranging from $4 to $22 and provide for
lease terms ending from July 1998 to March 2001 as well as renewal option
periods. The Related Leases also contain purchase options whereby the
Company can purchase the respective manufacturing facility for amounts
ranging from $875 to $1,900 at any time during the lease terms.
-19-
<PAGE>
The Company also leases three other manufacturing facilities under
operating leases with unrelated parties. These leases currently require
monthly payments ranging from $3 to $14 and provide for lease terms ending
from March 1999 to June 2017 as well as renewal option periods. The
Company has the option under one of these leases to (i) cancel the lease
at any time after October 2001 with a one year notice and (ii) purchase
the manufacturing facility for $995 at any time during the lease term. The
Company also has the option under two of these leases to cancel the lease
after the first five years with 180 days and twelve months notice,
respectively.
The Company leases delivery trucks from some of its drivers who deliver
homes for dealers. Rentals for these trucks are based on a rate per mile
and the leases are cancelable by either party upon thirty days notice.
Rent expense under these leases was approximately $2,305, $3,140, and
$2,647 for the years ended December 31, 1997, 1996, and 1995,
respectively.
Future minimum rents payable under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December
31, 1997 are as follows:
Year Ending December 31,
1998 $ 1,087
1999 754
2000 569
2001 235
2002 149
Thereafter 441
--------
Total $ 3,235
========
Total rent expense was $1,418, $1,242 and $1,044 for the years ended
December 31, 1997, 1996 and 1995, respectively, including rents paid to
related parties of $817 (1997), $765 (1996) and $723 (1995).
Contingent Liabilities and Other:
a. It is customary practice for companies in the manufactured housing
industry to enter into repurchase and other recourse agreements with
lending institutions which have provided wholesale floor plan
financing to dealers. Substantially all of the Company's sales are
made to dealers located primarily in the southeast, southwest and
midwest regions of the United States and are pursuant to repurchase
agreements with lending institutions. These agreements generally
provide for repurchase of the Company's products from the lending
institutions for the balance due them in the event of repossession
upon a dealer's default. Although the Company is contingently
liable for an amount estimated to be $158,000 under these agreements
as of December 31, 1997, such contingency is mitigated by the fact
that (i) sales of manufactured homes are spread over a relatively
large number of dealers; (ii) the price the Company is obligated to
pay under such repurchase agreements generally declines over the
period of the agreement; and (iii) the Company may be able to reduce
its losses by the resale value of the homes which may be required to
be repurchased. The Company has an allowance for losses of $1,175
(1997) and $837 (1996) based on prior experience and current market
conditions. Management expects no material loss in excess of the
allowance.
-20-
<PAGE>
b. Under the insurance plans described in Note 2, the Company is
contingently liable at December 31, 1997 for future retrospective
premium adjustments up to a maximum of approximately $5,700 in the
event that additional losses are reported related to prior years.
c. The Company is engaged in various legal proceedings that are
incidental to and arise in the course of its business. Certain of
the cases filed against the Company and other companies engaged in
businesses similar to the Company allege, among other things, breach
of contract and warranty, product liability, personal injury and
fraudulent, deceptive or collusive practices in connection with
their businesses. These kinds of suits are typical of suits that
have been filed in recent years, and they sometimes seek
certification as class actions, the imposition of large amounts of
compensatory and punitive damages and trials by jury. Courts have
certified several of these types of cases as class actions recently,
and many of these types of cases have resulted in large damage
awards, especially large punitive damage awards. In the opinion of
management, the ultimate liability, if any, with respect to the
proceedings in which the Company is currently involved is not
presently expected to have a material adverse effect on the Company.
However, the potential exists for unanticipated material adverse
judgments against the Company.
11. INDUSTRY SEGMENT INFORMATION
The Company's primary activities are the design, production and wholesale
sale of manufactured homes to a system of independent dealers. The Company
also offers retail financing of its homes through its exclusive
independent dealer network. For purposes of segment reporting, corporate
assets consist primarily of cash, certain property and equipment and other
investments. Operating profit is considered to be income before general
corporate expenses, interest and income taxes.
-21-
<PAGE>
Financial information for these segments is summarized in the following table:
<TABLE>
<S> <C> <C> <C> <C>
General
Financial Corporate
Manufacturing Services (Unallocated) Total
Year ended December 31, 1997:
Revenues $ 555,842 $ 5,346 $ 561,188
Operating income (loss) 24,380 2,043 $ (9,342) 17,081
Identifiable assets 149,893 51,843 9,818 211,554
Depreciation and amortization 7,166 208 118 7,492
Capital expenditures 9,515 265 406 10,186
Year ended December 31, 1996:
Revenues $ 573,838 $ 3,333 $ 577,171
Operating income (loss) 41,719 1,257 $ (2,129) 40,847
Identifiable assets 151,594 38,175 6,618 196,387
Depreciation and amortization 5,588 129 43 5,760
Capital expenditures 15,669 196 241 16,106
Year ended December 31, 1995:
Revenues $ 420,790 $ 1,764 $ 422,554
Operating income (loss) 30,404 638 $ (2,334) 28,708
Identifiable assets 106,872 22,388 3,434 132,694
Depreciation and amortization 3,691 59 7 3,757
Capital expenditures 13,209 260 13 13,482
</TABLE>
* * * * *
-22-
<PAGE>
Exhibit 99.2
Independent Auditors' Report
The Board of Directors and Shareholders
Belmont Homes, Inc.:
We have audited the accompanying consolidated balance sheet of Belmont Homes,
Inc. and subsidiaries as of December 31, 1995 and 1996 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years in the three year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the management of
the Company. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Belmont Homes, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Jackson, Mississippi KPMG Peat Marwick LLP
February 21, 1997
F-2
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands, except for share information)
<TABLE>
<CAPTION>
December 31,
----------------
Assets 1995 1996
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,055 $ 5,070
Certificates of deposit maturing within one year, at cost
which approximates market 6,717 8,243
Accounts receivable 7,302 7,829
Inventories (Note 4) 7,425 13,020
Prepaid expenses and other 1,355 2,661
-------- --------
Total current assets 24,854 36,823
Property, plant and equipment, net (Note 5) 14,812 22,318
Goodwill and other assets, less accumulated amortization
of $855 and $1,359, respectively (Note 3) 10,402 20,214
-------- --------
$ 50,068 $ 79,355
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes and current portion of long-term debt (Notes 7 and 14) $ 4,600 $ 9,093
Trade accounts payable 3,665 3,461
Accrued expenses and other liabilities (Note 6) 5,552 10,744
-------- --------
Total current liabilities 13,817 23,298
Long-term debt (Notes 7 and 14) 6,919 1,303
Deferred income taxes (Note 8) 284 907
-------- --------
Total liabilities 21,020 25,508
-------- --------
Shareholders' equity (Notes 10, 11 and 14):
Preferred stock of no par value -- --
Common stock of $.10 par value. Authorized 20,000,000 shares;
issued and outstanding 5,455,000 and 9,466,500 shares,
respectively 546 947
Additional paid-in capital 15,087 27,372
Retained earnings 16,908 29,021
-------- --------
32,541 57,340
Adjustment to predecessor equity (3,493) (3,493)
-------- --------
Total shareholders' equity 29,048 53,847
-------- --------
Commitments and contingencies (Note 12)
$ 50,068 $ 79,355
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands, except for share information)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Gross sales $ 107,423 $ 150,576 $ 234,050
Less: dealer rebates 1,597 2,272 6,233
----------- ----------- -----------
Net sales 105,826 148,304 227,817
Cost of sales 89,902 127,165 197,801
----------- ----------- -----------
Gross profit 15,924 21,139 30,016
Selling, general and administrative expenses 5,134 7,061 10,799
----------- ----------- -----------
Income from operations 10,790 14,078 19,217
----------- ----------- -----------
Other expenses (income):
Interest expense (Note 13) 1,185 825 285
Interest income (123) (511) (705)
----------- ----------- -----------
1,062 314 (420)
----------- ----------- -----------
Income before income taxes 9,728 13,764 19,637
Income tax expense (Note 8) 3,349 5,154 7,524
----------- ----------- -----------
Net income 6,379 8,610 12,113
Dividends on preferred stock (81) (28) --
----------- ----------- -----------
Net income applicable to common shares $ 6,298 $ 8,582 $ 12,113
=========== =========== ===========
Net income per common share $ 1.20 $ 1.23 $ 1.29
=========== =========== ===========
Weighted average common shares outstanding 5,250,000 6,963,000 9,426,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In Thousands, except for share information)
<TABLE>
<CAPTION>
Additional Adjustment
Common paid-in Retained to predecessor
stock capital earnings equity Total
----- ------- -------- ------ -----
<S> <C> <C> <C> <C> <C>
Balance (deficit) at December 31, 1993 $ 350 $ -- $ 2,071 $ (3,493) $ (1,072)
Net income -- -- 6,379 -- 6,379
-------- -------- -------- -------- --------
Balance at December 31, 1994 350 -- 8,450 (3,493) 5,307
Initial sale of common stock to
public (Note 14) 196 15,087 -- -- 15,283
Dividends on preferred stock -- -- (152) -- (152)
Net income -- -- 8,610 -- 8,610
-------- -------- -------- -------- --------
Balance at December 31, 1995 546 15,087 16,908 (3,493) 29,048
Sale of common stock to public
(Note 14) 80 11,645 -- -- 11,725
Exercise of stock options 6 751 -- -- 757
Tax benefit from exercise of
stock options -- 204 -- -- 204
Three for two stock split 315 (315) -- -- --
Net income -- -- 12,113 -- 12,113
-------- -------- -------- -------- --------
Balance at December 31, 1996 $ 947 $ 27,372 $ 29,021 $ (3,493) $ 53,847
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands, except for share information)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,379 $ 8,610 $ 12,113
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 892 1,248 1,899
Deferred income taxes (85) (124) (292)
Changes in operating assets and liabilities,
net of effect of
acquisitions:
Accounts receivable (207) (2,300) 334
Inventories (328) (1,560) (3,339)
Prepaid expenses and refundable
income taxes (384) 665 (79)
Other assets (147) 165 (101)
Accounts payable (954) 661 (1,680)
Accrued expenses 1,082 1,178 1,806
-------- -------- --------
Net cash provided by operating activities 6,248 8,543 10,661
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,335) (5,447) (5,915)
Purchases of certificates of deposit (2,998) (8,717) (16,114)
Maturities of certificates of deposit 3,299 2,000 14,588
Acquisitions, net of cash acquired (Note 3) -- (2,377) (8,145)
Investment in and advances to joint ventures -- -- (2,511)
Cash restricted for construction -- 1,548 521
Other 30 (100) --
-------- -------- --------
Net cash used by investing activities (1,004) (13,093) (17,576)
-------- -------- --------
Cash flows from financing activities:
Proceeds from notes and long-term debt 6,500 -- 38
Repayments of notes and long-term debt (7,127) (12,957) (11,394)
Net borrowings on line of credit agreements -- -- 8,600
Retirement of preferred stock, including dividends -- (1,052) --
Preferred and common stock -- 15,283 12,686
-------- -------- --------
Net cash provided (used) by financing activities (627) 1,274 9,930
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 4,617 (3,276) 3,015
Cash and cash equivalents at beginning of year 714 5,331 2,055
-------- -------- --------
Cash and cash equivalents at end of year $ 5,331 $ 2,055 $ 5,070
======== ======== ========
Supplemental disclosure - interest paid $ 726 $ 1,125 $ 344
======== ======== ========
Supplemental disclosure - income taxes paid $ 3,802 $ 4,150 $ 6,529
======== ======== ========
Supplemental disclosure - non cash financing
transactions (See note 3).
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except for share information)
(1) Basis of Presentation
Belmont Homes, Inc. ("Belmont"), incorporated in Mississippi
in June 1993, is a producer of a variety of single and double section
manufactured homes which are marketed primarily in the southern United
States. Belmont and its wholly-owned subsidiaries, Spirit Homes, Inc.,
Bellcrest Homes, Inc. and Delta Homes, Inc. (collectively, the
"Company") operate five production facilities in Mississippi, four
production facilities in Arkansas and two production facilities in
Georgia.
The consolidated financial statements include the accounts of
Belmont Homes, Inc. and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation. These financial statements have been prepared in
conformity with generally accepted accounting principles. Accordingly,
management has made estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Material estimates that are particularly susceptible to change in the
near-term relate to determination of estimated costs for warranty
claims and promotional programs. Actual results could differ
significantly from those estimates.
(2) Summary of Significant Accounting Policies
(a) Cash Equivalents
Cash and cash equivalents includes demand deposits, savings
accounts and certificates of deposit with an original maturity of three
months or less.
(b) Accounts Receivable
The Company's gross sales and related accounts receivable
arise from customers in the manufactured housing industry in the
southern United States and are subject to credit risk inherent in the
industry. Credit is extended in the normal course of business under
normal trade terms. The Company has established an allowance of $37 at
December 31, 1995 and 1996, based upon the expected collectibility of
its receivables. Homes are manufactured to dealer orders and a sale is
recognized upon delivery of the home and the transfer of title.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value).
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
of plant and equipment is calculated using the straight-line method
over the estimated useful lives of the assets.
(e) Goodwill
Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired and is being amortized over
twenty-five years using the straight-line method.
F-7
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
If facts and circumstances indicate that goodwill may be
impaired, an assessment will be made by the Company to determine if a
writedown is required or if its estimated useful life should be
revised. The assessment will be based primarily on forecasted operating
income, including interest expense, depreciation and amortization other
than goodwill; supplemented if necessary by an independent appraisal of
fair value. The Company believes that no impairment of goodwill has
occurred and that no revision of its estimated useful life is required.
(f) Product Warranties and Volume Incentives
The Company warrants its homes against manufacturing defects
for a period of ninety days for plumbing and electrical components and
for one year on the basic home structure, commencing at the time of
sale by a dealer, and provides an allowance for warranty claims based
on experience and accumulated statistical data. Expenses related to
such claims are accrued currently as operating expenses based on an
estimate of claims to be incurred and the cost of repairs performed.
The Company awards volume incentive rebates to dealers using a
predetermined formula applied to certain models of homes purchased
during the rebate period. Rebates are paid semi-annually. Based on
management's estimate of rebates which will be earned during the rebate
period, the Company accrues for rebates earned but not paid. Related
costs are accrued currently based on estimates of revenue and the
number of homes sold.
Management believes the liabilities established for warranty
claims and dealer rebates at December 31, 1996 are adequate to cover
the ultimate related net costs, but the liabilities are necessarily
based on estimates and, accordingly, the amounts ultimately paid will
be more or less than such estimates.
(g) Income Taxes
The Company uses the asset and liability method in accounting
for income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date. Additionally, recognition is required of deferred tax liabilities
and deferred tax assets for the deferred tax consequences of
differences between the assigned values and the tax bases of the assets
and liabilities recognized in a purchase business acquisition. The
income tax benefit resulting from purchased excess tax basis is
accounted for as a reduction of goodwill in the year realized.
(h) Stock Based Compensation
The Company accounts for its stock option plans in accordance
with the provisions of Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock Based Compensation", which
provides an alternative to the Accounting Principles Board's Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and is
effective for the year which began January 1, 1996. As permitted by
SFAS 123, the Company will continue to account for its employee stock
plans in accordance with the provisions of APB 25 and provide expanded
disclosures as required under SFAS 123. Accordingly, SFAS 123 will not
have a significant impact on the Company's financial position or
results of operations.
F-8
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(i) Investment in Joint Ventures
The Company accounts for its investments in joint ventures
using the equity method. Financial results from the joint ventures are
recorded as a component of cost of sales in the accompanying
consolidated financial statements.
(j) Accounting Changes
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by the Company be reviewed
for impairment whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. This statement
requires that the majority of long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. Implementation of this
statement did not have a material impact on the Company's consolidated
financial statements.
Effective January 1, 1996 the Company adopted SFAS 123 as
described in (h) above.
(k) Net Income Per Share
Net income per share calculations are based on the weighted
average number of common shares and dilutive common share equivalents
outstanding during each period. All earnings per share data have been
adjusted for the three for two stock split declared on November 1,
1996.
(l) Reclassifications
Certain prior years' amounts have been reclassified to conform
to classifications used in 1996.
(3) Acquisitions
On October 24, 1996, in a transaction accounted for using the
purchase method of accounting, the Company completed its purchase of
100% of the stock of Bellcrest Homes, Inc. ("Bellcrest") through the
cash payment of $9,500.
The effects of the acquisition at the purchase date were as
follows:
<TABLE>
<S> <C>
Decrease in cash, net $7,145
Increase in other current assets 3,422
Increase in property, plant and equipment 3,525
Increase in goodwill and other assets 6,762
Increase in current liabilities 4,756
Increase in long-term debt and deferred income taxes 1,808
</TABLE>
The following unaudited pro forma data are provided for
comparative purposes and are not necessarily indicative of actual
results that would have been achieved had the acquisition of Bellcrest
been consummated at an earlier date and are not necessarily indicative
of future results. Assuming that the acquisition was consummated on
January 1, 1995 and January 1, 1996, respectively, unaudited pro forma
gross sales, net income and net income per common share, after giving
effect to certain adjustments, including amortization of
F-9
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
goodwill and other assets, increased interest expense on debt related
to the acquisition, increased depreciation expense, and related income
tax effects, for the years ended December 31, 1995 and 1996 follow:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Gross sales $180,093 $265,374
Net income 8,736 12,204
Net income per common share 1.25 1.29
</TABLE>
In the event Bellcrest attains certain stated levels of
earnings before income taxes for the three-month period ended December
31, 1996 and for each of the years ending December 31, 1997 and 1998,
the Company is required to pay the former Bellcrest shareholders
additional consideration in an amount not to exceed $3,500 in the
aggregate. Any such additional amounts paid will be recorded as
goodwill in the period earned. Subsequent to December 31, 1996, the
Company paid $1,000, the amount earned and accrued for 1996, to the
former shareholders.
In conjunction with this acquisition, a former Bellcrest
shareholder was issued warrants for the purchase of 75,000 shares of
Belmont common stock. The warrants, which expire in October 2001, are
exercisable at $14.66 per share and their fair value at the issue date
was estimated to be negligible. None of these warrants have been
exercised as of December 31, 1996.
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. for $9,800, consisting of cash of $2,450
and debt of $7,350.
The effects of the acquisition at purchase date were as
follows:
<TABLE>
<S> <C>
Decrease in cash, net $2,377
Increase in other current assets 5,708
Increase in property, plant and equipment 4,107
Increase in restricted cash 2,069
Increase in goodwill and other assets 5,505
Increase in current liabilities 8,009
Increase in long-term debt and deferred income taxes 7,003
</TABLE>
The following unaudited pro forma data are provided for
comparative purposes and are not necessarily indicative of actual
results that would have been achieved had the acquisition of Spirit
been consummated at an earlier date and are not necessarily indicative
of future results. Assuming that the acquisition was consummated on
January 1, 1994 and January 1, 1995, respectively, unaudited pro forma
gross sales, net income and net income per common share, after giving
effect to certain adjustments, including amortization of goodwill and
other assets, increased interest expense on debt related to the
acquisition, increased depreciation expense, and related income tax
effects, for the years ended December 31, 1994 and 1995 follow:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Gross sales $143,865 $189,418
Net income 6,730 9,598
Net income per common share 1.27 1.37
</TABLE>
During 1996 the Company acquired a 50% ownership interest in
Quality Housing Supply LLC (Quality), which manufactures gypsum and
laminated wallboard and various exterior and interior home doors. The
Company is entitled to purchase products from Quality and to share in
the earnings (losses) of the operation based on the relative purchases
of Quality product during 1996 and based on a 50/50 split thereafter.
Purchases made by the Company were $2,387 during 1996.
The Company also owns a 33% ownership interest in Ridge Pointe
Manufacturing LLC (Ridge Pointe), which manufactures a variety of
cabinet doors used in the Company's manufactured houses. The Company is
entitled to purchase products from Ridge Pointe, such purchases were
not material to the Company's 1996 consolidated financial statements.
At December 31, 1996, the Company's investment in Quality and
Ridge Pointe was approximately $2,611. Equity in the entities' results
of operations for 1996 was not material.
F-10
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Raw materials $ 4,670 $ 9,702
Work in process 580 798
Finished homes 2,175 2,520
------- -------
$ 7,425 $13,020
======= =======
</TABLE>
(5) Property, Plant and Equipment
The components of property, plant and equipment are as
follows:
<TABLE>
<CAPTION>
Estimated
useful life 1995 1996
----------- ------- -------
<S> <C> <C> <C>
Land -- $ 873 $ 1,445
Land improvements 15 years 1,211 1,948
Buildings 40 years 6,448 11,798
Machinery, equipment and tools 3 - 7 years 2,986 7,683
Furniture, fixtures and equipment 3 - 7 years 445 708
Automotive equipment 5 years 1,097 1,466
Construction in progress -- 2,710 --
Cash restricted for construction 521 --
------- -------
16,291 25,048
Less accumulated depreciation (1,479) (2,730)
------- -------
$14,812 $22,318
======= =======
</TABLE>
(6) Accrued Expenses
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Warranty $ 1,465 $ 3,566
Dealer rebates and promotion 1,377 2,916
Salaries and estimated bonuses 1,057 1,561
Payable to former Bellcrest Homes, Inc. shareholders (note 3) -- 1,000
Income taxes 609 718
Other 1,044 983
------- -------
$ 5,552 $10,744
======= =======
</TABLE>
F-11
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Notes and Long-Term Debt
Notes and long-term debt consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
(a) 9.25% note payable to bank, due April 1997 $ 170 $ 142
(b) 9.25% note payable to bank, due in monthly
instalments through January 1999 406 367
(c) 6% shareholder note, repaid in 1996 525 --
(d) Notes liquidated in February 1996 with proceeds of
secondary stock offering:
- 6% acquisition notes to former Spirit Homes, Inc.
shareholders 7,350 --
- Variable/Fixed Rate Industrial Development
Revenue Bonds 3,000 --
(e) Note payable to bank at prime plus .25%, due in
monthly instalments through March 2006 -- 1,065
(f) Amounts due under various line of credit agreements -- 8,600
(g) Amounts due under various capital leases 68 222
------- -------
Total notes and long-term debt 11,519 10,396
Less: current portion 4,600 9,093
------- -------
Long-term debt $ 6,919 $ 1,303
======= =======
</TABLE>
The Company has various lines of credit with banks totaling
$15,000 which expire at various dates through May 10, 1998. At
December 31, 1996 the Company had outstanding letters of credit of
$275 under one credit line issued to satisfy state bonding
regulations for service warranty. The Company's principal credit
line, a $10,000 facility, for which there was $5,000 outstanding
at December 31, 1996, bears interest at the bank's prime rate or
LIBOR plus 2.65%. Borrowings under the line are secured by
substantially all of the assets of Belmont. Restrictive covenants
require the maintenance of amounts and ratios of tangible net
worth and working capital.
F-12
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Income Taxes
A reconciliation of actual income tax expense to the computed
"expected" tax expense follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------- ------------------- -------------------
Percentage Percentage Percentage
of pre-tax of pre-tax of pre-tax
Amount income Amount income Amount income
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
"Expected" tax expense computed
at normal U. S. Federal
corporate tax rate $ 3,308 34.0% $ 4,679 34.0% $ 6,873 35.0%
State income taxes, net of
Federal benefit 271 2.8 416 3.0 687 3.5
State job credits (341) (3.5) (344) (2.5) (471) (2.4)
Other 111 1.1 403 3.0 435 2.2
------- ---- ------- ---- ------- ----
Actual tax expense $ 3,349 34.4% $ 5,154 37.5% $ 7,524 38.3%
======= ==== ======= ==== ======= ====
</TABLE>
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
December 31, 1994:
Federal $3,275 $ 5 $3,280
State 159 (90) 69
------ ------ ------
$3,434 $ (85) $3,349
====== ====== ======
December 31, 1995:
Federal $4,910 $ (43) $4,867
State 368 (81) 287
------ ------ ------
$5,278 $ (124) $5,154
====== ====== ======
December 31, 1996:
Federal $7,040 $ (102) $6,938
State 776 (190) 586
------ ------ ------
$7,816 $ (292) $7,524
====== ====== ======
</TABLE>
F-13
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities are
presented below:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance
for doubtful accounts $ 14 $ 14
Inventories, due to additional costs inventoried
for tax purposes 82 212
Accrued expenses, due to the timing of deduction 546 1,274
State jobs credit carry forward 91 385
Plant, equipment and other assets, due to different tax
basis and depreciation and amortization methods 100 --
------- -------
Gross deferred tax assets 833 1,885
------- -------
Deferred tax liabilities:
Goodwill, due to different amortization period (384) (534)
Plant, equipment and other assets, due to different tax
basis and depreciation and amortization methods -- (401)
Other, net -- (38)
------- -------
Gross deferred tax liabilities (384) (973)
------- -------
Net deferred tax asset $ 449 $ 912
======= =======
</TABLE>
The significant components of deferred income tax expense
attributable to income from continuing operations for the years ended
December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Increase in net deferred tax asset (exclusive of
the effect of other components listed below) $(319) $(463)
Effect of acquisitions:
Spirit Homes, Inc. 195 --
Bellcrest Homes, Inc. -- 171
Deferred tax expense $(124) $(292)
===== =====
</TABLE>
The state jobs credit carryforward expires on December 31, 1999.
The Company has determined, based on the Company's history of
profitable operations and expectations for the future, that the
deferred tax assets will more likely than not be fully realized and
that no valuation allowance was necessary at December 31, 1995 or 1996.
F-14
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Employee Benefit Plans
Group Medical Plan:
The Company has a self-funded group medical plan which is
administered by a third party administrator. The Plan has reinsurance
coverage limiting its liability for any individual employee loss to
$15, with a cap of $348 in aggregate losses in any one year. Incurred
claims identified under the Company's incident reporting system and
incurred but not reported claims are accrued based on estimates that
incorporate the Company's past experience, as well as other
considerations such as the nature of each claim or incident, relevant
trend factors and advice from consulting actuaries. The Company has
established a self-insurance trust fund for payment of claims and makes
deposits to the fund in amounts determined by consulting actuaries. The
cost of this plan to the Company was $453, $688 and $1,090 for the
years ended December 31, 1994, 1995 and 1996, respectively.
401(K) Tax-Deferred Savings Plan:
Participants, full-time employees with at least six months
service, may elect to contribute up to 15% of their annual compensation
to the plan. The Company may make discretionary matching contributions,
which approximated $167, $146 and $135 for the years ended December 31,
1994, 1995 and 1996, respectively.
(10) Stock Plans
Incentive Stock Plan:
The Company has reserved 600,000 shares of Common Stock for
issuance pursuant to incentive or non-qualified stock options to be
granted under the Belmont Homes, Inc. 1994 Incentive Stock Plan (the
"Incentive Plan"). The compensation committee appointed by the board of
directors may grant to officers, directors and key employees
non-transferable options to purchase shares of common stock for terms
not longer than ten years (five years in the case of incentive stock
options granted to an individual who, at the time of the grant, owns
more than 10% of the total combined voting power of all classes of
stock of the Company), at prices to be determined by the board of
directors or the compensation committee, which may not be less than
100% of the fair market value of the common stock on the date of grant
(110% in the case of an individual who, at the time of the grant of
incentive stock options, owns more than 10% of the total combined
voting power of all classes of stock of the Company), in the case of
incentive stock options under Section 422 of the Internal Revenue Code
which may be granted only to employees, and may not be less than 50% of
the fair market value of the Common Stock on the date of grant in the
case of non-statutory stock options. Options granted under the
Incentive Plan may be exercisable in instalments. Unless terminated
earlier, the Incentive Plan will terminate in 2004. The aggregate fair
market value of stock with regard to which incentive stock options are
exercisable by an individual for the first time during any calendar
year may not exceed $100 as of the date of the most recent grant. The
Incentive Plan is administered by the compensation committee of the
board of directors. During the year ended December 31, 1995, options
were granted for 75,000 shares at an option price of $6 per share, of
which 30,000 were vested and exercised in 1996. The Company granted
options in 1996 for an additional 393,000 shares under this plan at
$10.67 per share, 54,000 of which were exercised during 1996.
Non-Employee Director Stock Option Plan:
The Company has adopted the Belmont Homes, Inc. 1994
Non-Qualified Stock Option Plan for Non-Employee Directors (the
"Director Plan"), and has reserved 75,000 shares for issuance under the
plan. The Director Plan provides for the granting of non-qualified
stock options to each director of the Company who is not also either an
employee or officer of the company ("non-employee directors"). The
Director Plan authorizes the issuance of up to 75,000 shares of common
stock pursuant to options having an exercise price equal to the fair
market value of the common stock on the date the options are granted.
F-15
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Director Plan contains provisions providing for adjustment
of the number of shares available for option and subject to unexercised
options in the event of stock splits, dividends payable in common
stock, business combinations or certain other events. The board of
directors shall have no authority, discretion or power to select the
participants who will receive options pursuant to the Director Plan, to
set the number of shares of common stock to be covered by each option,
to set the exercise price or the period within which the options may be
exercised or to alter any other terms or conditions specified therein,
except as set forth below.
The Director Plan provides for the grant on the first trading
date each year (the "grant date") of options to purchase 1,500 shares
to each non-employee director serving the Company on such date. The
board of directors may revoke, on or prior to each January 1, the next
automatic grant of options otherwise provided for by the Director Plan
if no options have been granted to employees since the preceding
January 1 under any employee stock purchase or option plan that the
Company might adopt hereafter.
Each option shall be exercisable as to one-third of the shares
subject to option beginning two years after the grant date, as to
two-thirds of such shares beginning three years after the grant date
and in full beginning four years after the grant date, and shall expire
ten years after the grant date (the "Option Period"), unless canceled
sooner due to termination of service or death, or unless such option is
fully exercised prior to the end of the Option Period.
The Company granted 6,000 options under this plan in 1996 and
granted an additional 6,000 options subsequent to December 31, 1996.
All shares and per share amounts above for both plans are
adjusted for the 3 for 2 stock split in 1996.
F-16
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Options under both plans are granted at the market price of
the shares on the date of the grants. Additional information follows:
<TABLE>
<CAPTION>
Incentive
stock options Directors plan
------------------------------ ------------------------------
Average Average
Number option price Number option price
of shares per share of shares per share
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 -- $ -- -- $ --
Options granted 75,000 6.00 -- --
Options exercised -- -- -- --
------- ------ ----- ------
Balance, December 31, 1995 75,000 6.00 -- --
Options granted 393,000 10.67 6,000 12.06
Options exercised (84,000) 9.00 -- --
Options forfeited (7,500) 10.67 -- --
------- ------ ----- ------
Balance, December 31, 1996 376,500 $10.11 6,000 $12.06
======= ====== ===== ======
</TABLE>
The number of shares of common stock, as well as stock option
prices, were adjusted to reflect the three for two stock split.
Under the Incentive Plan and the Director Plan, the Company
may grant options to its employees and directors for a remaining
139,500 and 69,000 shares of common stock, respectively. The exercise
price of each option equals the market price of the Company's stock on
the date of grant.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants made during the
years ended December 31, 1995 and 1996, respectively: no dividend
yield; expected volatility of 46 percent for both years, risk-free
interest rates of 5.9 and 5.3 percent, and expected option lives of 4
years for both years presented.
A summary of the status of the Company's stock option plans at
December 31, 1995 and 1996 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1995 December 31, 1996
-------------------------- -----------------------------
Weighted- Weighted-
average average
Stock Options Shares exercise price Shares exercise price
------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year -- $ -- 75,000 $ 6.00
Granted 75,000 6.00 399,000 10.69
Exercised -- -- (84,000) 9.00
Forfeited -- -- (7,500) 10.67
------ ----- ------- ------
Outstanding at end of year 75,000 $6.00 382,500 $10.15
====== ===== ======= ======
Options exercisable at end of year -- 22,800
====== =======
Weighted-average fair value of
options granted during the year $2.58 $ 4.49
===== ======
</TABLE>
F-17
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes information about fixed stock
options for the year ended December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- --------------------------------
Weighted-
Number average Weighted- Number Weighted-
Range of outstanding remaining average exercisable average
exercise prices at 12/31/96 contractual life exercise price at 12/31/96 exercise price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 6.00 - $12.06 382,500 4.1 years $10.15 22,800 $10.67
</TABLE>
The Company applies APB Opinion 25 and related interpretations
in accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost been
determined based on the fair value at the grant dates for awards under
the plan consistent with the method of SFAS No. 123, the Company's net
income and income per common share would have been reduced to the pro
forma amounts indicated below for the year ended December 31, 1996. The
pro forma amounts for 1995 are not material.
<TABLE>
<S> <C> <C>
Net income As reported $12,113
=======
Pro forma $11,871
=======
Net income per common share As reported $ 1.29
=======
Pro forma $ 1.26
=======
</TABLE>
(11) Preferred Stock
The Company's articles of incorporation authorize 5,000,000 shares
of preferred stock. The board of directors has the authority, without
any further vote or action of the shareholders of the Company, to issue
shares of preferred stock in one or more series and to determine the
relative rights and preferences of the shares of any such series.
During the year ended December 31, 1995, 900 outstanding shares
were redeemed at par value plus dividends of $152.
(12) Commitments and Contingencies
It is customary practice for companies in the manufactured home
industry to enter into repurchase agreements with financial
institutions which provide financing to dealers. Generally the
agreements provide for the repurchase of manufactured homes from the
financial institutions in the event of repossession upon dealer's
default. The Company's contingent liability under such agreements was
approximately $86,149 at December 31, 1996. There have been no
repurchases of homes under these agreements in 1995 and 1996, and there
is no accrual for repurchase obligations.
The Company leases delivery trucks from substantially all its
drivers who deliver homes to dealers. Rentals for these trucks are
based on a rate per mile and the leases are cancelable by either party
upon thirty days notice. Rent expense under these leases was
approximately $1,982, $2,647 and $3,140 for the years ended December
31, 1994, 1995 and 1996, respectively.
F-18
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has pending claims incurred in the normal course
of business which, in the opinion of management, can be disposed of
without material effect on the accompanying consolidated financial
statements.
(13) Related Party Transactions
The Company had several notes payable (Note 7) to shareholders
and other related parties. Interest paid and accrued to related parties
was $1,069, $776 and $120 for the years ended December 31, 1994, 1995
and 1996, respectively.
The Company paid or accrued $200, $690 and $73 in 1994, 1995
and 1996, respectively, for construction of plant facilities to a
company in which a shareholder and director of the Company is also a
shareholder.
The Company paid $10, $8 and $12 in 1994, 1995 and 1996,
respectively, for legal services to a law firm in which a shareholder
and director of the Company is a partner.
The Company paid $272, $367 and $250 for the years ended
December 31, 1994, 1995 and 1996, respectively, for the purchase of
automotive equipment from a company in which a shareholder and director
of the Company is also a shareholder.
(14) Public Offerings of Securities
In June, 1995 the Company completed an initial public offering
of 2,932,500 shares (adjusted for stock split) of common stock. The net
proceeds of approximately $15,300 were used to retire debt and
preferred stock and for working capital.
In January, 1996 the Company completed a secondary public
offering of 1,200,000 shares (adjusted for stock split) of common
stock. The net proceeds of approximately $11,725 were used to retire
debt and for working capital.
Supplemental net income per share for 1995 and 1996, based on
net earnings after adjustment for dividends on preferred stock and the
after tax effect of interest expense on debt repaid with proceeds of
the above offerings, and on the weighted average shares of common stock
outstanding for 1995 and 1996, giving effect to the number of shares
sold in the offerings, the proceeds of which were used to repay such
preferred stock and debt, is as follows assuming the transactions were
effective on January 1, 1995:
<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Net income, as adjusted $ 9,052 $ 12,160
========= ==========
Net income per share $ 1.05 $ 1.28
========= ==========
Weighted average shares 8,598,000 9,512,000
========= ==========
</TABLE>
(15) Financial Instruments
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," requires that
the Company disclose estimated fair values for its financial
instruments (as defined). The Company's financial instruments
principally consist of cash and cash equivalents, certificates of
deposit, short-term trade receivables and payables and various debt
instruments. Due to their short term nature, the fair
F-19
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
value of certificates of deposit, trade receivables and payables
approximates their carrying value. The fair value of the various debt
instruments has been estimated using interest rates currently offered
to the Company for borrowings having similar character, collateral and
duration. The fair market value of such financial instruments
approximates the Company's carrying amounts.
(16) Quarterly Information (Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
----------------------------
Gross sales $51,445 $61,681 $57,512 $63,412 $234,050
Less: dealer rebates 1,241 1,454 1,337 2,201 6,233
------- ------- ------- ------- --------
Net sales 50,204 60,227 56,175 61,211 227,817
Gross profit 6,774 8,010 7,530 7,702 30,016
Income from operations 4,207 5,563 5,230 4,217 19,217
Net income 2,642 3,539 3,355 2,577 12,113
Net income per common share $0.29 $0.37 $0.35 $0.28 $1.29
Year ended December 31, 1995
----------------------------
Gross sales $25,275 $35,259 $36,739 $53,303 $150,576
Less: dealer rebates 410 546 503 813 2,272
------- ------- ------- ------- --------
Net sales 24,865 34,713 36,236 52,490 148,304
Gross profit 3,412 5,226 5,501 7,000 21,139
Income from operations 2,153 3,678 3,872 4,375 14,078
Net income 1,266 2,079 2,561 2,704 8,610
Net income per common share $0.24 $0.34 $0.31 $0.33 $1.23
</TABLE>
F-20
<PAGE>
Exhibit 99.3
BELMONT HOMES, INC. AND SUBSIDIARIES
Condensed Consolidated Quarterly Balance Sheet
Unaudited
(In Thousands)
<TABLE>
<CAPTION>
September 30, 1997
------------------
<S> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 4,521
Certificates of deposit 8,588
Accounts receivable 10,940
Inventories 12,350
Prepaid and other 2,815
--------
Total Current Assets 39,214
--------
Property, plant and equipment, net 21,607
Goodwill and other assets, net 19,367
--------
$ 80,188
========
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------
Current Liabilities:
Accounts payable $ 6,084
Accrued expenses 14,168
--------
Total current liabilities 20,252
--------
Deferred income taxes 907
--------
Total liabilities 21,159
--------
Shareholders' equity:
Common stock 947
Additional paid-in capital 27,372
Retained earnings 34,203
Adjustment to predecessor basis (3,493)
Total shareholders' equity 59,029
--------
$ 80,188
========
</TABLE>
See Notes to Condensed Consolidated Quarterly Financial Statements.
F-21
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Condensed Consolidated Quarterly Statements Of Income
(Unaudited - In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1997 1996
-------------------------
<S> <C> <C>
Gross sales $ 179,575 $ 170,638
Less: dealer rebates 7,493 3,947
--------- ---------
Net sales 172,082 166,691
Cost of sales 154,875 144,289
--------- ---------
Gross profit 17,207 22,402
Selling, general and administrative 11,140 7,402
--------- ---------
Income from operations 6,067 15,000
Other income (expense):
Interest expense (432) (75)
Interest income 435 459
Officer's life insurance 1,500 --
--------- ---------
Income before income taxes 7,570 15,384
Income taxes 2,388 5,848
--------- ---------
Net Income $ 5,182 $ 9,536
--------- ---------
Net income per common share $ .55 $ 1.02
--------- ---------
Weighted average common shares 9,482 9,378
--------- ---------
</TABLE>
- ----------------------
See Notes to Condensed Consolidated Quarterly Financial Statements.
F-22
<PAGE>
BELMONT HOMES, INC. AND SUBSIDIARIES
Condensed Consolidated Quarterly Statements Of Cash Flows
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
-----------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,182 $ 9,536
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,148 1,188
Loss on leasehold improvements at closed plant 299 --
Changes in operating assets and liabilities:
Accounts receivable (3,111) (3,835)
Inventories 670 (3,831)
Prepaid and other 122 (128)
Accounts payable 2,623 3,155
Accrued expenses 3,424 4,269
-------- --------
Net cash provided by operating activities 11,357 10,354
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,165) (4,834)
Certificates of deposit, net (345) (1,421)
Investments in supply joint ventures -- (2,505)
-------- --------
Net cash provided (used) by investing activities (1,510) (8,760)
-------- --------
Cash flows from financing activities:
Proceeds from notes 2,200
Repayment of notes and long-term debt (10,396) (10,940)
Proceeds from sale of common stock net of offering costs -- 12,390
-------- --------
Net cash provided (used) by financing activities (10,396) 3,650
-------- --------
Net increase in cash and equivalents (549) 5,244
Cash and equivalents at beginning of year 5,070 2,055
-------- --------
Cash and equivalents at end of period $ 4,521 $ 7,299
======== ========
</TABLE>
See Notes to Condensed Consolidated Quarterly Financial Statements.
F-23
<PAGE>
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
the 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 Quarterly Financial Statements include the
accounts of Belmont and its wholly-owned subsidiaries from incorporation or
acquisition date 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 Quarterly Financial Statements should be read in
conjunction with Belmont's audited financial statements and notes thereto.
In the opinion of Belmont's management, all adjustments, consisting
only of normal recurring adjustments that are necessary for a fair presentation,
have been included in the Condensed Consolidated Quarterly Financial Statements
for the interim periods ended September 30, 1997 and 1996. The results of
operations for the three-and nine-month periods ended September 30, 1997 and
1996 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
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials $ 9,077 $ 9,702
Work-in-progress 641 798
Finished homes 2,632 2,520
------------ ------------
$ 12,350 $ 13,020
============ ============
</TABLE>
F-24
<PAGE>
Exhibit 99.4
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Bellcrest Homes, Inc.
Millen, Georgia
We have audited the accompanying statement of income of Bellcrest Homes, Inc.
for the year ended December 31, 1995. This statement of income is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this statement of income based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of income is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of income. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statement of
income. We believe that our audit of the statement of income provides a
reasonable basis for our opinion.
In our opinion, the statement of income referred to above presents fairly, in
all material respects, the results of the operations of Bellcrest Homes, Inc.
for the year ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Alday, Tillman, Wright & Giles, P.C.
- ------------------------------------------
Alday, Tillman, Wright & Giles, P.C.
Valdosta, Georgia
January 23, 1996
F-25
<PAGE>
BELLCREST HOMES, INC.
STATEMENTS OF INCOME
($ IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED SEPTEMBER ENDED
30, 1996 DECEMBER
(UNAUDITED) 31, 1995
--------------- ---------
<S> <C> <C>
GROSS SALES $ 31,392 $ 29,613
LESS: DEALER REBATES 1,509 1,353
-------- --------
NET SALES 29,883 28,260
-------- --------
COST OF SALES 26,193 24,609
-------- --------
GROSS PROFIT 3,690 3,651
SELLING, GENERAL AND ADMINISTRATIVE 2,407 2,264
-------- --------
INCOME FROM OPERATIONS 1,283 1,387
OTHER INCOME AND (EXPENSE)
Interest expense (87) (46)
Interest income 29 28
-------- --------
INCOME BEFORE INCOME TAXES 1,225 1,369
INCOME TAXES 468 508
-------- --------
NET INCOME $ 757 $ 861
======== ========
</TABLE>
See accompanying notes and independent auditors' report.
F-26
<PAGE>
BELLCREST HOMES, INC.
NOTES TO STATEMENTS OF INCOME
($ IN THOUSANDS)
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bellcrest Homes, Inc. was incorporated December 12, 1986, in Jenkins County,
Georgia. The Company's first assets were acquired on January 15, 1987 and
production began at that time. The Company builds manufactured homes in its
plant in Millen, Georgia for sale to retail outlets.
The condensed statement of income of Bellcrest Homes, Inc. for the nine months
ended September 30, 1996 has been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in statements of
income prepared in accordance with generally accepted accounting principles have
been omitted. The condensed statement of income should be read in conjunction
with the audited financial statements and notes thereto included elsewhere
herein.
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 statement of income for the interim period ended
September 30, 1996. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of the results of operations
to be expected for the full year ending December 31, 1996 or any other period.
Accounts Receivable
Trade receivables arising from sales to customers are not collateralized and as
a result management continually monitors the financial conditions of these
customers to reduce the risk of loss. All trade receivables at December 31, 1995
are considered to be collectible, and no provision has been made for losses on
uncollectible accounts.
Inventories
Inventories are stated at the lower of cost or market using the first-in first
out (FIFO) method.
Property and Equipment
Property and equipment is recorded at cost. The cost of property and equipment
is depreciated over the useful lives of the related assets. Depreciation is
computed on the straight-line method for financial reporting and on the modified
accelerated and accelerated cost recovery method for income tax purposes.
Maintenance and repairs are charged to operations when incurred. When property
or equipment is retired/disposed of, its cost and the related accumulated
depreciation are eliminated from the respective accounts, and gains or losses
arising from the disposition are included in income for that period.
The useful lives of property, plant, and equipment for purposes of computing
depreciation are:
YEARS
-----
Buildings and improvements 15 - 30
Office furniture and fixtures 5 - 7
Machinery and equipment 5 - 7
Autos and trucks 5
F-27
<PAGE>
BELLCREST HOMES, INC.
NOTES TO STATEMENTS OF INCOME
($ IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Warranty Obligations
Provisions for expected costs relating to warranty obligations are made at the
time of sale of manufactured homes.
Income Taxes
Deferred income taxes are provided on timing differences between financial
statement and income tax reporting, principally from the use of different
methods of depreciation for income tax and financial statement purposes and the
non-deductibility of certain accruals/reserves until the expense is actually
paid.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - PROPERTY AND EQUIPMENT
Depreciation expense on property and equipment, including that acquired under
capital lease, was $203,930 for the year ended December 31, 1995.
NOTE 3 - LINE-OF-CREDIT, BANK
The Company has a line-of-credit with First Union National Bank of Florida which
expires annually each April 30. The line-of-credit is to be used for general
short-term working capital requirements which occur in the normal course of
business. The line bears a rate of prime plus one-half percent.
NOTE 4 - INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to depreciable assets and various accrued liabilities. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
Income tax expense for the year ended December 31, 1995, is made up of the
following components:
<TABLE>
<S> <C>
Current tax expense $ 496
Deferred income tax expense 12
-----
$ 508
=====
</TABLE>
F-28
<PAGE>
BELLCREST HOMES, INC.
NOTES TO STATEMENTS OF INCOME
($ IN THOUSANDS)
NOTE 4 - INCOME TAXES, CONTINUED
The source and tax effect of the components of deferred income tax expense for
the year ended December 31, 1995 is as follows:
<TABLE>
<S> <C>
Difference in tax and book depreciation $ 4
Warranty expense deductible when paid (4)
Other reserves and accruals 12
-----
$ 12
=====
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company has an incentive bonus plan for officers/shareholders and various
key employees. Payments under the plan are based on production goals, sales
goals and profitability. Bonuses paid or accrued during the year ended December
31, 1995 were $764 for the year ended December 31, 1995.
NOTE 5 - MAJOR CUSTOMERS AND GEOGRAPHIC CONCENTRATION
The majority of the Company's sales are to dealers in the Southeast.
Additionally, virtually all sales to dealers are financed by third party floor
planners. A downturn in the economy could adversely affect available financing
for dealers and the resulting sales. The Company carefully monitors the economy
and is constantly seeking out additional markets for their sales.
The Company has two major customers, each accounting for over 10% of sales for
1995.
F-29
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 41276
<SECURITIES> 0
<RECEIVABLES> 8449
<ALLOWANCES> 1175
<INVENTORY> 29697
<CURRENT-ASSETS> 89515
<PP&E> 71383
<DEPRECIATION> 17949
<TOTAL-ASSETS> 211554
<CURRENT-LIABILITIES> 61031
<BONDS> 0
0
0
<COMMON> 1994
<OTHER-SE> 131557
<TOTAL-LIABILITY-AND-EQUITY> 211554
<SALES> 555842
<TOTAL-REVENUES> 561188
<CGS> 466749
<TOTAL-COSTS> 466749
<OTHER-EXPENSES> 7359
<LOSS-PROVISION> 669
<INTEREST-EXPENSE> 1511
<INCOME-PRETAX> 18339
<INCOME-TAX> 8092
<INCOME-CONTINUING> 10247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10247
<EPS-BASIC> .52
<EPS-DILUTED> .51
</TABLE>
