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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 29, 1996 Commission file number 0-15506
Schult Homes Corporation
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(Exact name of registration as specified in its charter)
Indiana 35-1608892
-------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
P.O. Box 151, Middlebury, IN 46540 (219) 825-5881
- ---------------------------------------- ------------------
(Address of Principal Executive Offices) (Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Shares no par value per share AMERICAN
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Securities registered pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of September 9, 1996, the aggregate market value of the registrant's common
shares held by non-affiliates was $74,873,700 (3,743,685 shares at the closing
price on AMERICAN of $20.00). The number of shares of common shares outstanding
at that date was 3,743,685 shares.
Documents Incorporated by Reference:
Part Item
---- ----
1. Schult Homes Corporation 1996 Annual
Report to Shareholders II 6,7,8
2. Schult Homes Corporation Proxy Statement
with respect to its October 24, 1996 Annual Meeting III 10,11,12
<PAGE>
CROSS-REFERENCE SHEET
ITEM PAGE
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . .10
5. Market for Registrant's Common Equity and Related Stockholder Matters. . .11
6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . .12
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
8. Financial Statements and Supplementary Data. . . . . . . . . . . . . . . .12
9. Changes in and Disagreements with Auditors on Accounting and Financial
Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
10. Directors and Executive Officers of the Registrant. . . . . . . . . . . .12
11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . .12
12. Security Ownership of Certain Beneficial Owners and Management. . . . . .13
13. Certain Relationships and Related Transactions. . . . . . . . . . . . . .13
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . .13
2
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PART I
SCHULT HOMES CORPORATION AND SUBSIDIARIES
ITEM 1. BUSINESS
GENERAL
Schult Homes Corporation (the "Company"), founded in 1934, is the
country's oldest and eighth largest producer of factory built homes. The
Company's factory-built homes include both homes manufactured to meet the
national building code administered by the U.S. Department of Housing and
Urban Development ("manufactured homes") and homes produced to meet building
codes, similar to building codes applicable to site-built homes, administered
by state and local authorities ("modular homes"). At June 29, 1996, the
Company operated ten manufacturing facilities located in seven states. These
facilities produce manufactured homes sold in 42 states. The Company's
modular homes are currently produced in all ten of the Company's facilities
and are sold in 29 states. The Company's manufactured homes are sold through
781 independent dealers, 215 of which solely market the Company's modular
homes. For the fiscal year ended June 29, 1996, modular homes accounted for
11.7% of the Company's net sales.
The Company focuses on the middle to higher price range of the
manufactured housing market and the lower to middle price range of the modular
housing market. Schult's factory-built homes range in size from approximately
560 to 4,400 square feet and sell at retail, excluding land, for prices ranging
from $25,000 to $250,000.
Schult concentrates its marketing efforts on maintaining and
developing consumer loyalty and dealer support by emphasizing design, quality
and service. In recent years, the Company has focused its product development
efforts on multi-section manufactured homes and modular homes which meet
regional consumer preferences and match site-built home specifications and
features. The Company has developed engineering and operating systems which
permit it to customize its products to meet the desires of individual home
buyers, but has also provided standard homes with few options, at lower prices.
Schult believes that its market assistance and after-sale assistance position it
to appeal to the over-45 age segment, a growing population with more
discretionary financial resources than the typical first-time home buyer.
Being in the right markets with the right products has produced strong
sales growth for the Company. To meet customer demand, the Company began a
major expansion program in 1993. Completed in fiscal 1995, this three-year, $12
million investment added approximately $75 million of production capacity.
INDUSTRY
The factory-built housing industry has historically served as a more
affordable alternative to the home buyer. Because of the relatively lower cost
of construction as compared to site-built homes, manufactured homes
traditionally have been one of the means for first-time home buyers to overcome
the obstacles of large down payments and higher monthly mortgage payments. The
Company believes that the cost advantages associated with the construction of
modular homes present a more affordable alternative to buyers seeking the
characteristics of site-built homes, and that modular homes offer better control
of costs for builders and developers with scattered lots or small subdivisions.
Factory-built homes also present an affordable alternative to site-built homes
for retirees and the over-45 age segment desiring a lifestyle in which home
ownership is less burdensome than is the case with site-built homes. The
Company believes that because of changing demographics, this market segment
should expand throughout the rest of the decade.
The factory-built housing industry is cyclical and affected by the
availability of alternative housing such as apartments, townhouses and
condominiums. In addition, interest rates, availability of financing, regional
population and employment trends, and general and regional economic conditions
affect the sale of factory-built homes.
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Industry shipments during 1995 were up by 12% following a 20% increase in 1994
and a 21% increase in 1993. The Manufactured Housing Institute also reported
that industry shipments during the first six months of 1996 were up by 9.5%.
There are several factors driving industry growth. Mortgage interest rates,
which have remained moderate over the past three years, are enabling consumers
to buy homes. The relative scarcity of apartment housing makes manufactured
housing an attractive alternative. Finally, more empty-nesters are choosing
manufactured homes because they offer the quality and features empty-nesters
require at prices that are becoming increasingly favorable as the cost of site-
built homes escalates.
OPERATING STRATEGY
The Company believes its basic operating and competitive strategy is
best described as "product differentiation." Schult offers a broad range of
factory-built homes both in terms of price levels and in design and
specifications.
The Company's design and engineering personnel design homes in
consultation with divisional management, sales representatives and dealers, and
evaluate new materials and construction techniques in a continuing program of
development and enhancement. The Company uses computer-aided design technology
and has developed order-entry and engineering systems which permit customizing
of homes to meet the individual needs of prospective buyers. These systems
allow the Company to make modifications such as increasing the length of a
living room, moving a partition, changing the size and location of a window or
installing custom cabinets without excessive reductions in manufacturing
productivity. The Company believes that its ability to customize, along with
the Company's marketing assistance and after-sale service tailored to the needs
of individual consumers, and its development of standard homes with few options,
position it to appeal to the over-45 age segment, a growing population with more
discretionary financial resources than the typical first-time home buyer.
In recent years, the Company has developed and marketed products which
compete in quality and appearance with site-built homes and which match regional
customer tastes and preferences. In part, the Company has substantially
increased the proportion of its production devoted to multi-section manufactured
homes. As another part of its long-term strategy, the Company is implementing a
detailed plan to increase the production and sale of modular homes.
The following table sets forth information concerning the Company's
sales of multi-section homes as a percentage of the total number of factory-
built homes sold by the Company:
FISCAL YEAR ENDED
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JUNE 29, JUNE 27, JUNE 26, JULY 2, JULY 1, JUNE 29,
1991 1992 1993 1994 1995 1996
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61.6% 61.4% 59.7% 64.1% 65.3% 62.7%
PRODUCTS
Schult offers both manufactured homes and modular homes in a total of
875 different floor plans. Included in the Company's modular homes are a
limited number of commercial structures, primarily school rooms, produced under
modular building codes. For the fiscal year ended June 29, 1996, the
percentages of the Company's net sales attributable to the sale of manufactured
homes and modular homes were 88.3% and 11.7%, respectively.
The Company's factory-built homes typically include two or three
bedrooms, a family room, kitchen, dining room, living room, and two full
bathrooms, together with central heating, cooking range, refrigerator, hot water
heater, carpeting and draperies. Buyers may also choose optional items
including fireplaces; appliances such as
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dishwashers, washers, dryers, garbage disposals, microwave ovens and stereo
systems; energy conservation options such as additional insulation and 2" x
6" wall systems; furniture, cabinets, built-in millwork and specialty bay
windows; extra baths and closets; and upgrades to specified roofing, floor
covering, sliding doors, trim moldings, appliances, light fixtures and
draperies.
MANUFACTURED HOMES. The Company's manufactured homes are built in
accordance with the national building code administered by the U.S. Department
of Housing and Urban Development. This code is a performance-based code which
allows any material or construction process to be used as long as the
performance criteria of the code are met. This differs from most state and
local building codes which specify types of materials and construction methods
that must be used in home construction.
The Company designs and manufactures a variety of manufactured homes,
with a wide selection of materials, floor plans and decors, primarily for the
middle to higher price segment of the market. Manufactured homes are marketed
under the "Schult" and "Marlette" brands with a variety of model names,
including: Imperial, Presidential, New Congressional, Lynbrooke, American
Classic, Value Plus, Stanton, Dynasty, Elite, Homestead, Royal, Santa Fe,
Heritage Oak, Limited Edition, Ocean Crest and others. Many of the Company's
multi-section manufactured homes have exterior design features, including
asphalt shingle roofs and wood, vinyl or aluminum siding which, when
complemented by on-site customizing and landscaping, result in homes similar in
appearance to site-built homes.
The Company's single-section manufactured homes range in size from 560
square feet to 1,419 square feet and sell at retail, excluding land, from
$25,000 to $45,000. The Company's multi-section manufactured homes range in
size from 1,008 square feet to 2,331 square feet and sell at retail, excluding
land, from $30,000 to $110,000.
The Company's manufactured homes have some design limitations imposed
by the constraints of efficient production and over-the-road transit. Delivery
expense, borne by the dealer, limits the effective competitive shipping range of
the Company's manufactured homes to approximately 400 to 600 miles.
Production of standard homes, with few options, are expected to
increase efficiency and extend the market area.
MODULAR HOMES. The Company's modular homes are built in accordance
with state or local building codes and therefore are similar in specifications
and design to site-built homes. The Company's "Crest" line of modular homes is
specifically designed to compete in design and appearance with site-built homes
and differs significantly from most manufactured homes. This line of modular
homes includes a variety of single-story ranch homes, one and a half story
homes, two-story homes, townhouses and duplex units, all of which can include
attached garages built at the site by others. A portion of the Company's
modular homes are sold under the "Schult" and "Marlette" brand names. These
modular homes are typically two-section, single-story ranch homes which are
based on manufactured home designs but are built to modular specifications.
The Company focuses on the lower to middle price segment of the
modular housing market. The Company's modular homes range in size from 825
square feet to 4,400 square feet and sell at retail, excluding land, from
$40,000 to $250,000.
The Company's modular homes have design and transportation limitations
similar to manufactured homes.
MANUFACTURING OPERATIONS
The Company operates ten manufacturing facilities ranging in size from
72,500 square feet to 210,115 square feet. These facilities are located in
Middlebury, Indiana (2 facilities); Etna Green, Indiana; Plainville, Kansas;
Navasota, Texas; Buckeye, Arizona; Redwood Falls, Minnesota; Lewistown,
Pennsylvania; Milton, Pennsylvania; and
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Hermiston, Oregon. Each facility produces models designed for its regional
market area, but no single manufacturing facility produces all of the 875 models
offered by the Company.
The Company's products are manufactured in sections, which are
individually transported to their destination by truck. The finished products
may consist of one or more sections. Multi-section products, including one or
two-story homes, are joined at their destination.
The Company's manufacturing facilities generally operate one shift per
day for a five-day week, and on that basis have the capacity to produce an
aggregate of approximately 373 sections per week. During fiscal 1996, the
average production was 295 sections per week compared to 269 during fiscal 1995
and 247 during fiscal 1994. The following table sets forth the total number of
sections sold by the Company for the periods indicated:
FISCAL YEAR ENDED
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JUNE 29, JUNE 27, JUNE 26, JULY 2, JULY 1, JUNE 29,
1991 1992 1993 1994 1995 1996
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9,830 10,140 11,505 13,071 13,973 15,349
The principal materials used in the production of the Company's homes
include steel, vinyl siding, wood, wood products, shingles, gypsum wallboard,
fiberglass, carpet, vinyl floor covering, fasteners and hardware items,
appliances, furniture, electrical items, windows and doors. In general,
materials are ordered so that they are received five days prior to the time they
are incorporated into the homes. Some of the Company's facilities are in areas
where a number of manufactured housing producers and suppliers are located, and
these materials generally are readily available from a number of sources. No
one supplier accounted for more than 5% of the Company's annual purchases in
fiscal 1996.
Since the cost of transporting a manufactured home is significant,
substantially all of the Company's homes are sold to independent dealers within
a 400 to 600 mile radius of the manufacturing facility, although that may be
extended by production of standard homes with few options. The Company
arranges, at the dealer's expense, for the transportation of finished homes to
dealer sales centers using independent trucking companies. Customary sales
terms are cash-on-delivery and guaranteed payment from a floor plan financing
source. Dealers or other independent installers are responsible for placing the
home on site, making utility hookups and providing and installing certain trim
items.
The Company does not maintain any inventory of unsold completed homes.
All production is initiated against specific orders. The Company's backlog of
orders for manufactured homes was $47.4 million at June 29, 1996, compared to
$28.7 million at July 1, 1995. Dealer orders are subject to delays and
cancellation for a variety of reasons, and the Company does not consider the
order backlog to be firm orders.
SALES
As of June 29, 1996, the Company's manufactured homes were being sold
through 781 independent dealers of which 566 are authorized to sell the
Company's "Schult" and "Marlette" brands of HUD code and modular homes. An
additional 215 of the Company's independent manufactured home dealers are
actively marketing the Company's "Crest" line of modular homes.
The Company's largest dealer accounted for 5.5% of fiscal 1996 net
sales and the ten largest dealers accounted for 22.5% of such sales. Of the top
100 dealers, 51 have sold the Company's products for over 10 years and 72 for
over five years.
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The Company believes the close working relationship between its
regional management and the dealers they service has been an important factor
in the Company's success. In light of its commitment to its dealers, the
Company, unlike some of its competitors, does not operate Company-owned retail
sales centers to compete with its independent dealers. In order to enable
dealers to obtain retail market penetration and provide customer service and to
promote dealer loyalty, only one dealer within a given local market area
distributes the Company's homes. However, the Company does not have formal
marketing agreements with its dealers and substantially all of the Company's
dealers also sell homes of other manufacturers.
The Company employs 53 salespersons who, through extensive road
travel, maintain personal contact with the Company's independent dealers. The
Company also markets its homes through product promotions tailored to specific
dealer needs. In addition, the Company advertises in various media, and
participates in regional manufactured housing shows. There are separate sales
forces for manufactured and modular homes.
Independent dealers of manufactured homes sell from display centers,
rental developments, condominium developments and subdivisions. Some
independent manufactured housing dealers sell modular homes, but most modular
homes are sold by builder/dealers specializing in modular homes, who may
concentrate on scattered lot placements or small subdivision developments.
PRODUCT FINANCING
As is customary in the factory-built housing industry, substantially
all of the Company's dealers finance their purchases through floor plan
arrangements. A bank or finance company loans the dealer all of the purchase
price of the home (secured by the factory-built home) and requires the
manufacturer to agree to repurchase the home for the principal amount of the
floor plan loan outstanding, plus certain expenses, should the dealer default.
The contingent liability under these agreements approximates the amount
financed, reduced by the resale value of any homes which may be repurchased, and
the risk of loss is spread over numerous dealers and financial institutions.
Losses under these agreements have not been significant in the recent past.
The Company's independent dealers make individual arrangements for the
retail financing of the homes they sell without assistance from the Company, and
the Company has no contingent liability for defaults on such consumer financing.
WARRANTY, QUALITY CONTROL AND SERVICE
The Company believes the maintenance of quality in materials and
workmanship is an important factor in the market acceptance of its homes. The
Company maintains a rigorous quality control inspection program at each
production stage, and in addition, in accordance with government regulations
relating to construction and performance standards, an independent third party
performs compliance inspections. See "Regulation."
The Company provides the initial retail purchaser of its factory-built
homes with a one-year limited warranty covering manufacturing defects in
materials and workmanship. Manufacturers of appliances and other materials
installed in the Company's homes generally provide their own direct warranties
to the purchaser. The Company employs trained servicemen at each of its plants
who provide on-site warranty service to retail customers, as a backup to
warranty service provided by dealers.
COMPETITION
The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based on price (including
freight costs), product features, quality, warranty repair service and the terms
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of dealer and retail customer financing. According to industry data, as of June
29, 1996, there were 95 firms producing manufactured homes from 302 facilities.
A number of these companies are larger than the Company and possess greater
financial resources. Some of these companies are strengthened and partially
insulated from competitive conditions in the manufactured housing industry by
virtue of substantial operations in related industries. The capital
requirements of entry into the manufactured housing industry are relatively
small, and both start-ups and failures are common.
The product differentiation strategy used by the Company has also been
successfully employed by some private regional firms. Among the large,
publicly-owned manufacturers of manufactured homes, two other competitive
strategies have enjoyed success. One of these is the "low-cost producer"
approach, based on delivering a good value at the lower end of the price range
through high volume, low margins and limited product offerings. Another
strategy has been vertical integration, in which firms control not only the
production of manufactured homes, but own some or all of their retail
distribution points, do some land development and have captive mortgage banking
and insurance operations.
Competition in the modular housing industry is fragmented with no
dominant manufacturer. While there are a number of small regional modular home
manufacturers, the Company's principal competition for modular housing is the
traditional site-builder. The Company believes it has a price advantage in
competing with builders in small subdivisions and on scattered lots and in
remote areas. Large tract-builders enjoy economies of scale which make their
products comparable in price to modular homes and large tract-builders therefore
have no incentive to buy modular homes.
Manufactured and modular homes compete with each other and also
compete directly with apartments, townhouses, condominiums, existing site-built
homes and existing manufactured homes.
REGULATION
Factory-built homes, like site-built homes, are subject to a number of
federal, state and local laws. The Company believes such regulations benefit
the industry and its customers by ensuring minimum quality standards, thereby
improving consumer trust and acceptance of manufactured and modular homes.
Construction of manufactured homes is governed by the National
Manufactured Housing Construction and Safety Standards Act of 1974. In 1975,
the Department of Housing and Urban Development ("HUD") issued regulations under
this act establishing comprehensive national construction standards preempting
conflicting state and local regulations. The HUD regulations cover all aspects
of manufactured home construction, including structural integrity, fire safety,
wind loads, thermal efficiency and ventilation. As required by the HUD
regulations, all plans and specifications for the Company's manufactured homes
are reviewed by a HUD-approved independent third party, and each home is
required to be inspected by a different HUD-approved third party prior to its
completion. These inspections are in addition to the Company's own rigorous
inspection program. Failure to comply with HUD regulations would expose the
Company to a wide variety of sanctions, ranging from repair or repurchase of any
home deemed defective or hazardous, to intensive inspection of manufacturing
facilities, or to closing the Company's plants. The Company believes its
manufactured homes meet or surpass all present HUD requirements. Modular homes
are subject to state or local building codes, similar to the codes applicable to
site-built homes, rather than the HUD regulations.
Legislation has been proposed, from time to time, which, if enacted,
would significantly affect the regulatory climate for manufactured and modular
homes. One proposal would turn regulation of manufactured homes back to state
authority, and another would impose preemptive federal legislation over modular
homes. The outcome or effect of legislative action cannot be predicted.
Certain components of manufactured and modular homes are subject to
regulation by the Consumer Product Safety Commission ("CPSC"), which is
empowered to ban the use of component materials believed to be hazardous to
health and to require the repair of defective components. The CPSC, the
Environmental Protection Agency
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and other governmental agencies are evaluating the effects of formaldehyde.
Manufactured, modular and site-built homes are all built with particleboard,
paneling and other products that contain formaldehyde resins. Since February
1985, HUD has regulated the allowable concentration of formaldehyde in certain
products used in manufactured homes and required manufacturers to warn
purchasers concerning formaldehyde-associated risks. The Company currently uses
materials in its manufactured homes that meet HUD standards for formaldehyde
emissions and otherwise comply with HUD regulations in this regard. See "Legal
Proceedings."
A number of states require manufactured and modular home producers to
post bonds to ensure the satisfaction of consumer warranty claims. A number of
states have adopted procedures governing the installation of manufactured homes.
The location of manufactured homes is sometimes subject to discriminatory local
zoning ordinances. Utility connections are subject to state and local
regulation, and must be complied with by the builder/dealer or other person
installing the home.
The Company does not provide retail financing and is indirectly
affected by regulations on consumer finance. In particular, the Company
cooperates with dealers in assisting retail customers in obtaining Veterans
Administration and Federal Housing Administration guaranteed loans. In
connection with such transactions, the Company must make representations
regarding certain aspects of its wholesale pricing policies. If the Company
were to engage in consumer financing, the Company would be subject to additional
regulatory requirements.
The Company is subject to the Magnuson-Moss Warranty Federal Trade
Commission Improvement Act, which regulates the description of warranties. The
description and substance of the Company's warranties are also subject to
various state laws and regulations.
EMPLOYEES
On June 29, 1996, the Company had 2,576 full-time employees, of which
194 were in management, 194 were in administrative and clerical areas, 2,135
were in production, and 53 were in sales. The Company's personnel requirements
are primarily for semi-skilled production labor; these employees are typically
compensated on an incentive basis, based on the achievement of production goals.
There are no collective bargaining agreements covering any of the Company's
employees. The Company considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company presently owns ten operating manufacturing facilities. In
addition, the Company owns a 112,000 square foot warehouse in Elkhart, Indiana,
and two idle manufacturing facilities. The Company's idle facility in
Ellaville, Georgia is for sale. The Company's idle facility in Elkton, Maryland
is currently used only as a sales and service office, but production could
resume there if economic conditions and markets so warrant.
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The Company's manufacturing facilities are as follows:
<TABLE>
<CAPTION>
BUILDING BUILDING
LOCATION ACRES SQUARE FEET LOCATION ACRES SQUARE FEET
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Middlebury, IN #1 62.5 174,400 Milton, PA 13.0 86,800
Plainville, KS 29.3 149,700 Lewistown, PA 18.7 144,870
Navasota, TX 20.0 210,115 Hermiston, OR 40.3 206,464
Buckeye, AZ 44.0 72,500 Middlebury, IN #2 18.4 93,960
Redwood Falls, MN 19.2 119,320 Etna Green, IN 13.2 116,182
</TABLE>
The Company's corporate headquarters are located at the Middlebury,
Indiana #1 facility.
All of the properties described above are well maintained, generally
in good repair, adequately insured and suitable for the purposes for which they
are being used.
ITEM 3. LEGAL PROCEEDINGS
Since 1978, many producers of manufactured homes, including the
Company, have experienced a number of product liability claims based on the
presence of formaldehyde in components purchased from independent suppliers and
used in the manufacture of homes. Although the Company has experienced a
decrease in the number of formaldehyde claims initiated in recent years, such
claims are expected to continue for the foreseeable future. Schult is currently
named as a defendant in five lawsuits involving formaldehyde. While Schult
believes it has meritorious defenses to all of these actions, no prediction can
be made as to the outcome of these cases.
The Company carries product liability insurance but bears a
substantial portion of the cost of liability claims and settlements. The
Company currently has primary insurance coverage of $5.0 million per occurrence
and in the aggregate, after payment of $100,000 of damages or expenses per
occurrence. The Company has umbrella coverage of $20.0 million per occurrence
and in the aggregate, after payment by the Company of $10,000 per occurrence.
In late 1991, the Company was named by the Maryland Department of the
Environment, along with 50 other persons, as a potentially responsible person
for soil and water pollution at a site in which its Elkton, Maryland facility is
located. The affected site is 1,360 acres, and includes a former U.S. Navy
munitions factory. The U.S. Department of the Navy is one of the named
potentially responsible persons. Under the law, the Company and each of the
other persons named is potentially responsible for remediation of the site
without regard to determination of the source of pollution. The investigation
is in a preliminary stage, and the ultimate resolution cannot now be determined.
The Company has no reason to believe, however, that it has been a major
contributor to the pollution of soil or groundwater.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders of the Company
during the fourth quarter of fiscal 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In an initial public offering on February 26, 1987, Schult sold
833,334 units, each consisting of One Common Share and a Warrant for one-half
Common Share. Units, Shares, and Warrants began trading immediately, but most
trading activity was concentrated in Units. On May 17, 1990, the Company listed
its common shares on the American Stock Exchange (ticker symbol SHC). As a
result, shares, units and warrants were delisted by NASDAQ, and subsequently
warrants could only be traded over-the-counter through the "pink sheets". All
of the warrants expired or were exercised on March 1, 1991. On July 28, 1992,
the Company commenced a public offering of 1,437,500 shares of common stock
comprised of 1,145,383 shares offered by members of the Fulcrum Partnership and
292,117 newly issued shares. After expenses, sale of the new shares generated
approximately $2.5 million in new capital for the Company.
The following table sets forth the high and low closing sale price of
the Common Shares as reported on the American Stock Exchange:
HIGH LOW
---- ---
FISCAL YEAR ENDED JULY 2, 1994
First Quarter $ 15 1/2 $ 11 1/2
Second Quarter 15 3/4 13 3/8
Third Quarter 17 7/8 14 3/4
Fourth Quarter 15 3/8 13
FISCAL YEAR ENDED JULY 1, 1995
First Quarter $ 15 1/8 $ 12 3/8
Second Quarter 14 1/4 10 5/8
Third Quarter 12 7/8 9 3/4
Fourth Quarter 11 3/4 10
FISCAL YEAR ENDED JUNE 29, 1996
First Quarter $ 14 5/8 $ 10 7/8
Second Quarter 17 3/4 14
Third Quarter 18 1/4 15 3/8
Fourth Quarter 20 5/8 16 1/8
On June 29, 1996, there were more than 2,000 shareholders of record of the
Company's Common Shares.
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DIVIDEND POLICY
Historically, it has been the policy of the Company to reinvest
earnings in the Company's business. On June 10, 1992, the Company announced the
inception of a regular quarterly dividend. The first such dividend was paid on
September 14, 1992. The Company intends to continue to pay a regular quarterly
dividend. However, the payment of future cash dividends will depend upon the
Company's financial condition, capital requirements, results of operations and
other factors deemed relevant by the Company.
ITEM 6. SELECTED FINANCIAL DATA
Schult Homes Corporation incorporates by reference page 1 of the
Schult Homes Corporation 1996 Annual Report to Shareholders under the heading,
"Financial Highlights."
Schult Homes Corporation incorporates by reference page 24 of the
Schult Homes Corporation 1996 Annual Report to Shareholders under the heading,
"Summary of Quarterly Results."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
The Company's business is cyclical and seasonal and is influenced by many
of the same national and regional economic and demographic factors that affect
the United States housing market generally. During fiscal 1996, the Company
benefitted from continued strength in the manufactured housing industry which
allowed us to produce record sales of $316.3 million for fiscal 1996, a 9.8%
increase from fiscal 1995. The driving force behind that increase was demand
from the fastest growing segment of the population, retirees and empty nesters.
The "baby boomers" born during the years following World War II are beginning to
reach 50 years of age, a time when people make major housing decisions. In
addition, multi-unit housing starts remained weak during 1996. Limited housing
options, and our ability to offer superior quality and greater locational
flexibility helped maintain strong demand throughout fiscal 1996 and will
continue to do so in fiscal 1997.
CONSOLIDATED FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Fiscal 1996 vs. Fiscal 1995 Fiscal 1995 vs. Fiscal 1994
--------------------------- ---------------------------
$Amount %Sales $Change %Change $Amount %Sales $Change %Change
(Dollars in millions) ------- ------ ------- ------- ------- ------ ------- -------
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales . . . . . . . . $316.3 100.0% $28.3 9.8% $287.9 100.0% $28.3 10.9%
Cost of sales . . . . . . 251.5 79.5 17.5 7.5 234.0 81.3 24.7 11.8
Gross profit. . . . . . . 64.8 20.5 10.8 20.1 53.9 18.7 3.7 7.3
SG&A. . . . . . . . . . . 53.3 16.9 7.1 15.3 46.2 16.0 6.2 15.5
Operating income. . . . . 11.4 3.6 3.7 48.4 7.7 2.7 (2.5) (24.8)
Pre-tax income. . . . . . 11.8 3.7 4.2 55.1 7.6 2.6 (2.8) (26.9)
Income taxes. . . . . . . 5.0 1.6 1.8 55.6 3.2 1.1 (1.1) (25.9)
Net income. . . . . . . . 6.8 2.1 2.4 54.8 4.4 1.5 (1.7) (27.6)
</TABLE>
12
<PAGE>
RESULTS OF OPERATIONS AND THREE-YEAR REVIEW
Net sales for fiscal 1996 were the highest in the Company's history. Net
sales for fiscal 1996 were $316.3 million, which represented an increase of
$28.3 million (9.8%) over fiscal 1995. This increase was due to an increase in
total sections sold during fiscal 1996 to 15,349 sections, a 1,376 section
(9.8%) increase. Fiscal 1995 net sales of $287.9 million increased $28.3 million
(10.9%) over fiscal 1994. This increase was due to two factors: 1) an increase
in total sections sold during fiscal 1995 to 13,793 sections, an increase of 902
sections (6.9%), which contributed $17.9 million of the increase; and 2) a 3.7%
increase in the average selling price per section, which added $10.4 million to
net sales. Modular home sales accounted for $36.9 million (11.7%) of fiscal 1996
net sales; this compares to $34.1 million (11.8%) of fiscal 1995 net sales and
$26.4 million (10.2%) of fiscal 1994 sales.
The trend toward increased sales of multi-section homes reversed, with
these units representing 62.7% of the homes sold during fiscal 1996 as compared
to 65.3% of the homes sold during fiscal 1995 and 64.1% in fiscal 1994. The
decrease in sales of multi-section homes was due to the entry of a single-
section product in the Texas market, which was particularly well received. The
Company is uncertain whether the increased proportional sales
of single-section homes will continue because it is subject to regional
preferences and economic conditions.
The cost of goods sold was $251.5 million in fiscal 1996, a 7.5% increase
over fiscal 1995. The cost of goods sold was $234.0 million in fiscal 1995, an
11.8% increase over fiscal 1994. Gross profit as a percentage of net sales
increased to 20.5% in fiscal 1996, compared to 18.7% in fiscal 1995 and 19.4% in
fiscal 1993. The increase in the gross profit as a percentage of sales from
fiscal 1995 to fiscal 1996 was directly due to decreased material costs as a
result of a new centralized purchasing system. This system enabled us to take
advantage of quantity discounts on lumber and to take advantage of regional
price differences to a greater extent than ever before. The decrease in gross
profit percentage of sales from fiscal 1994 to fiscal 1995 was directly
attributable to increased labor costs. The two main reasons for this increase in
labor costs were: 1) costs related to the additional capacity added in the
middle of fiscal 1994 to the Navasota, Texas facility requiring the addition of
150 new employees, the largest group of new employees ever hired at one time;
and 2) labor costs related to the new facility in Etna Green, Indiana, which was
added in late fiscal 1994.
Selling, general and administrative expenses for fiscal 1996 were $53.3
million, as compared to $46.2 million in fiscal 1995, a 15.3% increase. Selling,
general and administrative expenses represented 16.9% of net sales in fiscal
1996, compared to 16.0% in fiscal 1995 and 15.4% in fiscal 1994. The fiscal 1996
and fiscal 1995 increases in selling, general and administrative expenses were
directly related to increased warranty costs. The Company made a decision in
fiscal 1995 to decrease warranty response times. Due to this decrease in
response time, warranty costs continued to be unusually high during fiscal 1996.
Operating income increased $3.7 million to $11.4 million in fiscal 1996,
compared to $7.7 million in fiscal 1995 and $10.2 million in fiscal 1994.
Operating income as a percentage of net sales was 3.6% for fiscal 1996 compared
to 2.7% in fiscal 1995 and 4.0% in fiscal 1994.
Pre-tax income for fiscal 1996 was $11.8 million compared to $7.6 million
in fiscal 1995 and $10.4 million in fiscal 1994. Net income for fiscal 1996 was
$6.8 million or $1.81 per common share, compared to $4.4 million or $1.16 per
common share for fiscal 1995, and $6.0 million or $1.60 per common share for
fiscal 1994.
13
<PAGE>
BALANCE SHEET REVIEW
As of the end of fiscal 1996, current assets increased to $49.2 million
from $38.4 million a year earlier, a 28.0% increase. This $10.7 million increase
in current assets was primarily due to increases in cash and accounts
receivable, related to our sales growth. Current liabilities were up $11.5
million (31.5%) to $48.2 million from $36.6 million a year earlier, primarily
due to a $7.9 million increase in accrued liabilities which is related to our
sales growth.
Long-term debt at the end of fiscal 1996 was $0.7 million, down $3.0
million from the prior year, as a result of debt repayments, including the
elimination of all borrowings under the Company's line of credit.
Fiscal 1996 capital expenditures, net of retirements, totaled $5.4 million
compared to $5.1 million in fiscal 1995 and $9.8 million in fiscal 1994. Fiscal
1996 and fiscal 1995 capital expenditures mainly related to our continued
equipment replacement and improvement program. The Company added a third
manufacturing plant in Indiana in fiscal 1994, and expanded the Navasota, Texas
and Plainville, Kansas facilities.
Shareholders' equity totaled $38.1 million, or $10.18 per common share, at
the end of fiscal 1996 compared to $32.0 million, or $8.53 per common share, at
the end of fiscal 1995.
OUTLOOK AND RISK FACTORS
The outlook for Schult Homes remains very positive. It is evident from
industry statistics that the upturn in the manufactured housing industry that
began more than four years ago has maintained its momentum. Industry shipments
during 1995 were up by 12% following a 20% increase in 1994 and a 21% increase
in 1993, according to statistics published by the Manufactured Housing
Institute. The Manufactured Housing Institute also reported that industry
shipments during the first six months of 1996 were up by 9.5%. Management
expects this trend of increased shipments to continue at least through fiscal
1997.
To meet customer demand, we began a major expansion program in 1993 which
was largely completed in fiscal 1994. This $12 million investment added
approximately $75 million of production capability. Our annual sales capacity
now stands at about $400 million, which is more than twice the capacity existing
in 1989 and more than 25% greater than the $316.3 million sales level achieved
in fiscal 1996.
Management's outlook assumes only modest changes in interest rates and
continued growth of the U.S. economy. Although dealers' orders can be canceled
before production begins without penalty, and unfilled orders are not
necessarily an indication of future business, the Company's backlog of orders
for manufactured homes was approximately $51.2 million as of August 10, 1996,
compared to approximately $33.8 million, a 51.5% increase from one year earlier.
This backlog represents approximately 7 weeks of production time.
For the long term, industry growth will be affected by, among other
factors, the availability and cost of financing, the relative cost of
manufactured housing versus other forms of housing, including rental housing,
general economic trends and changes in demographics including new household
formations and the number of Americans on fixed incomes. While the Company
believes that long-term demand for affordable manufactured housing will continue
to grow due to favorable demographic trends and financing factors, changes in
regional markets and the U.S. economy as a whole will continue to affect overall
housing industry cycles.
Fiscal 1996 results were negatively impacted by increased warranty
costs. The combination of increased production of all-drywall units and more new
employees last year saw a corresponding increase in warranty costs. The backlog
of warranty work reached a high level during fiscal 1995. The Company made it a
priority to reduce that level during fiscal 1995 and fiscal 1996 and some
progress has been registered. The Company expects these higher than historical
warranty costs to continue to a lesser extent during fiscal 1997.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of the end of fiscal 1996, the Company had working capital of $0.9
million as compared to $1.8 million at the end of fiscal 1995 and a negative
$1.1 million at the end of fiscal 1994. Capital expenditures, net of
retirements, amounted to $5.4 million in fiscal 1996. The Company has a bank
commitment for an unsecured credit facility which provides for both revolving
and term loans at the Company's option. The facility permits borrowings of up to
an aggregate of the lower of $10.0 million, or a borrowing base computed by
applying certain factors to the value of the Company's receivables and
inventories. As of the end of fiscal 1996, the Company had no borrowings under
the bank commitment.
Management believes that cash flow from operations, combined with funds
under its unsecured credit facility, will be adequate to support its general
operations, capital expenditure needs, required debt amortization, and the
payment of a regular quarterly dividend.
Management expects to continue to make regular quarterly dividend payments.
However, the payment of future cash dividends will depend upon the Company's
financial condition, capital requirements, results of operations and other
factors deemed relevant by the Company.
The Company's preliminary fiscal 1997 capital expenditures are estimated at
$11.8 million, comprised of $5.9 million for an expansion project at Buckeye,
Arizona, $4.8 million in normal equipment replacements and improvements, and
$1.1 million for a vehicle replacement program. In fiscal 1997, depreciation is
expected to be approximately $3.8 million. We expect to fund our capital
expenditures through normal operating profit.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SCHULT HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT END OF FISCAL YEARS JUNE 1996 AND 1995
ASSETS
1996 1995
------------ ------------
Cash................................................ $ 9,033,000 $ 4,566,000
Accounts receivable, less allowance for doubtful
accounts of $65,000 and $67,000, respectively...... 18,338,000 14,154,000
Inventories......................................... 16,315,000 15,095,000
Deferred income taxes............................... 5,424,000 4,603,000
------------ ------------
Total current assets......................... 49,110,000 38,418,000
Property, plant and equipment....................... 36,192,000 34,235,000
Loans receivable from Saturn Housing, LLC........... 2,634,000 614,000
Other assets........................................ 1,797,000 2,066,000
------------ ------------
Total assets................................. $89,733,000 $75,333,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable.............................. $18,628,000 $14,664,000
Accrued liabilities................................. 28,851,000 20,977,000
Current portion of long-term debt................... 710,000 1,000,000
------------ ------------
Total current liabilities.................... 48,189,000 36,641,000
Deferred income taxes............................... 2,751,000 3,025,000
Long-term debt...................................... 684,000 3,695,000
------------ ------------
Total liabilities............................ 51,624,000 43,361,000
Shareholders' equity:
Common shares, no par value 10,000,000 shares
authorized, 3,743,685 and 3,746,032 shares issued
and outstanding, respectively.................... 7,921,000 7,884,000
Retained earnings................................. 30,188,000 24,088,000
------------ ------------
Total shareholders' equity..................... 38,109,000 31,972,000
Contingencies.......................................
------------ ------------
Total liabilities and shareholders' equity $89,733,000 $75,333,000
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
15
<PAGE>
SCHULT HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED JUNE 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales..................................... $ 316,267,000 $ 287,937,000 $ 259,616,000
Cost of goods sold............................ 251,496,000 233,990,000 209,332,000
------------- ------------- -------------
Gross profit............................... 64,771,000 53,947,000 50,284,000
Selling, general and administrative expenses.. 53,332,000 46,241,000 40,033,000
------------- ------------- -------------
Operating income........................... 11,439,000 7,706,000 10,251,000
Interest income............................... 428,000 12,000 69,000
Other income.................................. 45,000 58,000 53,000
Interest expense.............................. (153,000) (195,000) -
------------- ------------- -------------
Income before income taxes................. 11,759,000 7,581,000 10,373,000
Income taxes:
Federal..................................... 3,915,000 2,358,000 3,187,000
State....................................... 1,072,000 848,000 1,140,000
------------- ------------- -------------
4,987,000 3,206,000 4,327,000
------------- ------------- -------------
Net income................................. $ 6,772,000 $ 4,375,000 $ 6,046,000
------------- ------------- -------------
------------- ------------- -------------
Net earnings per common share................. $ 1.81 $ 1.16 $ 1.60
------------- ------------- -------------
------------- ------------- -------------
Average shares outstanding.................... 3,743,649 3,770,079 3,768,654
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
SCHULT HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JUNE 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 6,772,000 $ 4,375,000 $ 6,046,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of plant and equipment.......... 3,427,000 3,037,000 2,626,000
Change in deferred income taxes.............. (1,095,000) (791,000) (761,000)
Changes in assets and liabilities:
(Increase) in accounts receivable.......... (4,184,000) (437,000) (2,174,000)
(Increase) in inventories.................. (1,220,000) (1,398,000) (2,447,000)
Decrease in other assets..................... 269,000 367,000 199,000
Increase in trade accounts payable......... 3,964,000 1,051,000 1,409,000
Increase in accrued liabilities............ 7,874,000 1,720,000 4,069,000
------------- ------------- -------------
Total adjustments........................ 9,035,000 3,549,000 2,921,000
------------- ------------- -------------
Net cash provided by operating activities.......... 15,807,000 7,924,000 8,967,000
Cash flows from investing activities:
Capital expenditures, net of retirements......... (5,384,000) (5,068,000) (9,791,000)
Loans to Saturn Housing, LLC..................... (2,020,000) (614,000) -
------------- ------------- -------------
Net cash used in investing activities.......... (7,404,000) (5,682,000) (9,791,000)
Cash flows from financing activities:
Net borrowings (repayments) under line-of-credit. (2,300,000) 2,300,000 -
Proceeds from issuance of long-term debt......... - - 100,000
Repayment of long-term debt...................... (1,001,000) (989,000) (724,000)
Dividends declared to common shareholders........ (672,000) (603,000) (526,000)
Payment for repurchased shares................... (165,000) (485,000) -
Proceeds from issuance of common shares.......... 202,000 327,000 130,000
------------- ------------- -------------
Net cash provided by (used in) financing activities (3,936,000) 550,000 (1,020,000)
Net increase (decrease) in cash.................... 4,467,000 2,792,000 (1,844,000)
Cash at beginning of year.......................... 4,566,000 1,774,000 3,618,000
------------- ------------- -------------
Cash at end of year................................ $9,033,000 $4,566,000 $ 1,774,000
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized)........... $ 212,000 $ 138,000 $ 20,000
Income taxes (net of refunds).................. 4,623,000 4,468,000 5,109,000
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
SCHULT HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED JUNE 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Number of Retained
Shares Amount Earnings Total
----------------------------------------------
<S> <C> <C> <C> <C>
Balance, end of fiscal year 1993................ 3,758,675 $7,912,000 $14,796,000 $22,708,000
Net proceeds from issuance of common shares..... 8,941 130,000 -- 130,000
Cash dividends declared ($.14 per share)........ -- -- (526,000) (526,000)
Net income...................................... -- -- 6,046,000 6,046,000
----------------------------------------------
Balance, end of fiscal year 1994................ 3,767,616 $8,042,000 $20,316,000 $28,358,000
Net proceeds from issuance of common shares..... 23,416 327,000 -- 327,000
Payment for repurchased shares.................. (45,000) (485,000) -- (485,000)
Cash dividends declared ($.16 per share)........ -- -- (603,000) (603,000)
Net income...................................... -- -- 4,375,000 4,375,000
----------------------------------------------
Balance, end of fiscal year 1995................ 3,746,032 $7,884,000 $24,088,000 $31,972,000
Net proceeds from issuance of common shares..... 12,653 202,000 -- 202,000
Payment for repurchased shares.................. (15,000) (165,000) -- (165,000)
Cash dividends declared ($.18 per share)........ -- -- (672,000) (672,000)
Net income...................................... -- -- 6,772,000 6,772,000
----------------------------------------------
Balance, end of fiscal year 1996................ 3,743,685 $7,921,000 $30,188,000 $38,109,000
----------------------------------------------
----------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
SCHULT HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Schult Homes Corporation (the Company) is engaged in the production
and sale of manufactured and modular homes. The Company operates manufacturing
facilities in Indiana, Pennsylvania, Minnesota, Texas, Oregon, Kansas and
Arizona. Most of the Company's customers/dealers are located close to its
production facilities. No single customer/dealer accounted for more than 6% of
the Company's sales in fiscal years 1996, 1995 and 1994 and no account
receivable from any customer/dealer exceeded 6% of total common shareholders'
equity at the end of fiscal year 1996. The unplanned loss of any of these
customers/dealers would not have any materially adverse effect on the Company.
Supplies are purchased from a variety of domestic and foreign
sources. The unplanned loss of any of these sources of supply would not have any
materially adverse effect on the Company.
(b) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities to prepare these
financial statements in accordance with generally accepted accounting
principles. Actual results could differ from those estimates.
(c) FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest June 30, or
June 29, 1996, July 1, 1995 and July 2, 1994.
(d) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of Schult Homes Corporation and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
(e) INVENTORIES
All components of inventory are valued at cost which is not in
excess of net realizable value. The cost of inventory is calculated using the
first-in, first-out (FIFO) method.
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation of
plant and equipment is provided over the estimated useful lives of the
respective assets on the straight-line basis for financial reporting purposes.
(g) LOANS RECEIVABLE FROM SATURN HOUSING, LLC
Loans receivable from Saturn Housing, LLC bear interest at prime
lending rate plus 1 1/2 percent per annum. A group of manufactured home dealers
established Saturn Housing in Texas for the purpose of producing a moderately
priced home.
(h) 401(K) RETIREMENT PLAN
The Company has a defined contribution 401(k) retirement plan for
all eligible employees. Company contributions are based on employee earnings and
are funded as accrued. Amounts contributed to the plan and charged to expense
were
19
<PAGE>
$1,017,000, $1,181,000 and $828,000 in fiscal 1996, 1995 and 1994, respectively.
Eligible employees can also make tax-deferred contributions to the plan.
(i) WARRANTY OBLIGATIONS
Estimated warranty obligations are provided at the time of sale.
(j) REVENUE RECOGNITION
Revenue is recognized when title is transferred upon shipment.
(k) NET EARNINGS PER COMMON SHARE
Net earnings per common share is calculated by dividing net income
by the weighted average number of common shares and common share equivalents
outstanding during the year.
(l) INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated
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 in effect for the year 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.
(m) INTEREST COSTS
The Company capitalizes interest incurred during periods of
construction as a component of the cost of the constructed asset. Interest costs
capitalized during fiscal years 1995 and 1994 amount to $130,000 and $341,000,
respectively. There was no interest costs capitalized during fiscal year 1996.
(n) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are cash, accounts receivable,
trade accounts payable, accrued liabilities, and the current and noncurrent
portions of long-term debt. The carrying values of these financial instruments
do not differ materially from their fair values, generally because of the short-
term nature of the financial instruments and the relative insignificance of the
noncurrent portion of long-term debt.
(o) RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to
the fiscal 1996 presentation.
(2) INVENTORIES
The components of inventories at the end of fiscal years 1996 and 1995 are
as follows:
1996 1995
----------- -----------
Raw materials.................. $12,524,000 $11,165,000
Work in process................ 2,247,000 2,352,000
Finished goods................. 1,544,000 1,578,000
----------- -----------
Total...................... $16,315,000 $15,095,000
----------- -----------
----------- -----------
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of fiscal years 1996 and 1995 are
summarized as follows:
20
<PAGE>
1996 1995
----------- -----------
Land............................. $ 1,960,000 $ 1,959,000
Land improvements................ 3,960,000 3,687,000
Buildings........................ 29,885,000 27,461,000
Machinery and equipment.......... 17,392,000 15,293,000
Trucks and automobiles........... 3,576,000 2,888,000
Construction in process.......... - 130,000
----------- -----------
56,773,000 51,418,000
Less accumulated depreciation.... 20,581,000 17,183,000
----------- -----------
$36,192,000 $34,235,000
----------- -----------
----------- -----------
(4) ACCRUED LIABILITIES
Accrued liabilities at the end of fiscal years 1996 and 1995 are as
follows:
1996 1995
----------- -----------
Dealer incentives................. $ 7,131,000 $ 5,241,000
Accrued warranty.................. 5,060,000 4,124,000
Accrued payroll................... 6,919,000 5,187,000
Workers' compensation............. 2,440,000 2,655,000
Accrued income taxes.............. 2,393,000 792,000
Other............................. 4,908,000 2,978,000
----------- -----------
$28,851,000 $20,977,000
----------- -----------
----------- -----------
(5) LONG-TERM DEBT
Long-term debt at the end of fiscal years 1996 and 1995 is summarized as
follows:
1996 1995
----------- -----------
Credit facility debt.............. $ - $ 2,300,000
Other debt........................ 1,394,000 2,395,000
----------- -----------
1,394,000 4,695,000
Less current portion of
long-term debt................... 710,000 1,000,000
----------- -----------
$ 684,000 $ 3,695,000
----------- -----------
----------- -----------
Aggregate principal payments on long-term debt are due as follows:
Fiscal year Amount
--------------------------- ----------
1998....................... 131,000
1999....................... 119,000
2000....................... 114,000
2001....................... 116,000
Thereafter................. 204,000
-----------
$ 684,000
----------
----------
The Company has a bank commitment for an unsecured credit facility expiring
January 1, 1997 which provides for both revolving and term loans at the
Company's option. The facility permits aggregate borrowings of up to the lower
of $10,000,000 or a borrowing base computed by applying certain factors to the
value of the Company's receivables and inventories. Revolving loans bear
interest at the bank's prime lending rate or, at the Company's option, certain
alternative rates. Interest on term loans is fixed at the time of borrowing at
the bank's posted rates then in effect. The Company pays a fee of 3/8 of one
percent per annum on the unused portion of the commitment. The commitment also
provides for the
21
<PAGE>
issuance of up to $4,000,000 in standby letters of credit.
(6) INCOME TAXES
Income tax expense (deferred benefit) are summarized as follows for fiscal
years 1996, 1995 and 1994:
1996 1995 1994
----------- ----------- -----------
FEDERAL:
Current...................... $4,778,000 $2,911,000 $3,777,000
Deferred..................... (863,000) (553,000) (590,000)
----------- ----------- -----------
Total Federal income taxes. 3,915,000 2,358,000 3,187,000
STATE:
Current...................... 1,304,000 1,085,000 1,311,000
Deferred..................... (232,000) (237,000) (171,000)
----------- ----------- -----------
Total state income taxes... 1,072,000 848,000 1,140,000
----------- ----------- -----------
Total income taxes....... $4,987,000 $3,206,000 $4,327,000
----------- ----------- -----------
----------- ----------- -----------
The significant components of deferred income tax expense (benefit) are
summarized as follows for fiscal years 1996, 1995 and 1994:
1996 1995 1994
----------- ----------- -----------
Depreciation.................... $ 43,000 $ 194,000 $ 27,000
Accrued expenses................ (1,391,000) (1,094,000) (670,000)
Inventories..................... (25,000) (12,000) (154,000)
Other, net...................... 278,000 122,000 36,000
----------- ----------- -----------
$(1,095,000) $ (790,000) $ (761,000)
----------- ----------- -----------
----------- ----------- -----------
The differences between the U.S. Federal statutory tax rate of 34% and the
effective tax rates of 42.4%, 42.3%, and 41.7% for fiscal years 1996, 1995 and
1994 result from the following:
1996 1995 1994
----------- ----------- -----------
U.S. Federal statutory tax rate. 34.0% 34.0% 34.0%
Increase in taxes resulting from:
State income taxes, net of
Federal benefit.............. 6.5 7.1 7.3
Other, net.................... 1.9 1.2 0.4
----------- ----------- -----------
42.4% 42.3% 41.7%
----------- ----------- -----------
----------- ----------- -----------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at the end of
fiscal years 1996 and 1995 are presented below:
1996 1995
------------- -------------
Deferred tax assets:
Accrued expenses................... $ 5,534,000 $ 4,392,000
Inventories........................ 333,000 343,000
Other.............................. 71,000 77,000
------------- -------------
Total gross deferred tax assets... 5,938,000 4,812,000
Less: Valuation allowance.......... - -
------------- -------------
Subtotal......................... 5,938,000 4,812,000
------------- -------------
22
<PAGE>
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation....... (2,998,000) (3,047,000)
Other..................................... (268,000) (187,000)
------------- -------------
Total gross deferred tax liabilities..... (3,266,000) (3,234,000)
------------- -------------
Net deferred tax asset................. $ 2,672,000 $ 1,578,000
------------- -------------
------------- -------------
Management has determined, based on the Company's history of operating
earnings and its expectations for the future, that operating income of the
Company will more likely than not be sufficient to realize fully the deferred
tax assets.
(7) REPURCHASE AGREEMENTS AND CREDIT RISK
As is customary in the manufactured housing industry, the Company is
contingently liable under the terms of repurchase agreements with financial
institutions providing inventory financing for dealers of the Company's homes as
of the end of fiscal year 1996. The contingent liability under these agreements
approximates the amount financed, reduced by the resale value of any homes which
may be repurchased, and the risk of loss is spread over numerous dealers and
financial institutions. Losses under these agreements have not been significant
in the recent past.
(8) CONTINGENCIES
There are a number of claims and pending legal proceedings against the
Company with respect to certain matters including product liability, warranties,
workers' compensation, and other matters arising in the ordinary conduct of the
business. The ultimate outcome of these claims and proceedings is not presently
determinable. But, in the opinion of management, anticipated costs are
adequately covered by insurance, or accruals, or will not materially affect the
financial position or results of operations of the Company.
(9) EMPLOYEE STOCK PLANS
During fiscal 1996, a Share Incentive Plan was adopted whereby certain
management personnel are granted options to purchase common shares. As of the
end of fiscal 1996, an aggregate of 300,000 common shares had been reserved for
the plan and options to purchase 80,000 shares at $15.25 a share had been
granted. No options related to this plan have been exercised as of the end of
fiscal 1996.
The Company also has an employee stock option plan whereby certain
management personnel are granted options to purchase common shares. As of the
end of fiscal year 1996, an aggregate of 75,000 common shares had been reserved
for the plan and options to purchase 24,125 and 22,507 common shares had been
granted at exercise prices of $.40 and $3.00 per share, respectively. Options to
purchase 27,364 common shares have been exercised and options to purchase 15,874
shares are no longer exercisable. Therefore, the remaining 3,394 options, at an
option price of $3.00 per share, are currently exercisable and expire in
September 1996 and 1997.
The Company has an employee share purchase plan under which anyone who has
been a full-time employee for at least one year may purchase certain amounts of
common shares at current market price. As of the end of fiscal year 1996,
100,000 common shares had been reserved, of which 1,321 shares and 1,929 shares
were issued in fiscal years 1996 and 1995, respectively.
23
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Schult Homes Corporation incorporates by reference the information on
pages 4 and 5 of the Schult Homes Corporation Proxy Statement dated September
27, 1996, filed pursuant to Section 14(a) of the Securities Exchange Act of
1934, as amended, under the heading, "Election of Directors." Also, pages 12
and 13 of the above mentioned Proxy Statement under the heading, "Executive
Officers."
ITEM 11. EXECUTIVE COMPENSATION
Schult Homes Corporation incorporates by reference the information on
pages 6 through 9, 11 and 12 of the Schult Homes Corporation Proxy Statement
dated September 27, 1996, filed pursuant to Section 14(a) of the Securities
Exchange Act of 1934, as amended, under the headings, "Report of the
Compensation Committee,"
24
<PAGE>
"Adoption of the Schult Homes Corporation 1996 Directors' Deferred Compensation
Plan," "Executive Compensation" and "Employee Plans."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Schult Homes Corporation incorporates by reference the information on
page 3 of the Schult Homes Corporation Proxy Statement dated September 27, 1996,
filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as
amended, under the heading, "Principal Shareholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Schult Homes Corporation incorporates by reference
"Consolidated Financial Statements and Notes" on pages 17
through 23 of the Schult Homes Corporation 1996 Annual
Report to Shareholders.
2. Schult Homes Corporation incorporates herein by reference
the following exhibits:
Incentive Bonus Plan, Form S-2 dated 6/11/92;
Gain Sharing (401(k)) Plan, Form S-2 dated 6/11/92;
Incentive Stock Option Plan, Form S-2 dated 6/11/92;
Employee Share Purchase Plan, Form S-8 dated 3/8/90.
3. Schult Homes Corporation files herewith its 1996 Directors'
Deferred Compensation Plan.
(b) Through June 29, 1996, one report on Form 8-K was filed
subsequent to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 30, 1996. The date of the Form 8-K was
June 19, 1996.
(c) Exhibits required by Item 601 of Regulation S-K:
Amended and Restated Articles of Incorporation of the
Company;
Bylaws of the Company;
Form of Common Share Certificate;
Revised Credit Facility with NBD Bank and NBD Bank, N.A.
(d) There are no financial statements to be filed under Regulation S-
X which are excluded from the annual report to shareholders
pursuant to Rule 14a-3(b).
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SCHULT HOMES CORPORATION
Registrant
By /s/ Walter E. Wells
-------------------------------------
Walter E. Wells
President, Chief Executive Officer
Date: September 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Walter E. Wells
- -------------------------- President, Chief Executive September 27, 1996
Walter E. Wells Officer and Director
/s/ Francis M. Kennard
- -------------------------- Senior Vice President of Product September 27, 1996
Francis M. Kennard Group and Director
/s/ John P. Guequierre
- -------------------------- President of Manufactured September 27, 1996
John P. Guequierre Housing Group and Director
/s/ Frederick A. Greenawalt
- -------------------------- Vice President of Finance and September 27, 1996
Frederick A. Greenawalt Chief Accounting Officer
/s/ Todd Goodwin
- -------------------------- Director September 27, 1996
Todd Goodwin
/s/ Robert J. Deputy
- -------------------------- Director September 27, 1996
Robert J. Deputy
/s/ Donald R. Pletcher
- -------------------------- Director September 27, 1996
Donald R. Pletcher
/s/ Walter O. Wells
- -------------------------- Director September 27, 1996
Walter O. Wells
</TABLE>
26
<PAGE>
SCHULT HOMES CORPORATION AND SUBSIDIARIES
FORM 10-K
FINANCIAL STATEMENTS SUBMITTED IN RESPONSE TO ITEM 14(a)
Year ended June 29, 1996
The consolidated financial statements, together with the related notes
and the report thereon of KPMG Peat Marwick LLP, dated August 8, 1996, appearing
on pages 17 to 23 of the accompanying 1996 Annual Report to shareholders, are
hereby incorporated by reference and made a part hereof. With the exception of
the aforementioned items incorporated by reference and specific references made
herein, the 1996 Annual Report to Shareholders is not deemed to be filed as a
part of this filing.
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders of
Schult Homes Corporation:
We consent to incorporation by reference in Registration Statement No.
33-42434 on Form S-8 of Schult Homes Corporation, of our report dated August 8,
1996, relating to the consolidated balance sheets of Schult Homes Corporation
and subsidiaries as of the end of fiscal years 1996 and 1995, and the related
consolidated statements of operations, cash flows and shareholders' equity for
each of the fiscal years 1996, 1995, 1994, as contained in the Annual Report to
Shareholders for the fiscal year 1996. These consolidated financial statements
and our report thereon are incorporated by reference in the annual report on
Form 10-K for the fiscal year 1996.
KPMG Peat Marwick LLP
Chicago, Illinois
September 27, 1996
27
<PAGE>
SCHULT HOMES CORPORATION
DIRECTORS' DEFERRED COMPENSATION PLAN
PURPOSE
The purpose of this Plan is to provide Directors of Schult Homes
Corporation (the "Company") an alternative to current payment of director
fees. The Plan does so through a deferred compensation arrangement. The Plan
provides for the elective deferral of payment of director fees in units of
the Company's Common Shares, without par value (the "Common Shares"), thereby
providing for the long-term growth and financial success of the Company by
(i) providing an effective means for Directors to acquire Common Shares and
(ii) providing Directors an additional incentive to achieve long-range
performance goals and objectives.
ARTICLE 1
DEFINITIONS
Whenever used in this document, the following terms shall have the
respective meanings set forth below unless a different meaning is plainly
required by the context:
1.1 "Beneficiary" means, with respect to each Participant, the recipient
designated by the Participant who is, upon the Participant's death,
entitled in accordance with the Plan's terms to receive the benefits to
be paid with respect to the Participant.
1.2 "Board" means the Board of Directors of Schult Homes Corporation.
1.3 "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and interpretive rulings and regulations.
1.4 "Committee" means the duly designated Compensation Committee of the
Company's Board.
1.5 "Common Shares" means the Common Shares, without par value, of the
Company.
1.6 "Company" means Schult Homes Corporation, an Indiana corporation.
1.7 "Director" means any person duly selected to serve as a member of the
Board.
1.8 "Effective Date" means January 1, 1996.
1.9 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and interpretive rulings and regulations.
28
<PAGE>
1.10 "Fees" means, at the time this Plan is adopted, units representing One
Thousand (1,000) shares of Common Shares per year payable beginning in
calendar 1996, Two Hundred Fifty (250) shares of Common Shares each
calendar quarter and thereafter, any other compensation, retainer,
attendance, committee, and other fees in the form of Common Shares or any
other amount or form established by the Board of Directors or otherwise,
paid or which would, but for deferral hereunder, be payable to a Director
for services performed as a member of the Board.
1.11 "Market Value Per Share" means, as of any specified date, an amount equal
to the mean between the reported price of the Common Shares on the
specified date on the American Stock Exchange or such other exchange where
the Common Shares are then traded. If no such quotation is available, the
fair market value on the specified date of a share of such Shares as
determined by the Board in good faith.
1.12 "1934 Act" means the Securities Exchange Act of 1934, as amended from
time to time, and interpretive rulings and regulations.
1.13 "Participant" means any Director or former Director who elects or elected
to defer Fees under the Plan.
1.14 "Plan" means the deferred compensation plan for Directors known as the
"Schult Homes Corporation, Inc. Directors' Deferred Compensation Plan,"
as amended from time to time.
1.15 "Secretary" means the person holding the position of Secretary of the
Company on the applicable date.
1.16 "Social Security Act" means the federal Social Security Act, 42 U.S.C.,
Section 301, ET SEQ., as amended from time to time, and interpretive
rulings and regulations.
1.17 "Treasurer" means the person holding the position of Treasurer of the
Company on the applicable date.
1.18 "Unit Account" means, with respect to each Participant, the Participant's
separate individual account established and maintained for the exclusive
purpose of accounting for the Participant's deferred Fees under this Plan
for the period of his participation which is accrued in terms of a
theoretical number of units of Common Shares.
The uses of singular and masculine words are for practical purposes only
and shall be deemed to include the plural and feminine, respectively, unless the
context plainly indicates a distinction. Certain other definitions, as
required, appear in the following Articles of the Plan.
29
<PAGE>
ARTICLE 2
EFFECTIVE DATE OF PLAN
The Plan's provisions, as set forth in this document, are effective as of
January 1, 1996.
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
Any Director who is not also an employee of the Company is eligible to
participate in the Plan.
ARTICLE 4
DEFERRAL OF FEES
4.1 ELECTION TO DEFER FEES
On or before July 1 of any year, a Director may elect, by filing with the
Secretary a written election form, to defer receipt of all or a specified
porion of his Fees for succeeding calendar years. A person elected to fill
a vacancy on the Board and who was not a Director on the preceding July 1,
or whose term of office did not begin until after that date, may elect,
before his term begins, to defer, commencing six months after the date of
the election, all or a specified portion of his Fees for the balance of the
calendar year and for succeeding calendar years by filing with Secretary a
written election form.
An election to defer Fees shall continue from year to year unless the
Participant terminates it in writing with respect to future Fees.
4.2 DEFERRED FEES TREATED AS IF INVESTED IN COMMON SHARES
The Participant's deferred Fees shall be deemed to be invested in a
theoretical number of units of Common Shares. From time to time
thereafter, additional units shall be credited to the Participant's Unit
Account in amounts equal to:
(a) the amount of any cash dividend (or the fair market value of a
dividend paid in property, other than a dividend paid in Common Shares)
which the Participant would have received if on the record date for the
dividend the Participant had been the owner of record of a number of
shares of Common Shares equal to the number of units (including
fractions) then credited to the Participant's Unit Account divided by
30
<PAGE>
(b) the Market Value Per Share on the date the dividend is paid.
From time to time, additional units shall be credited to the Participant's
Unit Account in amounts equal to the number of full and fractional shares
of Common Shares which the Participant would have received if on the record
date for a dividend which is to be paid in Common Shares the Participant
had been the owner of record of a number of shares of Common Shares equal
to the number of units (including fractions) then credited to the
Participant's Unit Account. The Participant's Unit Account shall also be
appropriately adjusted for any change in the Common Shares by reason of any
recapitalization, reorganization, merger, consolidation, or any similar
change affecting the Common Shares.
ARTICLE 5
DISTRIBUTIONS
5.1 ELECTION OF METHOD AND DATE OF PAYMENT OF DEFERRED FEES
A Participant shall elect the method of payment and the date on which
payment will be made or commence. At the Participant's election, amounts
deferred under the Plan, together with accumulated dividends thereon, shall
be distributed either in a single payment or in equal annual installments
of from two to ten years. At the Participant's election, the single sum
payment or the first installment payment shall be payable on the first
business day of the calendar year immediately following the year in which
the Participant either (a) ceases to be a Director, or (b) attains that age
specified by Paragraph 203(f)(3) of the Social Security Act or its
equivalent then in effect, and any additional installment shall be payable
on the first business day of each succeeding year. The elections described
in this Section shall be made by the Director at the time the Director
first elects to defer receipt of all or a portion of his Fees pursuant to
Section 4.1 (Election to Defer Fees) by filing with the Secretary a written
election form.
5.2 PAYMENT OF DEFERRED FEES
(a) All payments to be made under the Plan of deferred Fees shall
be made in the form of new issue shares of Common Shares or shares of
Common Shares purchased on the open market, as determined by the
Company, and cash in lieu of any fractional share.
(b) If the Participant has elected under Section 5.1 (Election of
Method and Date of Payment of Deferred Fees) to have his deferred Fees
paid in a single lump sum, the number of shares of Common Shares to be
transferred to the Participant shall be the number of whole units
credited to the Participant's Unit Account as of
31
<PAGE>
the last business day of the calendar year in which the Participant
ceases to be a Director or attains that age specified by Paragraph
203(f)(3) of the Social Security Act, or its equivalent then in effect,
whichever he has elected under Section 5.1 (Election of Method and Date
of Payment of Deferred Fees). The amount of cash to be paid to the
Participant as computed by the Treasurer shall be equal to the fair
market value, as of the date referred to in the preceding sentence, of a
fractional number of shares equal to any fraction of a unit credited to
the Participant's Unit Account as of that date.
(c) If the Participant has elected under Section 5.1 (Election of
Method and Date of Payment of Deferred Fees) to have his deferred Fees
paid in installments, the amounts to be distributed shall be equal to
the number of units credited to the Participant's Unit Account on the
day preceding the date of payment of the installment, divided by the
number of installments remaining to be paid. There shall be transferred
to the Participant a number of shares of Common Shares equal to the
number of whole units computed in accordance with the preceding sentence.
Additionally, there shall be paid to the Participant an amount of cash
computed by the Treasurer equal to the fair market value, as of the day
preceding the date of payment of the installment, of a fractional number
of shares equal to any fraction of a unit to which the Participant is
entitled on that installment date.
ARTICLE 6
TRANSFERABILITY RESTRICTIONS
The Plan shall not in any manner be liable for, or subject to, the debts
and liabilities of any Participant or Beneficiary. Except as provided by
ARTICLE 7, no payee may assign any payment due him under the Plan. No
benefits at any time payable under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, attachment,
garnishment, levy, execution, or other legal or equitable process, or
encumbrance of any kind.
ARTICLE 7
DESIGNATION OF BENEFICIARY AND
PAYMENT OF DEFERRED FEES UPON DEATH
7.1 DESIGNATION OF BENEFICIARY
A Participant may designate a Beneficiary or Beneficiaries (which may be an
entity other than a natural person) to receive any payments to be made
under Section 7.2 (Payment of Deferred Fees in the Event of Death) upon the
Participant's death. At
32
<PAGE>
any time, and from time to time, any designation may be changed or
canceled by the Participant without the consent of any Beneficiary.
Any designation, change, or cancellation must be by written notice
filed with the Secretary and shall not be effective until received
by the Secretary. If the Participant designates more than one Beneficiary,
any payments under Section 7.2 (Payment of Deferred Fees in the Event of
Death) to the Beneficiary shall be made in equal shares unless the
Participant has designated otherwise, in which case the payments shall be
made in the shares designated by the Participant. If no beneficiary has
been named by the Participant, payment shall be made to the Participant's
estate.
7.2 PAYMENT OF DEFERRED FEES UPON DEATH
If a Participant dies while a member of the Board or prior to the full
payment to the Participant of the Fees deferred under the Plan, as adjusted
as provided in Article 5 (Distributions), and the Participant has elected
to have all or a portion of his deferred Fees treated as if invested in
Common Shares, a number of whole shares of Common Shares equal to the
number of whole units accredited to the Participant's Unit Account, as
adjusted as provided in Article 5 (Distributions), plus cash, shall be paid
in single sum payment to the Participant's designated Beneficiary or
Beneficiaries, if any, or to the Participant's estate if no Beneficiaries
are designated. The single sum payment shall be made within 90 days from
the date of the Participant's death.
ARTICLE 8
SHAREHOLDER APPROVAL
This Plan shall be subject to approval by majority vote of the votes cast
at a duly held shareholder's meeting of the Company at which a quorum
representing the majority of all outstanding voting Shares is, either in person
or by proxy, present and voting on the Plan.
ARTICLE 9
FUNDING POLICY
The Plan shall be totally unfunded so that the Company is under merely a
contractual duty to make payments when due under the Plan. The promise to pay
shall not be represented by notes and shall not be secured in any way. No
contributions to the Plan of Participants shall be required or permitted under
the Plan.
33
<PAGE>
ARTICLE 10
AMENDMENT AND TERMINATION
The Company, by resolution duly adopted by the Board, shall have the right,
authority, and power to alter, amend, modify, revoke, or terminate the Plan, or
to suspend the payment of benefits under the Plan at any time.
ARTICLE 11
CHANGE IN CONTROL
Notwithstanding anything in the Plan to the contrary, if a Change in
Control of the Company occurs, all Fees deferred under the Plan shall be
immediately payable to Directors and former Directors or their Beneficiaries, if
appropriate.
A Change in Control of the Company shall occur if (a) any "person" or
"group" (within the meaning of Subsection 13(d) and Subsection 14(d)(2) of the
1934 Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
1934 Act) of more than fifty percent (50%) of the then outstanding voting shares
of the Company, otherwise than through a transaction arranged by, or consummated
with the prior approval of the Board; (b) the Company's shareholders approve a
definitive agreement to merge or consolidate the Company with or into another
corporation in a transaction in which neither the Company nor any of its
subsidiaries or affiliates will be the surviving corporation, or to sell or
otherwise dispose of all or substantially all of the Company's assets to any
person or group other than the Company or any of its subsidiaries or affiliates,
other than a merger or a sale which will result in the voting securities of the
Company outstanding prior to the merger or sale continuing to represent at least
fifty (50%) percent of the combined voting power of the voting securities of the
corporation surviving the merger or purchasing the assets; or (c) during any
period of two consecutive years, individuals who at the beginning of that period
constitute the Board (and any new director whose election by the Board or whose
nomination for election by the Company's shareholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of that period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board.
Notwithstanding the provisions of Article 10 (Amendment and Termination),
the provisions of this Article may not be amended by an amendment effected
within three years following a Change in Control.
34
<PAGE>
ARTICLE 12
ADMINISTRATION
The Plan shall be administered by the Committee. Members of the Committee
shall be members of the Board who are disinterested persons under Rule 16 b-3
promulgated under the 1934 Act and successor rules. The Committee may employ
agents, attorneys, accountants, or other persons (who also may be employees of
the Company) and allocate or delegate to them powers, rights, and duties, all as
the Committee may consider necessary or advisable to properly carry out the
administration of the Plan. The Committee may adopt rules and regulations as it
deems appropriate to assist in administering the enforcing the Plan.
The Committee shall have the discretionary authority to regulate and
interpret the Plan's provisions. The interpretation and construction by the
Committee of any provisions of the Plan, and any determination by the Committee
pursuant to any provision of the Plan shall be final and conclusive.
ARTICLE 13
MISCELLANEOUS
13.1 SHARES OFFERED UNDER THE PLAN
The total number of shares of Common Shares which may be offered under
the Plan shall not exceed in the aggregate 100,000 shares.
13.2 FORFEITABILITY
If a Director or former Director becomes a director, proprietor,
officer, partner or employee of, or otherwise becomes affiliated with, any
entity that competes with the Company, or if a former Director shall refuse
a reasonable request of the Company to perform consulting services after he
retires from the Board, any deferred Fees and earnings or interest thereon
remaining payable to the Participant under the Plan shall be forfeited.
13.3 NO RIGHT TO CONTINUE AS A DIRECTOR
Nothing in this Plan shall be construed as conferring upon Participant
any right to continue as a member of the Board.
13.4 NO INTEREST AS A SHAREHOLDER
The crediting of units to a Participant's Unit Account under Section
4.2 (Election of Method of Crediting Deferred Fees to the Participant's
Account) shall
35
<PAGE>
not be deemed to create for the Participant any interest in any class of
equity securities of the Company.
13.5 NO RIGHT TO CORPORATE ASSETS
Nothing in this Plan shall be construed as giving the Participant, the
Participant's designated Beneficiaries or any other person any equity or
interest of any kind in the assets of the Company or creating a trust of
any kind or a fiduciary relationship of any kind between the Company and
any person. As to any claim for payments due under the provisions of the
Plan, a Participant, a Participant's designated Beneficiary and any other
persons having a claim for payments shall be unsecured creditors of the
Company.
13.6 NO LIMIT ON FURTHER CORPORATE ACTION
Nothing contained in the Plan shall be construed so as to prevent the
Company from taking any corporate action which is deemed by the Company to
be appropriate or in its best interest.
13.7 GOVERNING LAW
The Plan shall be construed and administered according to the laws of
the State of Indiana to the extent that those laws are not preempted by the
laws of the United States of America.
13.8 HEADINGS
The headings of articles, sections, subsections, paragraphs or other
parts of the Plan are for convenience of reference only and do not define,
limit, construe, or otherwise affect its contents.
ARTICLE 14
CONTINUANCE BY A SUCCESSOR
If the Company shall be reorganized by way of merger, consolidation,
transfer of assets or otherwise, so that a corporation, partnership or person
shall succeed to all or substantially all of the Company's business, the
successor shall be substituted for the Company under the Plan by adopting the
Plan.
* * * * *
36
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan document to be
executed and approved by its duly authorized officers effective as of the
Effective Date.
SCHULT HOMES CORPORATION
By:___________________________________
, President
37
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> JUN-29-1996
<CASH> 9,033
<SECURITIES> 0
<RECEIVABLES> 18,338
<ALLOWANCES> 0
<INVENTORY> 16,315
<CURRENT-ASSETS> 49,110
<PP&E> 36,192
<DEPRECIATION> 0
<TOTAL-ASSETS> 89,733
<CURRENT-LIABILITIES> 48,189
<BONDS> 0
0
0
<COMMON> 7,921
<OTHER-SE> 30,188
<TOTAL-LIABILITY-AND-EQUITY> 89,733
<SALES> 316,267
<TOTAL-REVENUES> 316,267
<CGS> 251,496
<TOTAL-COSTS> 53,332
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153
<INCOME-PRETAX> 11,759
<INCOME-TAX> 4,987
<INCOME-CONTINUING> 6,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,772
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.81
</TABLE>
